OneSpaWorld Holdings Limited (OSW) CEO Leonard Fluxman on Q2 2022 Results - Earnings Call Transcript

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OneSpaWorld Holdings Limited (NASDAQ:OSW) Q2 2022 Results Conference Call August 3, 2022 10:00 AM ET

Company Participants

Allison Malkin - Partner, ICR

Leonard Fluxman - Executive Chairman, CEO and President

Stephen Lazarus - CFO and COO

Conference Call Participants

Steven Wieczynski - Stifel

Sharon Zackfia - William Blair

Steph Wissink - Jefferies

Max Rakhlenko - Cowen and Company

Assia Georgieva - Infinity Research

Operator

Good day, and welcome to the OneSpaWorld Second Quarter 2022 Earnings Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Allison Malkin, partner at ICR. Please go ahead.

Allison Malkin

Thank you. Good morning, and welcome to OneSpaWorld Second Quarter Fiscal 2022 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 second quarter 2022 earnings release, which was furnished to the SEC today on Form 8-K.

We undertake no 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 today.

Joining me today are Leonard Fluxman, Executive Chairman, Chief Executive Officer and President; and Stephen Lazarus, Chief Financial Officer and Chief Operating Officer. Leonard will begin with a review of our second quarter performance and provide an update on our operations and key priorities. Then Stephen will provide more details on the financials and our liquidity. I would now like to turn the call over to Leonard.

Leonard Fluxman

Thank you, Allison. Good morning, and welcome to OneSpaWorld’s Second Quarter 2022 Results Conference Call. I’m pleased to speak to you today and share the significant milestones achieved in the second quarter, the period that marks the 1-year anniversary of our return to service. We could not be prouder of our team and their unwavering commitment to our business, our cruise line and destination resort partners, their guests and all of our stakeholders.

Indeed, our team completed a momentous task. As of the end of June, in a period of 1 year, we have successfully returned 167 health and wellness centers to service at sea, training 1,498 staff, placing 4,352 staff on board cruise ships and booking more than 9,000 flights for personnel that we have trained, staffed and returned to service.

As a result, the quarter saw us generate more than 90% of 2019 revenue, which represents the most recent period of normal operations. We accomplished this even as all of our health and wellness centers have yet to open and load factors on cruise ships remain below pre-pandemic levels. The successful execution of our return to service was further demonstrated by our achievement of positive cash flow in Q2, commemorating the first since the onset of the pandemic.

We believe this accomplishment is a strong testament to our unique capabilities and our teams and partners relentless efforts to elevate and innovate our product and service levels during extraordinary time, leading to expansion in our revenue generation capabilities across our health and wellness centers at sea and on land, which we expect to continue in the future. I’m gratified by all that we have accomplished over the last year and believe we are well positioned to comfortably absorb the additional cruise ships introduced and returning to service during the remainder of 2022.

We are very pleased with our second quarter performance, which included increases across all key financial metrics, including a robust revenue recovery that represented our sixth consecutive quarter of sequential revenue growth, significant growth in adjusted EBITDA, positive adjusted net income. And as I mentioned, our first period of positive operating cash flow since the beginning of the pandemic.

Operationally, we saw continued growth across key operating metrics, while maintaining our flawless return to service. As we look ahead, we continue to expect our performance trends to accelerate and generate revenue growth with continuing positive operating cash flow performance and annual performance that includes positive adjusted EBITDA and positive adjusted net income.

Turning now to the highlights of the quarter. Total revenues were $127.4 million, up from $9.2 million in the second quarter of 2021 and improving significantly from the first quarter 2022. This growth reflects contributions from health and wellness centers that reopened on 167 ships that resumed operation and the contribution from 48 destination resort spas. Adjusted EBITDA was positive $9.1 million with positive contribution from our health and wellness centers on board cruise ships and in our destination resort spas. And thirdly, we ended the quarter with total liquidity of $47 million, including $7.8 million unlevered after-tax free cash flow.

We had many accomplishments for the quarter, most notably, our flawless return to service continued. The second quarter saw us commence service on board 2 new ship builds and 38 ships returned to service by our cruise line partners. At quarter end, we had health and wellness centers on board 172 ships, of which 167 had resumed voyages as of quarter end.

This compares to 127 ships that resume voyages at the end of the first quarter of 2022 and versus 14 ships that resume voyages by the end of Q2 2021. We expect to be operating on 173 ships by the end of the third quarter and 177 ships by the end of the year. During the remainder of 2022, we anticipate operating health and wellness centers on 3 additional new ship builds that will be introduced into service by our cruise line partners.

We continue to see record demand by cruise ship guests for our services. While load factors on board cruise ships remain below historical and 2019 levels, we were very pleased to see continued high demand for our services. Key operating metrics during the second quarter of 2022 compared favorably with our second quarter 2019 performance, the most recent comparable period of normalized operations.

Average guest spend, average service spend per guest and revenue per staff per day were all up double digits compared to Q2 of 2019. In addition, prebooking percent of service revenue and guest penetration also compared favorably to the second quarter of 2019. These improved operating metrics were driven by the continued innovation in our offering and focus on staff training.

In short, we have emerged from the pandemic a more productive and efficient organization despite increased health and protection costs, and we are eager for the load factors to return to a more normalized level to showcase our even more attractive asset-light business model.

With that in mind, I will now update you on some of the intensification initiatives we implemented last quarter to increase guest spend and utilization, which contributed to the growth in our key operating metrics.

Firstly, these included improving retail conversion with expanded offerings from brand partners including [indiscernible], increasing guest utilization through cross-promotion and rebooking tracking mechanisms and enhanced in-person staff trainings, growing guest spend with new add-on packages and offerings, including healing enhancements added on to acupuncture services, which increased average customer spend by 27% when selected. We also launched IV therapy on select NCL ships with modified pricing.

Increasing penetration with expanded services and offerings targeting a wider audience, we introduced Grown Alchemist, which attracts new guests in areas, underserved by our key brand elements and modified Capella sales approach to include stylists and physicians. While most of the cruise lines are not yet at prepandemic load factors, we are accelerating our staffing efforts to be above aggregate load factors as we are experiencing robust demand for our services on board. London Wellness Academy continues to experience very strong demand from applicants. The London Wellness Academy website generated a record number of applicants, up 160% from Q2 of 2019.

Since the London Wellness Academy reopened in October of ‘21, we have trained nearly 1,500 health and wellness personnel at our other global training facilities. This is a further confirmation of OneSpaWorld leadership in training and certification. By the end of the second quarter, we had 2,778 cruise ship personnel on vessels for actual and expected voyages, and we expect 3,024 employees to be on vessels by the end of September 2022.

Overall, we believe our second quarter performance continues to demonstrate the strength and resilience of our dedicated team and operating model. We begin the third quarter with even more confidence that our actions have made OneSpaWorld better positioned than ever before. With a strong business model, collaborative cruise line and destination resort partnerships and an extraordinary team, we look forward to advancing our operational and financial performance throughout the balance of 2022 and beyond to increase value for all OneSpaWorld stakeholders.

With that, I will turn the call over to Stephen, who will commence on our second quarter results and liquidity position. Stephen?

Stephen Lazarus

Thank you, Leonard. Good morning, everyone. I am equally pleased with our second quarter performance. The second quarter saw the focused execution of our return-to-service drives significant growth in sales and positive operating performance and a strengthened balance sheet, all of which positions us well as we begin the second half of the year.

I will now share some of the highlights of the second quarter. Total revenues were $127.4 million as compared to $9.2 million in the second quarter of 2021. Revenues generated in the 3 months ended June 30, 2022, were derived primarily from our 167 health and wellness centers, onboard ships having Zoom voyages and our health and wellness centers at 48 open and operating destination resort spas. This compares to the second quarter of 2021 where revenues were primarily related to 14 cruise ships and 42 destination resorts spas that were open and e-commerce product sales through our timetospa.com website.

Cost of services were $87 million compared to $9.6 million in the second quarter of 2021. The increase was primarily attributable to costs associated with increased service revenues of $96 million in the quarter from our operating health and wellness centers at sea and on land, and increased costs related to the resumption of operations at our Health and Wellness centers at sea and on land compared with service revenue of $7.6 million in the 2021 second quarter and increased costs related to the resumption of our operations at our health and wellness centers at sea during the quarter.

Cost of products were $23.3 million compared to $1.5 million in the second quarter of 2021. The increase was primarily attributable to costs associated with increased product revenues of $22.3 million in the quarter from our operating health and wellness centers at sea and on land compared to product revenue of $1.5 million in the second quarter of 2021.

Net income was $55.9 million compared to $0.3 million in the second quarter of 2021. The improvement in the second quarter of ‘22 was primarily a result of the $18 million change in income from operations, derived from our 167 health and wellness centers onboard ships having resumed voyages and the change in the fair value of warrant liabilities. The change in the fair value of the outstanding warrants during the 3 months ended June 30, ‘22, was a gain of $58.5 million compared to a gain of $20.7 million during the 3 months ended June 30, 2021. The change in fair value of the warrant liabilities is the result of changes in market prices deriving the value of the financial instruments.

Adjusted EBITDA was $9.1 million compared to an adjusted EBITDA loss of $9.7 million in the second quarter of 2021. This represents the third quarterly period that the company recorded positive adjusted EBITDA since the onset of the COVID-19 pandemic.

We ended the quarter with total liquidity of $46.9 million. At quarter end, $10 million remained available under our at-the-market ATM program. Our confidence in the sustainability of return to service and ongoing increased performance has allowed for the subsequent cancellation of the active ATM program which had not been utilized since October 2021.

The current availability under our line of credit is $16 million an increase of $3 million from the $13 million available at June 30, 2022, reflecting a $3 million pay down on the revolver in July with cash generated from operations. The revolver, therefore, currently has $4 million outstanding. And given our strengthened cash generation, we expect to have no borrowings under this $20 million revolver at year-end.

As it relates to our outlook for 2022, we continue to refrain from providing guidance pending the establishment of normalized operations of substantially all of our health and wellness centers on board our contracted cruise ships following the adverse impact of the COVID-19 pandemic on our business.

Notwithstanding the foregoing, while we expect to incur a net loss in fiscal 2022 on a GAAP basis, we expect to achieve positive adjusted EBITDA and positive adjusted net income for the year and expect to generate positive cash flow in each of the third and fourth quarters of the year as well as for the full fiscal year 2022.

Overall, our strengthened balance sheet, the continued ramp of our operations and no material debt maturities until March of 2026 has us well positioned to navigate economic uncertainty and capitalize on opportunities to leverage our preeminent position in the operations of health and wellness centers at sea and destination resort spas. We look forward to further updating you on our continued progress at upcoming investor events and conferences during the quarter.

With that, we’ll open the call up to questions. Please, operator.

Question-and-Answer Session

Operator

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

Steven Wieczynski

So I want to ask kind of a hypothetical type question here around the economy, and this might be tough to answer. But I understand what you guys are seeing right now wouldn’t indicate any type of slowdown in demand or spending from your customers. But if we go back and think about the last recession, I think you guys saw revenues drop, let’s say, upper single digits. EBITDA was in a very similar position.

So I guess the question is that we do encounter some kind of change in spend patterns or demand. Is there anything you would call out that would make you believe this recession, which I know is just tough to figure out what it’s going to look like would have a greater or less impact to your operations now versus back then. Hopefully, that all makes sense.

Leonard Fluxman

That’s a big question, Steve. I’ll try and answer it as best as I can. Look, I think we’re technically in a recession based upon the data we are getting. However, if you were to go, which I was at Atlantis last week, if you go around to shopping centers and certainly, when you see our ships on board, it’s a very different consumer who’s buying at the store or saving or making different choices in purchasing goods, et cetera, then people who are going on vacation and buying an experience and spending on that experience.

What we’re seeing is continued high demand for our services and retail as well, which is certainly a big part of what we do. But look, there are retail outlets on board. And I think if you listen to some of the cruise lines calls, I think people spend differently, and we certainly have seen that historically and continue to see unrelenting pent-up demand for services and the offerings that we have on board.

So I think each recession has different characteristics. This one is still perhaps determining what kind of recession it is, whether it’s going to be long, deep, who knows? I don’t know. But we’re not seeing any signs thus far of any impact to our business and certainly nothing similar to what we saw in the first 9 months to date that we saw in 2009.

Steven Wieczynski

Okay. That’s great color. And then I want to ask about your current liquidity position. It seems like you guys are in a pretty good spot at this point, assuming your cruise line partners continue to roll their entire fleet, load factors go back to normal, which looks like, which is in fact the case. But I guess, moving forward, is your free cash flow base really starts to grow. Can you just remind us what the priorities are at this point for that free cash flow generation? And I would assume that the removal of the ATM program is a pretty solid indicator that you feel fine with your liquidity position, even if, in fact, the economy does go into some kind of slowdown?

Leonard Fluxman

Yes. So look, I think we’re sort of an inflection point here and a good one, Steve. We’re getting to the point now where we’re going to continue to build steadily positive cash flow through the year-end. As Stephen mentioned, we’ve already paid down some of our revolver $3 million.

We will continue to utilize excess free cash flow for purposes of deleveraging, clearly, our second lien is something that we will target. And then we’re going to look at the complete capital structure of our balance sheet entering into next year. And determine a list of priorities of what we’re going to look at, and all of them are mutually exclusive. So we’re going to continue to evaluate where we’re at, what we can do, clean up the balance sheet, clean up the capital structure and optimize the balance sheet to the extent that we can as we continue to build free cash flow.

Stephen, I don’t know if you have any further comments on it.

Stephen Lazarus

Yes. The only other thing I would add, Steve, is returning cash to shareholders through dividend and/or stock repurchases remains a consideration and it’s always something that is highlighted when we meet with the Board. And so as performance continues to improve, we will look at alternatives where perhaps that could be paid on a debt and at the same time, other activities that occur for that cash to be returned. So I don’t think we need to back ourselves into a corner where we say we’re only going to do X or Y. There could be scenarios sooner than perhaps anticipated where we start to return some of the cash that we’re generating to our shareholders.

Leonard Fluxman

But Steve, just let me highlight the fact that paying down a second lien that bears interest at LIBOR plus 7.5% in a rising interest environment is certainly the most accretive thing to do in the short term.

Operator

Our next question comes from Sharon Zackfia with William Blair.

Sharon Zackfia

This quarter was better than the same period in 2019. So if you could help us kind of understand the sustainability potentially of kind of the mid-teens margins you’re seeing there? And then secondarily, on product gross margin, I guess I’m a little surprised that, that was kind of barely profitable. Can you walk through, was there anything like write-offs and product margin? Or what kind of impact did that line and how we should anticipate that playing out the remainder of this year.

Stephen Lazarus

Sure. Unfortunately, we didn’t have the initial part of your question. But I don’t know, maybe it was on mute, but just didn’t come through. But as it relates to margins, talking specifically to the second part, the product margins, yes, as vessels have returned to service, many of which, unfortunately, as you know, now have been out of action for a year or even much longer than that on some of them.

As we validate inventory count, inventory, et cetera, there were some items that needed to be written off, but they are also primarily costs that are associated with getting start-up again on an expedited basis, returning larger ships to the water in a quarter is huge. It’s more than has ever been done before. And so there were things that were necessitated like airfreight in order to make sure that product got on board that had some negative impacts, et cetera.

As we start to see now that our fleets are saving, we can get back to the cadence that we’ve had before, which has always been such a strong expertise of ours in ensuring that we deliver product only at -- during our cycle times during the year that we take advantage of full containers to get it to the ports where a number of ships are going to be docking, et cetera. So -- we do think that there’ll be some improvement in those margins as we move forward, particularly into next year.

Sharon Zackfia

Can you hear me better now, Stephen?

Stephen Lazarus

Yes.

Sharon Zackfia

Okay. The first part of the question was on services gross margin. So it was actually better than the second quarter of ‘19. So I was wondering if you could talk about what the tailwinds are that you’re seeing in services gross margin? And then my follow-up question was on salary, payroll and admin, where you’ve seen very kind of stable sequential trends in those costs, which is pretty impressive given labor pressure. Is that something where you can continue to hold that kind of at the run rate of roughly like $9 million a quarter? Or should we expect more inflationary pressure there?

Stephen Lazarus

As it relates to the run rate on salary and payroll, now we feel pretty comfortable there. Clearly, as with other companies, there is some inflationary pressure that we’ve been experiencing. But for the most part, I think we’re pretty comfortable at the level you’re talking about $9-or-so million as we start getting into next year. We’ll see what happens with more ships returning to service. But for the near term, absolutely. In terms of tailwinds on service margin. We’ve talked about before some of the pricing actions that we’ve taken, and so those will continue to flow through and benefit the company as we continue to see demand for higher-priced may spas services, et cetera. Some of that should know well to the company as well. So overall, we feel pretty good about the position that we’re in and how we’re heading forward on the marching line.

Operator

Our next question comes from Steph Wissink with Jefferies.

Steph Wissink

I have a follow-up to the prior question just on the cost. I want to make sure that we’re thinking through the line items outside of amortization. And I know, Stephen, you mentioned the $9 million in the payroll line looks pretty stable. Anything else we should be thinking about in terms of the timing of costs coming back into the model as revenue running a little bit ahead of your cost structure and your for bringing back some of those costs? Or do you find that this is the new basis and you can leverage at a lower level of overall cost?

Leonard Fluxman

Steph, we’ve been metering in over the last, I would say, 3 quarters, essential positions to service onboard activities, marketing activities supply, logistics, et cetera. And to the extent that any more of those positions that we need to backfill, we certainly will look at that at the right time. But we have been cautious and continue to look at each position as requested by the team and the management leadership team as to whether, in fact, it’s needed. And so yes, there could be a couple of physicians still to be added. That is yet -- we’re trying to be as disciplined as possible.

Steph Wissink

All right. That’s really encouraging. And then my bigger question is just around the tie rates. So in the quarter, sales -- service sales significantly beat our expectations, but the product sales were slightly below. Just trying to understand if there’s anything to read into pro rates at the point of service or you talked about some of the changes in brand mix, adding some additional brands. Anything you wanted to just share with us on the product sales patterns and what your expectations are going forward?

Leonard Fluxman

So Steph, we continue to do a lot of intensifications around service attachment and retail attachment to those services, some of the services, clearly could be enhanced and we continue to focus on that intensely, and we’ll continue to intensify through the next 2 quarters. We have had in certain cases, I would say, not a full complement for the entire year of all of our fitness staff who do an incredible amount of retail.

And a lot of that is due to as we mentioned before, consulates in countries that are not approving these as fast as possible. We get a lot of our fitness instructors out of South Africa. They have been very slow to get visas through and the cruise lines are suffering similarly from a lot of physicians not getting Visa approval as quickly as we used to do historically. I think to the extent that we continue to build ahead of staffing than the load factors, we will continue to see a ramp in retail as well.

Operator

Our next question comes from Max Rakhlenko with Cowen and Company.

Max Rakhlenko

So first, on getting the pre-bookings rate higher, how far along in that journey do you think you are? And how much more room do you think that you can go up a higher buy and sort of what are the top catalysts there? And then when we’re getting -- when we’re thinking about your average spend per guest and we’re thinking about opportunities to get that higher, what are some of the top initiatives there? And where have you seen the best customer response? And then I have a follow-up.

Leonard Fluxman

Okay, Max. So we are very, very -- I mean, we’re excited to see our prebooking move up to 22%, which is the first we’ve ever hit, up from the first quarter. And that’s without any additional banners being added to our prebooking platform. We believe the next catalyst will be at the end of the third quarter when we add a very large banner to that.

We had hoped to add that slightly sooner, but we’re a little bit behind or they’re a little bit behind. We’re both a little bit behind in terms of some of the preparation testing, et cetera, on the site. But we’ll be very excited to see that site go live at the end of the third quarter. That will see, hopefully, that 22% notch up higher.

Internally, we have a higher target than the one that we are sort of beating right now. And we will continue to say that because as you know, a pre-booked guest spend 35% more than anybody who just comes on board without prebooking. So clearly, that’s a big focus for us big initiative, not only now, but will continue to be in 2023. With -- sorry, what was the second question that you had again? Can you just repeat that?

Max Rakhlenko

Just getting average spend per guest higher?

Leonard Fluxman

Yes. What amazes me actually as you look across all the mass and larger banners are contemporary banners, it’s really exciting to see the extent of average guest spend and guest spend per staff member. What I find so fascinating where we’ve got much fuller load factors or higher load factors, and with our starting well over the 80% threshold, we are seeing guest spend per staff at levels we haven’t seen before.

Now that contrasts on some of the luxury ones where it’s not as solid, and so it’s a very interesting inversion that typically you don’t see. And so that’s a healthy sign of the type of passengers that you’re seeing on the very big banners thus far. So we’re very encouraged by that.

Max Rakhlenko

Okay. Great. That’s helpful. And then as the environment continues to normalize, can you just speak to what you think the steady-state growth algorithm of the company could be both on the revenue and margin side? And then on the cost side, is there anything structural that we should keep in mind that could hamper expansion longer term, whether it’s wages, labor, tech investments or anything else?

Operator

Our next question comes from Assia Georgieva with Infinity Research.

Assia Georgieva

This is Assia. Late into the call, but I had a couple of questions on Leonard and Stephen. As FCCs start to get used up, do you think there might be somewhat less of a momentum towards onboard spend? And in particular, does it affect you?

Leonard Fluxman

Assia, as we mentioned before, we really don’t have visibility as to where any of the guests are spending the FCC. And they certainly are coming down substantially as we’ve heard from some of the cruise lines and we’ll probably hear from others as they report. So the extent of the FCC continues to diminish. They can spend it in virtually any place on board outside of the casino. To the extent that they’re utilizing that in the spa, we just cannot trace that because the granularity of where it post portfolio is not available to us.

Assia Georgieva

Yes, I always wanted to kind of get a pulse on this number, but obviously, we can’t. Do you also see the economy between the short Caribbean Bahamas cruises where ticket prices seem to be very strong. Obviously, these are destinations, especially for North American passengers that are easier to reach. Relative to what you see in Europe? And maybe Alaska might be in the middle of that spectrum. Is there anything of that nature that you’ve seen in your numbers?

Leonard Fluxman

No, not really. I can’t really speak to that right now. Certainly, Caribbean continues to have higher load factors than some of the banners in demand right now. But since the relaxation of some of the COVID requirements, we’re starting to see that build again. And there’s still a little while to go here in the season and from what we’ve heard from some of the cruise lines, it seems like demand is still there. So Alaska is performing incredibly well as is the Caribbean. I mean, we’ve just finished July, and I continue to be encouraged by what I’m seeing.

Assia Georgieva

Great. And last question. Can we discuss sort of a longer-term balance sheet starts the liquidity question, that has been at everyone’s minds. We look at 2023 -- oh, I’m sorry.

Leonard Fluxman

Liquidity question, I think, was pretty much put to bed by Stephen in his commentary. I mean we...

Assia Georgieva

I’m sorry, I jumped a little bit late.

Leonard Fluxman

Okay. Well, the maturities that we have are nothing before 2026, we will continue to deleverage on high interest rate instruments. The second lien being the one that will focus on first we’ve already paid down already $3 million of our revolver, and we will continue to take out pieces of leverage where we can as well as look at anything else on the cap structure that makes sense as we continue to build cash.

So we unlike the industry are not concerned about liquidity. We’ve also removed the ATM, as you may have read in the press release. And so we remain pretty confident about where we’re at in terms of building more liquidity as we continue to build successive quarters of building free pretty positive cash flow in the business.

Assia Georgieva

And also you’re the first one out of the industry to actually have positive adjusted net income. So congratulations.

Operator

This concludes our question-and-answer session. I would like to...

Stephen Lazarus

Operator, sorry, just before we conclude, sorry to interrupt, I’m just going to jump back to -- we didn’t answer Max’s final question there with regards to the growth algorithm. I just want to jump back to that real quick and briefly provide a response there. So Max, I think, as you know, if we look back historically, cruise ship passenger growth has grown at a CAGR from ‘95 through 2019, including the effects of the 9/11, and the ‘08 -- ‘09 online recession at a rate of almost 7%.

We would expect our revenue to grow at above that level and would be disappointed if it didn’t. I mean we have as you know, 22 new builds that are being introduced into service in 2022 is another new build 11 new builds coming into service in 2023. And so our expectation would be for our growth to at least support that and perhaps handily. On the margin side, because of the variable cost nature of the business, it is a little bit more challenging to grow margin. We’re much more focused on growing the absolute cash flow that we generate from the business. And as revenue grows, and we generate more cash flow, that’s truly where our focus is. But we do expect that as fleets return to service in their entirety as occupancy levels improve that there’s no reason for our margins to not go back to at least historical levels.

Operator

Okay. This concludes our question-and-answer session. I would like to turn the conference back over to Leonard Fluxman, CEO and President, for any closing remarks.

Leonard Fluxman

Right. Thank you, and thanks again, everyone, for joining us today on Q2 conference call. We look forward to speaking with you when we report third quarter results in November. Thanks, everyone.

Operator

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

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