OneSpaWorld Holdings Limited (OSW) 10-Q 2019 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

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

For the three months ended September 30, 2019

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. BoxN-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 RegulationS-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, anon-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 Rule12b-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 Rule12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of November 13, 2019, 61,118,398 common shares were outstanding.

OneSpaWorld Holdings Limited

Table of Contents

		Page
PART I—FINANCIAL INFORMATION			1
Item 1.	Unaudited Financial Statements		1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		37
Item 4.	Controls and Procedures		37
PART II—OTHER INFORMATION			37
Item 1.	Legal Proceedings		37
Item 1A.	Risk Factors		37
Item 6.	Exhibits		38

i

PART I - FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements

ONESPAWORLD HOLDINGS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED BALANCE SHEETS

(Unaudited)

(in thousands, except share and per share data)

	Successor			Predecessor
	Consolidated			Combined
	As of			As of
	September 30,			December 31,
	2019			2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	15,690		$	15,302
Accounts receivable, net		23,443			25,352
Inventories		33,117			32,265
Prepaid expenses		7,870			6,617
Other current assets		1,737			1,424
Total current assets		81,857			80,960
Property and equipment, net		23,861			16,239
Intangible assets, net		620,687			131,517
Goodwill		185,621			33,864
OTHER ASSETS:
Deferred tax assets		8,404			4,265
Othernon-current assets		677			5,814
Total other assets		9,081			10,079
Total assets	$	921,107		$	272,659
LIABILITIES AND EQUITY (DEFICIT)
LIABILITIES:
Accounts payable	$	12,707		$	7,595
Accounts payable - related parties		—			6,553
Accrued expenses		24,719			27,211
Income taxes payable		875			670
Current portion of long-term debt		2,085			—
Other current liabilities		945			1,210
Total current liabilities		41,331			43,239
Deferred rent		116			645
Income tax contingency		3,828			3,918
Long-term debt, net		224,052			352,440
Other long-term liabilities		290			—
Total liabilities		269,617			400,242
Commitments (Note 7)
EQUITY (DEFICIT):
Common stock, $0.0001 par value; 250,000,000 shares authorized; 61,118,398 issued and outstanding at September 30, 2019		6			—
Additionalpaid-in capital		660,541			—
Accumulated deficit		(16,712	)		—
Net Parent investment		—			(130,520	)
Accumulated other comprehensive loss		(331	)		(649	)
Total OneSpaWorld stockholders’ equity and Parent’s (deficit), respectively		643,504			(131,169	)
Noncontrolling interest		7,986			3,586
Total equity (deficit)		651,490			(127,583	)
Total liabilities and equity (deficit)	$	921,107		$	272,659

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

1

ONESPAWORLD HOLDINGS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except share and per share data)

	Successor			Predecessor			Successor			Predecessor
	Consolidated			Combined			Consolidated			Combined
	Three Months Ended			Three Months Ended
	September 30,			September 30,			March 20, 2019 to			January 1, 2019 to			Nine Months Ended
	2019			2018			September 30, 2019			March 19, 2019			September 30, 2018
REVENUES:
Service revenues	$	110,564		$	108,113		$	232,562		$	91,280		$	309,004
Product revenues		34,337			34,507			71,783			27,172			97,905
Total revenues		144,901			142,620			304,345			118,452			406,909
COST OF REVENUES AND OPERATING EXPENSES:
Cost of services		94,199			92,267			197,227			76,836			263,537
Cost of products		29,980			30,321			62,174			23,957			84,922
Administrative		5,393			2,417			12,256			2,498			7,498
Salary and payroll taxes		2,951			4,002			28,415			29,349			11,509
Amortization of intangible assets		4,040			880			9,113			755			2,640
Total cost of revenues and operating expenses		136,563			129,887			309,185			133,395			370,106
Income (loss) from operations		8,338			12,733			(4,840	)		(14,943	)		36,803
OTHER INCOME (EXPENSE), NET:
Interest expense		(4,606	)		(9,002	)		(9,434	)		(6,316	)		(25,141	)
Loss on extinguishment of debt		—			—			—			(3,413	)		—
Interest income		35			33			35			—			238
Other income (expense)		—			(13	)		—			—			(30	)
Total other expense, net		(4,571	)		(8,982	)		(9,399	)		(9,729	)		(24,933	)
Income (loss) before (benefit) provision for income taxes		3,767			3,751			(14,239	)		(24,672	)		11,870
PROVISION FOR INCOME TAXES		97			163			111			109			802
Net income (loss)		3,670			3,588			(14,350	)		(24,781	)		11,068
Net income attributable to noncontrolling interest		1,308			1,073			2,362			678			3,017
Net income (loss) attributable to common shareholders and Parent, respectively	$	2,362		$	2,515		$	(16,712	)	$	(25,459	)	$	8,051
Earnings (loss) per share:
Basic earnings (loss) per share	$	0.04					$	(0.27	)
Diluted earnings (loss) per share	$	0.03					$	(0.27	)
Basic weighted average shares outstanding		61,118,387						61,118,340
Diluted weighted average shares outstanding		75,011,638						61,118,340

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

2

ONESPAWORLD HOLDINGS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands)

	Successor		Predecessor			Successor			Predecessor
	Consolidated		Combined			Consolidated			Combined
	Three Months Ended		Three Months Ended									Nine Months Ended
	September 30,		September 30,			March 20, 2019 to			January 1, 2019 to			September 30,
	2019		2018			September 30, 2019			March 19, 2019			2018
Net income (loss)	$	3,670	$	3,588		$	(14,350	)	$	(24,781	)	$	11,068
Other comprehensive gain (loss), net of tax:
Foreign currency translation gain (loss)		7		(105	)		(384	)		(165	)		(224	)
Unrealized gain on derivatives		53		—			53			—			—
Total other comprehensive gain (loss), net of tax		60		(105	)		(331	)		(165	)		(224	)
Comprehensive income (loss)		3,730		3,483			(14,681	)		(24,946	)		10,844
Comprehensive income attributable to noncontrolling interest		1,308		1,073			2,362			678			3,017
Comprehensive income (loss) attributable to common shareholders and Parent, respectively	$	2,422	$	2,410		$	(17,043	)	$	(25,624	)	$	7,827

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

3

ONESPAWORLD HOLDINGS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY (DEFICIT)

(Unaudited)

(in thousands, except share data)

	Combined
				Accumulated			Total
				Other			Parent’s			Non -
	Net Parent			Comprehensive			Equity			Controlling
Predecessor:	Investment			Loss			(Deficit)			Interest			Total
BALANCE, June 30, 2018	$	(124,530	)	$	(475	)	$	(125,005	)	$	4,775		$	(120,230	)
Net income		2,515			—			2,515			1,073			3,588
Distributions to noncontrolling interest		—			—			—			(353	)		(353	)
Net distributions to Parent and its affiliates		(11,586	)		—			(11,586	)		—			(11,586	)
Foreign currency translation gain (loss)		—			(105	)		(105	)		—			(105	)
BALANCE, September 30, 2018	$	(133,601	)	$	(580	)	$	(134,181	)	$	5,495		$	(128,686	)
BALANCE, December 31, 2017	$	221,041		$	(356	)	$	220,685		$	4,596		$	225,281
Net income		8,051			—			8,051			3,017			11,068
Distributions to noncontrolling interest		—			—			—			(2,118	)		(2,118	)
Net distributions to Parent and its affiliates		(362,693	)		—			(362,693	)		—			(362,693	)
Foreign currency translation gain (loss)		—			(224	)		(224	)		—			(224	)
BALANCE, September 30, 2018	$	(133,601	)	$	(580	)	$	(134,181	)	$	5,495		$	(128,686	)
BALANCE, December 31, 2018	$	(130,520	)	$	(649	)	$	(131,169	)	$	3,586		$	(127,583	)
Net loss		(25,459	)		—			(25,459	)		678			(24,781	)
Distributions to noncontrolling interest		—			—			—			(267	)		(267	)
Net contributions from Parent and its affiliates		351,802			—			351,802			—			351,802
Foreign currency translation gain (loss)		—			(165	)		(165	)		—			(165	)
BALANCE, March 19, 2019	$	195,823		$	(814	)	$	195,009		$	3,997		$	199,006

	Consolidated
Successor:	Issued Common Shares		Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders’ Equity			Non - Controlling Interest		Total
BALANCE, June 30, 2019		61,118,298	$	6	$	660,416		$	(391	)	$	(19,074	)	$	640,957		$	6,678	$	647,635
Conversion of public warrants into common shares		100		—		—			—			—			—			—		—
Net income		—		—		—			—			2,362			2,362			1,308		3,670
Stock-based compensation						125									125					125
Foreign currency translation gain		—		—		—			7			—			7			—		7
Unrealized gain on derivatives		—		—		—			53			—			53			—		53
BALANCE, September 30, 2019		61,118,398	$	6		660,541		$	(331	)	$	(16,712	)	$	643,504		$	7,986	$	651,490
BALANCE, March 20, 2019(1)		61,118,298	$	6	$	664,160		$	—		$	—		$	664,166		$	5,624	$	669,790
Immaterial correction of an error(2)		—		—		(24,115	)		—			—			(24,115	)		—		(24,115	)
Conversion of public warrants into common shares		100		—		—			—			—			—			—		—
Net loss		—		—		—			—			(16,712	)		(16,712	)		2,362		(14,350	)
Stock-based compensation		—		—		20,496			—			—			20,496			—		20,496
Foreign currency translation loss		—		—		—			(384	)		—			(384	)		—		(384	)
Unrealized gain on derivatives		—		—		—			53			—			53			—		53
BALANCE, September 30, 2019		61,118,398	$	6		660,541		$	(331	)	$	(16,712	)	$	643,504		$	7,986	$	651,490

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

(2) See Note 2(l).                

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

4

ONESPAWORLD HOLDINGS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Successor			Predecessor
	Consolidated			Combined
	March 20, 2019 to			January 1, 2019 to			Nine Months Ended
	September 30, 2019			March 19, 2019			September 30, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(14,350	)	$	(24,781	)	$	11,068
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization		13,325			1,989			7,501
Amortization of deferred financing costs		571			213			923
Stock-based compensation		20,496			—			—
Provision for doubtful accounts		—			8			14
Loss on extinguishment of debt		—			3,413			—
Allocation of Parent corporate overhead		—			—			8,613
Deferred income taxes		(77	)		—			126
Foreign currency remeasurement		—			—			130
Changes in:
Accounts receivable, net		230			1,671			4,592
Inventories		1,033			(406	)		(1,960	)
Prepaid expenses		(2,326	)		1,073			(2,097	)
Other current assets		(182	)		213			512
Other noncurrent assets		(677	)		(1,003	)		379
Accounts payable		(3,201	)		8,313			(3,180	)
Accounts payable - related parties		—			(6,553	)		(5,878	)
Accrued expenses		(23,317	)		19,792			6,330
Other current liabilities		206			(288	)		(54	)
Note receivable due from affiliate of the Parent		—			—			(238	)
Income taxes payable		137			42			610
Income taxes contingency		—			—			(18	)
Deferred rent		116			37			147
Net cash (used in) provided by operating activities		(8,016	)		3,733			27,520
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(2,370	)		(517	)		(4,248	)
Acquisition of OSW Predecessor, net of cash acquired		(676,453	)		—			—
Net cash used in investing activities		(678,823	)		(517	)		(4,248	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common shares		122,499			—			—
Net proceeds from Haymaker and private placement investors		349,390			—			—
Proceeds from term loan and revolver facilities		245,900			—			—
Repayment on term loan and revolver facilities		(13,443	)		—			—
Proceeds from amounts due from related party		3,187			—			—
Payment of deferred financing costs		(6,892	)		—			—
Net distributions to Parent and its affiliates		—			(4,262	)		(13,647	)
Distributions to noncontrolling interest		—			(267	)		(2,118	)
Net cash provided by (used in) financing activities		700,641			(4,529	)		(15,765	)
Effect of exchange rate changes on cash		114			649			(237	)
Net increase (decrease) in cash and cash equivalents		13,916			(664	)		7,270
Cash and cash equivalents, Beginning of period		1,774			15,302			8,671
Cash and cash equivalents, End of period	$	15,690		$	14,638		$	15,941

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

5

ONESPAWORLD HOLDINGS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Successor		Predecessor
	Consolidated		Combined
	March 20, 2019 to		January 1, 2019 to		Nine Months Ended
	September 30, 2019		March 19, 2019		September 30, 2018
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes	$	171	$	73	$	84
Interest	$	8,643	$	—	$	21,732
Non-cash transactions:
Equity consideration paid in connection with the Business Combination	$	167,300	$	—	$	—
Allocation of Parent corporate overhead	$	—	$	—	$	8,613
Assignment and assumption of long-term debt	$	—	$	—	$	351,197
Assignment of note receivable from affiliate of the Parent to the Company	$	—	$	—	$	6,841
Repayment of long-term debt by Parent on behalf of the Company	$	—	$	351,482	$	—
Write-off income tax payable for separate return provision	$	—	$	—	$	379

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

6

ONESPAWORLD HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

September 30, 2019

(Unaudited)

1. ORGANIZATION

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

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

Haymaker, a special purpose acquisition company (“SPAC”), was organized as a blank check company incorporated in Delaware on April 27, 2017 and was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. On October 27, 2017, Haymaker consummated an initial public offering (“IPO”) of its Class A common shares (the “Haymaker Class A Shares”), generating gross proceeds of approximately $300,000,000. The net proceeds from the IPO were subsequently placed in a trust account for the intended purpose of being applied toward consummating a business combination.

OSW is comprised of the net assets and operations of (i) the following wholly-owned subsidiaries of Steiner Leisure: OneSpaWorld LLC, Steiner Spa Asia Limited, Steiner Spa Limited, and Steiner Marks Limited, (ii) the following respective indirect subsidiaries of Steiner Leisure: Mandara PSLV, LLC, Mandara Spa (Hawaii), LLC, Florida Luxury Spa Group, LLC, Steiner Transocean U.S., Inc., Steiner Spa Resorts (Nevada), Inc., Steiner Spa Resorts (Connecticut), Inc., Steiner Resort Spas (California), Inc., OneSpaWorld Resort Spas (North Carolina), Inc. (formerly known as Steiner Resort Spas (North Carolina), Inc.), OSW SoHo LLC, OSW Distribution LLC, World of Wellness Training Limited (formerly known as Steiner Training Limited), STO Italy S.r.l., One Spa World LLC, Mandara Spa Services LLC, OneSpaWorld Limited, OneSpaWorld (Bahamas) Limited (formerly known as Steiner Transocean Limited), OneSpaWorld Medispa LLC, OneSpaWorld Medispa Limited, OneSpaWorld Medispa (Bahamas) Limited (formerly known as STO Medispa Limited), Mandara Spa (Cruise I), LLC, Mandara Spa (Cruise II), LLC, Steiner Transocean (II) Limited, The Onboard Spa by Steiner (Shanghai) Co., Ltd., Mandara Spa LLC, Mandara Spa Puerto Rico, Inc., Mandara Spa (Guam), L.L.C., Mandara Spa (Bahamas) Limited, Mandara Spa Aruba N.V., Mandara Spa Polynesia Sarl, Inc., Mandara Spa Asia Limited, PT Mandara Spa Indonesia, Spa Services Asia Limited, Mandara Spa Palau, Mandara Spa (Malaysia) Sdn. Bhd., Mandara Spa Ventures International Sdn. Bhd., Spa Partners (South Asia) Limited, Mandara Spa (Maldives) PVT LTD, and Mandara Spa (Fiji) Limited, (iii) Medispa Limited, a majority-owned subsidiary of Steiner Leisure, and (iv) the timetospa website owned by Elemis USA, Inc. (formerly known as Steiner Beauty Products, Inc.).

The Business Combination was accounted for using the acquisition method of accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805,Business Combinations (“ASC 805”). Haymaker was deemed to be the accounting acquirer and OSW the accounting acquiree. As a result of applying pushdown accounting, the post-Business Combination financial statements of OneSpaWorld reflect the new basis of accounting for OSW.

Transaction costs incurred by OneSpaWorld in the Business Combination, consisting primarily of debt issuance costs of $6,892,000 in connection with the arrangement of debt financing to consummate the Business Combination, are recorded as deferred financing costs and netted against the related long-term debt in the accompanying condensed consolidated balance sheet. Under ASC 805, transaction costs of the acquirer are not included as a component of consideration transferred but are accounted for as expenses in the period in

7

which such costs are incurred, or, if related to the issuance of debt or equity, capitalized as debt issuance costs or recorded as a reduction in equity proceeds to additionalpaid-in capital, respectively. Acquisition-related transaction costs incurred as part of a business combination can include estimated fees related to the issuance of long-term debt, underwriting fees, as well as advisory, legal and accounting fees.

Upon completion of the Business Combination, the Haymaker selling stockholders received an aggregate 31,713,387 common shares, par value $0.0001, of OneSpaWorld (the “OneSpaWorld Shares”), with each Haymaker stockholder receiving one OneSpaWorld Share in exchange for each Haymaker Class A Common Share. In addition, each existing warrant to purchase one Haymaker Class A Common Share (the “Haymaker Warrants”) became exercisable for one OneSpaWorld Share (the “Public Warrants”), on the same terms and conditions as those applicable to the warrants to purchase the Haymaker Class A Shares (See Note 6). Also, 3,000,000 OneSpaWorld Shares, and the right to receive 1,600,000 OneSpaWorld Shares upon the occurrence of certain events (the “OneSpaWorld Deferred Shares”), were issued to Haymaker Sponsor and the other former holders of Haymaker Class B common shares (the “Founder Shares”) in exchange for such shares, and the Haymaker Warrants held by Haymaker Sponsor became exercisable for 3,408,186 OneSpaWorld Shares.

Total consideration transferred to Steiner in connection with the Business Combination was $858,386,000, consisting of the following:

(i) $691,086,000 in cash, including $13,900,000 in seller expenses paid by OSW and cash proceeds of $56,071,000 from the sale of 5,607,144 OneSpaWorld shares by Steiner in a private placement offering to investors.

(ii) $167,300,000 in equity consideration, consisting of 14,155,274 OneSpaWorld shares, of which 5,607,144 OneSpaWorld shares were issued to Steiner in a private placement offering to investors; warrants to purchase 1,486,520 OneSpaWorld shares; and the right to receive 5,000,000 OneSpaWorld Deferred Shares (See Note 6).

The fair value of the OneSpaWorld Shares and OneSpaWorld Deferred Shares issued as equity consideration in the Business Combination was based on the observable market price of $11.85 per share of OneSpaWorld common stock on the Business Combination Date. The fair value of the warrants to purchase OneSpaWorld shares issued as equity consideration in the Business Combination was determined using a Black-Sholes option-pricing model with inputs as of the Business Combination Date.

The acquisition of OSW is recorded on the Company’s condensed consolidated balance sheet as of March 19, 2019 based upon estimated fair values as of such date.

The valuation of the assets acquired and liabilities assumed was based on fair values at the Business Combination Date. The preliminary allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed reflect various preliminary fair value estimates and analyses, including preliminary work performed by third-party valuation specialists, which are subject to change within the measurement period as valuations are finalized. The primary areas of the preliminary purchase price allocations that are not yet finalized relate to the fair values of certain tangible assets acquired and liabilities assumed, the valuation of intangible assets acquired, income andnon-income based taxes and goodwill. The Company expects to continue to obtain information to assist in determining the fair value of the net assets acquired at the Business Combination Date during the measurement period.

Measurement period adjustments will be applied retrospectively to the Business Combination Date. However, given the circumstances of this acquisition which closed during the first quarter of fiscal 2019, as well as the size and complexity of the transaction, the entire purchase price allocation disclosed herein is considered provisional at this time and subject to adjustment to reflect new information obtained about factors and circumstances that existed as of the Business Combination Date that if known would have affected the measurement of the amounts recognized as of that date, while the measurement period remains open. We have not finalized the allocation of the purchase price as it requires extensive use of accounting estimates and valuation methodologies in the determination of such fair values.

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The preliminary computations of the allocation of the purchase price to the net tangible and intangible assets acquired and liabilities assumed, as adjusted, is presented below (in thousands):

	Estimated Fair Value as of Acquisition Date (as Previously Reported)		Immaterial Corrections (a)			Measurement Period Adjustments			Other			Estimated Fair Value as of Acquisition Date (as Adjusted)
Assets
Cash and cash equivalents	$	14,638	$	—		$	—		$	—		$	14,638
Accounts receivable		23,673		—			—			—			23,673
Inventories		34,150		—			—			—			34,150
Other current assets		6,756		3,187			—			—			9,943
Property and equipment		26,253		—			—			—			26,253
Intangible assets		633,300		—			(3,500	) (b)		—			629,800
Other noncurrent assets		6,818		(6,818	)		—			—			—
Goodwill		199,379		(22,984	)		2,817			6,409	(c)		185,621
Deferred tax asset		8,407		—			—			—			8,407
Total assets acquired		953,374		(26,615	)		(683	)		6,409			932,485
Liabilities
Current liabilities		64,518		—			—			—			64,518
Deferred tax liabilities		77		—			—			—			77
Other long-term liabilities		4,563		—			(683	)		—			3,880
Total liabilities assumed		69,158		—			(683	)		—			68,475
Non-controlling interest		5,624		—			—			—			5,624
Total purchase price	$	878,592	$	(26,615	)	$	—		$	6,409		$	858,386

(a) See Note 2(l).

(b) As a result of additional information obtained about certain assumptions used in the valuation of the destination resort agreements and licensing agreement, the Company recorded measurement period adjustments during the third quarter of fiscal 2019 which resulted in a net increase toGoodwillof $3.5 million. The change in this provisional amount resulted in a $0.3 million reduction to amortization of intangible assets for the three-month period ended September 30, 2019.

(c) Increase in cash consideration of $6.4 million due to working capital adjustments.

The Company recorded identifiable intangible assets of $629.8 million related to retail concession agreements, destination resort agreements, a trade name and a licensing agreement. Retail concession agreements and destination resort agreements were valued through application of the multi-period excess earnings method. Under this method, revenues, operating expenses and other costs associated with these agreements were estimated in order to derive cash flows attributable to the existing agreements. The resulting cash flows were then discounted to present value at rates reflective of the risk and return expectations of the agreements to arrive at the fair value of the agreements as of the Business Combination Date. The Company has determined the estimated useful lives of the retail concession agreements and destination resort agreements based on the projected economic benefits associated with these interests. The trade name and licensing agreement were valued through application of the relief from royalty method. 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 value at rates reflective of the risk and return expectations of the interests to derive their respective fair values as of the Business Combination Date. The Company has determined that the trade name is expected to have an indefinite useful life while the licensing agreement life is estimated based on the projected economic benefits associated with this interest. Identifiable intangible assets consist of the following (in thousands):

	Fair Value		Useful Life (years)
Retail concession agreements	$	604,700		39
Destination resort agreements		17,900		15
Trade name		6,200		Indefinite
Licensing agreement		1,000		8
	$	629,800

The preliminary allocation of the purchase consideration to property and equipment was based on the fair value of such assets determined using the trending method of the cost approach. The fair value of the inventory was determined through use of the replacement cost approach.

Goodwill represents the excess of the total purchase consideration over the fair value of the underlying net assets, largely arising from the workforce and extensive distribution network that has been established by OSW Predecessor. Goodwill is not deductible for income tax purposes. Goodwill is assigned to the Maritime and Destination Resorts reporting units expected to benefit from the combination as of the Business Combination Date. The assignment of goodwill to reporting units, as of the acquisition date, has not been completed.

Noncontrolling interest was based on the fair value using a discounted cash flow method of the income approach.

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The following information represents the unaudited supplemental pro forma results of the Company’s condensed consolidated statement of operations as if the Business Combination occurred on January 1, 2018, after giving effect to certain adjustments, including depreciation and amortization of the assets acquired and liabilities assumed based on their estimated fair values and changes in interest expense resulting from changes in debt (in thousands):

	Three Months Ended September 30, 2018		Nine Months Ended September 30, 2019			Nine Months Ended September 30, 2018
Revenues	$	142,620	$	422,797		$	406,909
Net income (loss)	$	6,827	$	(30,144	)	$	7,155

The pro forma information does not purport to be indicative of what the Company’s results of operations would have been if the Business Combination had in fact occurred at the beginning of the period presented and is not intended to be a projection of the Company’s future results of operations. Financial information prior to the Business Combination Date is referred to as “Predecessor” company information, which reflects the combined financial statements of OSW prepared using OSW’s previous combined basis of accounting. The financial information beginning March 20, 2019 is referred to as “Successor” company information and reflects the consolidated financial statements of OneSpaWorld, including the financial statement effects of recording fair value adjustments and the capital structure resulting from the Business Combination. Black lines have been drawn to separate the Successor’s financial information from that of the Predecessor since their financial statements are not comparable as a result of the application of acquisition accounting and the Company’s capital structure resulting from the Business Combination.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a) Basis of Presentation, Principles of Consolidation and Principles of Combination

Successor:

The accompanying unaudited condensed consolidated financial statements as of and for the period March 20, 2019 to September 30, 2019, includes the condensed consolidated balance sheet and statements of operations, comprehensive income (loss), equity, and cash flows of OneSpaWorld. All significant intercompany items and transactions have been eliminated in 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 annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted 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 for the period from March 20, 2019 to September 30, 2019 are not necessarily indicative of the results of operations or cash flows that may be expected for the remainder of 2019. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in our Annual Report on Form10-K for the year ended December 31, 2018.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Predecessor:

The condensed combined OSW financial statements (the “OSW financial statements”) include the accounts of the wholly-owned and indirect subsidiaries of Steiner Leisure listed in Note 1 and include the accounts of a company majority-owned by OneSpaWorld Medispa (Bahamas) Limited, in which OneSpaWorld (Bahamas) Limited (100% owner of OneSpaWorld Medispa (Bahamas) Limited) had a controlling interest. The OSW condensed combined financial statements also include the accounts and results of operations associated with the timetospa.com website owned by Elemis USA, Inc. The OSW condensed financial statements do not represent the financial position and results of operations of a legal entity but rather a combination of entities under common control of Steiner Leisure that have been “carved out” of the Steiner Leisure consolidated financial statements and reflect significant assumptions and allocations. All significant intercompany transactions and balances have been eliminated in combination. The accompanying condensed combined OSW financial statements may not be indicative of what they would have been had OSW actually been a separate stand-alone entity.

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The accompanying OSW financial statements include the assets, liabilities, revenues and expenses specifically related to OSW’s operations. OSW receives services and support from various functions performed by Steiner Leisure and costs associated with these functions have been allocated to OSW. These allocations are necessary to reflect all of the costs of doing business and include costs related to certain Steiner Leisure corporate functions, including, but not limited to, senior management, legal, human resources, finance, IT and other shared services that have been allocated to OSW based on direct usage or benefit where identifiable, with the remainder allocated on a pro rata basis determined by an estimate of the percentage of time Steiner Leisure employees devoted to OSW, as compared to total time available or by the headcount of employees at Steiner Leisure corporate headquarters that are fully dedicated to the OSW entities in relation to the total employee headcount. These allocated costs are reflected in salaries and payroll taxes and administrative expenses in the accompanying condensed combined OSW statements of operations. Management considers these allocations to be a reasonable reflection of the utilization of services by or benefit provided to OSW. However, the allocations may not be indicative of the actual expenses that would have been incurred had OSW operated as an independent, stand-alone entity.

Net Parent investment represents the Steiner Leisure controlling interest in the recorded net assets of OSW, specifically, the cumulative net investment by Steiner Leisure in OSW and cumulative operating results through the date presented. The net effect of the settlement of transactions between OSW, Steiner Leisure, and other affiliates of Steiner Leisure are reflected in the accompanying condensed combined statements of cash flows as a financing activity and in the condensed combined balance sheet as Net Parent investment.

Certain expenses and operating costs were paid by Steiner Leisure on behalf of OSW. The Parent has paid on behalf of OSW expenses associated with the allocation of Steiner Leisure corporate overhead and costs associated with the purchase of products from related parties. Operating cash flows for the predecessor periods exclude OSW expenses and operating costs paid by Steiner Leisure on behalf of OSW. Consequently, OSW’s historical cash flows may not be indicative of cash flows had OSW actually been a separate stand-alone entity or future cash flows of OSW.

As of December 31, 2018, OSW had assumed long-term debt of the Parent. Such debt waspaid-off by the Parent on behalf of OSW during the Predecessor period from January 1, 2019 to March 19, 2019. Refer to Note 4 for more information on long-term debt.

Management believes the assumptions and allocations underlying the accompanying condensed combined OSW financial statements and notes to the OSW condensed combined financial statements are reasonable, appropriate and consistently applied for the periods presented. Management believes the accompanying condensed combined OSW financial statements reflect all costs of doing business.

The accompanying OSW condensed combined financial statements have been prepared in conformity with U.S. GAAP.

b) Emerging Growth Company

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”). As modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), the Company may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemption from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

Further, section 102(b) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Act) are required to comply with new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect toopt-out of the extended transition period and comply with the requirements that apply tonon-emerging growth companies, but any such election is irrevocable. The Company has elected not toopt-out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company, which is neither an emerging growth company nor anon-emerging growth company, which hasopted-out of using the extended transition period, difficult or impossible because of the potential differences in accounting standards used.

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c) 2019 Equity Incentive Plan and Stock-Based Compensation

The Company’s board of directors approved the 2019 Equity Incentive Plan (the “2019 Plan”) on March 18, 2019 and the Company’s shareholders approved the 2019 Plan on March 18, 2019. The purpose of the 2019 Plan is to make available incentives that will assist the Company to attract, retain, and motivate employees, including officers, consultants and directors. The Company may provide these incentives through the grant of share options, share appreciation rights, restricted shares, restricted share units, performance shares and units and other cash-based or share-based awards. The Equity Plan provides participants an option to defer compensation on atax-deferred basis. Awards may be granted under the 2019 Plan to OneSpaWorld employees, including officers, directors or consultants or those of any present or future parent or subsidiary corporation or other affiliated entity. A total of 7,000,000 OneSpaWorld Shares have been authorized and reserved for issuance under the 2019 Plan.Non-cash stock-based compensation expense is included within general and administrative expense in the consolidated statements of operations. Share-based payments, to the extent they are compensatory, are recognized based on their grant date fair values. Forfeitures are recorded as they occur.

On March 26, 2019 (the “Grant Date”), a total of 4,547,076 options were granted by the Company under the 2019 Plan to executive officers of the Company. The options have an exercise price of $12.99 and expire on the sixth anniversary of the Grant Date. The options were 100% vested on the Grant Date. The options become exercisable upon the five day volume weighted average price of OneSpaWorld common shares reaching $20.00 per share. The Grant Date fair value of the option was $4.48, resulting in stock-based compensation of $20,370,900 being recognized by the Company in the period from March 20, 2019 to March 31, 2019 (Successor) in accordance with ASC Topic 718,Compensation – Stock Compensation. The Grant Date fair value of the option was estimated by a third party valuation specialist using a Monte Carlo simulation in a risk-neutral framework assuming Geometric Motion, 2,500,000 trials, and using the following assumptions:

Hurdle price per share	$	20.00
Strike price per share	$	12.99
Average period for hurdle price, in days		5
End of simulation term		3/26/2025
Term of simulation		6.00 years
Stock price as of the Measurement Date	$	12.99
Volatility		37.5	%
Risk-free rate (continuous)		2.2	%
Dividend yield (quarterly after 3 years)		3.0	%
Suboptimal exercise multiple		2.8x

On July 30, 2019, the Company granted the board of directors a total of 60,902 OneSpaWorld Restricted Stock Units (“RSU’s”) as compensation for future service. The RSU’s fully vest at the completion of theone-year period commencing from the date of grant and had an estimated grant-date fair value of $1.0 million. The Company recognized stock-based compensation expense of $0.1 million for the three and nine months ended September 30, 2019 (Successor) related to the RSU’s, which is included as a component of salary and payroll taxes in the accompanying consolidated statement of operations.

d) Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization. Expenditures for maintenance and repairs, which do not add to the value of the related assets or materially extend their original lives, are expensed as incurred. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the shorter of the terms of the respective leases and the estimated useful lives of the respective assets. Depreciation and amortization expense for the three months ended September 30, 2019 (Successor) and the three months ended September 30, 2018 (Predecessor) was $1.9 million and $1.7 million, respectively. Depreciation and amortization expense for the periods from March 20, 2019 to September 30, 2019 (Successor), January 1, 2019 to March 19, 2019 (Predecessor) and the nine months ended September 30, 2018 (Predecessor) was $4.2 million, $1.2 million and $4.9 million, respectively.

e) Income Taxes

Successor:

As part of the process of preparing the condensed consolidated financial statements, the Company is required to estimate its income taxes in each of the jurisdictions in which it operates. This process involves estimating the Company’s actual current income tax exposure together with an assessment of temporary differences resulting from differing treatment of items for tax purposes and

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accounting purposes, respectively. These differences result in deferred income tax assets and liabilities which are included in the accompanying condensed consolidated balance sheet. The Company must then assess the likelihood that its deferred income tax assets will be recovered from future taxable income and, to the extent that the Company believes that recovery is not likely, the Company must establish a valuation allowance.

Predecessor:

OSW accounts for income taxes under the separate return method of accounting. This method requires the allocation of current and deferred taxes to OSW as if it were a separate taxpayer. Under this method, the resulting portion of current income taxes payable that is not actually owed to the tax authorities iswritten-off through net Parent investment. Accordingly, income taxes payable in the accompanying condensed combined balance sheet as of December 31, 2018 (Predecessor) reflects current income tax amounts actually owed to the tax authorities as of those dates, as well as the accrual for uncertain tax positions. Thewrite-off of current income taxes payable not actually owed to the tax authorities is included in net Parent investment in the accompanying condensed combined balance sheet as of December 31, 2018 (Predecessor).

f) Earnings (Loss) Per Share

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

The following table provides details underlying OneSpaWorld’s earnings (loss) per basic and diluted share calculation for the three months ended September 30, 2019 (Successor) and the period from March 20, 2019 to September 30, 2019 (Successor) (in thousands except per share data):

	Successor
	Three Months Ended		March 20, 2019 to
	September 30, 2019		September 30, 2019
Net income (loss) attributable to OneSpaWorld(a)	$	2,362	$	(16,712	)
Weighted average shares issued and outstanding - basic		61,118		61,118
Weighted average shares issued and outstanding - diluted(b)(c)		75,012		61,118
Earnings (loss) per share:
Basic	$	0.04	($	0.27	)
Diluted	$	0.03	($	0.27	)

(a) Calculated as total net income (loss) less amounts attributable to noncontrolling interest.

(b) For the three months ended September 30, 2019, weighted average shares issued and outstanding – diluted includes 7,294 potential dilutive shares under the treasury stock method and 6,600 contingently issuable dilutive shares.

(c) For the period from March 20, 2019 to September 30, 2019, potential common shares under the treasury stock method were antidilutive because the Company reported a net loss in this period. Consequently, the Company did not have any adjustments in these periods between basic and diluted loss per share related to stock options, warrants, deferred shares and restricted stock.

The following is a reconciliation of the denominator of the basic and diluted per share computation for the three months ended September 30, 2019 (in thousands):

	Successor
	Three Months
	Ended
	September 30, 2019
Weighted average shares outstanding - basic		61,118
Common share warrants		6,526
Deferred shares		6,600
Employee stock options		759
Board of directors RSU’s		9
Weighted average shares outstanding - diluted		75,012

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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):

	Successor
	March 20, 2019 to
	September 30, 2019
Common share warrants		24,500
Deferred shares		6,600
Employee stock options		4,493
Board of directors RSU’s		19
		35,612

g) Intangible Assets

As a result of the Business Combination on March 19, 2019, and the related application of acquisition accounting, the Company completed a preliminary valuation of the identifiable intangible assets as of that date. As of September 30, 2019 (Successor), the trade name intangible asset, the Company’s only identified intangible asset with an indefinite life, had carrying values of $6.2 million. As of September 30, 2019, the definite-lived intangible assets had a carrying value of $614.5 million.

Prior to the Business Combination and application of acquisition accounting, the trade name intangible asset, and the definite-lived intangible assets had carrying values of $5.0 million and $126.5 million, respectively, as of December 31, 2018 (Predecessor).

The Company amortizes intangible assets with definite lives on a straight-line basis over their estimated useful lives. Amortization expense related to intangible assets for the three months ended September 30, 2019 (Successor) and three months ended September 30, 2018 (Predecessor) was $4.0 million and $0.9 million, respectively. Amortization expense for the periods from March 20, 2019 to September 30, 2019 (Successor), January 1, 2019 to March 19, 2019 (Predecessor) and the nine months ended September 30, 2018 (Predecessor) was $9.1 million, $0.8 million and $2.6 million, respectively. Amortization expense is estimated to be $16.8 million in each of the next five years beginning in 2020.

Retail concession agreements are generally renewed every five years and destination resort agreements are generally renewed every ten years. The Company has the intent and ability to renew such contracts over the estimated useful lives of the assets. Costs incurred to renew contracts are capitalized and amortized to cost of revenues and operating expenses over the term of the contract.

At September 30, 2019 (Successor), the cost, accumulated amortization, and net balance of the definite-lived intangible assets were as follows (in thousands):

								Weighted
								Average
			Accumulated			Net		Remaining Useful
Successor:	Cost		Amortization			Balance		Life (yrs.)
Retail concession agreements	$	604,700	$	(8,399	)	$	596,301		39
Destination resort agreements		17,900		(646	)		17,254		15
Licensing agreement		1,000		(68	)		932		8
	$	623,600	$	(9,113	)	$	614,487

At December 31, 2018 (Predecessor), the cost, accumulated amortization, and net balance of the definite-lived intangible assets were as follows (in thousands):

								Weighted
								Average
			Accumulated			Net		Remaining Useful
Predecessor:	Cost		Amortization			Balance		Life (yrs.)
Retail concession agreements	$	130,000	$	(10,210	)	$	119,790		36
Destination resort agreements		7,300		(573	)		6,727		36
	$	137,300	$	(10,783	)	$	126,517

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h) Goodwill

Goodwill represents the excess of cost over the fair value of net tangible and identifiable intangible assets acquired. The Company has two operating segments: (1) Maritime and (2) Destination Resorts. The Maritime and Destination Resorts operating segments each have associated goodwill, and each has been determined to be a reporting unit.

The Company reviews goodwill for impairment at the reporting unit level annually or, when events or circumstances dictate, more frequently. The impairment review for goodwill consists of a qualitative assessment of whether it ismore-likely-than-not that a reporting unit’s fair value is less than its carrying amount, and if necessary, atwo-step goodwill impairment test. Factors to consider when performing the qualitative assessment primarily include general economic conditions and changes in forecasted operating results. If the qualitative assessment demonstrates that it ismore-likely-than-not that the estimated fair value of the reporting unit exceeds its carrying value, it is not necessary to perform thetwo-step goodwill impairment test. The Company may elect to bypass the qualitative assessment and proceed directly to step one, for any reporting unit, in any period. The Company can resume the qualitative assessment for any reporting unit in any subsequent period. When performing thetwo-step goodwill impairment test, the fair value of the reporting unit is determined and compared to the carrying value of the net assets allocated to the reporting unit. If the fair value of the reporting unit exceeds its carrying value, no further analysis or write-down of goodwill is required. If the fair value of the reporting unit is less than the carrying value of its net assets, the implied fair value of the reporting unit is allocated to all its underlying assets and liabilities, including both recognized and unrecognized tangible and intangible assets, based on their fair value. If necessary, goodwill is then written down to its implied fair value.

As a result of the Business Combination on March 19, 2019, and the related application of acquisition accounting, the Company completed an initial preliminary valuation of goodwill as of that date of $199.4 million. As of September 30, 2019 (Successor), goodwill was adjusted to $185.6 million, a decrease of $13.8 million (see Note 1).

i) Derivative Instruments and Hedging Activities

The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. Gains and losses on derivatives that are designated as cash flow hedges are recorded as a component of Accumulated other comprehensive loss until the underlying hedged transactions are recognized in earnings.

During the third quarter of 2019, the Company early-adopted ASU2017-12 “Derivatives and Hedging (Topic 815)” which was issued with the objective of improving the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and to make certain targeted improvements to simplify the application of previously applicable hedge accounting guidance. Additionally, the new standard requires new disclosures requirements on a prospective basis. This adoption did not have a material effect on the Company’s condensed consolidated financial statements and did not result in any cumulative adjustment to equity as of the date of adoption since the Company did not enter into or transact any derivative before September 2019 (See Note 11).

j) Recent Accounting Pronouncements

With the exception of those discussed below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the nine months ended September 30, 2019 that are of significance, or potential significance, to the Company based on its current operations. The following summary of recent accounting pronouncements is not intended to be an exhaustive description of the respective pronouncement.

In May 2014, the FASB issued ASU2014-09. The core principle of the guidance in ASU2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance in this ASU supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry specific guidance throughout the Industry Topics of the ASC. Additionally, ASU2014-09 supersedes some cost guidance included in Subtopic605-35, Revenue Recognition—Construction-Type and Production-Type Contracts.

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In periods subsequent to the initial issuance of this ASU, the FASB has issued additional ASU’s clarifying items within Topic 606, as follows:

• In March 2016, the FASB issued ASU2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations” (“ASU2016-08”). The amendments in ASU2016-08 serve to clarify the implementation guidance on principal versus agent considerations.

• In April 2016, the FASB issued ASU2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” (“ASU2016-10”). The purpose of ASU2016-10 is to clarify two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance (while retaining the related principles for those areas).

• In May 2016, the FASB issued ASU2016-12, “Revenue from Contracts with Customers (Topic 606)” (“ASU2016-12”). The purpose of ASU2016-12 is to address certain issues identified to improve Topic 606 by enhancing guidance on assessing collectability, presentation of sales taxes and other similar taxes collected from customers,non-cash consideration and completed contracts and contract modifications at transition. The FASB issued updates ASU2016-08, ASU2016-10 and ASU2016-12 to provide guidance to improve the operability and understandability of the implementation guidance included in ASU2014-09. ASU2016-08, ASU2016-10 and ASU2016-12 have the same effective date and transition requirements of ASU2015-14, which defers the effective date and transition of ASU2014-09 to annual reporting periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019, with early adoption permitted. The Company plans to adopt this standard, other related revenue standard clarifications and technical guidance effective for the annual period ending December 31, 2019 and quarterly periods beginning January 1, 2020. The Company has elected the modified retrospective transition approach. Under this method, the standard will be applied only to the most current period presented and the cumulative effect of applying the standard will be recognized at the date of initial application. The Company is progressing through its implementation plan and is continuing to evaluate the impact of the standard on its processes, accounting systems, controls and financial disclosures. The Company is not able to determine at this time if the adoption of this guidance will have a material impact on the Company’s consolidated and combined financial statements.

In February 2016, the FASB issued ASU2016-02, “Leases (Topic 842)” (“ASU2016-02”) 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) aright-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. The update is effective retrospectively for annual periods beginning after December 15, 2019, and interim periods beginning after December 15, 2020, with early adoption permitted. The Company is not able to determine at this time if the adoption of this guidance will have a material impact on the Company’s consolidated and combined financial statements.

k) Accounting for Business Combinations

In accordance with ASC 805, when accounting for business combinations, the Company is required to recognize the assets acquired, liabilities assumed, contractual contingencies, noncontrolling interests and contingent consideration at their fair value as of the acquisition date.

The purchase price allocation process requires management to make significant estimates and assumptions with respect to intangible assets and/orpre-acquisition contingencies, all of which ultimately affect the fair value of goodwill established as of the acquisition date. Goodwill acquired in business combinations is assigned to the reporting unit(s) expected to benefit from the combination as of the acquisition date and is then subsequently tested for impairment at least annually.

As part of the Company’s accounting for business combinations, the Company is required to determine the useful lives of identifiable intangible assets recognized separately from goodwill. The useful life of an intangible asset is the period over which the asset is expected to contribute directly or indirectly to the future cash flows of the acquired business. An intangible asset with a finite useful life shall be amortized; an intangible asset with an indefinite useful life shall not be amortized. The Company bases the estimate of the useful life of an intangible asset on an analysis of all pertinent factors, including but not limited to the expected use of the asset, the expected useful life of another asset or a group of assets to which the useful life of the intangible asset may relate, any legal, regulatory, or contractual provisions that may limit the useful life, the Company’s own historical experience in renewing or extending similar arrangements, consistent with the Company’s intended use of the asset, regardless of whether those arrangements have explicit

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renewal or extension provisions, the effects of obsolescence, demand, competition, and other economic factors, and the level of maintenance expenditures required to obtain the expected future cash flows from the asset. If no legal, regulatory, contractual, competitive, economic, or other factors limit the useful life of an intangible asset to the reporting entity, the useful life of the asset shall be considered to be indefinite. The term indefinite does not mean the same as infinite or indeterminate. The useful life of an intangible asset is indefinite if that life extends beyond the foreseeable horizon—that is, there is no foreseeable limit on the period of time over which it is expected to contribute to the cash flows of the acquired business.

Although the Company believes the assumptions and estimates it has made have been reasonable and appropriate, such assumptions and estimates are based in part on historical experience and information obtained from the management of the acquired entity and are inherently uncertain. Examples of critical estimates in accounting for acquisitions include, but are not limited to, the future expected cash flows from sales of products and services, and related contracts and agreements, and discount and long-term growth rates. Unanticipated events and circumstances may occur which could affect the accuracy or validity of the Company’s assumptions, estimates or actual results.

l) Correction of Immaterial Errors

The Company corrected errors that were immaterial to the previously reported condensed consolidated financial statements as of March 31, 2019. These errors were identified and corrected in connection with the preparation of our condensed consolidated financial statements for the second quarter of 2019 and relate to the period from March 20, 2019 to March 31, 2019 (Successor). As of September 30, 2019, goodwill decreased by $23.0 million due to the net effect of adjusting for (i) a decrease of $26.6 million attributable to incorrectly including as consideration transferred change in control payments pursuant to employment agreements entered into in 2016 that were earned upon consummation of the Business Combination for services rendered prior to the Business Combination for which an assumed liability had been recorded in the purchase accounting treatment of the Business Combination; (ii) a decrease of $3.2 million attributable to a receivable due from Parent for the reimbursement of cash payments made by the Company on behalf of the Parent that had not been recorded in the purchase accounting treatment of the Business Combination; and (iii) an increase of $6.8 million attributable to contract acquisition costs that had incorrectly been recorded as an intangible asset in the purchase accounting of the Business Combination. Additionally, the Company corrected for $3.7 million of accrued expenses associated with Haymaker that had not been recorded upon consummation of the Business Combination and to reclassify $0.6 million of accumulated other comprehensive loss as additional paid in capital as of September 30, 2019. The effect of correcting these errors decreased additional paid in capital and stockholders’ equity by $24.1 million and $23.5 million, respectively, as of September 30, 2019.

The condensed consolidated statement of cash flows for the period from March 20, 2019 to September 30, 2019 has been corrected for the effect of the above referenced condensed consolidated balance sheet adjustments and other cash flow presentation items. The effect of correcting i) above resulted in a $26.6 million decrease in Cash Flow Used in Investing Activities attributable to the acquisition of OSW Predecessor, which was further reduced to reflect $14.6 million of cash acquired in the Business Combination (which was previously presented as cash and cash equivalents, beginning of period). The effect of correcting iii) above resulted in a $6.8 million increase in Cash Flow Used in by Operating Activities (specifically, to decrease the change in other noncurrent assets), which was offset partially by a correction for $3.0 million associated with payment of accrued expenses. The Company also corrected the presentation of Net Proceeds From Haymaker and Private Placement Investors by reducing the amount previously presented by $25.0 million, the effect of exchange rate changes on cash by reducing it by $0.6 million, and adjusted cash and cash equivalents at beginning of period to $1.7 million, which was the cash held by Haymaker at the Business Combination Date.

The corrections of these errors did not have any effect on the condensed consolidated statements of operations for any of the periods previously presented. Additionally, these errors did not have any effect on cash and cash equivalents at March 31, 2019.

3. ACCRUED EXPENSES

Accrued expenses consisted of the following (in thousands):

	Successor		Predecessor
	As of		As of
	September 30,		December 31,
	2019		2018
Operative commissions	$	4,138	$	4,663
Minimum cruiseline commissions		9,004		5,648
Payroll and bonuses		2,809		5,037
Interest		403		2,513
Other		8,365		9,350
	$	24,719	$	27,211

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4. LONG-TERM DEBT

Successor:

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.

Total debt, net of $224.1 million at September 30, 2019 consisted of the following (amounts in thousands):

			Amount
			Borrowed at
	Borrowing		September 30,
	Capacity		2019
First Lien Revolving Facility	$	20,000	$	—
First Lien Term Loan Facility		208,500		207,458
Second Lien Term Loan Facility		25,000		25,000
	$	253,500		232,458
Less: Unamortized deferred financing costs				6,321
Total debt				226,137
Less: Current portion of long-term debt				2,085
Long-term debt, net			$	224,052

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.

The Term Loan Facilities require the Company to make certain mandatory prepayments, with (i) 100% of net cash proceeds of allnon-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) 4.0% 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.

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The First Lien Revolving Facility contains a financial covenant and the New Credit Facilities contain a number of traditional negative covenants including negative 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.

The New Credit Facilities also contain certain customary representations and warranties, affirmative covenants and events of default. 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.

Predecessor:

On January 11, 2018, the Company entered into an assignment and assumption of third-party debt (the “Term Credit Agreement”) of $356.2 million from the Parent with a maturity date on December 9, 2021. Long-term debt is presented net of related unamortized deferred financing costs of $3.7 million on the condensed combined balance sheet as of December 31, 2018. The interest rate on the Term Credit Agreement was based on (at the Parent’s election) either LIBOR plus a predetermined margin that ranged from 7.00% to 7.50%, or the base rate as defined in the Term Credit Agreement plus a predetermined margin that ranged from 6.00% to 6.50%, in each case based on the Parent’s consolidated total leverage ratio. At December 31, 2018, the Parent elected the LIBOR rate and the applicable margin was 7.25% per annum.

On March 1, 2019, all amounts due under the Term Credit Agreement were paid off in full by the Parent on behalf of OSW. This resulted in a loss on extinguishment of debt to OSW of $3,413,000, representing thewrite-off of unamortized deferred financing costs, which is recorded in other income (expense) in the accompanying condensed combined statements of operations for the period from January 1, 2019 to March 19, 2019 (Predecessor).

5. PRIVATE PLACEMENTS

On November 1, 2018, the Company entered into certain subscription agreements (the “Subscription Agreements”) with certain investors pursuant to which, among other things, such investors agreed to subscribe for and purchase, and OneSpaWorld agreed to issue and sell to such investors 17,856,781 newly issued OneSpaWorld Shares and 3,105,294 OneSpaWorld Warrants for gross proceeds of approximately $122,496,370 (the “Private Placements”).

On March 19, 2019, OneSpaWorld completed the sales of 17,856,781 OneSpaWorld Shares and 3,105,294 OneSpaWorld Warrants to such investors as contemplated by the Subscription Agreements. The proceeds from the Private Placements were used to fund a portion of the cash payment payable in connection with the consummation of the Business Combination.

6. EQUITY

Common Shares

The Company is authorized to issue 250,000,000 common shares with a par value of $0.0001 per share. Holders of the Company’s common stock are entitled to one vote for each share. At September 30, 2019, there were 61,118,398 shares of OneSpaWorld common stock issued and outstanding.

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 5,000,000 and 1,600,000 OneSpaWorld common stock, respectively. The issuance of the OneSpaWorld common shares related to the Deferred Shares is contingent upon the earlier occurrence of any of the following events: (i) OneSpaWorld share price reaching $20 per share for five consecutive trading dates, as adjusted to reflect any stock split, reverse stock split, stock dividend, payment of dividends and other events as defined in the applicable Deferred Shares agreement (ii) in the event of a change of control, as defined, of the Company if the price per share paid in connection with such change in control is equal to or greater than $20; however, if the price per share paid in connection with such change in control is less than $20, then no OneSpaWorld common shares will be issued and all the rights to receive the shares will be forfeited for no consideration, and (iii) ten years from the date of the Business Combination agreement.

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Public Warrants

Each whole Public Warrant is exercisable to purchase one share of common stock and only whole warrants are exercisable (See Note 1). The Public Warrants became exercisable 30 days after the completion of the Business Combination. Each whole Public Warrant entitles the holder to purchase one share of OneSpaWorld common stock at an exercise price of $11.50. For the three months ended September 30, 2019, 100 Public Warrants were converted into 100 OneSpaWorld common shares. As of September 30, 2019, 24,499,900 Public Warrants were issued and outstanding.

Pursuant to the warrant agreement, a warrant holder may exercise its warrants only for a whole number of shares of OneSpaWorld common stock. This means that only a whole warrant may be exercised at any given time by a warrant holder. No fractional warrants will be issued upon separation of the units and only whole warrants will trade. Accordingly, unless the holder purchases at least two units, the holder will not be able to receive or trade a whole warrant. The warrants will expire five years after the date of the Business Combination or earlier upon redemption or liquidation.

The Company filed with the Securities and Exchange Commission (“SEC”) a registration statement for the registration, under the Securities Act, of the shares of OneSpaWorld common stock issuable upon exercise of the warrants. This registration statement has since been declared effective by the SEC. The Company will use its reasonable efforts to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration of the warrants in accordance with the provisions of the warrant agreement. Notwithstanding the above, if the Company’s common stock is at the time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of public warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, the Company will not be required to file or maintain in effect a registration statement, but the Company will be required to use its best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.

Once the warrants become exercisable, the Company may call the warrants for redemption:

• in whole and not in part;

• at a price of $0.01 per warrant;

• upon not less than 30 days’ prior written notice of redemption (the“30-day redemption period”) to each warrant holder; and

• if, and only if, the reported last sale price of the Class A common stock equals or exceeds $18.00 per share for any 20 trading days within a30-trading day period ending three business days before the Company sends the notice of redemption to the warrant holders.

Private Placement Warrants

Certain investors (the “Investors’) purchased an aggregate of 3,105,294 Private Placement Warrants at a price of $1.00 per whole warrant in a private placement that occurred simultaneously with the closing of the Business Combination. Each whole Private Placement Warrant is exercisable for one whole share of OneSpaWorld common stock at a price of $11.50 per share. The proceeds from the purchase of the Private Placement Warrants was used to fund a portion of the cash payment payable in connection with the consummation of the Business Combination. The Private Placement Warrants will benon-redeemable and exercisable on a cashless basis so long as they are held by the Investors or their permitted transferees.

The Private Placement Warrants (including the OneSpaWorld common stock issuable upon exercise of the Private Placement Warrants) will not be transferable, assignable or saleable until 30 days after the Business Combination and they will not be redeemable so long as they are held by the Investors or their permitted transferees. Otherwise, the Private Placement Warrants have terms and provisions that are identical to those of the Public Warrants, including as to exercise price, exercisability and exercise period. If the Private Placement Warrants are held by holders other than the Sponsor or its permitted transferees, the Private Placement

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Warrants will be redeemable by the Company and exercisable by the holders on the same basis the Public Warrants. If holders of the Private Placement Warrants elect to exercise them on a cashless basis, they would pay the exercise price by surrendering their warrants for that number of shares of OneSpaWorld common stock equal to the quotient obtained by dividing (x) the product of the number of shares of OneSpaWorld common stock underlying the warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” (defined below) by (y) the fair market value. The “fair market value” shall mean the average reported last sale price of the Class A common stock for the 10 trading days ending on the third trading day prior to the date on which the notice of warrant exercise is sent to the warrant agent. The Company’s Sponsor has agreed not to transfer, assign or sell any of the Private Placement Warrants (including the OneSpaWorld common stock issuable upon exercise of any of these warrants) until the date that is 30 days after the date the Company completes its Business Combination.

Stock Options

On March 26, 2019 (Successor), OneSpaWorld granted certain executive officers of the Company a total of 4,547,076non-qualified stock options. The options were 100%, fully-vested on the grant date and become exercisable upon thefive-day volume weighted average price of OneSpaWorld common shares reaching $20.00 per share. As of September 30, 2019, 4,275,891 stock options were issued and outstanding.

7. COMMITMENTS

Registration Rights Agreement

On March 19, 2019, in connection with the closing of the Business Combination (the “Closing”), OneSpaWorld, Steiner Leisure and Haymaker Sponsor entered into a Registration Rights Agreement (the “Registration Rights Agreement”). The Registration Rights Agreement provides for customary registration rights, including demand and piggyback rights subject tocut-back provisions. During the quarter ended June 30, 2019, the Company filed with the SEC a registration statement under the Securities Act to register the Shares. This registration statement has since been declared effective by the SEC. At any time, and from time to time, after the shelf registration statement has been declared effective by the SEC, Steiner Leisure will be entitled to make up to three demands per year, and Haymaker Sponsor will be entitled to make up to three demands per year, that a resale of shares of OneSpaWorld reasonably expected to exceed $10,000,000 in gross offering price pursuant to such shelf registration statement be made pursuant to an underwritten offering. Pursuant to the Registration Rights Agreement, Steiner Leisure and Haymaker Sponsor will agree not to sell, transfer, pledge or otherwise dispose of their OneSpaWorld Shares (as defined in the Registration Rights Agreement) during the seven days before and 90 days after the pricing of any underwritten offering of OneSpaWorld, subject to certain exceptions, and Steiner Leisure and Haymaker Sponsor will enter into a customarylock-up agreement to such effect. Steiner Leisure and Haymaker Sponsor agreed not to assign or delegate their rights, duties or obligations under the Registration Rights Agreement for a period of six months following the Closing, subject to certain exceptions.

Operating Leases

The Company leases office and warehouse space, as well as office equipment and automobiles, under operating leases. The Company also makes certain payments to the owners of the venues where destination resort health and wellness centers are located. Destination resort health and wellness centers generally require rent based on a percentage of revenues. In addition, as part of the rental arrangements for some of the destination resort health and wellness centers, the Company is required to pay a minimum annual rental regardless of whether such amount would be required to be paid under the percentage rent arrangement. Substantially all of these arrangements include renewal options ranging from three to five years.

8. NONCONTROLLING INTEREST

The Company has a 60% controlling interest and a third party has a 40% noncontrolling interest in Medispa Limited, a Bahamian entity that is a consolidated subsidiary of the Company. The operations of Medispa Limited relate to the delivery ofnon-invasive aesthetic services, provision of related services, and the sale of related products on cruise ships and in destination resorts outside the tax jurisdiction of the U.S. As of September 30, 2019 (Successor) and December 31, 2018 (Predecessor), the noncontrolling interest was $8.0 million and $3.6 million, respectively.

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9. RELATED PARTY TRANSACTIONS

Predecessor:

The Company purchased products from wholly owned subsidiaries of Steiner Leisure for resale to its customers. Inventories on hand related to these purchases and accounts payable owed to the supplier entities related to the purchases were as follows (in thousands):

	Predecessor
	As of
	December 31,
	2018
Inventory	$	17,268
Accounts payable - related parties	$	6,553

The Company entered into a loan agreement with a wholly owned subsidiary of the Parent (the “Borrower”), for €5.0 million on February 25, 2016. The note receivable was due in full by January 3, 2021 and bears an annual interest rate of 7.50%. The note receivable was accounted for on an amortized cost basis, and interest was recognized using the effective interest rate method. On July 27, 2018, the Parent settled the outstanding principal amount and all accrued interest under this loan agreement.

The Company received services and support from various functions performed by the Parent. These expenses related to allocations of Parent corporate overhead.

Successor:

One Spa World LLC, a subsidiary of OneSpaWorld, entered into a transition services agreement, concurrent with the closing of the Business Combination, with Steiner Management Services, LLC (“SMS”), which became effective at the time of the closing. This agreement provides for the provision by SMS and its affiliates and third-party providers of certain services, including accounting, information technology and legal services, to certain subsidiaries of OneSpaWorld until December 31, 2019 in exchange for approximately $360,000.

OSW Predecessor entered into an Executive Services Agreement, concurrent with the closing of the Business Combination, with Nemo Investor Aggregator, Limited, the parent company of Steiner Leisure, which became effective at the time of the closing. The agreement provides that after the closing of the Business Combination, Leonard Fluxman and Stephen Lazarus are to be made available to provide certain transition services to Nemo, until December 31, 2019 in exchange for $850,000.

Predecessor and Successor:

OSW entered into a Management Agreement, dated May 25, 2018 and amended and restated October 25, 2018, with Bliss World LLC, an indirect subsidiary of Steiner Leisure, which became effective at the time of the closing of the Business Combination. The agreement provides that OSW will manage the operation of nine U.S. health and wellness centers on behalf of Bliss World LLC in exchange for approximately $1.25 million in the aggregate for the year ended December 31, 2019. Subject to certain customary early termination rights, the agreement terminates, with respect to each health and wellness center, upon expiration or termination of the respective lease for each such health and wellness center.

On August 3, 2018, OSW entered into a lease of office space in Coral Gables, Florida (the “Coral Gables Lease”) with an initial lease term of twelve years and options to renew for two periods of five years each. Additionally, on August 3, 2018, OSW entered into a sublease of the Coral Gables Lease with SMS, with an initial term of five years and an annual rent amount of approximately $480,000.

10. SEGMENT AND GEOGRAPHICAL INFORMATION

The Company operates facilities on cruise ships and in destination resorts, which provide health and wellness, fitness and beauty services and sell related products onboard cruise ships and in destination resorts. 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 chief operating decision maker (CODM), in determining how to allocate the Company’s resources and evaluate performance.

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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):

	Successor		Predecessor		Successor		Predecessor
	Three Months Ended		Three Months Ended		March 20, 2019 to		January 1, 2019 to		Nine Months Ended
	September 30, 2019		September 30, 2018		September 30, 2019		March 19, 2019		September 30, 2018
Revenues:
U.S.	$	8,541	$	6,078	$	17,824	$	6,008	$	19,921
Not connected to a country		131,133		131,212		273,988		106,886		370,053
Other		5,227		5,330		12,533		5,558		16,935
Total	$	144,901	$	142,620	$	304,345	$	118,452	$	406,909

	Successor		Predecessor
	As of		As of
	September 30,		December 31,
	2019		2018
Property and equipment, net:
U.S.	$	8,895	$	6,838
Not connected to a country		6,974		2,188
Other		7,992		7,213
Total	$	23,861	$	16,239

11. FAIR VALUE MEASUREMENTS AND DERIVATIVES

Fair Value Measurements

The Company’s outstanding long-term debt as of September 30, 2019 (Successor) was recently originated and bears variable interest rates. As a result, the Company believes that the fair value of long-term debt as of September 30, 2019 approximates its carrying amount. The fair value of outstanding long-term debt as of December 31, 2018 (Predecessor) is estimated at $372.2 million using a discounted cash flow analysis based on current market interest rates for debt issuances with similar remainingyears-to-maturity and adjusted for credit risk, which represents a Level 3 measurement in the fair value hierarchy.

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) and included as part of “other current assets” and “other long-term liabilities”:

	Fair Value Measurements at September 30, 2019 Using
Description	Total		Level 1		Level 2		Level 3
Assets:
Derivative financial instruments(1)	$	343	$	—	$	343	$	—
Total Assets	$	343	$	—	$	343	$	—
Liabilities:
Derivative financial instruments(1)	$	290	$	—	$	290	$	—
Total Liabilities	$	290	$	—	$	290	$	—

(1) Consists of an interest rate swap.

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Derivatives

Successor:

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.

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. The Company classifies derivative instrument cash flows from hedges of benchmark interest rate as operating activities due to the nature of the hedged item. 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 anticipatenon-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 afloating-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, 2019, the notional amount is $174.7 million. 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 $0.3 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):

Derivative	Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Income (Loss) on Derivative				Location of Gain (Loss) Reclassified From Accumulated Other Comprehensive Income (Loss) into Income	Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income
	Three Months Ended		March 20, 2019 to			Three Months Ended		March 20, 2019 to
	September 30, 2019		September 30, 2019			September 30, 2019		September 30, 2019
Interest rate swap	$	88	$	88	Interest expense	$	35	$	35
Total	$	88	$	88		$	35	$	35

Predecessor:

During the nine-month period ended September 30, 2018 and for the period from January 1, 2019 to March 19, 2019, the Company did not enter into or transact any derivative contracts, nor did the Company have any derivative contracts outstanding as of December 31, 2018.

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12. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT

The following table presents the changes in accumulated other comprehensive income (loss) by component for the period March 20, 2019 to September 30, 2019 (Successor) and the nine months ended September 30, 2018 (Predecessor), respectively:

	Successor									Predecessor
	Accumulated Other Comprehensive Income (Loss) for the Period									Accumulated Other Comprehensive Income (Loss)
	March 20, 2019 to September 30, 2019									for the Nine Months Ended September 30, 2018(2)
	Foreign Currency			Changes Related to						Foreign Currency
	Translation			Cash Flow			Accumulated Other			Translation			Accumulated Other
	Adjustments			Derivative Hedge(1)			Comprehensive Loss			Adjustments			Comprehensive Loss
Accumulated other comprehensive loss, beginning of the period	$	—		$	—		$	—		$	(356	)	$	(356	)
Other comprehensive (loss) income before reclassifications		(384	)		88			(296	)		(224	)	$	(224	)
Amounts reclassified from accumulated other comprehensive income (loss)		—			(35	)		(35	)		—		$	—
Net current period other comprehensive (loss) income		(384	)		53			(331	)		(224	)	$	(224	)
Ending balance	$	(384	)	$	53		$	(331	)	$	(580	)	$	(580	)

(1) See Note 11.

(2) For the three and nine months ended September 30, 2018, the only component of other comprehensive income (loss) was foreign currency translation adjustments.

13. SUBSEQUENT EVENT

In November 2019, the Company adopted an annual cash dividend program and declared an initial quarterly payment of $0.04 per common share, which is payable on February 28, 2020 to its common stockholders of record as of January 10, 2020.

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

Overview

OneSpaWorld Holdings Limited (“OneSpaWorld,” the “Company,” “we,” “our, “us” and other similar terms refer to OneSpaWorld Holdings Limited and its consolidated subsidiaries) is thepre-eminent global operator of health and wellness centers onboard cruise ships and a leading operator of health and wellness centers at destination resorts worldwide. Our highly-trained and experienced staff offer guests a comprehensive suite of premium health, fitness, beauty and wellness services and products onboard 163 cruise ships and at 70 destination resorts globally. With over 80% market share in the highly attractive outsourced maritime health and wellness market, we are the market leader at approximately 10x 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 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 andknow-how have allowed us to construct an unmatched global infrastructure to manage the complexity of our operations, which in 2018 included nearly 8,000 annual voyages with visits to over 1,100 ports of call around the world. We have consistently expanded our onboard offerings with innovative and leading-edge service and product introductions, and developed powerfulback-end recruiting, training and logistics platforms to manage our operational complexity, maintain our industry-leading quality standards, and maximize revenue per center. The combination of our renowned recruiting and training platform, deep labor pool, global logistics and supply chain infrastructure and proven 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. Recently, we 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 the first three Virgin vessels, planned to launch in 2020, 2021 and 2022, won a contract with Celebrity Cruise Lines to design and operate the health and wellness centers onboard their four new mega ships commissioned in 2018 and being commissioned between 2019 and 2022, and entered into an amended agreement with P&O Cruises to extend our operations on P&O’s vessels for the next five years.

Our success and our growth are dependent to a significant extent on the success and growth of the travel, leisure and hospitality industries, and particularly in the cruise industry.

The success of the cruise and hospitality industries, as well as our business, is impacted by geopolitical events and economic conditions, as well as the perception by consumers of such conditions. Prior adverse economic factors, including periodic increases in fuel prices, experienced in the United States and other world economies have presented challenges for the cruise and hospitality industries and our business, including the potential for reduced spending by consumers on discretionary items, such as our services and products. The recurrence of the more severe aspects of these challenging conditions could have a material adverse effect on the cruise and hospitality industries and also could have a material adverse effect on our results of operations and financial condition for 2019 and thereafter.

Despite the general historic trend of growth in the volume of cruise passengers, in 2019 and future years, the global economic environment could cause the number of cruise passengers to decline or be maintained through discounting, which could result in an increased number of passengers with limited discretionary spending ability. A significant decrease in passenger volume could have a material adverse effect on our results of operations and financial condition.

Other factors also can adversely affect our financial results. Fluctuations in currency exchange rates compared to the U.S. Dollar can impact our results of operations, most significantly because we pay for the administration of recruitment and training of our shipboard personnel and purchase finished goods in U.K. Pounds Sterling and Euros, respectively. Accordingly, while the relative strength of the U.S. Dollar has improved recently, renewed weakness of the U.S. Dollar against those currencies can adversely affect our results of operations, as has occurred from time to time in recent years.

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On March 19, 2019, we consummated the previously announced business combination (the “Business Combination”) pursuant to that certain Business Combination Agreement, dated as of November 1, 2018 (as amended, supplemented or otherwise modified from time to time, the “Transaction Agreement”), by and among Steiner Leisure Limited, an international business company incorporated under the laws of the Commonwealth of The Bahamas (“Steiner Leisure”), Steiner U.S. Holdings, Inc., a Florida corporation, Nemo (UK) Holdco, Ltd., a limited company formed under the laws of England and Wales, Steiner UK Limited, a limited company formed under the laws of England and Wales, Steiner Management Services, LLC, a Florida limited liability company, Haymaker Acquisition Corp., a Delaware corporation (“Haymaker”), Dory US Merger Sub, LLC, a Delaware limited liability company, Dory Acquisition Sub, Limited, an international business company incorporated under the laws of the Commonwealth of The Bahamas, Dory Intermediate LLC, a Delaware limited liability company, and Dory Acquisition Sub, Inc., a Delaware corporation.

“OSW Predecessor” is comprised of the net assets and operations of (i) the following wholly-owned subsidiaries of Steiner Leisure: OneSpaWorld LLC, Steiner Spa Asia Limited, Steiner Spa Limited, and Steiner Marks Limited, (ii) the following respective indirect subsidiaries of Steiner Leisure: Mandara PSLV, LLC, Mandara Spa (Hawaii), LLC, Florida Luxury Spa Group, LLC, Steiner Transocean U.S., Inc., Steiner Spa Resorts (Nevada), Inc., Steiner Spa Resorts (Connecticut), Inc., Steiner Resort Spas (California), Inc., OneSpaWorld Resort Spas (North Carolina), Inc. (formerly known as Steiner Resort Spas (North Carolina), Inc.), OSW SoHo LLC, OSW Distribution LLC, World of Wellness Training Limited (formerly known as Steiner Training Limited), STO Italy S.r.l., One Spa World LLC, Mandara Spa Services LLC, OneSpaWorld Limited, OneSpaWorld (Bahamas) Limited (formerly known as Steiner Transocean Limited), OneSpaWorld Medispa LLC, OneSpaWorld Medispa Limited, OneSpaWorld Medispa (Bahamas) Limited (formerly known as STO Medispa Limited), Mandara Spa (Cruise I), LLC, Mandara Spa (Cruise II), LLC, Steiner Transocean (II) Limited, The Onboard Spa by Steiner (Shanghai) Co., Ltd., Mandara Spa LLC, Mandara Spa Puerto Rico, Inc., Mandara Spa (Guam), L.L.C., Mandara Spa (Bahamas) Limited, Mandara Spa Aruba N.V., Mandara Spa Polynesia Sarl, Mandara Spa Asia Limited, PT Mandara Spa Indonesia, Spa Services Asia Limited, Mandara Spa Palau, Mandara Spa (Malaysia) Sdn. Bhd., Mandara Spa Ventures International Sdn. Bhd., Spa Partners (South Asia) Limited, Mandara Spa (Maldives) PVT LTD, and Mandara Spa (Fiji) Limited, (iii) Medispa Limited, a majority-owned subsidiary of Steiner Leisure, and (iv) the timetospa.com website owned by Elemis USA, Inc. (formerly known as Steiner Beauty Products, Inc.).

At the closing of the Business Combination, OneSpaWorld became the ultimate parent company of Haymaker and OSW Predecessor. Unless the context otherwise requires, “we,” “us,” “our” and the “Company” refer to OneSpaWorld Holdings Limited and its subsidiaries.

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 North American and Asian centers for such period because North American centers are typically larger and produce substantially more revenue per center than Asian centers. Additionally, average weekly revenue can also be negatively impacted by renovations of our destination resort health and wellness centers.

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For the nine months ended September 30, 2019, we have combined the results of the successor entity, OneSpaWorld Holdings Limited, for the period from March 20, 2019 to September 30, 2019 with the results of OSW Predecessor for the period from January 1, 2019 to March 19, 2019 (the “2019 Combined Period”) in the following table which sets forth the above key performance indicators for the periods presented:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Selected Statistics
Period End Ship Count		162		161		162		161
Average Ship Count(1)		161		160		161		156
Average Weekly Revenue Per Ship	$	63,473	$	62,787	$	61,760	$	61,029
Average Revenue Per Shipboard Staff Per Day	$	493	$	498	$	480	$	482
Period End Resort Count		69		67		69		67
Average Resort Count(2)		68		61		68		61
Average Weekly Revenue Per Resort	$	10,831	$	14,403	$	12,243	$	14,210
Capital Expenditures ($ thousands)	$	1,127	$	1,312	$	2,887	$	4,248

(1) Average Ship Count reflects the fact that during the period ships were in and out of service and is calculated by adding the total number of days that each of the ships generated revenue during the period, divided by the number of calendar days during the period.

(2) Average Resort Count reflects the fact that during the period destination resort health and wellness centers were in and out of service and is calculated by adding the total number of days that each destination resort health and wellness center generated revenue during the period, divided by the number of calendar days during the period.

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, wellness and beauty services, including a full range of massage treatments, facial treatments, nutritional/weight management consultations, teeth whitening, mindfulness services and medispa 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, hair care, orthotics and nutritional supplements to cruise ship passengers, destination resort guests andtimetospa.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 have 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 have 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 have historically 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 have 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. We expect administrative expenses to increase due to additional legal, accounting, insurance and other expenses related to becoming a public company.

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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/401K, stock based awards and other employee costs.

Amortization of intangible assets. Amortization of intangible assets is comprised of the amortization of intangible assets with definite useful lives (e.g., customer contracts, trade names, long-term leases) and amortization expenses associated with the Business Combination in which Haymaker acquired OSW Predecessor.

Other income (expense), net. Other income (expense) consists of royalty income, interest income and 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 Annual Report on Form10-K for the year ended December 31, 2018.

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 number of ships and destination resorts in which we operate health and wellness centers.Revenue is impacted by net new ship growth and the increase in the number of destination resort health and wellness centers 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 medispa 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 medispa 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 duration of the itinerary and the number and timing 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 viapre-booking andpre-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 proprietarypre-booking andpre-payment technology platforms that interface with our cruise line partners’pre-cruise planning systems. These areas of increased collaboration with 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. The negative impact of hurricanes is highest during peak hurricane season from August to October.

The effect of each of these factors on our revenues and financial performance varies from period to period.

Recent Accounting Pronouncements

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

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Results of Operations

The following tables present operations for two periods, Predecessor and Successor, which relate to the periods preceding and the periods succeeding the Business Combination, respectively. References to the “Successor 2019 Period” in the discussion below refer to the period from March 20, 2019 to September 30, 2019. References to the “Predecessor 2019 Period” in the discussion below refers to the period from January 1, 2019 to March 19, 2019 (amounts in thousands, except per share data).

	Successor						Predecessor
	Consolidated						Combined
	Three Months Ended			% of Total			Three Months Ended			% of Total
	September 30, 2019			Revenue			September 30, 2018			Revenue
REVENUES:
Service revenues	$	110,564			76	%	$	108,113			76	%
Product revenues		34,337			24	%		34,507			24	%
Total revenues		144,901			100	%		142,620			100	%
COST OF REVENUES AND OPERATING EXPENSES:
Cost of services		94,199			65	%		92,267			65	%
Cost of products		29,980			21	%		30,321			21	%
Administrative		5,393			4	%		2,417			2	%
Salary and payroll taxes		2,951			2	%		4,002			3	%
Amortization of intangible assets		4,040			3	%		880			1	%
Total cost of revenues and operating expenses		136,563			94	%		129,887			91	%
Income from operations		8,338			6	%		12,733			9	%
OTHER INCOME (EXPENSE), NET:
Interest expense		(4,606	)		-3	%		(9,002	)		-6	%
Interest income		35			0	%		33			0	%
Other income (expense)		—			0	%		(13	)		0	%
Total other income (expense), net		(4,571	)		-3	%		(8,982	)		-6	%
Income before provision for income taxes		3,767			3	%		3,751			3	%
PROVISION FOR INCOME TAXES		97			0	%		163			0	%
Net income		3,670			3	%		3,588			3	%
Net income attributable to noncontrolling interest		1,308			1	%		1,073			1	%
Net income attributable to common shareholders and Parent, respectively	$	2,362			2	%	$	2,515			2	%

Comparison of Results for the Three Months Ended September 30, 2019 (Successor) and the Three Months Ended September 30, 2018 (Predecessor)

Revenues. Revenues for the three months ended September 30, 2019 and 2018 were $144.9 million and $142.6 million, respectively. The increase for the three months ended September 30, 2019 was attributable to three incremental net new shipboard health and wellness centers added to the fleet of cruise line partners, a continued trend towards larger and enhanced shipboard health and wellness centers, and continued collaboration with cruise line partners. The split of revenue growth between service and product revenues was as follows:

• Service revenues. ServiceRevenues for the three months ended September 30, 2019 and 2018 were $110.6 million and $108.1 million, respectively.

• Product revenues.ProductRevenues for the three months ended September 30, 2019 and 2018 were $34.3 million and $34.5 million, respectively.

The productivity of shipboard health and wellness centers increased for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018 as evidenced by an increase in average weekly revenues per ship, which increased to $63,473 for the three months ended September 30, 2019 from $62,787 in the three months ended September 30, 2018. The productivity of destination resort health and wellness centers, measured by average weekly revenues, decreased 25% to $10,831 for the three months ended September 30, 2019, from $14,403 for the three months ended September 30, 2018, primarily due to a larger number of managed centers in our mix, which generate less revenue per facility.

Cost of services. Cost of services as a percentage of service revenues for the three months ended September 30, 2019 and 2018 were 85.2%, and 85.3%, respectively. The $1.9 million increase in cost of services for the three months ended September 30, 2019 compared to the three months ended September 30, 2018 is primarily attributable to an increase in service revenues.

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Cost of products. Cost of products as a percentage of product revenues for the three months ended September 30, 2019 and 2018 were 87.3%, and 87.9%, respectively. Cost of products decreased $0.3 million for the three months ended September 30, 2019 compared to the three months ended September 30, 2018 primarily due to a decrease in product revenues offset by thenon-cash impact of purchase price accounting adjustments related to inventory fair value adjustment in connection with the Business Combination.

Administrative. Administrative expenses for the three months ended September 30, 2019 and 2018 were $5.4 million and $2.4 million, respectively. The increase of $3.0 million in administrative expenses for the three months ended September 30, 2019 compared to the three months ended September 30, 2018 was primarily attributable to expenses incurred in support of the Company’s operations as a new publicly traded company and an increase in depreciation expense due to thenon-cash impact of the purchase price accounting adjustment related to the fair value adjustment to Property and Equipment in connection with the Business Combination.

Salary and payroll taxes. Salary and payroll taxes for the three months ended September 30, 2019 and 2018 were $3.0 million and $4.0 million, respectively. The decrease of $1.0 million in salary and payroll taxes for the three months ended September 30, 2019 compared to the three months ended September 30, 2018 was attributable to lower incentive compensation expense, partially offset by increased headcount necessitated by being a new publicly traded company.

Amortization of intangible assets. Amortization of intangible assets for the three months ended September 30, 2019 and 2018 were $4.0 million and $0.9 million, respectively. Amortization expense for the three months ended September 30, 2019 reflects the fair value adjustment to intangible assets in connection with the Business Combination.

Other income (expense), net. Other income (expense) for the three months ended September 30, 2019 and 2018 were ($4.6) million and ($9.0) million, respectively. The decrease of $4.4 million for the three months ended September 30, 2019 compared to the three months ended September 30, 2018 was attributable to lower interest expense related to the new debt financing in connection with the Business Combination compared to thepre-existing debt in the third quarter of fiscal 2018.

Provision for income taxes. Provision for income taxes for the three months ended September 30, 2019 and 2018 were $0.1 million and $0.2 million, respectively.

Net income. Net income for the three months ended September 30, 2019 and 2018 were $3.7 million and $3.6 million, respectively.

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	Successor						Predecessor
	Consolidated						Combined
	March 20, 2019 to			% of Total			January 1, 2019 to			% of Total			Nine Months Ended			% of Total
	September 30, 2019			Revenue			March 19, 2019			Revenue			September 30, 2018			Revenue
REVENUES:
Service revenues	$	232,562			76	%	$	91,280			77	%	$	309,004			76	%
Product revenues		71,783			24	%		27,172			23	%		97,905			24	%
Total revenues		304,345			100	%		118,452			100	%		406,909			100	%
COST OF REVENUES AND OPERATING EXPENSES:
Cost of services		197,227			65	%		76,836			65	%		263,537			65	%
Cost of products		62,174			20	%		23,957			20	%		84,922			21	%
Administrative		12,256			4	%		2,498			2	%		7,498			2	%
Salary and payroll taxes		28,415			9	%		29,349			25	%		11,509			3	%
Amortization of intangible assets		9,113			3	%		755			1	%		2,640			1	%
Total cost of revenues and operating expenses		309,185			102	%		133,395			113	%		370,106			91	%
(Loss) income from operations		(4,840	)		-2	%		(14,943	)		-13	%		36,803			9	%
OTHER INCOME (EXPENSE), NET:
Interest expense		(9,434	)		-3	%		(6,316	)		-5	%		(25,141	)		-6	%
Loss on extinguishment of debt		—			0	%		(3,413	)		-3	%		—			0	%
Interest income		35			0	%		—			0	%		238			0	%
Other income (expense)		—			0	%		—			0	%		(30	)		0	%
Total other income (expense), net		(9,399	)		-3	%		(9,729	)		-8	%		(24,933	)		-6	%
(Loss) income before provision for income taxes		(14,239	)		-5	%		(24,672	)		-21	%		11,870			3	%
PROVISION FOR INCOME TAXES		111			0	%		109			0	%		802			0	%
Net (loss) income		(14,350	)		-5	%		(24,781	)		-21	%		11,068			3	%
Net income attributable to noncontrolling interest		2,362			1	%		678			1	%		3,017			1	%
Net (loss) income attributable to common shareholders and Parent, respectively	$	(16,712	)		-5	%	$	(25,459	)		-21	%	$	8,051			2	%

Comparison of Results for the Periods from March 20, 2019 to September 30, 2019 (Successor), January 1, 2019 to March 19, 2019 (Predecessor) and the Nine Months Ended September 30, 2018 (Predecessor)

Revenues. Revenues for the Successor 2019 Period, Predecessor 2019 Period and nine months ended September 30, 2018 were $304.3 million, $118.5 million and $406.9 million, respectively. Both the Successor 2019 Period and the Predecessor 2019 Period benefited from the one incremental net new shipboard health and wellness center added to the fleet of cruise line partners, a continued trend towards larger and enhanced shipboard health and wellness centers, and an improved collaboration with partners.

• Service revenues. ServiceRevenues for the Successor 2019 Period, Predecessor 2019 Period and nine months ended September 30, 2018 were $232.6 million, $91.3 million and $309.0 million, respectively.

• Product revenues.ProductRevenues for the Successor 2019 Period, Predecessor 2019 Period and nine months ended September 30, 2018 were $71.8 million, $27.2 million and $97.9 million, respectively.

The productivity of shipboard health and wellness centers increased for the 2019 Combined Period as compared to the nine months ended September 30, 2018 as evidenced by an increase in both average weekly revenues and revenues per shipboard staff per day. Average weekly revenues increased by 1.2% to $61,760 for the 2019 Combined Period, from $61,029 in the nine months ended September 30, 2018, and revenues per shipboard staff per day decreased to $480 for the 2019 Combined Period from $482 in the nine months ended September 30, 2018. We had an average of 2,949 shipboard staff members in service for the 2019 Combined Period compared to an average of 2,830 shipboard staff members in service for the nine months ended September 30, 2018. The productivity of destination resort health and wellness centers, measured by average weekly revenues, decreased 13.8% to $12,243 for the 2019 Combined Period, from $14,210 for the nine months ended September 30, 2018, primarily due to a larger number of managed centers in our mix, which generate less revenue per facility.

Cost of services. Cost of services as a percentage of service revenues for the Successor 2019 Period, Predecessor 2019 Period and nine months ended September 30, 2018 were 84.8%, 84.2% and 85.3%, respectively.

Cost of products. Cost of products as a percentage of product revenues for the Successor 2019 Period, Predecessor 2019 Period and nine months ended September 30, 2018 were 86.6%, 88.2% and 86.7%, respectively. Successor 2019 Period includesnon-cash Purchase Price adjustments concerning the Inventory valuations resulting in higher costs, a portion of which arenon-cash.

Administrative. Administrative expenses for the Successor 2019 Period, Predecessor 2019 Period and nine months ended September 30, 2018 were $12.3 million, $2.5 million and $7.5 million, respectively. The Successor 2019 Period had expenses incurred in connection with the Business Combination and costs associated with being a new publicly traded company.

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Salary and payroll taxes. Salary and payroll taxes for the Successor 2019 Period, Predecessor 2019 Period and nine months ended September 30, 2018 were $28.4 million, $29.3 million and $11.5 million, respectively. The Successor 2019 Period includes stock-based compensation of $20.4 million related to stock options that fully vested upon grant to certain directors and executives. The Predecessor 2019 Period had change in control payments of $26.6 million pursuant to employment agreements entered into in 2016 that were earned upon consummation of the Business Combination for services rendered prior to the Business Combination.

Amortization of intangible assets. Amortization of intangible assets for the Successor 2019 Period, Predecessor 2019 Period and nine months ended September 30, 2018 were $9.1 million, $0.8 million and $2.6 million, respectively. Amortization expense in the 2019 Successor Period reflects the new basis of intangible assets in connection with the Business Combination.

Other income (expense), net. Other income (expense) for the Successor 2019 Period, Predecessor 2019 Period and nine months ended September 30, 2018 were ($9.4) million, ($9.7) million and ($24.9) million, respectively. The Successor 2019 Period includes lower interest expense related to the new debt financing in connection with the Business Combination compared to thepre-existing debt in the third quarter of fiscal 2018. The Predecessor 2019 Period included a loss on extinguishment of debt of $3.4 million associated with the payoff of thepre-existing debt by the Parent of the Company’s predecessor.

Provision for income taxes. Provision for income taxes for the Successor 2019 Period, Predecessor 2019 Period and nine months ended September 30, 2018 were $0.1 million, $0.1 million and $0.8 million, respectively.

Net (loss) income. Net (loss) income for the Successor 2019 Period, Predecessor 2019 Period and nine months ended September 30, 2018 were $(14.4) million, $(24.8) million and $11.1 million, respectively. The Successor 2019 Period had expenses related to stock-based compensation of $20.4 million. The Predecessor 2019 Period had change in control payments of $26.6 million earned upon consummation of the Business Combination.

Liquidity and Capital Resources

Overview

We have historically funded our operations with cash flow from operations, except with respect to certain expenses and operating costs that had been paid by Steiner Leisure on our behalf during the Predecessor Period, and, when needed, with borrowings under our credit facility prior to the Business Combination. Steiner Leisure has paid on our behalf expenses associated with the allocation of Parent corporate overhead and costs associated with the purchase of products from related parties and forgiven by Steiner Leisure. Predecessor Period operating cash flows exclude OSW Predecessor’s expenses and operating costs paid by Steiner Leisure on behalf of us. Consequently, our combined historical cash flows may not be indicative of cash flows had we been a separate stand-alone entity, or of our future cash flows.

Prior to the Business Combination, our principal uses for liquidity had been distributions to Steiner Leisure, debt service and working capital investment. Since consummating the Business Combination, our principal uses of liquidity have been debt service and working capital investment. We believe our sources of liquidity and capital will be sufficient to finance our operations and growth strategy for at least the next 12 months.

Cash Flows

The following table presents operations for two periods, Predecessor 2019 Period and Successor 2019 Period, which relate to the period preceding and the period succeeding the Business Combination, respectively. References to the “Successor 2019 Period” refer to the period from March 20, 2019 to September 30, 2019 and references to the “Predecessor 2019 Period” refer to the period from January 1, 2019 to March 19, 2019.

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	Successor			Predecessor
(in thousands)	March 20, 2019 to September 30, 2019			January 1, 2019 to March 19, 2019			Nine Months Ended
							September 30, 2018
Net (loss) income	$	(14,350	)	$	(24,781	)	$	11,068
Depreciation and amortization		13,325			1,989			7,501
Amortization of deferred financing costs		571			213			923
Stock-based compensation		20,496			—			—
Provision for doubtful accounts		—			8			14
Loss on extinguishment of debt		—			3,413			—
Allocation of Parent corporate overhead		—			—			8,613
Deferred income taxes		(77	)		—			126
Foreign currency remeasurement		—			—			130
Change in working capital		(27,981	)		22,891			(855	)
Cash Flow (Used in) Provided by Operating Activities		(8,016	)		3,733			27,520
Capital expenditures		(2,370	)		(517	)		(4,248	)
Acquisition of OSW Predecessor		(676,453	)		—			—
Cash Flow Used in Investing Activities		(678,823	)		(517	)		(4,248	)
Proceeds from the issuance of common shares		122,499			—			—
Net proceeds from Haymaker and private placement investors		349,390			—			—
Proceeds from the term loan and revolver facilities		245,900			—			—
Repayments on the term loan and revolver facilities		(13,443	)		—			—
Proceeds from amounts due from related party		3,187			—			—
Payment of deferred financing costs		(6,892	)		—			—
Net distributions to Parent and its affiliates		—			(4,262	)		(13,647	)
Distributions to noncontrolling interest		—			(267	)		(2,118	)
Cash Flow Provided by (Used in) Financing Activities		700,641			(4,529	)		(15,765	)
Effect of exchange rates		114			649			(237	)
Net Increase (Decrease) in Cash and Cash Equivalents	$	13,916		$	(664	)	$	7,270

Comparison of Results for the Periods from March 20, 2019 to September 30, 2019 (Successor), January 1, 2019 to March 19, 2019 (Predecessor) and the Nine Months Ended September 30, 2018 (Predecessor)

Operating activities. Our net cash (used in) provided by operating activities for the Successor 2019 Period, Predecessor 2019 Period and nine months ended September 30, 2018 were $(8.0) million, $3.7 million and $27.5 million, respectively. In the Successor 2019 Period, the Company incurred stock-based compensation payments of $20.5 million related to stock options to certain directors and executives. In the Predecessor 2019 Period, the Company incurred change of control payments of $26.6 million payable upon consummation of the Business Combination.

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Investing activities. Our net cash used in investing activities for the Successor 2019 Period, Predecessor 2019 Period and nine months ended September 30, 2018 were $678.8 million, $0.5 million and $4.2 million, respectively. In the Successor 2019 Period, cash payments of $676.5 million were made to consummate the Business Combination.

Financing activities. Our net cash provided by (used in) financing activities for the Successor 2019 Period, Predecessor 2019 Period and nine months ended September 30, 2018 were $700.6 million, $(4.5) million and $(15.8) million, respectively. In the Successor 2019 Period, financing activities of $122.5 million, $349.4 million and $245.9 million, related to proceeds from the issuance of common shares, Haymaker cash contributions, and proceeds related to the term loan and revolver facilities, net of repayments, respectively, were undertaken in connection with the Business Combination.

Seasonality

A significant portion of our revenues are generated onboard cruise ships. As a result, for certain cruise lines, we have 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 result in the highest revenue yields for us. Further, cruises and destination resort health and wellness centers have been negatively affected by the frequency and intensity of hurricanes. The negative impact of hurricanes is highest during peak hurricane season from August to October.

Contractual Obligations

As of September 30, 2019, our future contractual obligations have not changed significantly from the amounts included within our Annual Report on Form10-K for the year ended December 31, 2018.

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 Annual Report on Form10-K for the year ended December 31, 2018. We believe that there have been no significant changes during the nine months ended September 30, 2019 to the critical accounting policies disclosed in our Annual Report on Form10-K for the year ended December 31, 2018.

Accounting for Business Combinations

In accordance with ASC Topic 805, “Business Combinations,” when accounting for business combinations we are required to recognize the assets acquired, liabilities assumed, contractual contingencies,non-controlling interests and contingent consideration at their fair value as of the acquisition date.

The purchase price allocation process requires management to make significant estimates and assumptions with respect to intangible assets and/orpre-acquisition contingencies, all of which ultimately affect the fair value of goodwill established as of the acquisition date. Goodwill acquired in business combinations is assigned to the reporting unit(s) expected to benefit from the combination as of the acquisition date and is then subsequently tested for impairment at least annually.

As part of our accounting for business combinations we are required to determine the useful lives of identifiable intangible assets recognized separately from goodwill. The useful life of an intangible asset is the period over which the asset is expected to contribute directly or indirectly to the future cash flows of the acquired business. An intangible asset with a finite useful life shall be amortized; an intangible asset with an indefinite useful life shall not be amortized. We base the estimate of the useful life of an intangible asset on an analysis of all pertinent factors, including, but not limited to, the expected use of the asset, the expected useful life of another asset or a group of assets to which the useful life of the intangible asset may relate, any legal, regulatory, or contractual provisions that may limit the useful life, our own historical experience in renewing or extending similar arrangements, consistent with our intended use of the asset, regardless of whether those arrangements have explicit renewal or extension provisions,

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the effects of obsolescence, demand, competition, and other economic factors, and the level of maintenance expenditures required to obtain the expected future cash flows from the asset. If no legal, regulatory, contractual, competitive, economic, or other factors limit the useful life of an intangible asset to the reporting entity, the useful life of the asset shall be considered to be indefinite. The term indefinite does not mean the same as infinite or indeterminate. The useful life of an intangible asset is indefinite if that life extends beyond the foreseeable horizon—that is, there is no foreseeable limit on the period of time over which it is expected to contribute to the cash flows of the acquired business.

Although we believe the assumptions and estimates we have made have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired entity and are inherently uncertain. Examples of critical estimates in accounting for acquisitions include, but are not limited to, the future expected cash flows from sales of services and products and related contracts and agreements; and discount and long-term growth rates. Unanticipated events and circumstances may occur which could affect the accuracy or validity of our assumptions, estimates or actual results.

Off-Balance Sheet Arrangements

Other than the operating lease arrangements described below, we have nooff-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. 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 has adversely affected our results of operations and financial condition in certain prior years. Recurrence of the more severe aspects of prior periods of adverse economic conditions, 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.

Cautionary Statement Regarding Forward-Looking Statements

From time to time, including in this report, we may issue “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), 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.

Such forward-looking statements are subject to, without limitation, the following factors:

• the demand for the Company’s services and products offered for sale, 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;

• changes in applicable laws or regulations;

• the availability or 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 products we offer for sale;

• other risks and uncertainties included from time to time in the Company’s reports (including all amendments to those reports) filed with the U.S. Securities and Exchange Commission;

• other risks and uncertainties indicated in our Annual Report on Form10-K for the year ended December 31, 2018, including those set forth under the section entitled “Risk Factors”; 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.

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These risks and other risks are detailed in our Annual Report on Form10-K for the year ended December 31, 2018 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.

Forward-looking statements should not be relied upon as predictions of actual results. Subject to any continuing obligations under applicable law, we expressly disclaim any obligation to disseminate, after the date of this report, any updates or revisions to any such forward-looking statements to reflect any change in expectations or events, conditions or circumstances on which any such statements are based.

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 Annual Report on Form10-K for the year ended December 31, 2018.

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 Rules13a-15(e) and15(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, 2019.

There has been no change in our internal control over financial reporting (as that term is defined in Rules13a-15(f) and15(d)-15(f) under the Exchange Act) that occurred during the nine months ended September 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

There were no material changes during the nine months ended September 30, 2019 to the risk factors previously disclosed in our Annual Report on Form10-K for the year ended December 31, 2018.

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Item 6. Exhibits

No.	Exhibit
31.1*	Rule13a-14(a)/15d-14(a) Certification of Chief Executive Officer pursuant to Section  302 of the Sarbanes-Oxley Act of 2002.
31.2*	Rule13a-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**	XBRL Instance Document.
101.SCH**	XBRL Taxonomy Extension Schema Document.
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF**	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB**	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE**	XBRL Taxonomy Extension Presentation Linkbase Document.

* Furnished herewith (such certification shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, except to the extent that the Company specifically incorporates it by reference).

** Filed herewith

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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 13, 2019

ONESPAWORLD HOLDINGS LIMITED
By:	/s/ GLENN J. FUSFIELD
	Glenn J. Fusfield
	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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