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, 2021

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 September 30, 2021, the registrant had 74,175,938 voting shares and 17,185,500 non-voting shares of common stock issued and 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	31
Item 4.	Controls and Procedures	31
PART II - OTHER INFORMATION		33
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	36

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, 2021			December 31, 2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	32,682		$	41,552
Restricted cash		1,896			1,896
Accounts receivable, net		14,468			2,994
Inventories		24,796			27,200
Prepaid expenses		6,404			6,950
Other current assets		1,033			1,590
Total current assets		81,279			82,182
Property and equipment, net		13,909			17,056
Intangible assets, net		586,496			599,114
OTHER ASSETS:
Deferred tax assets		—			98
Other non-current assets		3,706			3,829
Total other assets		3,706			3,927
Total assets	$	685,390		$	702,279
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable	$	13,179		$	8,601
Accrued expenses		30,556			25,761
Current portion of long-term debt		1,255			—
Other current liabilities		2,361			2,713
Total current liabilities		47,351			37,075
Deferred rent		358			283
Income tax contingency		4,202			4,392
Warrant liabilities		104,200			104,700
Other long-term liabilities		3,726			5,568
Long-term debt, net		228,948			229,433
Total liabilities		388,785			381,451
Commitments and contingencies (Note 12)
SHAREHOLDERS' EQUITY:
Common stock:
Voting common stock, $0.0001 par value; 225,000,000 shares authorized, 74,175,938 issued and outstanding at September 30, 2021 and 69,292,596 shares issued and outstanding at December 31, 2020		7			7
Non-voting common stock, $0.0001 par value; 25,000,000 shares authorized, 17,185,500 shares issued and outstanding, at both September 30, 2021 and December 31, 2020		2			2
Additional paid-in capital		680,927			649,540
Accumulated deficit		(380,851	)		(323,246	)
Accumulated other comprehensive loss		(3,480	)		(5,475	)
Total shareholders' equity		296,605			320,828
Total liabilities and shareholders' equity	$	685,390		$	702,279

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

1

ONESPAWORLD HOLDINGS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020 (as restated)			2021			2020 (as restated)
REVENUES:
Service revenues	$	34,844		$	1,108		$	47,096		$	90,895
Product revenues		8,791			681			11,284			26,199
Total revenues		43,635			1,789			58,380			117,094
COST OF REVENUES AND OPERATING EXPENSES:
Cost of services		33,157			7,191			50,202			100,329
Cost of products		8,395			1,467			11,194			25,226
Administrative		3,363			3,792			12,069			13,315
Salary and payroll taxes		6,676			4,504			20,316			14,767
Amortization of intangible assets		4,206			4,206			12,618			12,618
Goodwill and tradename intangible assets impairment		—			—			—			190,777
Total cost of revenues and operating expenses		55,797			21,160			106,399			357,032
Loss from operations		(12,162	)		(19,371	)		(48,019	)		(239,938	)
OTHER (EXPENSE) INCOME, NET:
Interest expense and warrants issuance cost		(3,151	)		(3,464	)		(9,914	)		(12,594	)
Change in fair value of warrant liabilities		3,100			(25,100	)		500			37,300
Total other (expense) income, net		(51	)		(28,564	)		(9,414	)		24,706
Loss before income tax expense (benefit)		(12,213	)		(47,935	)		(57,433	)		(215,232	)
INCOME TAX EXPENSE (BENEFIT)		129			(388	)		172			1,370
NET LOSS	$	(12,342	)	$	(47,547	)	$	(57,605	)	$	(216,602	)
NET LOSS PER VOTING AND NON-VOTING SHARE
Basic	$	(0.14	)	$	(0.56	)	$	(0.64	)	$	(3.06	)
Diluted	$	(0.14	)	$	(0.56	)	$	(0.64	)	$	(3.06	)
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic		90,852			84,968			89,559			70,737
Diluted		90,852			84,968			89,559			70,737

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

2

ONESPAWORLD HOLDINGS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands)

	Three Months Ended September 30,							Nine Months Ended September 30,
	2021				2020 (as restated)			2021			2020 (as restated)
Net loss	$	(12,342	)	$		(47,547	)	$	(57,605	)	$	(216,602	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		(204	)			89			(90	)		(215	)
Cash flows hedges:
Net unrealized (loss) gain on derivative		(75	)			(126	)		629			(7,179	)
Amount realized and reclassified into earnings		475				519			1,456			888
Total other comprehensive income (loss) net of tax		196				482			1,995			(6,506	)
Total comprehensive loss	$	(12,146	)	$		(47,065	)	$	(55,610	)	$	(223,108	)

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

3

ONESPAWORLD HOLDINGS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(in thousands)

					Three Months Ended September 30, 2021
	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 Shareholders’ Equity
BALANCE, June 30, 2021		73,290		17,186	$	9	$	673,375	$	(3,676	)	$	(368,509	)	$	301,199
Net income		—		—		—		—		—			(12,342	)		(12,342	)
Stock-based compensation		—		—		—		2,059		—			—			2,059
Foreign currency translation adjustment		—		—		—		—		(204	)		—			(204	)
Unrecognized gain on derivatives		—		—		—		—		400			—			400
At-The Market Equity Offering, net of issuance cost		552		—		—		5,493					—			5,493
Common shares issued under equity incentive plan		334		—		—		—		—			—			—
BALANCE, September 30, 2021		74,176		17,186	$	9	$	680,927	$	(3,480	)	$	(380,851	)	$	296,605
					Nine Months Ended September 30, 2021
	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 Shareholders’ Equity
BALANCE, December 31, 2020		69,292		17,186	$	9	$	649,540	$	(5,475	)	$	(323,246	)	$	320,828
Net loss		—		—		—							(57,605	)		(57,605	)
Stock-based compensation		—		—		—		7,419		—			—			7,419
Foreign currency translation adjustment		—		—		—		—		(90	)		—			(90	)
Unrecognized gain on derivatives		—		—		—				2,085			—			2,085
At-The Market Equity Offering, net of issuance cost		2,264		—		—		23,968		—			—			23,968
Common shares issued under equity incentive plan		1,015		—		—		—		—			—			—
Conversion of deferred shares into common shares		1,600		—		—		—		—			—			—
Conversion of public warrants into common shares		5		—		—		—		—			—			—
BALANCE, September 30, 2021		74,176		17,186	$	9	$	680,927	$	(3,480	)	$	(380,851	)	$	296,605

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

4

ONESPAWORLD HOLDINGS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

CONTINUED

(Unaudited)

(in thousands)

					Three Months Ended September 30, 2020 (as restated)
	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  Shareholders’ Equity
BALANCE, June 30, 2020		67,782	$	17,186	$	9	$	634,998	$	(6,269	)	$	(204,324	)	$	424,414
Net loss		—		—		—		—		—			(47,547	)		(47,547	)
2020 Private Placement, net of issuance costs		—		—		—		—		—			—			—
Reclassification of public warrants to liabilities		—		—		—		—		—			—			—
Stock-based compensation		—		—		—		1,110		—			—			1,110
Foreign currency translation adjustment		—		—		—		—		89			—			89
Unrecognized loss on derivatives		—		—		—		—		393			—			393
BALANCE, September 30, 2020		67,782	$	17,186	$	9	$	636,108	$	(5,787	)	$	(251,871	)	$	378,459

											Nine Months Ended September 30, 2020 (as restated)
	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			Non-Controlling Interest			Total Shareholders’ Equity
BALANCE, December 31, 2019		61,119		—	$	6	$	616,888		$	719		$	(35,269	)	$	582,344		$	8,124		$	590,468
Net loss		—		—		—		—			—			(216,602	)		(216,602	)		—			(216,602	)
Stock-based compensation		—		—		—		1,960			—			—			1,960			—			1,960
2020 Private Placement, net of issuance costs		6,564		17,186		3		53,785			—			—			53,788			—			53,788
Reclassification of public warrants to liabilities		—		—		—		(26,500	)		—			—			(26,500	)		—			(26,500	)
Foreign currency translation adjustment		—		—		—		—			(215	)		—			(215	)		—			(215	)
Unrecognized loss on derivatives		—		—		—		—			(6,291	)		—			(6,291	)		—			(6,291	)
Dividend declared		—		—		—		(2,449	)		—			—			(2,449	)		—			(2,449	)
Distributions to noncontrolling interest		—		—		—		—			—			—			—			(4,011	)		(4,011	)
Purchase of noncontrolling interest		99		—		—		(6,697	)		—			—			(6,697	)		(4,113	)		(10,810	)
Purchase of public warrants		—		—		—		(879	)		—			—			(879	)		—			(879	)
BALANCE, September 30, 2020		67,782		17,186	$	9	$	636,108		$	(5,787	)	$	(251,871	)	$	378,459		$	—		$	378,459

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

5

ONESPAWORLD HOLDINGS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Nine Months Ended September 30,
	2021			2020 (as restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(57,605	)	$	(216,602	)
Adjustments to reconcile net loss to net cash used in    operating activities:
Depreciation and amortization		16,859			18,271
Goodwill and tradename intangible assets impairment		—			190,777
Amortization of deferred financing costs		770			770
Warrants issuance cost		—			1,386
Change in fair value of warrant liabilities		(500	)		(37,300	)
Stock-based compensation		7,419			1,960
Provision for doubtful accounts		32			167
Loss from inventories write-downs		2,000			1,090
Loss from write-offs of property and equipment		178			90
Deferred income taxes		107			1,671
Changes in:					—
Accounts receivable, net		(11,506	)		27,378
Inventories, net		404			1,480
Prepaid expenses		546			747
Other current assets		557			802
Other noncurrent assets		123			(221	)
Accounts payable		4,543			(14,852	)
Accrued expenses		4,795			2,705
Other current liabilities		(119	)		(287	)
Income taxes payable		—			(587	)
Income tax contingency		(138	)		231
Deferred rent		75			216
Net cash used in operating activities		(31,460	)		(20,108	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(1,306	)		(1,794	)
Net cash used in investing activities		(1,306	)		(1,794	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from At-the Market Equity Offering, net of issuance costs paid		24,003			—
Proceeds from 2020 private placement, net of issuance costs paid		—			68,602
Proceeds from revolver facility		—			20,000
Repayment on revolver facility		—			(13,000	)
Purchase of public warrants		—			(879	)
Dividend paid on common stock		—			(2,445	)
Cash paid to acquire noncontrolling interest		—			(10,810	)
Distributions to noncontrolling interest		—			(4,011	)
Net cash provided by financing activities		24,003			57,457
Effect of exchange rate changes on cash		(107	)		(204	)
Net (decrease) increase in cash and cash equivalents and restricted cash		(8,870	)		35,351
Cash and cash equivalents and restricted cash, Beginning of period		43,448			13,863
Cash and cash equivalents and restricted cash, End of period	$	34,578		$	49,214

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

6

ONESPAWORLD HOLDINGS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(CONTINUED)

(Unaudited)

(in thousands)

	Nine Months Ended September 30,
	2021		2020 (as restated)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes	$	18	$	37
Interest	$	9,506	$	9,082
Non-cash transactions:
Unpaid declared dividends	$	—	$	2,449
Common stock issued to purchase noncontrolling interest	$	—	$	1,507

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

7

ONESPAWORLD HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

(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.

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

The regional and global outbreak of the coronavirus pandemic (“COVID-19” or the “pandemic”) has negatively impacted and is expected to continue to have a material negative impact on the Company’s operations. On October 30, 2020, the U.S. Centers for Disease Control and Prevention (“CDC”) issued its Conditional Sailing Order, which outlines a phased approach for gradually permitting cruise ship passenger operations in U.S. waters, subject to certain conditions and guidelines. On October 25, 2021, the CDC announced a temporary extension to the Framework for Conditional Sailing Order through January 15, 2022, due to the continued spread of the Delta variant. After the expiration of this extension, the CDC intends to transition to a voluntary program, in coordination with the cruise ship operators and other stakeholders, to assist the cruise industry to detect, mitigate, and control the spread of COVID-19 onboard cruise ships and otherwise as a result of passenger and staff infection while on a cruise itinerary. As of the date of this report, the Conditional Sailing Order and related measures, such as technical guidelines, operate as nonbinding recommendations for cruise lines arriving in or departing from a port in Florida, which most Florida-porting ships have chosen to voluntarily follow. We are continuing to review the CDC’s guidelines in connection with the Framework for Conditional Sailing Order as well as monitor the actions of our cruise line partners with respect to their continued return to service. Our cruise line partners have restarted operations in a phased manner, following the requirements and recommendations of regulatory agencies, with reduced guest occupancy, modified itineraries and enhanced health, safety and vaccination protocols. We also believe that there have been positive developments around the availability and distribution of effective COVID-19 vaccines, which we believe will be important to achieving historical occupancy levels of our cruise line and destination resorts partners.

In September 2020, we began the resumption of limited spa operations with one of our cruise line-partners. Likewise, during the third and fourth quarters of 2020, we began the resumption of spa operations in a limited number of destination resorts as part of our phased-in return to service. As of September 30, 2021, 45 destination resort spas and 78 ships of our cruise line partners were operating. Starting in the first quarter of 2020, and continuing through the third quarter of 2021, COVID-19-related shutdowns have had a significant negative impact on our business, results of operations and financial condition. We believe the ongoing effects of COVID-19 on our operations will continue to have a significant negative impact on our financial results and liquidity and such negative impact may continue well beyond the containment of the pandemic. It is not possible to predict the ultimate impact of the pandemic, which will depend on a number of factors outside of our control, including, without limitation, the duration and scope of the pandemic, travel restrictions and advisories, the potential unavailability of ports and/or destinations of our cruise line partners, and the general impact on consumer sentiment regarding travel. The full effect of the pandemic on our financial performance cannot be quantified at this time and the full extent of the impact will be determined by the results of our return to service and the length of time COVID-19 influences actions by government authorities, personnel employment, consumer travel decisions, and policies, procedures and actions of our cruise line and destination resort spa partners; however we expect to report a net loss for the fourth quarter ending December 31, 2021 and for the year ending December 31, 2021.

On June 12, 2020, the Company closed its private placement (the “2020 Private Placement”) of $75 million in common equity and warrants to Steiner Leisure and its affiliates and other investors, including certain funds advised by Neuberger Berman Investment Advisers LLC and certain members of OSW management and its Board of Directors.

On December 7, 2020, the Company entered into an At-The-Market Equity Offering (“ATM”) Sales Agreement with Stifel, Nicolaus & Company, Incorporated (the “Sales Agent”), pursuant to which the Company may offer and sell, from time to time, through the Sales Agent, its common shares, par value $0.0001 per share, having an aggregate offering price of up to $50.0 million. During the quarters ended December 2020, March 2021 and June 2021, we sold 1,259,195, 1,711,003 and 551,690 shares, respectively, under the ATM Sales Agreement for total net proceeds of $35.1 million. As of September 30, 2021, shares representing approximately $14 million remain available for sale under the ATM Sales Agreement. As of November 5, 2021, shares representing approximately $10.0 million remain available for sale under the ATM Sales Agreement.

The Company has also undertaken steps to mitigate the adverse impact of the pandemic, which have included, without limitation, the following:

8

• commencing in March 2020, closed all spas on ships where voyages have been cancelled (as of September 30, 2021, we were operating spas onboard 78 vessels);

• closed all destination resort spas as of March 26, 2020 (as of September 30, 2021, 45 destination resort spas had reopened and were operating);

• The Company repatriated all of its shipboard employees as a result of COVID-19 related cruise suspensions, eliminating all ongoing expenses related to these repatriated employees. A total of 1,653 of our cruise ship personnel have re-embarked on vessels that have sailed or are anticipated to sail;

• furloughed 96% and subsequently terminated the employment of 66% of U.S. and Caribbean-based destination resort spa personnel and 38% of corporate personnel and implemented salary reductions for all corporate personnel; as of September 30, 2021, the majority had returned to work and no salary reductions remain in place for corporate personnel;

• eliminated all non-essential operating and capital expenditures;

• withdrew our dividend program until further notice and deferred payment of the dividend declared on February 26, 2020, in the amount of $2.4 million, until approved by the Board of Directors;

• borrowed $7 million, net, on our revolving credit facility, leaving $13 million available and undrawn at September 30, 2021.

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 have made reasonable estimates and judgments of the impact of COVID-19 within our financial statements and there may be material changes to those estimates in future periods.

Based on the actions the Company has taken as described above, 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 spas operation onboard vessels and in destination resorts, we have concluded that we will have sufficient liquidity to satisfy our obligations over the next twelve 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. As noted in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2020 (the “2020 10-K/A”), the Company restated its previously issued consolidated financial statements as of December 31, 2020 and 2019 and for the year ended December 31, 2020 and the period from March 20, 2019 to December 31, 2019 (Successor), as well each of the quarters within those periods, as a result of the Company’s reevaluation of the accounting treatment of its warrants in response to the SEC’s statement on April 12, 2021 entitled “Staff Statement on Accounting and Reporting Considerations for Warrants issued by Special Purpose Acquisition Companies (“SPACs”)” (the “Restatement”). For more information on the Restatement and a material weakness in internal control over financial reporting related thereto, see “Explanatory Note” in the 2020 10-K/A and Note 2 to the consolidated and combined financial statements included in the 2020 10-K/A. 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 2020 10-K/A. We have restated herein our condensed consolidated financial statements as of and for the quarter and nine months ended September 30, 2020. We have also restated related amounts within the accompanying footnotes to the condensed consolidated financial statements. The impact to the quarter ended September 30, 2020 was an increase to net loss of $25.1 million. The impact to the nine months ended September 30, 2020 was a decrease to net loss of $35.9 million. The impact as of September 30, 2021, was an increase to warrant liabilities of $61.3 million, a decrease to accumulated deficit of $16.2 million and a decrease of additional paid-in capital of $77.5 million.

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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 September 30, 2021 to the total amount presented in our condensed consolidated statements of cash flows for the nine months ended September 30, 2021 (in thousands):

Cash and cash equivalents	$	32,682
Restricted cash		1,896
Total cash and restricted cash in the consolidated statement of cash flows	$	34,578

Inventories

Inventories, consisting principally of beauty, health and wellness products, are stated at the lower of cost, as determined on a first-in, first-out basis, or market. All inventory balances are comprised of finished goods used in beauty and health and wellness services or held for sale to customers. Inventory reserve is recorded to write down the cost of inventory to the estimated market value. For the three months ended September 30, 2021 and 2020, we recorded an inventory reserve of $2.0 million and $0.6 million, respectively, and for the nine months ended September 30, 2021 and 2020, we recorded an inventory reserve $2.0 million and $1.1 million, respectively, for the decline in the net realizable value of inventories, which is included in Cost of products in the condensed consolidated statement of operations. These losses principally are the result of excess, slow-moving, expiration of products and damaged inventories caused by the cessation of our cruise line partners operations and, consequently, our operations due to the COVID 19 pandemic. The establishment of inventory reserves involves the estimate of the amount of inventories that will be used in health and wellness services on cruises when they return to sailing, which is uncertain and dependent on our cruise line partners and its customers that use our services.

Earnings Per Share

Basic earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income (loss) 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.

As discussed in Note 5 – “Equity”, 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 income (loss) per share is computed by dividing net income (loss) by the weighted average number of Voting and Non-Voting common shares outstanding for the period. Diluted income (loss) per share is computed by dividing net income (loss) 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 income (loss) 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 September 30,						Nine Months Ended September 30,
	2021 (a)			2020 (as restated) (a)			2021 (a)			2020 (as restated) (a)
Net loss, adjusted for change in fair value of warrant liabilities for diluted earnings per share	$	(12,342	)	$	(47,547	)	$	(57,605	)	$	(216,602	)
Weighted average shares outstanding – Basic		90,852			84,968			89,559			70,737
Weighted average shares outstanding – Diluted		90,852			84,968			89,559			70,737
Income loss per share:
Basic	$	(0.14	)	$	(0.56	)	$	(0.64	)	$	(3.06	)
Diluted	$	(0.14	)	$	(0.56	)	$	(0.64	)	$	(3.06	)

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(a)  Potential common shares under the treasury stock method and the if-converted method were antidilutive because the Company reported an adjusted net loss in this period and the effect of the change in the fair value of warrants was antidilutive. Consequently, the Company did not have any adjustments in this period between basic and diluted loss per share related to stock options, restricted share units and warrants.

The table below presents the weighted-average number of antidilutive potential common shares that are not considered in the calculation of diluted loss per share (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Sponsor Warrants		8,000		8,000		8,000		8,000
Public Warrants		16,145		16,150		16,147		16,235
2020 PIPE Warrants		5,000		5,000		5,000		2,008
Deferred shares		—		1,600		515		4,593
Employee stock options		1,269		4,376		3,015		4,376
Restricted stock units		1,598		798		1,752		415
Performance stock units		699		661		704		328
		32,711		36,585		35,133		35,955

Recent Accounting Pronouncements

With the exception of those discussed below, there have been no recent accounting pronouncements or changes in accounting pronouncements that are of significance, or potential significance, to the Company. The following summary of recent accounting pronouncements is not intended to be an exhaustive description of the respective pronouncement.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”) to increase transparency and comparability among organizations by recognizing rights and obligations resulting from leases as lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The update requires lessees to recognize for all leases with a term of 12 months or more at the commencement date: (a) a lease liability or a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis and (b) a right-of-use asset or a lessee’s right to use or control the use of a specified asset for the lease term. Under the update, lessor accounting remains largely unchanged. The update requires a modified retrospective transition approach for leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements and do not require any transition accounting for leases that expire before the earliest comparative period presented. In June 2020, the FASB issued guidance (ASU 2020-05) that defers the effective dates of the lease standard (ASU 2016-02) for entities that have not yet issued financial statements adopting the standard. The update is effective retrospectively for annual periods beginning after December 15, 2021, and interim periods beginning after December 15, 2022, with early adoption permitted. We intend to elect the optional transition method, which allows entities to initially apply the standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company continues to evaluate the effect that the update will have on the Company’s consolidated financial statements. The Company is in the process of starting its initial scoping review to identify a complete population of leases to be recorded on the consolidated balance sheet as a lease obligation and right of use asset. The Company expects that the update will have a material effect on our consolidated balance sheets due to the recognition of operating lease assets and operating lease liabilities primarily related to the destination resort agreements and office space which will result in a balance sheet presentation that is not comparable to the prior period in the first year of adoption. The Company is currently assessing the impact of the adoption of this guidance.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326).” This ASU amends the FASB’s guidance on the impairment of financial instruments. The ASU adds to U.S. GAAP an impairment model (known as the current expected credit losses model) that is based on an expected losses model rather than an incurred losses model. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. The ASU is also intended to reduce the complexity of U.S. GAAP by decreasing the number of impairment models that entities use to account for debt instruments. In November 2019, the FASB issued guidance (ASU 2019-10) that defers the effective dates of the Financial Instruments—Credit Losses standard for entities that have not yet issued financial statements adopting the standard. The update is effective for annual periods beginning after December 15, 2022, and interim periods beginning after December 15, 2022, with early adoption permitted. The Company is currently assessing the impact of the adoption of this guidance.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)”, which provided guidance to alleviate the burden in accounting for reference rate reform by allowing certain expedients and exceptions in applying GAAP to contracts, hedging relationships and other transactions impacted by reference rate reform. The provisions apply only to those transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. Adoption of the provisions of ASU 2020-04 are optional and are effective from March 12, 2020 through December 31, 2022. The Company is currently assessing the impact of the adoption of this guidance.

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3. GOODWILL AND INTANGIBLE ASSETS

As a result of the effect of COVID-19 on our expected future operating cash flows, we recognized impairment charges of approximately $190 million associated with the full impairment of the carrying value of the Maritime and Destination Resorts segment reporting units Goodwill and $0.7 million for the trade name, during the nine months ended September 30, 2020 and are included in Goodwill and tradename intangible assets impairment in the accompanying condensed consolidated statement of operations (See “Note 10”). There were no goodwill or intangible impairment charges during the three months ended September 30, 2021 and 2020, and during the nine months ended September 30, 2021.

Intangible assets consist of finite and indefinite life assets. The following is a summary of the Company’s intangible assets as of September 30, 2021 (in thousands, except amortization period):

	Cost		Accumulated Amortization and Impairment			Net Balance		Weighted Average Amortization Period (in years)
Retail concession agreements	$	604,700	$	(39,311	)	$	565,389	39
Destination resort agreements		17,900		(2,989	)		14,911	15
Trade name		6,200		(700	)		5,500	Indefinite-life
Licensing agreement		1,000		(304	)		696	8
	$	629,800	$	(43,304	)	$	586,496

The following is a summary of the Company’s intangible assets as of December 31, 2020 (in thousands, except amortization period):

	Cost		Accumulated Amortization			Net Balance		Weighted Average Amortization Period (in years)
Retail concession agreements	$	604,700	$	(27,680	)	$	577,020	39
Destination resort agreements		17,900		(2,095	)		15,805	15
Trade name		6,200		(700	)		5,500	Indefinite-life
Licensing agreement		1,000		(211	)		789	8
	$	629,800	$	(30,686	)	$	599,114

The Company amortizes intangible assets with definite lives on a straight-line basis over their estimated useful lives. Amortization expense for the three months ended September 30, 2021 and 2020 was $4.2 million for each period. Amortization expense for the nine months ended September 30, 2021 and 2020 was $12.6 million for each period. Amortization expense is estimated to be $16.8 million in each of the next five years beginning in 2021.

4. LONG-TERM DEBT

Long-term debt consisted of the following (in thousands, except interest rate):

	Interest Rate As of			As of
	September 30, 2021	December 31, 2020	Maturities Through	September 30, 2021			December 31, 2020
First lien term loan facility	3.9%	4.0%	2026	$	202,457		$	202,457
Second lien term loan facility	7.7%	7.7%	2027		25,000			25,000
First lien revolving facility	3.9%	4.0%	2024		7,000			7,000
Total debt				$	234,457		$	234,457
Less: unamortized debt issuance cost					(4,254	)		(5,024	)
Total debt, net of unamortized debt issuance cost				$	230,203		$	229,433
Less: current portion of long-term debt					(1,255	)		-
Long-term debt, net				$	228,948		$	229,433

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The following are scheduled principal repayments on long-term as of September 30, 2021 for each of the next five years (in thousands):

Year	Amount
2021	$	-
2022		1,776
2023		2,085
2024		9,085
2025		2,085
Thereafter		219,426
Total	$	234,457

On March 19, 2019, the Company entered into (i) senior secured first lien credit facilities (the “First Lien Credit Facilities”) with Goldman Sachs Lending Partners LLC, as administrative agent, and certain lenders, consisting of (x) a term loan facility of $208.5 million (of which $20 million was borrowed by a subsidiary of the Company) (the “First Lien Term Loan Facility”), (y) a revolving loan facility of up to $20 million (the “First Lien Revolving Facility”) and (z) a delayed draw term loan facility of $5 million (the “First Lien Delayed Draw Facility”), and (ii) a senior secured second lien term loan facility of $25 million with Cortland Capital Market Services LLC, as administrative agent, and Neuberger Berman Alternative Funds, Neuberger Berman Long Short Fund, as lender. (the “Second Lien Term Loan Facility” and, together with the First Lien Term Loan Facility, the “Term Loan Facilities”; the New Term Loan Facilities, together with the First Lien Revolving Facility and the First Lien Delayed Draw Facility, are referred to as the “New Credit Facilities”). The First Lien Revolving Facility includes borrowing capacity available for letters of credit up to $5 million. Any issuance of letters of credit reduces the amount available under the New First Lien Revolving Facility. The First Lien Term Loan Facility matures seven years after March 19, 2019, the First Lien Revolving Facility matures five years after March 19, 2019 and the Second Lien Term Loan Facility matures eight years after March 19, 2019.

Loans outstanding under the First Lien Credit Facilities will accrue interest at a rate per annum equal to LIBOR plus a margin of 4.00%, with one step down to 3.75% upon achievement of a certain leverage ratio, and undrawn amounts under the First Lien Revolving Facility will accrue a commitment fee at a rate per annum of 0.50% on the average daily undrawn portion of the commitments thereunder, with one step down to 0.325% upon achievement of a certain leverage ratio. Loans outstanding under the Second Lien Term Loan Facility will accrue interest at a rate per annum equal to LIBOR plus 7.50%.

The obligations under the New Credit Facilities are guaranteed by the Company and each of its direct or indirect wholly-owned subsidiaries organized under the laws of the United States and the Commonwealth of The Bahamas, in each case, other than certain excluded subsidiaries, including, but not limited to, immaterial subsidiaries, non-profit subsidiaries, and any other subsidiary with respect to which the burden or cost of providing a guarantee is excessive in view of the benefits to be obtained by the lenders therefrom. In addition, under the New Credit Facilities, certain of our direct and indirect subsidiaries have granted the lenders a security interest in substantially all of their assets.

The Term Loan Facilities require the Company to make certain mandatory prepayments, with (i) 100% of net cash proceeds of all non-ordinary course asset sales or other dispositions of property, subject to the ability to reinvest such proceeds and certain other exceptions, and subject to step downs if certain leverage ratios are met and (ii) 100% of the net cash proceeds of any debt incurrence, other than debt permitted under the definitive agreements (but excluding debt incurred to refinance the New Credit Facilities). The Company also is required to make quarterly amortization payments equal to 0.25% of the original principal amount of the First Lien Term Loan Facility commencing after the first full fiscal quarter after the closing date of the New Credit Facilities (subject to reductions by optional and mandatory prepayments of the loans). The Company may prepay (i) the First Lien Credit Facilities at any time without premium or penalty, subject to payment of customary breakage costs and a customary “soft call,” and (ii) the Second Lien Term Loan Facility at any time without premium or penalty, subject to a customary make-whole premium for any voluntary prepayment prior to the date that is 30 months following the closing date of the New Credit Facilities (the “Callable Date”), following by a call premium of (x) 4.00% on or prior to the first anniversary of the Callable Date, (y) 2.50% after the first anniversary but on or prior to the second anniversary of the Callable Date, and (z) 1.50% after the second anniversary but on or prior to the third anniversary of the Callable Date. During the fourth quarter of 2019, we prepaid principal amounts of $5 million of our First Lien Credit Facilities.

The New Credit Facilities contain a financial covenant related to the maintenance of a leverage ratio and a number of customary negative covenants including covenants related to the following subjects: consolidations, mergers, and sales of assets; limitations on the incurrence of certain liens; limitations on certain indebtedness; limitations on the ability to pay dividends; and certain affiliate transactions. As of September 30, 2021 and December 31 2020, the company was in compliance with all of the covenants contained in the New Credit Facilities.

If we do not comply with these covenants, we would have to seek amendments to these covenants from our lenders or evaluate the options to cure the defaults contained in the credit agreements. 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 New Credit Facilities are entitled to take various actions, including the acceleration of amounts due under the New Credit Facilities and all actions permitted to be taken by a secured creditor, subject to customary intercreditor provisions among the first and second lien secured parties, which would have a material adverse impact to our operations and liquidity.

Borrowing Capacity:

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As of September 30, 2021, our available borrowing capacity under the First Lien Revolving Facility was $13 million. Utilization of the borrowing capacity was as follows (in thousands):

	Borrowing Capacity		Amount Borrowed
First Lien Revolving Facility	$	20,000	$	7,000

5. EQUITY AND WARRANT LIABILITIES

Equity

Common Shares

At September 30, 2021, there were 74,175,938 voting shares and 17,185,500 non-voting shares of OneSpaWorld common stock issued and outstanding. At December 31, 2020, there were 69,292,596 voting shares and 17,185,500 non-voting shares of OneSpaWorld common stock issued and outstanding.

At-The-Market Equity (“ATM”) Offering

During March 2021, we sold 1,711,003 shares under the ATM Sales Agreement for net proceeds of $18.5 million, after offering-related expenses paid of $0.6 million. During the third quarter of 2021, we sold 551,690 shares under the ATM Sales Agreement for net proceeds of $5.5 million, after offering-related expenses accrued of $0.02 million. As of September 30, 2021, shares representing approximately $14 million remain available under the ATM Sales Agreement. As of November 5, 2021, shares representing approximately $10.0 million remain available for sale under the ATM Sales Agreement. The Company is not obligated to sell any shares under the ATM Sales Agreement. Subject to the terms and conditions of the Agreement, the Sales Agent will use commercially reasonable efforts consistent with its normal trading and sales practices to sell shares from time to time based upon the Company’s instructions, including the number of shares to be issued, the time period during which sales are requested to be made and any minimum price below sales may not be made.

Deferred Shares

As part of the equity consideration transferred in the Business Combination on March 19, 2019, Steiner and Haymaker Sponsor, LLC (“Haymaker Sponsor”) received deferred shares which provided the right to receive 1,600,000 shares of OneSpaWorld common stock. In connection with the 2020 Private Placement, the parties agreed to amend the terms of the Founder Deferred Shares (as defined in the BCA), such that, effective as of the closing of the 2020 Private Placement, such shares will be issuable upon the occurrence of any of the following: (A) the first day on which the common shares achieve a 5-day volume weighted average price equal to or greater than $10.50 (such share price, as may be adjusted, the “Price Target”); (B) in the case of a change in control of the Company, if the price per common share paid or payable in connection with such change in control is equal to or greater than the Price Target; or (C) the two-year anniversary of the closing of the 2020 Private Placement.

During March 2021, we issued and delivered an aggregate of 1,600,000 voting common shares upon the achievement of the Price Target discussed above.

Warrant Liabilities

Sponsor Warrants

As of September 30, 2021 and December 31, 2020, 8.0 million Sponsor Warrants were issued and outstanding.

Public Warrants

As of September 30, 2021 and December 31, 2020, 16,145,379 and 16,150,379 Public Warrants were issued and outstanding, respectively.

2020 PIPE Warrants

As of September 30, 2021 and December 31, 2020, 5.0 million 2020 PIPE Warrants were issued and outstanding.

Secondary Offering

On June 23, 2021, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Steiner as a selling shareholder, the other selling shareholders named therein (collectively with Steiner, the “Selling Shareholders”) and Stifel, Nicolaus & Company, Incorporated, as representative of the underwriters named therein (collectively, the “Underwriters”), pursuant to which the Selling Shareholders agreed to sell to the Underwriters, and the Underwriters agreed to purchase from the Selling Shareholders, subject to and upon the terms and conditions set forth therein, an aggregate of 8,421,053 common shares, par value $0.0001 per share, of the Company, at a price of $9.50 per share (the “Firm Shares”). Steiner also granted the Underwriters a 30-day option to purchase up to an additional 1,263,158 shares (the

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“Additional Shares”). The offering of the Firm Shares and the Additional Shares, the (“Secondary Offering”) are on the same terms and conditions. On June 25, 2021, the Underwriters notified the Company and the Selling Shareholders of their intent to exercise their option to purchase the 1,263,158 Additional Shares in full, and on June 28, 2021, the Secondary Offering was completed. The Company received no proceeds from the Secondary Offering.

6. STOCK-BASED COMPENSATION

During the nine months ended September 30, 2021, 941,512 options, 18,985 RSUs and 28,478 PSUs, were forfeited due to the retirement of our former Chief Executive Officer. On August 3, 2021, Leonard Fluxman, Executive Chairman and Chief Executive Officer, and Stephen Lazarus, Chief Financial Officer and Chief Operating Officer, voluntarily surrendered outstanding options to purchase an aggregate of 3,434,379 of the Company’s common shares. The common shares underlying these surrendered options will be available for future grant to Company personnel under the OneSpaWorld 2019 Equity Incentive Plan, which had been depleted.

The share-based compensation expense for the three months ended September 30, 2021 and 2020 was $2.1 million and $1.1 million, respectively, which is included as a component of salary and payroll taxes in the accompanying condensed consolidated statements of operations.

The share-based compensation expense for the nine months ended September 30, 2021 and 2020 was $7.4 million and $2.0 million, respectively, which is included as a component of salary and payroll taxes in the accompanying condensed consolidated statements of operations

The following is a summary of options activity for the nine months ended September 30, 2021:

Stock Options Activity	Number of Options			Weighted- Average Exercise Price		Weighted-Average Grant Date Fair Value
Outstanding at December 31, 2020		4,375,891		$	12.99	$	4.48
Granted		-			-		-
Exercised		-			-		-
Forfeited		(4,375,891	)		12.99		4.48
Outstanding at September 30, 2021		-		$	-	$	-
Vested at September 30, 2021		-		$	-	$	-

The following is a summary of RSUs activity for the nine months ended September 30, 2021:

Restricted Share Units Activity	Number of Awards			Weighted-Average Grant Date Fair Value
Outstanding at December 31, 2020		1,831,115		$	7.32
Granted		106,744			9.77
Vested		(557,768	)		6.67
Forfeited		(61,209	)		11.64
Non-vested share units as of September 30, 2021		1,318,882		$	7.82

The following is a summary of PSUs activity for the nine months ended September 30, 2021:

Performance Share Unit Activity	Number of Market Based-Awards			Weighted-Average Grant Date Fair Value		Number of Performance -Based Awards			Weighted-Average Grant Date Fair Value
Outstanding at December 31, 2020		981,416		$	4.83		129,920		$	15.67
Granted		-			-		271,699			9.77
Vested		(543,167	)		4.65		(7,305	)		15.67
Forfeited		-			-		(35,026	)		15.67
Non-vested share units as of September 30, 2021		438,249		$	5.04		359,288		$	11.21

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7. REVENUE RECOGNITION

The Company's revenue generating activities include the following:

Service Revenues

Service revenues consist primarily of sales of health, wellness and beauty services, including a full range of massage treatments, facial treatments, nutritional/weight management consultations, teeth whitening, mindfulness services and medi-spa services to cruise ship passengers and destination resort guests. Each service or consultation represents a separate performance obligation and revenues are generally recognized immediately upon the completion of our service. Given the short duration of our performance obligation, although some services are recognized over time, there is no difference in the timing of recognition.

Product Revenues

Product revenues consist primarily of sales of health and wellness products, such as facial skincare, body care, hair care, orthotics and nutritional supplements to cruise ship passengers, destination resort guests and timetospa.com customers. Our Shop & Ship program provides guests the ability to buy retail products onboard and have products shipped directly to their home. Each product unit represents a separate performance obligation. Our performance obligations are satisfied, and revenue is recognized when the customer obtains control of the product, which occurs either at the point of sale for retail sales and at the time of shipping for Shop & Ship and timetospa.com product sales. The Company provides no warranty on products sold. Shipping and handling fees charged to customers are included in net sales. 

Gift Cards

The Company only offers no-fee, non-expiring gift cards to its customers. At the time gift cards are sold, no revenue is recognized; rather, the Company records a contract liability to customers. The liability is relieved, and revenue is recognized equal to the amount redeemed at the time gift cards are redeemed for products or services. The Company records revenue from unredeemed gift cards (breakage) in net sales on a pro-rata basis over the time period gift cards are redeemed. At least three years of historical data, updated annually, is used to determine actual redemption patterns. The liability for unredeemed gift cards is included in “Other current liabilities” on the Company's condensed consolidated balance sheets and was $0.7 million, as of September 30, 2021 and December 31, 2020.

Customer Loyalty Rewards Program

The Company initiated a customer loyalty program during October 2019 in which customers earn points based on their spending on timetospa.com. The Company recognizes the estimated net amount of the rewards that will be earned and redeemed as a reduction to net sales at the time of the initial transaction and as tender when the points are subsequently redeemed by a customer. The liability for customer loyalty programs was not material as of September 30, 2021 and December 31, 2020.

Contract Balances

Receivables from the Company’s contracts with customers are included within accounts receivables, net. Such amounts are typically remitted to us by our cruise line or destination resort partners, except for online sales, and are net of commissions they withhold. Although paid by our cruise line partners, customers are typically required to pay with major credit cards, reducing our credit risk to individual customers. Amounts are billed immediately, and our cruise line and destination resort partners typically remit payments to us within 30 days. As of September 30, 2021 and December 31, 2020, our receivables from contracts with customers were $14.5 million and $3.0 million, respectively. Our contract liabilities for gift cards and customer loyalty programs are described above.

Disaggregation of Revenue and Segment Reporting

The Company operates facilities on cruise ships and in destination resorts, where we provide health and wellness, fitness and beauty services and sell related products. The Company’s Maritime and Destination Resorts operating segments are aggregated into a single reportable segment based upon similar economic characteristics, products, services,

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customers and delivery methods. Additionally, the Company’s operating segments represent components of the Company for which separate financial information is available that is utilized on a regular basis by the chief executive officer, who is the Company’s chief operating decision maker (CODM), in determining how to allocate the Company’s resources and evaluate performance. The following table disaggregates the Company’s revenues by revenue source and operating segment (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Service revenues:
Maritime	$	27,072	$	130	$	28,186	$	81,062
Destination resorts		7,772		978		18,910		9,833
Total service revenues		34,844		1,108		47,096		90,895
Product revenues:
Maritime		7,766		7		8,209		23,132
Destination resorts		575		111		1,538		988
Timetospa.com		450		563		1,537		2,079
Total product revenues		8,791		681		11,284		26,199
Total revenues	$	43,635	$	1,789	$	58,380	$	117,094

8. SEGMENT AND GEOGRAPHICAL INFORMATION

The Company operates facilities on cruise ships and in destination resort health and wellness centers, which provide health and wellness services and sell beauty products onboard cruise ships and in destination resort health and wellness centers. The Company’s Maritime and Destination Resorts operating segments are aggregated into a single reportable segment based upon similar economic characteristics, products, services, customers and delivery methods. Additionally, the Company’s operating segments represent components of the Company for which separate financial information is available that is utilized on a regular basis by the chief executive officer, who is the Company’s CODM, in determining how to allocate the Company’s resources and evaluate performance.

The basis for determining the geographic information below is based on the countries in which the Company operates. The Company is not able to identify the country of origin for the customers to which revenues from cruise ship operations relate. Geographic information is as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenues:
U.S.	$	5,070	$	1,185	$	12,446	$	9,312
Not connected to a country		34,830		136		36,397		101,910
Other		3,735		468		9,537		5,872
Total	$	43,635	$	1,789	$	58,380	$	117,094

	As of
	September 30, 2021		December 31, 2020
Property and equipment, net:
U.S.	$	6,173	$	7,145
Not connected to a country		5,423		6,242
Other		2,313		3,669
Total	$	13,909	$	17,056

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9. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents the changes in accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2021 and 2020, respectively (in thousands):

	Accumulated Other Comprehensive Income (Loss) for the Nine Months Ended September 30, 2021									Accumulated Other Comprehensive Income (Loss) for the Nine Months Ended September 30, 2020
	Foreign Currency Translation Adjustments			Changes Related to Cash Flow Derivative Hedge (1)			Accumulated Other Comprehensive Loss				Foreign Currency Translation Adjustments			Changes Related to Cash Flow Derivative Hedge (1)			Accumulated Other Comprehensive Loss
Accumulated other comprehensive (loss) income, beginning of period	$	(560	)	$	(4,915	)	$	(5,475	)		$	(183	)	$	902		$	719
Other comprehensive (loss) income before reclassifications		(90	)		629			539				(215	)		(7,179	)		(7,394	)
Amounts reclassified from accumulated other comprehensive loss		-			1,456			1,456				-			888			888
Net current period other comprehensive (loss) income		(90	)		2,085			1,995				(215	)		(6,291	)		(6,506	)
Accumulated other comprehensive loss, end of period	$	(650	)	$	(2,830	)	$	(3,480	)		$	(398	)	$	(5,389	)	$	(5,787	)

(1) See Note 10.

10. FAIR VALUE MEASUREMENTS AND DERIVATIVES

Fair Value Measurements

The fair value of outstanding long-term debt as of September 30, 2021 and December 31, 2020 is estimated using a discounted cash flow analysis based on current market interest rates for debt issuances with similar remaining years-to-maturity and adjusted for credit risk, which represents a Level 3 measurement in the fair value hierarchy. The carrying amounts and estimated fair values of the Company's long-term debt were as follows (in thousands):

	September 30, 2021				December 31, 2020
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
First lien term loan facility	$	202,457	$	200,930	$	202,457	$	188,560
Second lien term loan facility		25,000		24,490		25,000		20,950
First lien revolving facility		7,000		6,930		7,000		6,680
Total debt (a)	$	234,457	$	232,350	$	234,457	$	216,190

(a) The debt amounts above do not include the impact of the interest rate swap or debt issuance costs.

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Assets and liabilities that are recorded at fair value have been categorized based upon the fair value hierarchy. The following table presents information about the Company’s financial instruments recorded at fair value on a recurring basis (in thousands):

		Fair Value Measurements at September 30, 2021								Fair Value Measurements at December 31, 2020
Description	Balance Sheet Location	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Liabilities:
Derivative financial instruments (1)	Other current liabilities	$	1,562	$	-	$	1,562	$	-	$	1,796	$	-	$	1,796	$	-
Warrants	Warrant liabilities		104,200		-		104,200				104,700		-		104,700		-
Derivative financial instruments (1)	Other long term liabilities		1,268		-		1,268		-		3,119		-		3,119		-
Total liabilities		$	107,030	$	-	$	107,030	$	-	$	109,615	$	-	$	109,615	$	-

(1) Consists of an interest rate swap.

Warrants

Public Warrants and 2020 PIPE Warrants

The fair value of the Public Warrants and 2020 PIPE Warrants are considered a Level 2 valuation and are determined using the Monte Carlo model. The significant assumptions which the Company used in the model are:

	September 30, 2021						December 31, 2020
	Public Warrants			2020 PIPE Warrants			Public Warrants			2020 PIPE Warrants
Stock price	$	9.97		$	9.97		$	10.14		$	10.14
Strike price	$	11.50		$	5.75		$	11.50		$	5.75
Remaining life (in years)		2.47			3.70			3.22		4.45
Volatility		63.0	%		63.0	%		54.0	%		54.0	%
Interest rate		0.4	%		0.7	%		0.2	%		0.3	%
Redemption price	$	18.00		$	14.50		$	18.00		$	14.50

Sponsor Warrants

The fair value of the Sponsor Warrants is considered a Level 2 valuation and is determined using the Black-Sholes model. The significant assumptions which the Company used in the model are:

	September 30, 2021			December 31, 2020
Stock price	$	9.97		$	10.14
Strike price	$	11.50		$	11.50
Remaining life (in years)		2.47			3.22
Volatility		63.0	%		54.0	%
Interest rate		0.4	%		0.2	%
Dividend yield		0.0	%		0.0	%

Derivatives

Market risk associated with the Company’s long-term floating rate debt is the potential increase in interest expense from an increase in interest rates. The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. These instruments are recorded on the balance sheet at their fair value and are designated as hedges. The financial impact of these hedging instruments is primarily offset by corresponding changes in the underlying exposures being hedged.

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The Company assesses whether derivatives used in hedging transactions are “highly effective” in offsetting changes in the cash flow of its hedged forecasted transactions. The Company uses regression analysis for this hedge relationship and high effectiveness is achieved when a statistically valid relationship reflects a high degree of offset and correlation between the fair values of the derivative and the hedged forecasted transaction. Cash flows from the derivatives are classified in the same category as the cash flows from the underlying hedged transaction. These agreements involve the receipt of variable-rate amounts in exchange for fixed-rate interest payments over the life of the respective agreement without an exchange of the underlying notional amount. The Company classifies derivative instrument cash flows from hedges of benchmark interest rate as operating activities due to the nature of the hedged item. Gains and losses on derivatives that are designated as cash flow hedges are recorded as a component of Accumulated other comprehensive income (loss) until the underlying hedged transactions are recognized in earnings. If it is determined that the hedged forecasted transaction is no longer probable of occurring, then the amount recognized in accumulated other comprehensive income (loss) is released to earnings.

The Company monitors concentrations of credit risk associated with financial and other institutions with which the Company conducts significant business. Credit risk, including, but not limited to, counterparty nonperformance under derivatives, is not considered significant, as the Company primarily conducts business with large, well-established financial institutions with which the Company has established relationships, and which have credit risks acceptable to the Company. The Company does not anticipate non-performance by its counterparty. The amount of the Company’s credit risk exposure is equal to the fair value of the derivative when any of the derivatives are in a net gain position.

In September 2019, the Company entered into a floating-to-fixed interest rate swap agreement to make a series of payments based on a fixed interest rate of 1.457% and receive a series of payments based on the greater of 1 Month USD LIBOR or Strike which is used to hedge the Company’s exposure to changes in cash flows associated with its variable rate Term Loan Facilities and has designated this derivative as a cash flow hedge. Both the fixed and floating payment streams are based on a notional amount of $174.7 million at the inception of the contract.

The interest rate swap agreement has a maturity date of September 19, 2024. As of September 30, 2021 and December 31, 2020, the notional amount is $134.7 million and $151.4 million, respectively. There was no ineffectiveness related to the interest rate swaps. The gain or loss on the derivative is recorded as a component of accumulated other comprehensive income (loss) and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. The Company expects to reclassify $1.6 million of income from accumulated other comprehensive income (loss) into interest expense within the next twelve months.

The fair value of the interest rate swap contract is measured on a recurring basis by netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on the expectation of future interest rates (forward curves) derived from observable market interest rate curves. The interest rate swap contract was categorized as Level 2 in the fair value hierarchy. The Company is not required to post cash collateral related to this derivative instrument.

The effect of the interest rate swap contract designated as cash flows hedging instrument on the condensed consolidated financial statements was as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021		2020
(Losses) gain recognized in accumulated other comprehensive income (loss)	$	(75	)	$	(126	)	$	629	$	(7,179	)
Gains reclassified from accumulated other comprehensive income (loss) to interest expense	$	475		$	519		$	1,456	$	888

Nonfinancial Instruments that are Measured at Fair Value on a Nonrecurring Basis

Valuation of Goodwill and Trade Name

For the nine months ended September 30, 2020, we recognized goodwill impairment charges of $190 million for our two segment reporting units and an impairment charge of $0.7 million for the trade name (See “Note 3”). The determination of our reporting units' goodwill and trade name fair values includes numerous assumptions that are subject to various risks and uncertainties. We believe that we have made reasonable estimates and judgments. A change in the principal assumptions which influences the determination of fair value of our trade name, may result in a need to recognize an additional impairment charge.

The principal assumptions, all of which are considered Level 3 inputs and the valuation techniques used for the nine months ended September 30, 2020 consisted of:

• We applied the income approach to estimate the fair value of the reporting units. The income approach estimates the fair value by discounting each reporting unit’s estimated future cash flows using the company estimate of the discount rate, or expected return, that a

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market participant would have required as of the valuation date. Significant assumptions in the income approach include the estimated future net annual cash flows for each reporting unit and the discount rate. The discount rates utilized to value the Maritime and Destination Resorts reporting units were approximately 14% and 12.5%, respectively, which were determined depending on the risk and uncertainty inherent in the respective reporting unit.

• The trade name was valued through application of the relief from royalty. Under this method, a royalty rate is applied to the revenues associated with the trade name to capture value associated with use of the name as if licensed. The resulting royalty savings are then discounted to present fair value at rates reflective of the risk and return expectations of the interests to derive its fair value as of the impairment testing date.

11. INCOME TAXES

The Company recorded an income tax expense of approximately $0.1 million, $0.2 million and $1.4 million for the three months ended September 30, 2021, for the nine months ended September 30, 2021 and for the nine months ended September 30, 2020, respectively. For the three months ended September 30, 2020, we recorded a tax benefit of approximately $0.4 million. The difference between the expected provision for income taxes using the 21% U.S. federal income tax rate and the Company’s actual provision is primarily attributable to the change in valuation allowance, foreign rate differential including income earned in jurisdictions not subject to income taxes and withholding taxes due in various jurisdictions.  

12. COMMITMENTS AND CONTINGENCIES

We are routinely involved in legal proceedings, disputes, regulatory matters, and various claims and lawsuits that have been filed or are pending against us, including as noted below, arising in the ordinary course of our business. Most of these claims and lawsuits are covered by insurance and, accordingly, the maximum amount of our liability is typically limited to our deductible amount. Nonetheless, the ultimate outcome of those claims and lawsuits that are not covered by insurance cannot be determined at this time. We have evaluated our overall exposure with respect to all of our legal proceedings, threatened and pending litigation and, to the extent required, we have accrued amounts for all estimable probable losses associated with our deemed exposure. We are currently unable to estimate any other potential contingent losses beyond those accrued, as discovery is not complete and adequate information is not available to estimate such range of loss or potential recovery. However, based on our current knowledge, we do not believe that the aggregate amount or range of reasonably possible losses with respect to these matters will be material to our consolidated results of operations, financial condition or cash flows. We intend to vigorously defend our legal position on all claims and, to the extent necessary, seek recovery.

In February 2020, the Company received a formal assessment of $1.9 million by a foreign tax authority over how the value added tax (“VAT”) law was applied on the change in the ultimate beneficial ownership of one of our subsidiaries as result of the business combination in March 2019. The Company is disputing the assessment and has recorded an accrual of $1.2 million for this matter as of September 30, 2021 and December 31, 2020, and is included in “Accrued expenses” on the Company's condensed consolidated balance sheets. The Company believes the ultimate outcome of this matter will not have a material adverse impact on the consolidated financial statements.

13. SUBSEQUENT EVENTS

At-The-Market Equity (“ATM”) Offering

On October 1, 2021, we sold 350,000 shares under the ATM Sales Agreement for net proceeds of $3.5 million. As of November 5, 2021, shares representing approximately $10 million remain available for sale under the ATM Sales Agreement.

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

Overview

In addition to historical information, the following discussion contains forward-looking statements, such as statements regarding our expectation for future performance, liquidity and capital resources that involve risks, uncertainties and assumptions that could cause actual results to differ materially from those contained in or implied by any forward-looking statements. Factors that could cause such differences include those identified below and those described in the sections entitled “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” herein and in “Risk Factors” in our Form 10-K/A for the fiscal year ended December 31, 2020. We assume no obligation to update any of these forward-looking statements.

Due to the global impact of COVID-19, we experienced a near cessation of our operations commencing in the first quarter of 2020. We cannot fully predict the continuing impacts of COVID-19 on the industry or on our business. Despite this uncertainty, we believe we have certain strengths that have positioned us as a leader in the hospitality-based health and wellness industry and to participate in the recovery of the cruise industry and the hospitality industry.

OneSpaWorld Holdings Limited (“OneSpaWorld,” the “Company,” “we,” “our, “us” and other similar terms refer to OneSpaWorld Holdings Limited and its consolidated subsidiaries) is the pre-eminent global operator of health and wellness centers onboard cruise ships and a leading operator of health and wellness centers at destination resorts worldwide. Prior to the near cessation of our operations due to COVID-19, our highly trained and experienced staff offered guests a comprehensive suite of premium health, fitness, beauty and wellness services and products onboard cruise ships and at destination resorts globally. We are the market leader at more than 20x the size of our closest maritime competitor. Over the last 50 years, we have built our leading market position on our depth of staff expertise, broad and innovative service and product offerings, expansive global recruitment, training and logistics platform as well as decades-long relationships with cruise line and destination resort partners. Throughout our history, our mission has been simple: helping guests look and feel their best during and after their stay.

At our core, we are a global services company. We serve a critical role for our cruise line and destination resort partners, operating a complex and increasingly important aspect of our cruise line and destination resort partners’ overall guest experience. Decades of investment and know-how have allowed us to construct an unmatched global infrastructure to manage the complexity of our operations. We have consistently expanded our onboard offerings with innovative and leading-edge service and product introductions, and developed the powerful back-end recruiting, training and logistics platforms to manage our operational complexity, maintain our industry-leading quality standards, and maximize revenue and profitability per center. The combination of our renowned recruiting and training platform, deep proprietary labor pool, global logistics and supply chain infrastructure and proven health and wellness center and revenue management capabilities represents a significant competitive advantage that we believe is not economically feasible to replicate.

A significant portion of our revenues are generated from our cruise ship operations. Historically, we have been able to renew almost all of our cruise line agreements that expired or were scheduled to expire. In 2019, we signed an agreement with Celebrity Cruises as the exclusive operator of health and wellness centers on Celebrity’s entire fleet, increasing the Celebrity vessels on which we operated in 2020 by nine, extended our current agreement with Norwegian Cruise Lines through 2024, won a contract with the new lifestyle brand Virgin Voyages to operate the spa and wellness offerings onboard Virgin vessels, and entered into an amended agreement with P&O Cruises to extend our operations on P&O’s vessels for the next five years. In August 2021, we extended our current agreement with Azamara through May 2026.

In December 2019, COVID-19 was initially reported in Wuhan, China. Shortly thereafter, the World Health Organization declared COVID-19 to be a “Public Health Emergency of International Concern” affecting all parts of the world on a global-scale. On October 30, 2020, the U.S. Centers for Disease Control and Prevention (“CDC”) issued its Framework for Conditional Sailing Order, which outlines a phased approach for gradually permitting cruise ship passenger operations in U.S. waters, subject to certain conditions and guidelines. On October 25, 2021, the CDC announced a temporary extension to the Framework for Conditional Sailing Order through January 15, 2022, due to the continued spread of the Delta variant. After the expiration of this extension, the CDC intends to transition to a voluntary program, in coordination with the cruise ship operators and other stakeholders, to assist the cruise industry to detect, mitigate, and control the spread of COVID-19 onboard cruise ships. As of the date of this report, the Conditional Sailing Order and related measures, such as technical guidelines, operate as nonbinding recommendations for cruise lines arriving in or departing from a port in Florida, which most Florida-porting ships have chosen to voluntarily follow. We are continuing to review the CDC’s guidelines in connection with the Framework for Conditional Sailing Order as well as monitor the actions of our cruise line partners with respect to the status of the voluntary suspension of cruise sailings. We also believe that there have been positive developments around the availability and widespread distribution of effective COVID-19 vaccines, which we believe will be important to achieve historical occupancy levels of our cruise line and resorts partners.

While the ongoing roll-out of vaccines across a number of countries is a promising milestone in global efforts to contain and eliminate COVID-19, material uncertainties remain, including, without limitation, whether additional vaccines or vaccine booster shots will receive regulatory approval, the risk of differing interpretations and assessments by the scientific community during the peer review/publication process, widespread adoption of the vaccines by consumers, the availability of raw materials needed to manufacture vaccines in sufficient qualities and challenges in the storage, distribution and administration of vaccines. Additionally, new COVID-19 variants have emerged in recent months that

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have increased, and may continue to increase, the infection of both vaccinated and unvaccinated persons, have increased, and may continue to increase, the spread of COVID-19, may reduce vaccine effectiveness, and may prolong the duration and exacerbate the negative impact on our business of the pandemic.

The global spread of the COVID-19 pandemic is complex and rapidly-evolving, with governments, public institutions and other organizations imposing or recommending, and businesses and individuals implementing, differing restrictions on various activities or other actions to combat its spread, such as restrictions and bans on travel or transportation, limitations on the size of gatherings, closures of work facilities, schools, public buildings and businesses, cancellation of events, including sporting events, conferences and meetings, and quarantines and lock-downs, among other actions that have had and may continue to have a material negative impact on our business. The COVID-19 pandemic is currently impacting global operations in the travel and hospitality industry worldwide by necessitating the closure or restricted operations of destination resorts, travel and hospitality services and significantly reducing demand worldwide for travel and hospitality services. We are unable to predict the global duration, severity and adverse impact of COVID-19; however it has had, and we anticipate that it will continue to have, a material negative impact on our business, results of operations and financial condition in 2021.

Key Performance Indicators

In assessing the performance of our business, we consider several key performance indicators used by management. These key indicators include:

• Ship Count. The number of ships, both on average during the period and at period end, on which we operate health and wellness centers. This is a key metric that impacts revenue and profitability.

• Average Weekly Revenue Per Ship. A key indicator of productivity per ship. Revenue per ship can be affected by the various sizes of health and wellness centers and categories of ships on which we serve.

• Average Revenue Per Shipboard Staff Per Day. We utilize this performance metric to assist in determining the productivity of our onboard staff, which we believe is a critical element of our operations.

• Destination Resort Count. The number of destination resorts, both on average during the period and at period end, on which we operate the health and wellness centers. This is a key metric that impacts revenue and profitability.

• Average Weekly Revenue Per Destination Resort Health and Wellness Center. A key indicator of productivity per destination resort health and wellness center. Revenue per destination resort health and wellness center in a period can be affected by the mix of U.S. and Caribbean and Asian centers for such period because U.S. and Caribbean centers are typically larger and produce substantially more revenues per center than Asian centers. Additionally, average weekly revenue can also be negatively impacted by renovations of our destination resort health and wellness centers.

The Company is not reporting the financial indicators above due to the effect of COVID-19 on its business, as the comparison of these key performance indicators for the three and nine months ended September 30, 2021 to the respective prior periods is not meaningful.

Key Financial Definitions

Revenues. Revenues consist primarily of sales of services and sales of products to cruise ship passengers and destination resort guests. The following is a brief description of the components of our revenues:

• Service revenues. Service revenues consist primarily of sales of health and wellness services, including a full range of massage treatments, facial treatments, nutritional/weight management consultations, teeth whitening, mindfulness services and medi-spa services to cruise ship passengers and destination resort guests. We bill our services at rates which inherently include an immaterial charge for products used in the rendering of such services, if applicable.

• Product revenues. Product revenues consist primarily of sales of health and wellness products, such as facial skincare, body care, orthotics and detox supplements to cruise ship passengers, destination resort guests and timetospa.com customers.

Cost of services. Cost of services consists primarily of an allocable portion of payments to cruise lines (which are derived as a percentage of service revenues or a minimum annual rent or a combination of both), an allocable portion of wages paid to shipboard employees, an allocable portion of staff-related shipboard expenses, costs related to recruitment and training of shipboard employees, wages paid directly to destination resort employees, payments to destination resort venue owners, the allocable cost of products consumed in the rendering of a service and health and wellness center depreciation. Cost of services has historically been highly variable; increases and decreases in cost of services are primarily attributable to a corresponding increase or decrease in service revenues. Cost of services has tended to remain consistent as a percentage of service revenues.

Cost of products. Cost of products consists primarily of the cost of products sold through our various methods of distribution, an allocable portion of wages paid to shipboard employees and an allocable portion of payments to cruise lines and destination resort partners (which are derived as a percentage of product revenues or a minimum annual rent or a combination of both). Cost of products has historically

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been highly variable, increases and decreases in cost of products are primarily attributable to a corresponding increase or decrease in product revenues. Cost of products has tended to remain consistent as a percentage of product revenues.

Administrative. Administrative expenses are comprised of expenses associated with corporate and administrative functions that support our business, including fees for professional services, insurance, headquarters rent and other general corporate expenses.

Salary and payroll taxes. Salary and payroll taxes are comprised of employee expenses associated with corporate and administrative functions that support our business, including fees for employee salaries, bonuses, payroll taxes, pension/401(k) and other employee costs.

Amortization of intangible assets. Amortization of intangible assets are comprised of the amortization of intangible assets with definite useful lives (e.g. retail concession agreements, destination resort agreements, licensing agreements) and amortization expenses associated with prior Transactions.

Other income (expense), net. Other income (expense) consists of royalty income, interest income, interest expense, changes in the fair value of warrant liabilities, and noncontrolling interest expense.

Provision for income taxes. Provision for income taxes includes current and deferred federal income tax expenses, as well as state and local income taxes. See “—Critical Accounting Policies—Income Taxes” included in our Form 10-K/A for the year ended December 31, 2020 (the “2020 10-K/A”).

Net income. Net income consists of income from operations less other income (expense) and provision for income taxes.

Revenue Drivers and Business Trends

Our revenues and financial performance are impacted by a multitude of factors, including, but not limited to:

• The impact of COVID-19. Our health and wellness centers onboard cruise ships and in select destination resorts have been and continue to be negatively affected by the COVID-19 pandemic.

• The number of ships and destination resorts in which we operate health and wellness centers. Revenue is impacted by net new ship growth, ships out of service, unanticipated dry-docks, ships prevented from sailing due to outbreaks of illnesses, such as the COVID-19 pandemic, the schedule of ships returning to service of which COVID-19 caused cessation of sailing, and the number of destination resort health and wellness centers operating in each period.

• The size and offerings of new health and wellness centers. We have focused our attention on the innovation and provision of higher value added and price point services such as medi-spa and advanced facial techniques, which require treatment rooms equipped with specific equipment and staff trained to perform these services. As our cruise line partners continue to invest in new ships with enhanced health and wellness centers that allow for more advanced treatment rooms and larger staff sizes, we are able to increase the availability of these services, driving an overall shift towards a more attractive service mix.

• Expansion of value-added services and products across modalities in existing health and wellness centers. We continue to expand our higher value added and price point offerings in existing health and wellness centers, including introducing premium medi-spa services, resulting in higher guest spending.

• The mix of ship count across contemporary, premium, luxury and budget categories. Revenue generated per shipboard health and wellness center differs across contemporary, premium, luxury and budget ship categories due to the size of the health and wellness centers, services offered, guest demographics and guest spending patterns.

• The mix of cruise geography and itinerary. Revenue generated per shipboard health and wellness center is influenced by each cruise itinerary including the number of sea versus port days, which impacts center utilization, as well as the geographic sailing region which may impact offerings of services and products to best address guest preferences.

• Collaboration with cruise line partners, including targeted marketing and promotion initiatives, as well as implementation of proprietary technologies to increase center utilization via pre-booking and pre-payment. We are now directly marketing and distributing promotions to onboard passengers as a result of enhanced collaboration with select cruise line partners. We have also begun to implement proprietary pre-booking and pre-payment technology platforms that interface with our cruise line partners’ pre-cruise planning systems. These areas of increased collaboration with select cruise line partners are resulting in higher revenue generation across our health and wellness centers.

• The impact of weather. Our health and wellness centers onboard cruise ships and in select destination resorts may be negatively affected by hurricanes, which may be increasing in frequency and intensity due to climate change. The negative impact of hurricanes is highest during peak hurricane season from August to October.

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The effect of each of these factors on our revenues and financial performance varies from period to period, but we expect the COVID-19 pandemic to continue to negatively impact our revenues and financial performance throughout the rest of 2021 and thereafter.

Recent Accounting Pronouncements

Refer to Note 2 to the Condensed Consolidated Financial Statements in this report for a discussion of recent accounting pronouncements.

Results of Operations

	Three Months Ended September 30, 2021			% of Total Revenue			Three Months Ended September 30, 2020 (as restated)			% of Total Revenue
(dollars in thousands, except per share amounts)
REVENUES:
Service revenues	$	34,844			80	%	$	1,108			62	%
Product revenues		8,791			20	%		681			38	%
Total revenues		43,635			100	%		1,789			100	%
COST OF REVENUES AND OPERATING    EXPENSES:
Cost of services		33,157			76	%		7,191			402	%
Cost of products		8,395			19	%		1,467			82	%
Administrative		3,363			8	%		3,792			212	%
Salary and payroll taxes		6,676			15	%		4,504			252	%
Amortization of intangible assets		4,206			10	%		4,206			235	%
Goodwill and tradename intangible assets impairment		—			0	%		—			0	%
Total cost of revenues and operating expenses		55,797			128	%		21,160			1183	%
Loss from operations		(12,162	)		-28	%		(19,371	)		-1083	%
OTHER (EXPENSE) INCOME, NET:
Interest expense and warrants issuance cost		(3,151	)		-7	%		(3,464	)		-194	%
Change in fair value of warrant liabilities		3,100			7	%		(25,100	)		-1403	%
Total other (expense) income, net		(51	)		-0	%		(28,564	)		-1597	%
Loss before tax expense (benefit)		(12,213	)		-28	%		(47,935	)		-2679	%
INCOME TAX EXPENSE (BENEFIT)		129			0	%		(388	)		-22	%
NET LOSS	$	(12,342	)		-28	%	$	(47,547	)		-2658	%
NET LOSS PER VOTING AND NON-VOTING SHARE:
Basic	$	(0.14	)				$	(0.56	)
Diluted	$	(0.14	)				$	(0.56	)
WEIGHTED-AVERAGE SHARES OUTSTANDING:
Basic		90,852						84,968
Diluted		90,852						84,968

Comparison of Results for the three months ended September 30, 2021 compared to three months ended September 30, 2020 (as restated)

Results of operations in the third quarter of 2021 continued to be materially adversely impacted by the COVID-19 pandemic that resulted in cancellation of all of the Company’s voyages and the closing of many destination resort health and wellness centers as of the end of the first quarter of 2020. As of September 30, 2021, our operations had resumed on 78 cruise ships and in 45 destination resort spas. Accordingly, we believe that the comparison of these results to the three months ended September 30, 2020 is not meaningful.

Revenues. Revenues for the three months ended September 30, 2021 and 2020 were $43.6 million and $1.8 million, respectively. The three months ended September 30, 2021 revenues were derived primarily from the 78 health and wellness centers onboard ships and our 45 open and operating destination resort health and wealth centers. Revenues for three months ended September 30, 2020 were negatively impacted by the COVID-19 pandemic and the resulting March 14, 2020 No Sail Order with revenues derived primarily from our e-commerce product sales through the Company’s timetospa.com website.

The break-down of revenue growth between service and product revenues was as follows:

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•Service revenues. Service revenues for the three months ended September 30, 2021 were $34.8 million, an increase of $33.7 million, or 3,045%, compared to $1.1 million for the three months ended September 30, 2020. The increase is related to health and wellness centers having resumed operations in the third quarter of 2021, whereas the substantial majority were closed in the third quarter of 2020.

•Product revenues. Product revenues for the three months ended September 30, 2021 were $8.8 million, an increase of $8.1 million, or 1,191%, compared to $0.7 million for the three months ended September 30, 2020. The increase is related to health and wellness centers having resumed operations in the third quarter of 2021, whereas the majority were closed in the third quarter of 2020.

Cost of services. Cost of services for the three months ended September 30, 2021 were $33.2 million, an increase of $26.0, million or 361%, compared to $7.2 million for the three months ended September 30, 2020. The increase was primarily attributable to costs associated with increased service revenues of $34.8 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.  

Cost of products. Cost of products for the three months ended September 30, 2021 were $8.4 million, an increase of $6.9 million, or 472%, compared to $1.5 million for the three months ended September 30, 2020. The increase was primarily attributable to costs associated with increased product revenues of $8.1 million in the quarter from our operating health and wellness centers at sea and on land together with a $2.0 million inventory reserve recorded in the current quarter to reflect the write-down of inventory that is expected to expire due to the extended pause in operations caused by the COVID-19 pandemic.

Administrative. Administrative expenses for the three months ended September 30, 2021 were $3.4 million, a decrease of $0.4 million, or 11% compared to $3.8 million for the three months ended September 30, 2020. The decrease was primarily attributable to the three months ended September 30, 2020 having increased professional fees.

Salary and payroll taxes. Salary and payroll taxes for the three months ended September 30, 2021 were $6.7 million, an increase of $2.2 million, or 48%, compared to $4.5 million for the three months ended September 30, 2020. The increase was primarily attributable to non-cash stock-based compensation expense and by higher corporate salaries due to removal of salary reductions and increased headcount as we return to operations. The three months ended September 30, 2021 had $2.1 million non-cash stock-based compensation expense compared to $1.1 million in the three months ended September 30, 2020.

Amortization of intangible assets. Amortization of intangible assets for the three months ended September 30, 2021 and 2020 were $4.2 million for both periods.

Other (expense) income, net. Other income (expense), net includes interest expense and warrants issuance cost and change in the fair value of the warrant liabilities. Interest expense and warrants issuance cost for the three months ended September 30, 2021 were an expense of ($51) thousand, a decrease of $28.5 million or 100%, compared to an expense of ($28.6) million for the three months ended September 30, 2020. The decrease was primarily attributable the $28.2 million change in fair value of the outstanding warrants between periods. During the three months ended September 30, 2021 the change in fair value of the outstanding warrants was a gain of $3.1 million compared to a loss of ($25.1) million during the three months ended September 30, 2020. The change in fair value of warrants is the result of changes in market prices deriving the value of the financial instruments.

Income tax expenses (benefit). Income tax expenses (benefit) for the three months ended September 30, 2021 were an expense of $129 thousand, an increase of $0.5 million, or 133%, compared to a benefit of ($0.4) million for the three months ended September 30, 2020.

Net loss. Net loss for the three months ended September 30, 2021 was $12.3 million, a decrease of $35.2 million, or 74%, compared to a loss of ($47.5) million for the three months ended September 30, 2020. The $35.2 million improvement in the third quarter of fiscal 2021 was primarily a result of a $7.2 million reduction in the Company’s loss from operations plus the $28.2 million positive change in the fair value of warrants. The change in fair value of warrants is the result of changes in market prices deriving the value of the financial instruments.

Comparison of Results for the Nine Months Ended September 30, 2021 and 2020 (as restated)

As discussed above, our results of operations for the nine months ended September 30, 2021 continued to be materially adversely impacted by the COVID-19 pandemic.

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	Consolidated
	Nine Months Ended September 30, 2021			% of Total Revenue			Nine Months Ended September 30, 2020 (as restated)			% of Total Revenue
(dollars in thousands, except per share amounts)
REVENUES:
Service revenues	$	47,096			81	%	$	90,895			78	%
Product revenues		11,284			19	%		26,199			22	%
Total revenues		58,380			100	%		117,094			100	%
COST OF REVENUES AND OPERATING    EXPENSES:
Cost of services		50,202			86	%		100,329			86	%
Cost of products		11,194			19	%		25,226			22	%
Administrative		12,069			21	%		13,315			11	%
Salary and payroll taxes		20,316			35	%		14,767			13	%
Amortization of intangible assets		12,618			22	%		12,618			11	%
Goodwill and tradename intangible assets impairment		—			0	%		190,777			163	%
Total cost of revenues and operating expenses		106,399			182	%		357,032			305	%
Loss from operations		(48,019	)		-82	%		(239,938	)		-205	%
OTHER (EXPENSE) INCOME, NET:
Interest expense and warrants issuance cost		(9,914	)		-17	%		(12,594	)		-11	%
Change in fair value of warrant liabilities		500			1	%		37,300			32	%
Total other (expense) income, net		(9,414	)		-16	%		24,706			21	%
Loss before tax expense		(57,433	)		-98	%		(215,232	)		-184	%
INCOME TAX EXPENSE		172			0	%		1,370			1	%
NET LOSS	$	(57,605	)		-99	%	$	(216,602	)		-185	%
NET LOSS PER VOTING AND NON-VOTING SHARE:
Basic	$	(0.64	)				$	(3.06	)
Diluted	$	(0.64	)				$	(3.06	)
WEIGHTED-AVERAGE SHARES OUTSTANDING:
Basic		89,559						70,737
Diluted		89,559						70,737

Revenues. Revenues for the nine months ended September 30, 2021 and 2020 were $58.4 million and $117.1 million, respectively. The 2021 decrease of $58.7 million, or 50%, was significantly driven by the COVID-19 pandemic, which resulted in the cancellation of all cruise ship voyages and closure of all destination resort health and wellness centers where we operate during mid-March 2020 through September 30, 2020. The nine months ended September 30, 2021 revenues were derived primarily from the resumption spas onboard ships and our destination resort health and wealth centers. As of September 30, 2021, 78 of our spas onboard ships had resumed operation with the majority of those coming into service during the third quarter and towards the end of the second quarter.

The break-down of revenue between service and product revenues was as follows:

•Service revenues. Service revenues for the nine months ended September 30, 2021 were $47.1 million, a decrease of $43.8 million, or 48%, compared to $90.9 million for the nine months ended September 30, 2020. The nine months ended September 30, 2020 included revenues before COVID-19 was declared a pandemic on March 10, 2020. The nine months ended September 30, 2021 included revenues related to the resumption of service at our destination resort health and wellness centers and 78 of our spas onboard ships which had resumed operation as of September 30, 2021, with the majority of those coming into service in the third quarter and towards the end of the second quarter.

•Product revenues. Product revenues for the nine months ended September 30, 2021 were $11.3 million, a decrease of $14.9 million, or 57%, compared to $26.2 million for the nine months ended September 30, 2020. The nine months ended September 30, 2020 included revenues before COVID-19 was declared a pandemic on March 10, 2020. The nine months ended September 30, 2021 included product sales revenues related to the resumption of service at our destination resort health and wellness centers and 78 of our spas onboard ships which had resumed operation as of September 30, 2021, with the majority of those coming into service in the third quarter and towards the end of the second quarter.

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Cost of services. Cost of services for the nine months ended September 30, 2021 were $50.2 million, a decrease of $50.1 million, or 50%, compared to $100.3 million for the nine months ended September 30, 2020. The decrease was primarily attributable to the decline in revenue due to the impact of the COVID-19 pandemic.

Cost of products. Cost of products for the nine months ended September 30, 2021 were $11.2 million, a decrease of $14.0 million, or 56%, compared to $25.2 million for the nine months ended September 30, 2020. The decrease was primarily attributable to the decline in product revenue due to the impact of the COVID-19 pandemic, partially offset by an increase of $0.9 million loss from inventories write-downs for the decline in the net realizable value of inventories, principally the result of excess, slow-moving, and expiration of inventories caused by the cessation of our cruise line partners’ operations and, consequently, our operations, due to the COVID-19 pandemic.

Administrative. Administrative expenses for the nine months ended September 30, 2021 were $12.1 million, a decrease of $1.2 million or 9%, compared to $13.3 million for the nine months ended September 30, 2020. The decrease was primarily attributable to the reduction in costs of recruitment and training of onboard staff necessitated by cancelled cruises in the nine months ended September 30, 2021, offset by higher professional fees.

Salary and payroll taxes. Salary and payroll taxes for the nine months ended September 30, 2021 were $20.3 million, an increase of $5.5 million, or 38%, compared to $14.8 million for the nine months ended September 30, 2020. The increase was primarily attributable to non-cash stock-based compensation expense. The nine months ended September 30, 2021 had $7.4 million non-cash stock-based compensation expense, compared to $2.0 million in the nine months ended September 30, 2020.

Amortization of intangible assets. Amortization of intangible assets for the nine months ended September 30, 2021 and 2020 were $12.6 million.

Goodwill and trade name impairment charges. Goodwill and trade name impairment charges for the nine months ended September 30, 2020 were $190.8 million. This was comprised of goodwill and trade name impairment charges of $190.1 million and $0.7 million, respectively.

Other (expense) income, net. Other income (expense) expenses, net includes interest expense and warrants issuance costs and changes in the fair value of the warrant liabilities. Interest expense and warrants issuance cost for the nine months ended September 30, 2021 were an expense of ($9.4) million, a decrease of ($34.1) million, or 138%, compared to income of $24.7 million for the nine months ended September 30, 2020. The decrease was primarily attributable the $36.8 million change in fair value of the outstanding warrants between periods. During the nine months ended September 30, 2021 the change in fair value of the outstanding warrants was a gain of $0.5 million compared to a gain of $37.3 million during the nine months ended September 30, 2020. The change in fair value of warrants is the result of changes in market prices deriving the value of the financial instruments. The decrease was partially offset by $1.4 million warrant issuance costs during the nine months ended September 30, 2020.

Income tax expenses. Income tax expenses for the nine months ended September 30, 2021 were $0.2 million, a decrease of $1.2 million, or 87%, compared to $1.4 million for the nine months ended September 30, 2020. The decrease was driven by a $1.7 million increase in valuation allowance related to the Company’s beginning-of-year deferred tax assets that are not realizable during the nine-month period ended September 30, 2020.

Net loss. Net loss for the nine months ended September 30, 2021 was $(57.6) million, a decrease in net loss of $159.0 million, or 73%, compared to a net loss of $(216.6) million for the nine months ended September 30, 2020. The decrease in the net loss principally resulted from the non-recurring $190.8 million goodwill and tradename intangible asset impairment charge recorded in 2020 period and partially offset by the $36.8 million change in the fair value of warrants versus the prior year nine-month period. The change in fair value of warrants is the result of changes in market prices deriving the value of the financial instruments.

Liquidity and Capital Resources

Overview

Due to the impact of COVID-19, we took and continue to take prudently aggressive actions to increase our financial flexibility, including closing all spas on cruise ships in the second quarter of 2020 where voyages had been cancelled, 78 of which have returned to service during the first three quarters of 2021, and closing all U.S., Caribbean-based and Asian based destination resort spas in the second quarter of 2020, certain of which reopened during the first three quarters of 2021 and the third and fourth quarters of 2020. Additionally, we have increased financial flexibility by securing and reallocating capital resources, including: (i) eliminating all non-essential operating and capital expenditures, (ii) withdrawing the Company dividend program until further notice, (iii) deferring payment of a dividend declared on February 26, 2020 until approved by the Board of Directors, (iv) the completion of the 2020 Private Placement on June 12, 2020; (v) borrowing $7 million, net, on our revolving credit facility, leaving $13 million available and undrawn; (vi) furloughing 96% of U.S. and Caribbean-based destination resort spa personnel and subsequently terminating the employment of 66% of such personnel, of which substantially all had returned to work as of September 30, 2021; (vii) furloughed 38% of corporate personnel and implemented salary reductions for all corporate personnel; as of September 30, 2021, the majority thereof had returned to work and no salary reductions remain in place for corporate personnel; and (viii) entering into an agreement to allow for the Company to operate its ATM Program, which permits the Company to sell, from time to time, common shares up to an aggregate offering price of $50.0 million, of which $10 million remains available under the ATM Program

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for future sale. Prior to the emergence of COVID-19 and its material adverse impact on our business, results of operations and financial condition, we had historically funded our operations with cash flow from operations.

The ATM Program described above is governed by an At-The-Market Offering Sales Agreement with Stifel Nicolaus & Company, entered into on December 7, 2020. Under the ATM Program, we may offer and sell, from time to time, common shares having an aggregate offering price of up to $50.0 million (the “ATM Shares”). Any ATM Shares sold under the ATM Program will be issued pursuant to the Company’s registration statement on Form S-3 (File No. 333-239628), which was declared effective by the SEC on July 22, 2020, the base prospectus filed as part of such registration statement, and the prospectus supplement, dated December 7, 2020 and filed by the Company with the SEC. During the year ended December 31, 2020, we issued and sold an aggregate of 1.3 million common shares at an average price of $9.18 per share for aggregate net proceeds of $11.1 million, which were net of equity issuance costs of $0.6 million. During the nine months ended September 30, 2021, we issued and sold an aggregate of 2.3 million common shares at an average price of $10.86 per share for aggregate net proceeds of $24.0 million, which were net of equity issuance costs of $0.8 million. As of September 30, 2021, $13.6 million remained available under the ATM program. Subsequent to September 30, 2021, the Company sold an additional 350,000 shares with gross proceeds of $3.6 million, with $10.0 million remaining available under the ATM program as of November 5, 2021.

Our principal uses for liquidity have been debt service and working capital. We expect that as our cruise line partners resume operations, we will have increased costs related to the redeployment of employees to sailing locations and other costs associated with resuming our operations.

Taking into account the costs described above, our current resources and vessels expected to return to sailing, we have concluded that we will have sufficient liquidity to satisfy our obligations over the next twelve months and comply with all debt covenants as required by our debt agreements.

Cash Flows

The following table shows summary cash flow information for the nine months ended September 30, 2021 and 2020.

(in thousands)	Nine Months Ended September 30, 2021			Nine Months Ended September 30, 2020 (as restated)
Net loss	$	(57,605	)	$	(216,602	)
Depreciation and amortization		16,859			18,271
Goodwill and tradename intangible asset impairment		—			190,777
Amortization of deferred financing costs		770			770
Warrants issuance cost		—			1,386
Change in fair value of warrant liabilities		(500	)		(37,300	)
Stock-based compensation		7,419			1,960
Provision for doubtful accounts		32			167
Loss from inventories write-downs		2,000			1,090
Loss from write-offs of property and equipment		178			90
Deferred income taxes		107			1,671
Change in working capital		(720	)		17,612
Cash Flow Used in Operating Activities		(31,460	)		(20,108	)
Capital expenditures		(1,306	)		(1,794	)
Cash Flow Used in Investing Activities		(1,306	)		(1,794	)
Proceeds from At-the Market Equity Offering, net of issuance costs paid		24,003			—
Proceeds from 2020 private placement, net of issuance costs paid		—			68,602
Proceeds from revolver facility		—			20,000
Repayment on revolver facility		—			(13,000	)
Purchase of public warrants		—			(879	)
Dividend paid on common stock		—			(2,445	)
Cash paid to acquire noncontrolling interest		—			(10,810	)
Distribution to noncontrolling interest		—			(4,011	)
Cash Flow from Financing Activities		24,003			57,457
Effect of exchange rates		(107	)		(204	)
Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash	$	(8,870	)	$	35,351

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Comparison of Results for the nine months ended September 30, 2021 and 2020 (as restated)

Operating activities. Our net cash used in operating activities for the nine months ended September 30, 2021 and 2020, were $(31.4) million and $(20.1) million, respectively. In the nine months ended September 30, 2021, the Company incurred a cash deficit as it had lower revenue generation on cruise ships due to the COVID-19 pandemic, while still incurring operating expenses.

Investing activities. Our net cash used in investing activities for the nine months ended September 30, 2021 and 2020 were $(1.3) million and $(1.8) million, respectively. In the nine months ended September 30, 2021, the Company incurred less capital expenditures due to the COVID-19 pandemic and eliminating all non-essential capital expenditures as compared to the nine months ended September 30, 2020.

Financing activities. Our net cash provided by financing activities for the nine months ended September 30, 2021 and 2020 were $24.0 million and $57.5 million, respectively. For the nine months ended September 30, 2021, the Company sold 2.3 million common shares under the ATM Program, resulting in $24.0 million in net proceeds. In the nine months ended September 30, 2020, the Company closed the 2020 Private Placement ($68.6 million proceeds through September 30, 2020, net of issuance costs paid), paid $2.4 million in dividends on common stock, purchased the 40% noncontrolling interest of Medispa Limited for $12.3 million in a combination of $10.8 million in cash and 98,753 shares of the Company’s common stock at a share price of $15.26, and borrowed a net $7.0 million under the First Lien Revolving Facility due to COVID-19.

Seasonality

Prior to the COVID-19 pandemic, a significant portion of our revenues were generated onboard cruise ships. We experienced varying degrees of seasonality as the demand for cruises is stronger in the Northern Hemisphere during the summer months and during holidays. Accordingly, the third quarter and holiday periods generally resulted in the highest revenue yields for us. Further, cruises and destination resorts have been negatively affected by the frequency and intensity of hurricanes. The negative impact of hurricanes in the Northern Hemisphere is highest during peak hurricane season from August to October. Seasonality has not been a factor impacting our operations during the period to date of the COVID-19 pandemic. We expect seasonality factors impacting our operations will reoccur at such time as the COVID-19 pandemic substantially abates.

Contractual Obligations

As of September 30, 2021, our future contractual obligations have not changed significantly from the amounts included within our 2020 10-K/A.

Critical Accounting Policies

Management’s discussion and analysis of financial condition and results of operations is based upon our condensed consolidated unaudited financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated unaudited financial statements and the reported amount of revenues and expenses during the reporting period. Actual results may differ from these estimates under different assumptions or conditions. At least quarterly, management reevaluates its judgments and estimates, which are based on historical experience, current trends and various other assumptions that are believed to be reasonable under the circumstances.

Our critical accounting policies are included in our 2020 10-K/A. We believe that there have been no significant changes during the three months ended September 30, 2021 to the critical accounting policies disclosed in our 2020 10-K/A.

Off-Balance Sheet Arrangements

Other than the operating lease arrangements described in our 2020 10-K/A, we have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, income or expenses, results of operations, liquidity, capital expenditures or capital resources.

Inflation and Economic Conditions

We do not believe that inflation has had a material adverse effect on our revenues or results of operations. However, public demand for activities, including cruises, is influenced by general economic conditions, including inflation, global health epidemics/pandemics and customer preferences. Periods of economic softness could have a material adverse effect on the cruise industry and hospitality industry upon which we are dependent. Such a slowdown could adversely affect our results of operations and financial condition. The COVID-19 pandemic has negatively impacted our business, operations, results of operations and financial condition in 2020 and 2021. Recurrence of the more severe aspects of the recent adverse economic conditions, including a further escalation of the COVID-19 outbreak, as well as periods of fuel price increases, could have a material adverse effect on our results of operations and financial condition during the period of such recurrence. Weakness in the U.S. Dollar compared to the U.K. Pound Sterling and the Euro also could have a material adverse effect on our results of operations and financial condition.

30

Cautionary Statement Regarding Forward-Looking Statements

From time to time, including in this report and other disclosures, we may issue “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements reflect our current views about future events and are subject to known and unknown risks, uncertainties and other factors which may cause our actual results to differ materially from those expressed or implied by such forward-looking statements. We attempt, whenever possible, to identify these statements by using words like “will,” “may,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “forecast,” “future,” “intend,” “plan,” “estimate” and similar expressions of future intent or the negative of such terms. Such forward-looking statements include, but are not limited to, statements regarding:

• the impact of the COVID-19 pandemic on the Company’s business, results of operations and financial condition, including cash flows and liquidity;

• the Company’s plans to resume its business operations in accordance with the CDC’s guidelines in connection with the Framework for Conditional Sailing Order;

• the demand for the Company’s services and products, together with the possibility that the Company may be adversely affected by other economic, business, and/or competitive factors or changes in the business environment in which the Company operates;

• changes in consumer preferences or the market for the Company’s services and products;

• changes in applicable laws or regulations;

• competition for the Company’s services and products and the availability of competition for opportunities for expansion of the Company’s business;

• difficulties of managing growth profitably;

• the loss of one or more members of the Company’s management team;

• changes in the market for the services and products we offer for sale;

• other risks and uncertainties included from time to time in the Company’s reports, including the Company’s 2020 10-K/A, and all amendments to those reports, as filed with the U.S. Securities and Exchange Commission; and

• other statements preceded by, followed by or that include the words “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “target” or similar expressions.

These risks are discussed in further detail, along with other risks and uncertainties, in our 2020 10-K/A filed with the Securities and Exchange Commission. That report contains important cautionary statements and a discussion of many of the factors that could materially affect the accuracy of our forward-looking statements and/or adversely affect our business, results of operations and financial condition.

As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these risks. For a discussion of the risks involved in our business and investing in our common shares, see the section entitled “Risk Factors” in our 2020 10-K/A.

These risks are based on information available as of the date of this report and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

For a discussion of our market risks, refer to Part II, Item 7A. - Quantitative and Qualitative Disclosures about Market Risk in our 2020 10-K/A.

Item 4. Controls and Procedures

We carried out an evaluation under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15(d)-15(e) of the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2021.

Changes in Internal Control over Financial Reporting

31

There has been no change in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) that occurred during the three months ended September 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

32

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

There have been no material changes in the risk factors previously disclosed in the Company’s 2020 10-K/A, Part II, Item 1A. “Risk Factors”. However, the risks and uncertainties that we face are not limited to those set forth in the 2020 10-K/A. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business and the trading price of our securities, particularly in light of the uncertainties associated with the COVID-19 pandemic, containment measures, the potential for future waves of outbreaks and the related impacts to our business, results of operations and financial condition, including liquidity.

The following risk factors are provided to update the risk factors of the Company previously disclosed in the Company’s 2020 10-K/A, Part II, Item 1A. “Risk Factors”. However, the risks and uncertainties that we face are not limited to those set forth in the 2020 10-K/A, as supplemented and updated herein. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business and the trading price of our securities.

Actual or Threatened Epidemics or Pandemics may Have an Adverse Effect on our Business, Operations, Results of Operations and Financial Condition, Including Liquidity

The COVID-19 pandemic and measures taken in response to the pandemic have had, and may continue to have, an adverse impact on our business. Steps have been taken by various countries to advise citizens to avoid non-essential travel, to implement closures of non-essential operations, and to implement quarantines and lockdowns to contain the spread of the virus, which have had a dampening effect on the economy and global demand for travel. While the ongoing roll-out of vaccines across a number of countries is a promising milestone in global efforts to contain and eliminate COVID-19, a number of uncertainties remain, including whether any additional vaccines or vaccine booster shots will receive regulatory approval, the risk of differing interpretations and assessments by the scientific community during the peer review/publication process, widespread adoption of the vaccines by consumers, the availability of raw materials needed to manufacture vaccines in sufficient quantities, and challenges in the storage, distribution and administration of vaccines. Uncertainty remains as to when a sufficient number of individuals will be vaccinated, permitting travel restrictions to be lifted. New COVID-19 variants that have emerged in recent months have the potential to increase the lethality, have increased the spread of COVID-19, may reduce vaccine effectiveness, and may prolong the duration of the pandemic, materially negatively impacting our business performance, results of operations and financial condition, including liquidity.

In response to the COVID-19 pandemic, the U.S. Centers for Disease Control and Prevention (“CDC”) issued a Framework for Conditional Sailing Order on October 30, 2020, which outlines a phased approach for gradually permitting cruise ship passenger operations in U.S. waters, subject to certain conditions and guidelines. The Conditional Sailing Order and related measures, such as technical guidelines, currently operate as nonbinding recommendations for cruise lines arriving in or departing from a port in Florida, which most Florida-porting ships have chosen to voluntarily follow. On October 25, 2021, the CDC announced a temporary extension to the Framework for Conditional Sailing Order through January 15, 2022, due to the continued spread of the Delta variant. After the expiration of this extension, the CDC intends to transition to a voluntary program, in coordination with the cruise ship operators and other stakeholders, to assist the cruise industry to detect, mitigate, and control the spread of COVID-19 onboard cruise ships. As of September 30, 2021, 78 of the ships we serve had commenced sailing and 45 of our destination resort spas were operating. However, there can be no assurance as to when our cruise line partners will be able to receive conditional sailing certificates for additional ships or whether they can remain in compliance with the Conditional Sailing Order and their conditional sailing certificates, once obtained.

The COVID-19 pandemic has materially adversely impacted our business, operations, results of operations and financial condition, including liquidity, and is expected to continue to materially adversely impact our business, operations, results of operations and financial condition, including liquidity, in the third quarter and fiscal year 2021 and possibly thereafter. We cannot presently estimate the extent to which the pandemic will impact our business, which will depend on a number of factors, such as the duration and scope of the pandemic; the negative impact it has on global and regional economies and economic activity, including the duration and magnitude of its impact on unemployment rates and consumer discretionary spending; its short and longer-term impact on the demand for travel, transient and group business, and levels of consumer confidence; our ability to successfully navigate the impacts of the pandemic; actions governments, businesses and individuals take in response to the pandemic, including limiting or banning travel and cruises; and how quickly economies, travel and cruise activity, and demand for our services recover after the pandemic subsides.

To date we have incurred, and expect to continue to incur, significant costs caused by the COVID-19 pandemic. In light of the ongoing substantial suspension of cruise voyages, the Company has taken steps to reduce expenses, including (i) repatriating all of our shipboard staff, of which 1,653 have returned to work as of September 30, 2021, (ii) furloughing 96% of U.S. and Caribbean-based destination resort spa personnel and subsequently terminating the employment of 66% of such personnel, of which substantially all had returned to work as of September 30, 2021, (iii) implementing furloughs, terminations of employment, or salary reductions for all corporate personnel, of which substantially all whose employment was not terminated have returned to work at full salary levels as of September 30, 2021, (iv) eliminating all non-essential operating and capital expenditures, and (v) deferring payment of the dividend declared by our Board in the first quarter of 2020

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and suspending our dividend program until further notice, among other actions. Such steps, and further changes we may make in the future to reduce costs, may negatively impact guest loyalty, customer preferences, or our ability to attract and retain employees, relationships with cruise line and destination resort partners, relationships with key suppliers, and our reputation and market share may suffer as a result. Notwithstanding the mitigating actions we have undertaken, the Company continues to incur significant ongoing expenses. We expect also to incur additional COVID-19 related costs relating to greater hygiene-related protocols in our services that we expect to be mandated by government authorities or other international authorities or to be required by our cruise line and destination resort partners. In addition, we expect that the travel and hospitality industry as a whole will be subject to heightened health and hygiene requirements in attempts to counteract or mitigate the impact of future outbreaks, which requirements may be costly and take a significant amount of time to implement.

COVID-19 has caused heightened volatility and disruptions in the global credit and financial markets, and this may adversely affect our ability to borrow and could increase our counterparty credit risks. Additionally, the COVID-19 pandemic may have material adverse impacts on our compliance with restrictions in the agreements governing our indebtedness that require us to maintain minimum levels of liquidity and on our flexibility under these agreements in operating our business, including due to the significant portion of assets that are collateral under these agreements.

As a result of COVID-19, credit agencies may downgrade our credit ratings in the future. If our credit ratings are downgraded in the future, or if general market conditions were to ascribe a higher risk to our credit rating levels, our access to capital and the cost of debt financing may be negatively impacted. The interest rate we pay on our existing debt instruments is affected by our credit ratings. Accordingly, a downgrade may cause our cost of borrowing to increase.

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We Are Required to Make Minimum Payments and May Face Increasing Payments under our Agreements with Cruise Lines and Owners of Our Destination Resort Health and Wellness Centers

We are obligated to make minimum annual payments to certain cruise lines and owners of our land-based venues regardless of the amount of revenues we receive from customers. We may also be required to make such minimum annual payments under any future agreements into which we enter. Accordingly, we could be obligated to pay more in minimum payments than the amount we collect from customers.

We Depend on Our Key Officers and Qualified Employees

Our ability to mitigate the impacts of COVID-19 and our continued success will depend to a significant extent on our senior executive officers, including Leonard Fluxman, our Executive Chairman, President and Chief Executive Officer, and Stephen Lazarus, our Chief Financial Officer and Chief Operating Officer. The unanticipated loss of the services of either of these persons or other key management personnel, due to illness, resignation or otherwise, could have a material adverse effect on our business.

Our future success after the COVID-19 pandemic subsides is dependent on our ability to recruit and retain personnel qualified to perform our services. Shipboard employees typically are employed pursuant to agreements with terms of nine months. Our land-based health and wellness employees generally are employed without contracts, on an at-will basis. Other providers of shipboard health and wellness services compete with us for shipboard personnel. We also compete with destination resort health and wellness centers and other employers for our shipboard and land-based health and wellness personnel. After the effects of COVID-19 are controlled, and after we resume our operations, we may not be able to assemble a sufficient number of employees possessing the requisite training and skills necessary to conduct our business. Our inability to attract a sufficient number of qualified personnel in the future to provide our services and products could adversely impact our business, operations, results of operations and financial condition. In addition, due to the impact of COVID-19, the immigration approval processes in the United States have experienced severe backlog and may in the future proceed at a slower pace than previously had been the case. Since many of our shipboard employees are not United States citizens, exacerbation of this trend of immigration restrictions caused by COVID-19 could adversely affect our ability to meet our shipboard staffing needs on a timely basis.

Almost all of our shipboard personnel come from jurisdictions outside the United States. Due to the restrictions on international travel and immigration caused by COVID-19, our ability to obtain shipboard employees in the future will be subject to regulations in certain countries from which we source a number of our employees and, in the case of one country, control by an employment company that acts on behalf of employees and potential employees from that country. In addition, in that country, we are required to deal with local employment companies to facilitate the hiring of employees. Our ability to obtain shipboard employees from those countries on economic terms that are acceptable to us may be hampered by our inability to enter into acceptable agreements with the applicable local employment companies.

In addition, the various jurisdictions where we operate our health and wellness centers have their own licensing or similar requirements applicable to our employees, which could affect our ability to open new health and wellness centers on a timely basis or adequately staff existing health and wellness centers. The ship we serve that is United States-based also is subject to United States labor law requirements that can result in delays in obtaining adequate staffing.

Our Indebtedness Could Adversely Affect Our Financial Condition and Ability to Operate and We May Incur Additional Debt

As of September 30, 2021, we have $234.5 million of secured indebtedness under our First Lien Term Loan Facility and Second Lien Term Loan Facility, and our First Lien Revolving Facility (collectively, the “Credit Facilities”). Our debt level and the terms of our financing arrangements could adversely affect our business, operations, results of operations and financial condition and limit our ability to successfully implement our growth strategies. In addition, under the Credit Facilities, certain of our direct and indirect subsidiaries have granted the lenders a security interest in substantially all of their assets. Our ability to meet our debt service obligations will depend on our future performance, which will be affected by the other risk factors described herein. If we do not generate enough cash flow to pay our debt service obligations, we may be required to refinance all or part of our existing debt, sell our assets, incur incremental additional indebtedness, or raise equity capital. We may not be able to take any of these actions on a timely basis, on terms satisfactory to us, or at all.

The Credit Facilities bear interest at variable rates. If market interest rates increase, variable rate debt will create higher debt service requirements, which could materially adversely affect our results of operations and cash flow to the extent notional amounts of interest rate swaps leave the Company exposed.

We Previously Identified A Material Weakness in Our Internal Control over Financial Reporting Which Has Since Been Remediated. Any Future Failure to Establish and Maintain an Effective System of Internal Control over Financial Reporting Could Result in our Inability to Accurately Report our Financial Results, or do so in a Timely Manner, Which may Adversely Affect Investor Confidence in us and Materially Adversely Affect our Business and Operating Results.

Following the issuance of the SEC’s public statement entitled “Staff Statement on Accounting and Reporting Considerations for Warrants issued by Special Purpose Acquisition Companies (“SPACs”)” (the “Statement”) on April 30, 2021, our management and our audit committee concluded that, in light of the Statement, it was appropriate to restate our previously issued audited financial statements as of December 31, 2020

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and 2019 and for the year ended December 31, 2020 (Successor), and the period from March 20, 2019 to December 31, 2019 (Successor) (the “Affected Periods”). As part of such process, our management and audit committee determined that our disclosure controls and procedures for the Affected Periods were not effective with respect to the classification of our warrants as components of equity as opposed to liabilities, and that the foregoing arose as a result of a material weakness in our internal control over financial reporting. As of March 31, 2021, the material weakness was remediated. However, we cannot assure you that other material weaknesses and control deficiencies will not occur in the future.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented, or detected and corrected on a timely basis. Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. If we identify any new material weakness in the future, any such newly identified material weakness could have caused or could limit our ability to prevent or detect a misstatement of our accounts or disclosures that could result in a material misstatement of our annual or interim financial statements. In such case, we may be unable to maintain compliance with securities law requirements regarding accurate and timely filing of periodic reports and with applicable Nasdaq listing requirements, investors may lose confidence in our financial reporting, and our share price may decline as a result. We cannot assure you that any measures we have taken or may take in the future will be sufficient to avoid potential future material weaknesses. Additionally, as a result of the material weakness we previously identified in our internal controls over financial reporting for the Affected Periods, the Restatement, the change in the accounting treatment of our Warrants, as well as other matters raised or that may in the future be raised by the SEC, we may in the future be exposed to litigation or other disputes concerning, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the Restatement and the previously identified material weakness in our internal control over financial reporting and the preparation of our financial statements. Any such litigation or dispute, regardless of its outcome, could have a material adverse effect on our business, operations, financial condition, results of operations and share price.

Our First and Second Lien Term Facilities Are Tied to LIBOR

The London interbank offered rate (“LIBOR”), is the basic rate of interest used in lending between banks on the London interbank market and is widely used as a reference for setting the interest rate on loans globally. Our current portfolio of debt and financial instruments currently tied to LIBOR consists of the Company’s First and Second Lien Term Facilities. On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. It is unclear if at that time whether or not LIBOR will cease to exist, or if new methods of calculating LIBOR will be established such that it continues to exist after 2021 or if replacement conventions will be developed. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. Dollar LIBOR with a new index calculated by short-term repurchase agreements, backed by Treasury securities (“SOFR”). SOFR is observed and backward-looking, which stands in contrast with LIBOR under the current methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members. Given that SOFR is a secured rate backed by government securities, it will be a rate that does not take into account bank credit risk (as is the case with LIBOR). Whether or not SOFR attains market traction as a LIBOR replacement tool remains in question. As such, the future of LIBOR at this time is uncertain. At this time, due to a lack of consensus as to what rate or rates may become accepted alternatives to LIBOR, it is impossible to predict the effect of any such alternatives on our liquidity. However, if LIBOR ceases to exist, we may need to renegotiate certain of our financing agreements that utilize LIBOR as a factor in determining the interest rate to replace LIBOR with the new standard that is established. As of September 30, 2021, we had $234.5 million in outstanding indebtedness tied to LIBOR.

COVID-19, and the volatile regional and global economic conditions stemming from the pandemic, as well as reactions to future pandemics or resurgences of COVID-19, could also precipitate or aggravate the other risk factors that we identify herein and in our 2020 Annual Report on Form 10-K/A, which in turn could materially adversely affect our business, results of operation and financial condition, including liquidity, and/or share price. Further, COVID-19 may also affect our operating and financial results in a manner that is not presently known to us or that we currently do not consider to present significant risks to our operations.

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

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit

No.

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31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer pursuant to Section  302 of the Sarbanes-Oxley Act of 2002.
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer pursuant to Section  302 of the Sarbanes-Oxley Act of 2002.
32.1	Section 1350 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Section 1350 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*	Inline XBRL Taxonomy Extension Schema Document
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	The cover page for the Company’s Quarterly Report on Form 10-Q has been formatted in Inline XBRL and contained in Exhibit 101

*To be furnished by amendment within the 30-day grace period provided by Rule 405(a)(2) of Regulation S-T.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: November 5, 2021

ONESPAWORLD HOLDINGS LIMITED
By:	/s/ Leonard Fluxman
	Leonard Fluxman
	Executive Chairman, President, Chief Executive Officer and Director
	Principal Executive Officer
By:	/s/ STEPHEN B. LAZARUS
	Stephen B. Lazarus
	Chief Operating Officer and Chief Financial Officer
	Principal Financial and Accounting Officer

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