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 September 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)	(IRS Employer Identification Number)

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

(Address of principal executive offices)

N/A

(Zip Code)

(242) 322-2670

(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 September 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	25
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37
Item 4.	Controls and Procedures	37
PART II - OTHER INFORMATION		38
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3.	Defaults Upon Senior Securities	45
Item 4.	Mine Safety Disclosures	45
Item 5.	Other Information	45
Item 6.	Exhibits	46

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
	September 30, 2020			December 31, 2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	47,318		$	13,863
Restricted cash		1,896			—
Accounts receivable, net		2,968			30,513
Inventories		33,496			36,066
Prepaid expenses		6,908			7,655
Other current assets		1,513			2,565
Total current assets		94,099			90,662
Property and equipment, net		18,781			22,741
Intangible assets, net		603,320			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	$	717,275		$	923,669
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable	$	8,585		$	23,437
Accrued expenses		26,280			23,575
Income taxes payable		310			897
Other current liabilities		2,617			3,501
Total current liabilities		37,792			51,410
Deferred rent		376			160
Income tax contingency		4,180			3,949
Other long-term liabilities		5,991			—
Deferred tax liability		—			375
Long-term debt, net		229,177			221,407
Total liabilities	$	277,516		$	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 September 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 September 30, 2020 and zero shares issued and outstanding at December 31, 2019		2			—
Additional paid-in capital		713,622			653,088
Accumulated deficit		(268,085	)		(15,569	)
Accumulated other comprehensive (loss) income		(5,787	)		719
Total OneSpaWorld shareholders’ equity		439,759			638,244
Noncontrolling interest		—			8,124
Total shareholders' equity		439,759			646,368
Total liabilities and shareholders' equity	$	717,275		$	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 September 30,						Nine Months Ended September 30,			March 20, 2019 to September 30,			January 1, 2019 to March 19,
	2020			2019			2020			2019			2019
REVENUES:
Service revenues	$	1,108		$	110,564		$	90,895		$	232,562		$	91,280
Product revenues		681			34,337			26,199			71,783			27,172
Total revenues		1,789			144,901			117,094			304,345			118,452
COST OF REVENUES AND OPERATING EXPENSES:
Cost of services		7,191			94,199			100,329			197,227			76,836
Cost of products		1,467			29,980			25,226			62,174			23,957
Administrative		3,792			5,393			13,315			12,256			2,498
Salary and payroll taxes		4,504			2,951			14,767			28,415			29,349
Amortization of intangible assets		4,206			4,040			12,618			9,113			755
Goodwill and trade name impairment charges		—			—			190,777			—			—
Total cost of revenues and operating expenses		21,160			136,563			357,032			309,185			133,395
(Loss) income from operations		(19,371	)		8,338			(239,938	)		(4,840	)		(14,943	)
OTHER EXPENSE, NET:
Interest expense		(3,483	)		(4,606	)		(11,227	)		(9,434	)		(6,316	)
Interest income		19			35			19			35			—
Loss on extinguishment of debt		—			—			—			—			(3,413	)
Total other expense, net		(3,464	)		(4,571	)		(11,208	)		(9,399	)		(9,729	)
(Loss) income before income tax (benefit) expense		(22,835	)		3,767			(251,146	)		(14,239	)		(24,672	)
INCOME TAX (BENEFIT) EXPENSE		(388	)		97			1,370			111			109
Net (loss) income		(22,447	)		3,670			(252,516	)		(14,350	)		(24,781	)
Net income attributable to noncontrolling interest		—			1,308			—			2,362			678
Net (loss) income attributable to common shareholders and Parent, respectively	$	(22,447	)	$	2,362		$	(252,516	)	$	(16,712	)	$	(25,459	)
NET (LOSS) INCOME PER VOTING AND NON-VOTING SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS:
Basic	$	(0.26	)	$	0.04		$	(3.57	)	$	(0.27	)
Diluted	$	(0.26	)	$	0.03		$	(3.57	)	$	(0.27	)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic		84,968			61,118			70,737			61,118
Diluted		84,968			75,012			70,737			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 September 30,					Nine Months Ended September 30,			March 20, 2019 to September 30,			January 1, 2019 to March 19,
	2020			2019		2020			2019			2019
Net (loss) income	$	(22,447	)	$	3,670	$	(252,516	)	$	(14,350	)	$	(24,781	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		89			7		(215	)		(384	)		(165	)
Cash flows hedges:
Net unrealized (loss) gain on derivative		(126	)		53		(7,179	)		53			—
Amount realized and reclassified into earnings		519			—		888			—			—
Total other comprehensive loss, net of tax		482			60		(6,506	)		(331	)		(165	)
Comprehensive (loss) income		(21,965	)		3,730		(259,022	)		(14,681	)		(24,946	)
Comprehensive income attributable to noncontrolling interest		—			1,308		—			2,362			678
Comprehensive (loss) income attributable to common shareholders and Parent, respectively	$	(21,965	)	$	2,422	$	(259,022	)	$	(17,043	)	$	(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, June 30, 2019		61,118		—	$	6	$	655,210	$	(391	)	$	(19,074	)	$	635,751		$	6,678	$	642,429
Net income		—		—		—		—		—			2,362			2,362			1,308		3,670
Stock-based compensation		—		—		—		125		—			—			125			—		125
Foreign currency translation gain		—		—		—		—		7			—			7			—		7
Unrealized gain on derivatives		—		—		—		—		53			—			53			—		53
BALANCE, September 30, 2019		61,118		—	$	6	$	655,335	$	(331	)	$	(16,712	)	$	638,298		$	7,986	$	646,284
BALANCE, March 20, 2019 (1)		61,118		—	$	6	$	634,839	$	—		$	—		$	634,845		$	5,624	$	640,469
Net loss		—		—		—		—		—			(16,712	)		(16,712	)		2,362		(14,350	)
Stock-based compensation		—		—		—		20,496		—			—			20,496			—		20,496
Foreign currency translation loss		—		—		—		—		(384	)		—			(384	)		—		(384	)
Unrealized gain on derivatives		—		—		—		—		53			—			53			—		53
BALANCE, September 30, 2019		61,118		—	$	6	$	655,335	$	(331	)	$	(16,712	)	$	638,298		$	7,986	$	646,284
BALANCE, June 30, 2020		67,782		17,186	$	9	$	712,512	$	(6,269	)	$	(245,638	)	$	460,614		$	—	$	460,614
Net loss		—		—		—		—		—			(22,447	)		(22,447	)		—		(22,447	)
Stock-based compensation		—		—		—		1,110		—			—			1,110			—		1,110
Foreign currency translation adjustment		—		—		—		—		89			—			89			—		89
Unrecognized gain on derivatives		—		—		—		—		393			—			393			—		393
BALANCE, September 30, 2020		67,782		17,186	$	9	$	713,622	$	(5,787	)	$	(268,085	)	$	439,759		$	—	$	439,759
BALANCE, December 31, 2019		61,119		—	$	6	$	653,088	$	719		$	(15,569	)	$	638,244		$	8,124	$	646,368
Net loss		—		—		—		—		—			(252,516	)		(252,516	)		—		(252,516	)
2020 Private Placement, net of issuance costs		6,564		17,186		3		68,599		—			—			68,602			—		68,602
Stock-based compensation		—		—		—		1,960		—			—			1,960			—		1,960
Foreign currency translation adjustment		—		—		—		—		(215	)		—			(215	)		—		(215	)
Unrecognized loss on derivatives		—		—