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 June 30, 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.)
Harry B. Sands, Lobosky Management Co. Ltd. Office Number 2 PineappleBusiness Park  Airport Industrial Park P.O. Box N-624 City of Nassau, Island of New Providence, Commonwealth of 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 June 30, 2020, 67,782,651 common voting shares and 17,185,500 common non-voting 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	22
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	33
Item 4.	Controls and Procedures	33
PART II - OTHER INFORMATION		34
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	42

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
	June 30, 2020			December 31, 2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	64,728		$	13,863
Restricted cash		1,896			—
Accounts receivable, net		3,369			30,513
Inventories		34,368			36,066
Prepaid expenses		8,653			7,655
Other current assets		1,871			2,565
Total current assets		114,885			90,662
Property and equipment, net		20,347			22,741
Intangible assets, net		607,526			616,637
Goodwill		—			190,077
OTHER ASSETS:
Deferred tax assets		—			2,046
Other non-current assets		1,075			1,506
Total other assets		1,075			3,552
Total assets	$	743,833		$	923,669
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable	$	17,442		$	23,437
Accrued expenses		22,686			23,575
Income taxes payable		927			897
Other current liabilities		2,719			3,501
Total current liabilities		43,774			51,410
Deferred rent		227			160
Income tax contingency		3,987			3,949
Other long-term liabilities		6,311			—
Deferred tax liability		—			375
Long-term debt, net		228,920			221,407
Total liabilities	$	283,219		$	277,301
Commitments and contingencies (Note 15)
SHAREHOLDERS' EQUITY
Common stock:
Voting common stock, $0.0001 par value; 225,000,000 shares authorized, 67,782,651 issued and outstanding at June 30, 2020 and 61,119,398 shares issued and outstanding at December 31, 2019		7			6
Non-voting common stock, $0.0001 par value; 25,000,000 shares authorized, 17,185,500 shares issued and outstanding at June 30, 2020 and zero shares issued and outstanding at December 31, 2019		2			—
Additional paid-in capital		712,512			653,088
Accumulated deficit		(245,638	)		(15,569	)
Accumulated other comprehensive (loss) income		(6,269	)		719
Total OneSpaWorld shareholders’ equity		460,614			638,244
Noncontrolling interest		—			8,124
Total shareholders' equity		460,614			646,368
Total liabilities and shareholders' equity	$	743,833		$	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 June 30,						Six Months Ended June 30,			March 20, 2019 to June 30,			January 1, 2019 to March 19,
	2020			2019			2020			2019			2019
REVENUES:
Service revenues	$	214		$	107,285		$	89,787		$	121,998		$	91,280
Product revenues		784			33,145			25,518			37,446			27,172
Total revenues		998			140,430			115,305			159,444			118,452
COST OF REVENUES AND OPERATING EXPENSES:
Cost of services		12,559			90,642			93,138			103,028			76,836
Cost of products		1,623			28,604			23,759			32,194			23,957
Administrative		4,940			4,346			9,523			6,863			2,498
Salary and payroll taxes		5,091			4,249			10,263			25,464			29,349
Amortization of intangible assets		4,206			4,491			8,412			5,073			755
Goodwill and trade name impairment charges		—			—			190,777			—			—
Total cost of revenues and operating expenses		28,419			132,332			335,872			172,622			133,395
(Loss) income from operations		(27,421	)		8,098			(220,567	)		(13,178	)		(14,943	)
OTHER EXPENSE, NET:
Interest expense		(4,001	)		(4,271	)		(7,744	)		(4,828	)		(6,316	)
Loss on extinguishment of debt		—			—			—			—			(3,413	)
Total other expense, net		(4,001	)		(4,271	)		(7,744	)		(4,828	)		(9,729	)
(Loss) income before (benefit) provision for income taxes		(31,422	)		3,827			(228,311	)		(18,006	)		(24,672	)
(BENEFIT) PROVISION FOR INCOME TAXES		(15	)		(732	)		1,758			14			109
Net (loss) income		(31,407	)		4,559			(230,069	)		(18,020	)		(24,781	)
Net income attributable to noncontrolling interest		—			950			—			1,054			678
Net (loss) income attributable to common shareholders and Parent, respectively	$	(31,407	)	$	3,609		$	(230,069	)	$	(19,074	)	$	(25,459	)
NET (LOSS) INCOME PER VOTING AND NON-VOTING SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS:
Basic	$	(0.48	)	$	0.06		$	(3.62	)	$	(0.31	)
Diluted	$	(0.48	)	$	0.05		$	(3.62	)	$	(0.31	)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic		65,916			61,118			63,543			61,118
Diluted		65,916			72,047			63,543			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 June 30,						Six Months Ended June 30,			March 20, 2019 to June 30,			January 1, 2019 to March 19,
	2020			2019			2020			2019			2019
Net(loss) income	$	(31,407	)	$	4,559		$	(230,069	)	$	(18,020	)	$	(24,781	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		188			(130	)		(304	)		(955	)		(165	)
Cash flows hedges:
Net unrealized loss on derivative		(1,098	)		—			(7,054	)		—			—
Amount realized and reclassified into earnings		408			—			370			—			—
Total other comprehensive loss, net of tax		(502	)		(130	)		(6,988	)		(955	)		(165	)
Comprehensive (loss) income		(31,909	)		4,429			(237,057	)		(18,975	)		(24,946	)
Comprehensive income attributable to noncontrolling interest		—			950			—			1,054			678
Comprehensive (loss) income attributable to common shareholders and Parent, respectively	$	(31,909	)	$	3,479		$	(237,057	)	$	(20,029	)	$	(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

(DEFICIT)

(Unaudited)

(in thousands)

	Combined
Predecessor:	Net Parent Investment			Accumulated Other Comprehensive Loss			Total Parent's Equity (Deficit)			Noncontrolling 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			—			351,802			—			351,802
Foreign currency translation adjustment		—			(165	)		(165	)		—			(165	)
BALANCE, March 19, 2019	$	195,823		$	(814	)	$	195,009		$	3,997		$	199,006

Successor:					Consolidated
	Issued Common Voting Shares		Issued Common Non-Voting Shares		Voting and Non-Voting Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total OneSpaWorld Shareholders’ equity			Noncontrolling Interest			Total
BALANCE, March 20, 2019 (1)		61,118		—	$	6	$	634,839		$	—		$	—		$	634,845		$	5,624		$	640,469
Net (loss) income		—		—		—		—			—			(19,074	)		(19,074	)		1,054			(18,020	)
Stock-based compensation		—		—		—		20,371			—			—			20,371			—			20,371
Foreign currency translation adjustment		—		—		—		—			(391	)		—			(391	)		—			(391	)
BALANCE, June 30, 2019		61,118		—	$	6	$	655,210		$	(391	)	$	(19,074	)	$	635,751		$	6,678		$	642,429
BALANCE, March 31, 2019		61,118		—	$	6	$	655,210		$	(261	)	$	(22,683	)	$	632,272		$	5,728		$	638,000
Net income		—		—		—		—			—			3,609			3,609			950			4,559
Foreign currency translation adjustment		—		—		—		—			(130	)		—			(130	)		—			(130	)
BALANCE, June 30, 2019		61,118		—	$	6	$	655,210		$	(391	)	$	(19,074	)	$	635,751		$	6,678		$	642,429
BALANCE, March 31, 2020		61,218		—	$	6	$	643,489		$	(5,767	)	$	(214,231	)	$	423,497		$	—		$	423,497
Net loss		—		—		—		—			—			(31,407	)		(31,407	)		—			(31,407	)
2020 Private Placement, net of issuance costs		6,564		17,186		3		68,599			—			—			68,602			—			68,602
Stock-based compensation		—		—		—		424			—			—			424			—			424
Foreign currency translation adjustment		—		—		—		—			188			—			188			—			188
Unrecognized loss on derivatives		—		—		—		—			(690	)		—			(690	)		—			(690	)
BALANCE, June 30, 2020		67,782		17,186	$	9	$	712,512		$	(6,269	)	$	(245,638	)	$	460,614		$	—		$	460,614
BALANCE, December 31, 2019		61,119		—	$	6	$	653,088		$	719		$	(15,569	)	$	638,244		$	8,124		$	646,368
Net loss		—		—		—		—			—			(230,069	)		(230,069	)		—			(230,069	)
2020 Private Placement, net of issuance costs		6,564		17,186		3		68,599			—			—			68,602			—			68,602
Stock-based compensation		—		—		—		850			—			—			850			—			850
Foreign currency translation adjustment		—		—		—		—			(304	)		—			(304	)		—			(304	)
Unrecognized loss on interest rate swap		—		—		—		—			(6,684	)		—			(6,684	)		—			(6,684	)
Dividends declared		—		—		—		(2,449	)		—			—			(2,449	)		—			(2,449	)
Distributions to noncontrolling interest		—		—		—		—			—			—			—			(4,011	)		(4,011	)