UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the three months ended March 31, 2020

OR

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

Commission File Number: 001-38843

OneSpaWorld Holdings Limited

(Exact name of Registrant as Specified in its Charter)

Commonwealth of The Bahamas	Not Applicable
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
Shirley House 253 Shirley Street P.O. Box N-624 Nassau, The Bahamas	Not Applicable
(Address of principal executive offices)	(Zip Code)

(242) 356-0006

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares, par value (U.S.) $0.0001 per share	OSW	The Nasdaq Capital Market

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.

Large Accelerated filer	☐	Accelerated filer	☐
Non-Accelerated filer	☒	Smaller reporting company	☐
		Emerging growth company	☒

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, 2020, 61,218,151 common shares were outstanding.

OneSpaWorld Holdings Limited

Table of Contents

		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	24
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	34
Item 4.	Controls and Procedures	34
PART II - OTHER INFORMATION		35
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	43

i

PART I - FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements

ONESPAWORLD HOLDINGS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share and per share data)

	As of
	March 31, 2020			December 31, 2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	20,517		$	13,863
Accounts receivable, net		16,128			30,513
Inventories		34,263			36,066
Prepaid expenses		9,229			7,655
Other current assets		2,247			2,565
Total current assets		82,384			90,662
Property and equipment, net		22,192			22,741
Intangible assets, net		611,731			616,637
Goodwill		—			190,077
OTHER ASSETS:
Deferred tax assets		—			2,046
Other non-current assets		1,072			1,506
Total other assets		1,072			3,552
Total assets	$	717,379		$	923,669
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable	$	14,437		$	23,437
Accrued expenses		24,276			23,575
Income taxes payable		1,008			897
Other current liabilities		2,419			3,501
Total current liabilities		42,140			51,410
Deferred rent		193			160
Income tax contingency		3,890			3,949
Other long-term liabilities		5,918			—
Deferred tax liability		78			375
Long-term debt, net		241,663			221,407
Total liabilities	$	293,882		$	277,301
Commitments and contingencies
SHAREHOLDERS' EQUITY
Common stock, $0.0001 par value, 250,000,000 shares authorized, 61,218,151 shares    issued and outstanding at March 31, 2020 and 61,119,398 shares    issued and outstanding at December 31, 2019		6			6
Additional paid-in capital		643,489			653,088
Accumulated deficit		(214,231	)		(15,569	)
Accumulated other comprehensive (loss) income		(5,767	)		719
Total OneSpaWorld shareholders’ equity		423,497			638,244
Noncontrolling interest		—			8,124
Total shareholders' equity		423,497			646,368
Total liabilities and shareholders' equity	$	717,379		$	923,669

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

1

ONESPAWORLD HOLDINGS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share data)

	Successor						Predecessor
	Consolidated						Combined
	Three Months Ended March 31, 2020			March 20, 2019 to March 31, 2019			January 1, 2019 to March 19, 2019
REVENUES:
Service revenues	$	89,573		$	14,713		$	91,280
Product revenues		24,734			4,301			27,172
Total revenues		114,307			19,014			118,452
COST OF REVENUES AND OPERATING EXPENSES:
Cost of services		80,579			12,386			76,836
Cost of products		22,136			3,590			23,957
Administrative		4,583			2,517			2,498
Salary and payroll taxes		5,172			21,215			29,349
Amortization of intangible assets		4,206			582			755
Goodwill and trade name impairment charges		190,777			—			—
Total cost of revenues and operating expenses		307,453			40,290			133,395
Loss from operations		(193,146	)		(21,276	)		(14,943	)
OTHER EXPENSE, NET:
Interest expense		(3,743	)		(557	)		(6,316	)
Loss on extinguishment of debt		—			—			(3,413	)
Total other expense, net		(3,743	)		(557	)		(9,729	)
Loss before provision for income taxes		(196,889	)		(21,833	)		(24,672	)
PROVISION FOR INCOME TAXES		1,773			746			109
Net loss		(198,662	)		(22,579	)		(24,781	)
Net income attributable to noncontrolling interest		—			104			678
Net loss attributable to common shareholders and Parent, respectively	$	(198,662	)	$	(22,683	)	$	(25,459	)
Net loss per share:
Basic and diluted loss per share	$	(3.25	)	$	(0.37	)
Basic and diluted weighted average shares outstanding		61,169			61,118

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

2

ONESPAWORLD HOLDINGS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)

(in thousands)

	Successor						Predecessor
	Consolidated						Combined
	Three Months Ended March 31, 2020			March 20, 2019 to March 31, 2019			January 1, 2019 to March 19, 2019
Net loss	$	(198,662	)	$	(22,579	)	$	(24,781	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		(493	)		(825	)		(165	)
Cash flows hedges:		-			—			—
Net unrealized loss on derivative		(5,955	)		—			—
Amount realized and reclassified into earnings		(38	)		—			—
Total other comprehensive loss net of tax		(6,486	)		(825	)		(165	)
Comprehensive loss		(205,148	)		(23,404	)		(24,946	)
Comprehensive income attributable to noncontrolling interest		—			104			678
Comprehensive loss attributable to common shareholders    and Parent, respectively	$	(205,148	)	$	(23,508	)	$	(25,624	)

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

3

ONESPAWORLD HOLDINGS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY

AND (DEFICIT)

(Unaudited)

(in thousands)

	Combined
Predecessor:	Net Parent Investment			Accumulated Other Comprehensive Loss			Total Parent's Equity (Deficit)			Non - Controlling Interest			Total
BALANCE, December 31, 2018	$	(130,520	)	$	(649	)	$	(131,169	)	$	3,586		$	(127,583	)
Net loss		(25,459	)		—			(25,459	)		678			(24,781	)
Distributions to noncontrolling interest		—			—			—			(267	)		(267	)
Net contributions from the Parent and affiliates		351,802			0			351,802			—			351,802
Foreign currency translation adjustment		—			(165	)		(165	)		—			(165	)
BALANCE, March 19, 2019	$	195,823		$	(814	)	$	195,009		$	3,997		$	199,006

	Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total OneSpaWorld Shareholders’ equity			Non-Controlling Interest			Total
Successor:
BALANCE, March 20, 2019 (1) (2)	$	6	$	634,839		$	—		$	—		$	634,845		$	5,624		$	640,469
Net loss		—		—			—			(22,683	)		(22,683	)		104			(22,579	)
Stock-based compensation		—		20,371			—			—			20,371			—			20,371
Foreign currency translation adjustment		—		—			(261	)		—			(261	)		—			(261	)
BALANCE, March 31, 2019	$	6	$	655,210		$	(261	)	$	(22,683	)	$	632,272		$	5,728		$	638,000
Successor:
BALANCE, December 31, 2019	$	6	$	653,088		$	719		$	(15,569	)	$	638,244		$	8,124		$	646,368
Net loss		—		—			—			(198,662	)		(198,662	)		0			(198,662	)
Stock-based compensation		—		426			—			—			426			—			426
Foreign currency translation adjustment							(493	)					(493	)					(493	)
Unrecognized loss on derivatives		—		—			(5,993	)		—			(5,993	)		—			(5,993	)
Dividends		—		(2,449	)		—			—			(2,449	)		—			(2,449	)
Distributions to noncontrolling interest		—		—			—			—			—			(4,011	)		(4,011	)
Purchase of noncontrolling interest		—		(6,697	)		—			—			(6,697	)		(4,113	)		(10,810	)
Purchase of public warrants		—		(879	)		—			—			(879	)		—			(879	)
BALANCE, March 31, 2020	$	6	$	643,489		$	(5,767	)	$	(214,231	)	$	423,497		$	—		$	423,497

(1) Initial equity balances of the Successor reflect the equity of the accounting acquirer, Haymaker, and the issuance of common stock, warrants and cash contributed by Haymaker in connection with the acquisition of OSW Predecessor.

(2) See Note 2.

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

4

ONESPAWORLD HOLDINGS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Successor						Predecessor
	Consolidated						Combined
	Three Months Ended March 31, 2020			March 20, 2019 to March 31, 2019 (1)			January 1, 2019 to March 19, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(198,662	)	$	(22,579	)	$	(24,781	)
Adjustments to reconcile net loss to net cash provided by (used in)    operating activities:
Depreciation and amortization		6,212			854			1,989
Goodwill and trade name impairment charges		190,777			—			—
Amortization of deferred financing costs		256			29			213
Stock-based compensation		426			20,371			—
Provision for doubtful accounts		—			—			8
Loss on extinguishment of debt		—			—			3,413
Deferred income taxes		1,749			—			—
Changes in:
Accounts receivable, net		14,385			(1,873	)		1,671
Inventories		1,803			(1,280	)		(406	)
Prepaid expenses		(1,574	)		(2,333	)		1,073
Other current assets		68			—			213
Other noncurrent assets		(218	)		(530	)		(1,003	)
Accounts payable		(9,000	)		(794	)		8,313
Accounts payable - related parties		—			—			(6,553	)
Accrued expenses		701			(19,503	)		19,792
Other current liabilities		(2,705	)		(16	)		(288	)
Income taxes payable		52			1,171			42
Deferred rent		33			—			37
Net cash provided (used in) by operating activities		4,303			(26,483	)		3,733
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(1,464	)		—			(517	)
Acquisition of OSW Predecessor		—			(670,039	)		—
Net cash used in investing activities		(1,464	)		(670,039	)		(517	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common shares		—			122,499			—
Cash contribution from Haymaker		—			349,390			—
Proceeds from the term loan facilities		20,000			245,900			—
Payment of deferred financing costs		—			(6,492	)		—
Reacquisition of public warrants		(879	)		—			—
Proceeds from amount due from parent		—			—			—
Net distributions to Parent and its affiliates		—			—			(4,262	)
Cash paid to acquire noncontrolling interest		(10,810	)		—			—
Distributions to noncontrolling interest		(4,011	)		—			(267	)
Net cash provided by (used in) financing activities		4,300			711,297			(4,529	)
Effect of exchange rate changes on cash		(485	)		(280	)		649
Net increase (decrease) in cash and cash equivalents		6,654			14,495			(664	)
Cash and cash equivalents, Beginning of period		13,863			1,774			15,302
Cash and cash equivalents, End of period	$	20,517		$	16,269		$	14,638

(1) See Note 2.

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

5

ONESPAWORLD HOLDINGS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(CONTINUED)

(Unaudited)

(in thousands)

	Successor				Predecessor
	Consolidated				Combined
	Three Months Ended March 31, 2020		March 20, 2019 to March 31, 2019		January 1, 2019 to March 19, 2019
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes	$	37	$	—	$	73
Interest	$	3,484	$	—	$	—
Non-cash transactions:
Equity consideration paid in connection with the Business Combination	$	—	$	167,300	$	—
Unpaid declared dividends	$	2,449	$	—	$	—
Common stock issued to purchase noncontrolling interest	$	1,507	$	—	$	—
Repayment of long-term debt by Parent on behalf of the Company	$	—	$	—	$	351,482

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

6

ONESPAWORLD HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

MARCH 31, 2020

(Unaudited)

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.

On March 19, 2019 (the “Business Combination Date”), OneSpaWorld consummated a business combination pursuant to a Business Combination Agreement, dated as of November 1, 2018 (as amended on January 7, 2019, by Amendment No. 1 to the Business Combination Agreement), by and among Steiner Leisure Limited (“Steiner Leisure,” “Steiner,” or “Parent”), Steiner U.S. Holdings, Inc., Nemo (UK) Holdco, Ltd., Steiner UK Limited, Steiner Management Services, LLC, Haymaker Acquisition Corp. (“Haymaker”), OneSpaWorld, Dory US Merger Sub, LLC, Dory Acquisition Sub, Limited, Dory Intermediate LLC, and Dory Acquisition Sub, Inc. (the “Business Combination”), in which Haymaker acquired from Steiner the combined operating business known as OSW Predecessor (“OSW”). Prior to the consummation of the Business Combination, OneSpaWorld was a wholly-owned subsidiary of Steiner Leisure. On the Business Combination Date, OneSpaWorld became the ultimate parent company of the Haymaker and OSW combined company.

Impact of Corona Virus (COVID-19), Liquidity and Management’s Plans

On January 30, 2020, the World Health Organization declared the coronavirus outbreak (“COVID-19”) a “Public Health Emergency of International Concern,” and on March 10, 2020, declared COVID-19 a pandemic. The regional and global outbreak of COVID-19 has negatively impacted and will continue to have a material negative impact on the Company’s operations. The cruise industry in the U.S. is subject to the U.S. Centers for Disease Control and Prevention (“CDC”) No Sail Order, which was extended on April 9, 2020 to continue until the earliest of (i) the expiration of the Secretary of Health and Human Services’ declaration that COVID-19 constitutes a public health emergency, (ii) the date the Director of the CDC rescinds or modifies the No Sail Order or (iii) 100 days after the order appears on the Federal Register, which would be July 24, 2020.

Cruise cancellations and hotel closures resulting in the closure of our onboard and resort spa operations have materially adversely impacted the Company’s operations, financial results and liquidity. On April 30, 2020, the Company announced the definitive agreement to sell $75 million in common equity and warrants to Steiner Leisure Limited (“SLL”) and its affiliates and other investors, including certain funds advised by Neuberger Berman Investment Advisers LLC and members of OSW management and its Board of Directors. (the “Private Placement”).  The consummation of this Private Placement is subject to a vote of the Company’s shareholders, which is scheduled to occur on June 10, 2020.  If we do not consummate this Private Placement and cannot secure an adequate capital infusion by another means, or cannot amend our credit facilities, it is likely that we will be unable to comply with certain covenants in our existing credit facilities as of June 30, 2020. The Company’s liquidity and operating results will continue to be negatively impacted until cruise and resort industries resume historically normalized operations. 

The full extent to which COVID-19 will impact the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the virus and the actions to contain or treat its impact. As a consequence, the Company cannot estimate the impact on the business, or near- or longer-term financial or operational results with reasonable certainty. However, we expect results of operations and cash flows from operations for the second quarter of 2020, and for the remainder of 2020 to be severely negatively impacted.

In light of the cruise industry’s response to the Global COVID-19 pandemic and the No Sail Order issued by the CDC, the Company is taking steps to mitigate the adverse impact of the pandemic, which have included, but are not limited to:

• Closed all spas on ships where voyages have been cancelled;

• Closed all U.S. Caribbean-based and Asian-based destination resort spas;

• Repatriated 52% of all cruise ship personnel, eliminating all ongoing expenses related to these employees;

• Continued to work with cruise line partners and governmental authorities to repatriate substantially all remaining cruise ship personnel as soon as is practical;

• Furloughed 96% of U.S. and Caribbean-based destination resort spa personnel and 38% of corporate personnel;

• Eliminated all non-essential operating and capital expenditures;

7

• Withdrew its dividend program until further notice and deferred payment of the dividend declared on February 26, 2020 until approved by the Board of Directors;

• Borrowed $20 million on its revolving credit facility; and

• Entered into a definitive agreement (“Investment Agreement”) to sell $75 million in common equity and warrants to Steiner Leisure Limited (“SLL”) and its affiliates and other investors, including certain funds advised by Neuberger Berman Investment Advisers LLC and members of the Company’s management and its Board of Directors (See Note 15). Proceeds from the Investment Agreement will be used to fund our operations and to repay a portion of the revolving credit facility, avoiding an event of default.

Obtaining equity financing as contemplated through the Investment Agreement is not guaranteed and is largely dependent on market conditions, cruise industry conditions, hospitality industry conditions, among other factors, together with the affirmative vote of the Company’s shareholders.  The Company may be required to pursue additional sources of financing to meet its financial obligations.  If we are successful implementing these plans, including the consummation of the Private Placement, management believes that the Company will be able to generate sufficient liquidity to satisfy its obligations for the next twelve months. However, we can provide no assurances we will be successful executing these plans. Further, if we do not continue to remain in compliance with covenants in our existing credit facilities, we would have to seek amendments to these covenants from our lenders or evaluate the options to cure the defaults contained in the agreement. However, no assurances can be made that such amendments would be approved by our lenders. If an event of default occurs, the lenders under the existing credit facilities are entitled to take various actions, including the acceleration of amounts due under the credit facilities and all actions permitted to be taken by a secured creditor, subject to customary intercreditor provisions