10-Q

Large Accelerated filer

Accelerated filer

Non-Accelerated filer

Smaller reporting company

Emerging growth company

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of March 31, 2022, the registrant had 78,709,037 voting shares and 13,421,914 non-voting shares of common stock issued and outstanding.

The accompanying notes are an integral part of the condensed consolidated financial statements.

1. ORGANIZATION

OneSpaWorld Holdings Limited (“OneSpaWorld”, the “Company”, “we”, “us”, “our”) is an international business company incorporated under the laws of the Commonwealth of The Bahamas. OneSpaWorld is a global provider and innovator in the fields of health and wellness, fitness and beauty. In facilities on cruise ships and in land-based resorts, the Company strives to create a relaxing and therapeutic environment where guests can receive health and wellness, fitness and beauty services and experiences of the highest quality. The Company’s services include traditional and alternative massage, body and skin treatments, fitness, acupuncture, and Medispa treatments. The Company also sells premium quality health and wellness, fitness and beauty products at its facilities and through its timetospa.com website. The predominant business, based on revenues, is sales of services and products on cruise ships and in land-based resorts, followed by sales of products through the timetospa.com website.

Impact of Coronavirus (COVID-19) – Liquidity and Management’s Plans

In the face of the global impact of COVID-19, our cruise line partners paused their guest cruise operations and the majority of our land based destination resort spas temporarily closed in mid-March 2020. As of March 31, 2022, our health and wellness centers on 127 ships of our cruise line partners and 48 land based destination resort spas were operating as part of our gradual return to service. The extent of the effects of COVID-19 on our business are uncertain and will depend on future developments, including, but not limited to, the duration and continued severity of COVID-19 and the length of time it takes to return the Company to profitability. The ongoing effects of COVID-19 have had, and will continue to have, a material negative impact on our financial results and liquidity.

The estimation of our future liquidity requirements includes numerous assumptions that are subject to various risks and uncertainties. We cannot make assurances that our assumptions used to estimate our liquidity requirements will be realized as assumed or may not change because of the unprecedented environment we are experiencing due to COVID-19. We believe that we have made reasonable estimates and judgments of the impact of COVID-19 within our financial statements, however, there may be material changes to those estimates and judgments in future periods. We have implemented a number of proactive measures to mitigate the financial and operational impacts of COVID-19, including completing a private placement of equity securities and various capital market transactions, reduction of capital expenditures and operating expenses, borrowing on our revolving credit facility, deferring payment of dividends declared and the suspension of our dividend program. To the extent necessary, we will pursue all appropriate actions to optimize our liquidity.

Based on the actions the Company has taken as described above, our assumptions regarding the impact of COVID-19, our current resources, our current operations, vessels expected to return to sailing, destination resort spas expected to reopen, and our assumptions regarding the expected performance of our health and wellness center operations onboard vessels and in destination resorts, we have concluded that we will have sufficient liquidity to satisfy our obligations over the next 12 months and comply with all debt covenants as required by our debt agreements. Management cannot predict the magnitude and duration of the negative impact from the COVID-19 pandemic; new events beyond management’s control may have incrementally material adverse impact on the Company’s results of operations, financial position and liquidity.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation, Principles of Consolidation

In the opinion of management, the accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in quarterly financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been omitted or condensed pursuant to the SEC’s rules and regulations. However, management believes that the disclosures contained herein are adequate to make the information presented not misleading. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments (which are of a normal recurring nature) necessary to present fairly our unaudited financial position, results of operations and cash flows. The unaudited results of operations and cash flows of our interim periods are not necessarily indicative of the results of operations or cash flows that may be expected for the entire fiscal year. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated and combined financial statements and related notes thereto included in the 2021 10-K. The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. Actual results could differ from those estimates. The accompanying unaudited condensed consolidated financial statements includes the condensed consolidated balance sheet and statement of operations, comprehensive income (loss), changes in equity, and cash flows of OneSpaWorld. All significant intercompany items and transactions have been eliminated in consolidation.

Restricted Cash

These balances include amounts held in escrow accounts, as a result of a legal proceeding related to a tax assessment. The following table reconciles cash, cash equivalents and restricted cash reported in our condensed consolidated balance sheet as of March 31, 2022 and 2021 to the total amount presented in our condensed consolidated statements of cash flows for the three months ended March 31, 2022 and 2021 (in thousands):


	Balance as of March 31,
	2022		2021
Cash and cash equivalents	$	29,054	$	50,823
Restricted cash		1,896		1,896
Total cash and restricted cash in the condensed consolidated statement of cash flows	$	30,950	$	52,719

Loss Per Share

Basic (loss) earnings per share is computed by dividing net (loss) income by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted average number of diluted shares, as calculated under the treasury stock method, which includes the potential effect of dilutive common stock equivalents, such as options and warrants to purchase common shares, and contingently issuable shares. If the entity reports a net loss, rather than net income for the period, the computation of diluted loss per share excludes the effect of dilutive common stock equivalents, as their effect would be anti-dilutive.

The Company has two classes of common stock, Voting and Non-Voting. Shares of Non-Voting common stock are in all respects identical to and treated equally with shares of Voting common stock except for the absence of voting rights. Basic (loss) income per share is computed by dividing net (loss) income by the weighted average number of Voting and Non-Voting common shares outstanding for the period. Diluted (loss) income per share is computed by dividing net income by the weighted average number of diluted Voting and Non-voting common shares, as calculated under the treasury stock method, which includes the potential effect of dilutive common stock equivalents, such as options and warrants to purchase Voting and Non-Voting common shares. If the entity reports a net loss, rather than net income for the period, the computation of diluted loss per share excludes the effect of dilutive common stock equivalents, as their effect would be anti-dilutive. The Company has not presented (loss) income per share under the two-class method, because the (loss) income per share are the same for both Voting and Non-Voting common stock since they are entitled to the same liquidation and dividend rights.

The following table provides details underlying OneSpaWorld’s loss per basic and diluted share calculation (in thousands, except per share data):


		Three Months Ended March 31,
		2022 (a)


Commonwealth of The Bahamas		Not Applicable
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Harry B. Sands, Lobosky Management Co. Ltd. Office Number 2 Pineapple Business Park Airport Industrial Park P.O. Box N-624 Nassau, Island of New Providence, Commonwealth of The Bahamas		Not Applicable
(Address of principal executive offices)		(Zip Code)


		Page
PART I - FINANCIAL INFORMATION		1

Item 1.	Unaudited Financial Statements	1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	26

Item 4.	Controls and Procedures	26

PART II - OTHER INFORMATION		28

Item 1.	Legal Proceedings	28

Item 1A.	Risk Factors	28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 4.	Mine Safety Disclosures	28

Item 5.	Other Information	28

Item 6.	Exhibits	28



	As of
	March 31, 2022			December 31, 2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	29,054		$	30,937
Restricted cash		1,896			1,896
Accounts receivable, net		21,707			19,480
Inventories, net		29,703			29,483
Prepaid expenses		5,824			6,574
Other current assets		619			577
Total current assets		88,803			88,947
Property and equipment, net		13,748			14,107
Intangible assets, net		578,085			582,290
OTHER ASSETS:
Deferred tax asset		70			70
Other non-current assets		5,320			3,454
Total other assets		5,390			3,524
Total assets	$	686,026		$	688,868
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable	$	17,572		$	15,846
Accrued expenses		32,022			32,232
Current portion of long-term debt		2,085			1,776
Other current liabilities		829			2,011
Total current liabilities		52,508			51,865
Deferred rent		361			341
Income tax contingency		4,062			4,129
Warrant liabilities		103,900			107,300
Other long-term liabilities		2,449			2,646
Long-term debt, net		228,419			228,683
Total liabilities		391,699			394,964
Commitments and contingencies (Note 12)
SHAREHOLDERS' EQUITY:
Common stock:
Voting common stock, $0.0001 par value; 225,000,000 shares authorized, 78,709,037 shares issued and outstanding at March 31, 2022 and 78,422,887 shares issued and outstanding at December 31, 2021		8			8
Non-voting common stock, $0.0001 par value; 25,000,000 shares authorized, 13,421,914 shares issued and outstanding, at both March 31, 2022 and December 31, 2021		1			1
Additional paid-in capital		691,001			687,660
Accumulated deficit		(398,084	)		(391,768	)
Accumulated other comprehensive income (loss)		1,401			(1,997	)
Total shareholders' equity		294,327			293,904
Total liabilities and shareholders' equity	$	686,026		$	688,868


	Three Months Ended March 31,
	2022			2021
REVENUES:
Service revenues	$	71,162		$	4,604
Product revenues		16,501			986
Total revenues		87,663			5,590
COST OF REVENUES AND OPERATING EXPENSES:
Cost of services		62,667			7,484
Cost of products		14,652			1,295
Administrative		3,833			3,844
Salary, benefits and payroll taxes		8,727			7,652
Amortization of intangible assets		4,206			4,206
Total cost of revenues and operating expenses		94,085			24,481
Loss from operations		(6,422	)		(18,891	)
OTHER EXPENSE, NET:
Interest expense		(3,407	)		(3,351	)
Change in fair value of warrant liabilities		3,400			(23,300	)
Total other expense, net		(7	)		(26,651	)
Loss before income tax (benefit) expense		(6,429	)		(45,542	)
INCOME TAX (BENEFIT) EXPENSE		(113	)		26
NET LOSS	$	(6,316	)	$	(45,568	)
NET LOSS PER VOTING AND NON-VOTING SHARE
Basic and diluted	$	(0.07	)	$	(0.52	)
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic and diluted		92,204			87,121


	Three Months Ended March 31,
	2022			2021
Net loss	$	(6,316	)	$	(45,568	)
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments		(242	)		112
Cash flows hedges:
Net unrealized gain on derivative		3,243			899
Amount realized and reclassified into earnings		397			493
Total other comprehensive income, net of tax		3,398			1,504
Total comprehensive loss	$	(2,918	)	$	(44,064	)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


					Three Months Ended March 31, 2022
	Issued common voting shares		Issued common non-voting shares		Voting and non-voting common stock		Additional paid-in capital		Accumulated other comprehensive (loss) income			Accumulated deficit			Total shareholders’ equity
BALANCE, December 31, 2021		78,423		13,422	$	9	$	687,660	$	(1,997	)	$	(391,768	)	$	293,904
Net loss		—		—		—		—		—			(6,316	)		(6,316	)
Stock-based compensation		—		—		—		3,286		—			—			3,286
Foreign currency translation adjustment		—		—		—		—		(242	)		—			(242	)
Unrecognized gain on derivatives		—		—		—		—		3,640			—			3,640
Proceeds from 2021 exercise of public warrants		—		—		—		55		—			—			55
Common shares issued under equity incentive plan		286		—		—		—		—			—			—
BALANCE, March 31, 2022		78,709		13,422	$	9	$	691,001	$	1,401		$	(398,084	)	$	294,327



					Three Months Ended March 31, 2021
	Issued common voting shares		Issued common non-voting shares		Voting and non-voting common stock		Additional paid-in capital		Accumulated other comprehensive (loss) income			Accumulated deficit			Total shareholders’ equity
BALANCE, December 31, 2020		69,292		17,186	$	9	$	649,540	$	(5,475	)	$	(323,246	)	$	320,828
Net loss		—		—		—		—		—			(45,568	)		(45,568	)
Stock-based compensation		—		—		—		3,631		—			—			3,631
Foreign currency translation adjustment		—		—		—		—		112			—			112
Unrecognized gain on derivatives		—		—		—		—		1,392			—			1,392
At-The Market Equity Offering, net of issuance cost		1,712		—		—		18,475		—			—			18,475
Common shares issued under equity incentive plan		673		—		—		—		—			—			—
Conversion of deferred shares into common shares		1,600		—		—		—		—			—			—
Conversion of public warrants into common shares		5		—		—		—		—			—			—
BALANCE, March 31, 2021		73,282		17,186	$	9	$	671,646	$	(3,971	)	$	(368,814	)	$	298,870