10-Q 1 osw-20240331.htm 10-Q 10-Q
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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2024

OR

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

For the transition period from ___ to ___

Commission File Number: 001-38843

OneSpaWorld Holdings Limited

(Exact name of Registrant as Specified in its Charter)

Commonwealth of The Bahamas

Not Applicable

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

Harry B. Sands, Lobosky Management Co. Ltd.

Office Number 2

Pineapple Business Park

Airport Industrial Park

P.O. Box N-624

Nassau, Island of New Providence, Commonwealth of The Bahamas

 

 

 

 

Not Applicable

(Address of principal executive offices)

(Zip Code)

(242) 322-2670

(Registrant’s telephone number, including area code)

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

Title of each class

Trading

Symbol(s)

Name of each exchange

on which registered

Common Shares, par value (U.S.)
$0.0001 per share

OSW

The Nasdaq
Capital Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated filer

Accelerated filer

 

 

Non-Accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of March 31, 2024, the registrant had 104,713,619 voting shares of common stock issued and outstanding.

 


Table of Contents

 

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

18

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

25

Item 4.

Controls and Procedures

25

PART II - OTHER INFORMATION

26

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

Item 4.

Mine Safety Disclosures

26

Item 5.

Other Information

26

Item 6.

Exhibits

26

i


Table of Contents

 

PART I - FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements

ONESPAWORLD HOLDINGS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

As of

 

 

 

March 31,
2024

 

 

December 31,
2023

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

  Cash and cash equivalents

 

$

65,390

 

 

$

27,704

 

  Restricted cash

 

 

1,198

 

 

 

1,198

 

  Accounts receivable, net

 

 

43,517

 

 

 

40,784

 

  Inventories, net

 

 

44,711

 

 

 

47,504

 

  Prepaid expenses

 

 

3,083

 

 

 

3,172

 

  Other current assets

 

 

5,671

 

 

 

6,360

 

  Total current assets

 

 

163,570

 

 

 

126,722

 

Property and equipment, net

 

 

15,175

 

 

 

15,006

 

Operating lease right-of-use assets, net

 

 

15,667

 

 

 

12,132

 

Intangible assets, net

 

 

542,824

 

 

 

546,968

 

OTHER ASSETS:

 

 

 

 

 

 

  Deferred tax asset

 

 

2,340

 

 

 

2,340

 

  Other non-current assets

 

 

24,030

 

 

 

2,972

 

  Total other assets

 

 

26,370

 

 

 

5,312

 

  Total assets

 

$

763,606

 

 

$

706,140

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

Accounts payable

 

$

38,744

 

 

$

31,705

 

Accrued expenses

 

 

46,081

 

 

 

45,991

 

Current portion of operating leases

 

 

2,439

 

 

 

2,264

 

Other current liabilities

 

 

1,230

 

 

 

899

 

  Total current liabilities

 

 

88,494

 

 

 

80,859

 

Warrant liabilities

 

 

163

 

 

 

20,400

 

Other long-term liabilities

 

 

7,333

 

 

 

2,449

 

Long-term operating leases

 

 

13,527

 

 

 

10,156

 

Long-term debt, net

 

 

138,553

 

 

 

158,207

 

  Total liabilities

 

 

248,070

 

 

 

272,071

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

SHAREHOLDERS' EQUITY:

 

 

 

 

 

 

Common stock:

 

 

 

 

 

 

Voting common stock, $0.0001 par value; 225,000,000 shares authorized, 104,713,619 issued and outstanding at March 31, 2024 and 99,734,672 shares issued and outstanding at December 31, 2023

 

 

10

 

 

 

10

 

Additional paid-in capital

 

 

841,113

 

 

 

777,062

 

Accumulated deficit

 

 

(326,324

)

 

 

(344,458

)

Accumulated other comprehensive income

 

 

737

 

 

 

1,455

 

Total shareholders' equity

 

 

515,536

 

 

 

434,069

 

Total liabilities and shareholders' equity

 

$

763,606

 

 

$

706,140

 

 

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

1


Table of Contents

 

ONESPAWORLD HOLDINGS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

REVENUES:

 

 

 

 

 

 

Service revenues

 

$

172,209

 

 

$

150,121

 

Product revenues

 

 

39,017

 

 

 

32,334

 

Total revenues

 

 

211,226

 

 

 

182,455

 

COST OF REVENUES AND OPERATING EXPENSES:

 

 

 

 

 

 

Cost of services

 

 

144,025

 

 

 

126,328

 

Cost of products

 

 

33,530

 

 

 

28,265

 

Administrative

 

 

4,057

 

 

 

3,570

 

Salaries, benefits and payroll taxes

 

 

8,493

 

 

 

8,921

 

Amortization of intangible assets

 

 

4,144

 

 

 

4,206

 

Total cost of revenues and operating expenses

 

 

194,249

 

 

 

171,290

 

Income from operations

 

 

16,977

 

 

 

11,165

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

Interest expense, net

 

 

(2,955

)

 

 

(4,610

)

Change in fair value of warrant liabilities

 

 

7,723

 

 

 

(21,900

)

Total other income (expense)

 

 

4,768

 

 

 

(26,510

)

Income (loss) before income tax expense

 

 

21,745

 

 

 

(15,345

)

INCOME TAX EXPENSE

 

 

579

 

 

 

559

 

NET INCOME (LOSS)

 

$

21,166

 

 

$

(15,904

)

NET INCOME (LOSS) PER VOTING AND NON-VOTING SHARE

 

 

 

 

 

 

Basic and diluted

 

$

0.21

 

 

$

(0.17

)

WEIGHTED-AVERAGE SHARES OUTSTANDING

 

 

 

 

 

 

Basic

 

 

101,467

 

 

 

93,418

 

Diluted

 

 

102,933

 

 

 

93,418

 

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

 

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ONESPAWORLD HOLDINGS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(LOSS)

(Unaudited)

(in thousands)

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

Net Income (loss)

$

21,166

 

 

$

(15,904

)

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

Foreign currency translation adjustments

 

(38

)

 

 

188

 

Cash flows hedges:

 

 

 

 

 

Net unrealized gain (loss) on derivative

 

267

 

 

 

(232

)

Amount realized and reclassified into earnings

 

(947

)

 

 

(739

)

Total other comprehensive loss, net of tax

 

(718

)

 

 

(783

)

Total comprehensive income (loss)

$

20,448

 

 

$

(16,687

)

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

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ONESPAWORLD HOLDINGS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(in thousands)

 

 

 

 

Three Months Ended March 31, 2024

 

 

 

Issued Common Voting Shares

 

 

Issued Common Non- Voting Shares

 

Voting Common Stock

 

 

Additional Paid-in Capital

 

 

Accumulated Other Comprehensive Income

 

 

Accumulated Deficit

 

 

Total Shareholders’ Equity

 

BALANCE, December 31, 2023

 

 

99,735

 

 

$

 

$

10

 

 

$

777,062

 

 

$

1,455

 

 

$

(344,458

)

 

$

434,069

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,166

 

 

 

21,166

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

2,094

 

 

 

 

 

 

 

 

 

2,094

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

(38

)

 

 

 

 

 

(38

)

Repurchase and retirement of common shares

 

 

(606

)

 

 

 

 

 

 

 

(4,704

)

 

 

 

 

 

(3,032

)

 

 

(7,736

)

Unrecognized loss on derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

(680

)

 

 

 

 

 

(680

)

Accrued dividends cancelled on common stock

 

 

 

 

 

 

 

 

 

 

2,449

 

 

 

 

 

 

 

 

 

2,449

 

Exercise of Sponsor and Public Warrants (1)

 

 

4,503

 

 

 

 

 

 

 

 

57,628

 

 

 

 

 

 

 

 

 

57,628

 

Cashless exercise of 2020 PIPE Warrants (2)

 

 

484

 

 

 

 

 

 

 

 

6,584

 

 

 

 

 

 

 

 

 

6,584

 

Common shares issued under equity incentive plan

 

 

598

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, March 31, 2024

 

 

104,714

 

 

$

 

$

10

 

 

$

841,113

 

 

$

737

 

 

$

(326,324

)

 

$

515,536

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) The exercise of Sponsor and Public Warrants includes $51.7 million of cash received and a reduction of warrants liability related to the exercise of the Sponsor and Public Warrants. See Note 5 – “Warrants Liability and Equity” for further details.

 

(2) As a result of the 2020 PIPE Warrants exercised on a cashless basis, the warrant liability of $6.6 million was reclassified to additional paid-in capital. See Note 5 – “Warrants Liability and Equity” for further details.

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2023

 

 

 

Issued Common Voting Shares

 

 

Issued Common Non- Voting Shares

 

Voting and Non-Voting Common Stock

 

 

Additional Paid-in Capital

 

 

Accumulated Other Comprehensive Income

 

 

Accumulated Deficit

 

 

Total Shareholders’ Equity

 

BALANCE, December 31, 2022

 

 

79,544

 

 

$

13,422

 

$

9

 

 

$

700,612

 

 

$

3,797

 

 

$

(338,609

)

 

$

365,809

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,904

)

 

 

(15,904

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

2,591

 

 

 

 

 

 

 

 

 

2,591

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

188

 

 

 

 

 

 

188

 

Unrecognized loss on derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

(971

)

 

 

 

 

 

(971

)

Proceeds from exercise of warrants

 

 

20

 

 

 

 

 

 

 

 

215

 

 

 

 

 

 

 

 

 

215

 

Common shares issued under equity incentive plan

 

 

222

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, March 31, 2023

 

 

79,786

 

 

$

13,422

 

$

9

 

 

$

703,418

 

 

$

3,014

 

 

$

(354,513

)

 

$

351,928

 

 

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

 

 

 

 

 

 

 

 

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ONESPAWORLD HOLDINGS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income (loss)

 

$

21,166

 

 

$

(15,904

)

Adjustments to reconcile net income (loss) to net cash provided by
   operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

6,209

 

 

 

5,509

 

Amortization of deferred financing costs

 

 

346

 

 

 

324

 

Change in fair value of warrant liabilities

 

 

(7,723

)

 

 

21,900

 

Stock-based compensation

 

 

2,094

 

 

 

2,591

 

Provision for doubtful accounts

 

 

4

 

 

 

5

 

Noncash lease expense

 

 

11

 

 

 

51

 

Deferred income taxes

 

 

 

 

 

227

 

Changes in:

 

 

 

 

 

 

Accounts receivable, net

 

 

(2,737

)

 

 

(8,207

)

Inventories, net

 

 

2,793

 

 

 

(11,245

)

Prepaid expenses

 

 

89

 

 

 

680

 

Other current assets

 

 

9

 

 

 

(179

)

Other noncurrent assets

 

 

(22,100

)

 

 

(139

)

Accounts payable

 

 

7,039

 

 

 

14,510

 

Accrued expenses

 

 

90

 

 

 

(8,208

)

Other current liabilities

 

 

331

 

 

 

250

 

Income tax contingency

 

 

 

 

 

27

 

Other long-term liabilities

 

 

7,333

 

 

 

 

Net cash provided by operating activities

 

 

14,954

 

 

 

2,192

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Capital expenditures

 

 

(1,206

)

 

 

(1,319

)

Net cash used in investing activities

 

 

(1,206

)

 

 

(1,319

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Proceeds from exercise of warrants

 

 

51,698

 

 

 

215

 

Repurchase of common shares

 

 

(7,736

)

 

 

 

Repayment on term loan facilities

 

 

(20,000

)

 

 

(10,521

)

Net cash provided by (used in) financing activities

 

 

23,962

 

 

 

(10,306

)

Effect of exchange rate changes on cash

 

 

(24

)

 

 

168

 

Net increase (decrease) in cash and cash equivalents and restricted cash

 

 

37,686

 

 

 

(9,265

)

Cash and cash equivalents and restricted cash, Beginning of period

 

 

28,902

 

 

 

33,262

 

Cash and cash equivalents and restricted cash, End of period

 

$

66,588

 

 

$

23,997

 

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

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ONESPAWORLD HOLDINGS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(CONTINUED)

(Unaudited)

(in thousands)

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Income taxes

$

21

 

 

$

41

 

Interest

$

3,727

 

 

$

5,123

 

Non-cash transactions:

 

 

 

 

 

Cashless exercise of 2020 PIPE Warrants

$

6,584

 

 

$

 

Accrued dividends cancelled on common stock

$

2,449

 

 

$

 

 

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

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ONESPAWORLD HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

(Unaudited)

1. ORGANIZATION

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation, Principles of Consolidation

In the opinion of management, the accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in quarterly financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been omitted or condensed pursuant to the SEC’s rules and regulations. However, management believes that the disclosures contained herein are adequate to make the information presented not misleading. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments (which are of a normal recurring nature) necessary to present fairly our unaudited financial position, results of operations and cash flows. The unaudited results of operations and cash flows of our interim periods are not necessarily indicative of the results of operations or cash flows that may be expected for the entire fiscal year. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”). The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. Actual results could differ from those estimates. The accompanying unaudited condensed consolidated financial statements include the condensed consolidated balance sheet and statement of operations, comprehensive income (loss), changes in equity, and cash flows of OneSpaWorld. All significant intercompany items and transactions have been eliminated in consolidation.

Restricted Cash

These balances include amounts held in escrow accounts, as a result of a legal proceeding related to a tax assessment. The following table reconciles cash, cash equivalents and restricted cash reported in our condensed consolidated balance sheet as of March 31, 2024 and 2023 to the total amount presented in our condensed consolidated statements of cash flows for the three months ended March 31, 2024 and 2023 (in thousands):

 

 

Balance as of March 31,

 

 

 

2024

 

2023

 

Cash and cash equivalents

 

$

65,390

 

$

22,799

 

Restricted cash

 

 

1,198

 

 

1,198

 

Total cash and restricted cash in the condensed consolidated statement of cash flows

 

$

66,588

 

$

23,997

 

 

Inventories

Inventories, consisting principally of beauty, health and wellness products, are stated at the lower of cost, as determined on a first-in, first-out basis, or market. All inventory balances are comprised of finished goods used in beauty and health and wellness services or held for sale to customers. Inventory reserve is recorded to write down the cost of inventory to the estimated market value. No inventory impairment charge was recorded for the three months ended March 31, 2024 and 2023.

Earnings 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 (loss) adjusted for the change in fair value of warrant liabilities, if the impact is dilutive, 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

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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, if their effect is anti-dilutive.

During the first quarter of 2024, the Company had one class of common stock, Voting. During the first quarter of 2023, the Company had two classes of common stock, Voting and Non-Voting. Shares of Non-Voting common stock are in all respects identical to and treated equally with shares of Voting common stock except for the absence of voting rights. Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of Voting and Non-Voting common shares outstanding for the period. Diluted income (loss) per share is computed by dividing net income (loss) by the weighted average number of diluted Voting and Non-voting common shares, as calculated under the treasury stock method, which includes the potential effect of dilutive common stock equivalents, such as options and warrants to purchase Voting and Non-Voting common shares. If the entity reports a net loss, rather than net income for the period, the computation of diluted loss per share excludes the effect of dilutive common stock equivalents, as their effect would be anti-dilutive. The Company has not presented income (loss) per share under the two-class method, because the income (loss) per share are the same for both Voting and Non-Voting common stock since they are entitled to the same liquidation and dividend rights.

The following table provides details underlying OneSpaWorld’s income (loss) per basic and diluted share calculation (in thousands, except per share data):

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023 (a)

 

Numerator:

 

 

 

 

 

 

Net income (loss)

 

$

21,166

 

 

$

(15,904

)

Denominator:

 

 

 

 

 

 

Weighted average shares outstanding – Basic

 

 

101,467

 

 

 

93,418

 

   Dilutive effect of warrants

 

 

864

 

 

 

 

   Dilutive effect of stock-based awards

 

 

602

 

 

 

 

Weighted average shares outstanding – Diluted

 

 

102,933

 

 

 

93,418

 

Net income (loss) per voting and non-voting share:

 

 

 

 

 

 

Basic and diluted

 

$

0.21

 

 

$

(0.17

)

 

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

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

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

2023

 

Sponsor warrants

 

 

 

 

8,000

 

Public warrants

 

 

 

 

16,128

 

2020 PIPE warrants

 

 

 

 

4,997

 

Restricted stock units

 

 

 

 

1,181

 

Performance stock units

 

 

292

 

 

1,127

 

 

 

292

 

 

31,433

 

Recent Accounting Pronouncements

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

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-07 ("ASU 2023-07"), Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures which requires, among other things, the following: (i) enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included in a segment's reported measure of profit or loss; (ii) disclosure of the amount and description of the composition of other segment items, as defined in ASU 2023-07, by reportable segment; and (iii) reporting the disclosures about each reportable segment's profit or loss and assets on an annual and interim basis. The provisions of ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024; early adoption is permitted. The Company is currently assessing the expected impact of the future adoption of this guidance.

 

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In December 2023, the FASB issued ASU No. 2023-09 ("ASU 2023-09"), Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires, among other things, the following for public business entities: (i) enhanced disclosures of specific categories of reconciling items included in the rate reconciliation, as well as additional information for any of these items meeting certain qualitative and quantitative thresholds; (ii) disclosure of the nature, effect and underlying causes of each individual reconciling item disclosed in the rate reconciliation and the judgment used in categorizing them if not otherwise evident; and (iii) enhanced disclosures for income taxes paid, which includes federal, state, and foreign taxes, as well as for individual jurisdictions over a certain quantitative threshold. The amendments in ASU 2023-09 eliminate the requirement to disclose the nature and estimate of the range of the reasonably possible change in unrecognized tax benefits for the 12 months after the balance sheet date. The provisions of ASU 2023-09 are effective for annual periods beginning after December 15, 2024; early adoption is permitted. The Company is currently assessing the expected impact of the future adoption of this guidance.

3. INTANGIBLE ASSETS

Intangible assets consist of finite and indefinite life assets. The following is a summary of the Company’s intangible assets as of March 31, 2024 (in thousands, except amortization period):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost

 

 

Accumulated Amortization and Impairment

 

 

Net Balance

 

 

Weighted Average Amortization Period (in years)

 

Retail concession agreements

$

604,700

 

 

$

(78,062

)

 

$

526,638

 

 

 

39

 

Destination resort agreements

 

17,900

 

 

 

(7,214

)

 

 

10,686

 

 

 

15

 

Trade name

 

6,200

 

 

 

(700

)

 

 

5,500

 

 

Indefinite-life

 

Licensing agreement

 

1,000

 

 

 

(1,000

)

 

 

-

 

 

 

8

 

 

$

629,800

 

 

$

(86,976

)

 

$

542,824

 

 

 

 

The following is a summary of the Company’s intangible assets as of December 31, 2023 (in thousands, except amortization period):

 

 

Cost

 

Accumulated Amortization and Impairment

 

Net Balance

 

 

Weighted Average Amortization Period (in years)

 

Retail concession agreements

$

604,700

 

$

(74,186

)

$

530,514

 

 

 

39

 

Destination resort agreements

 

17,900

 

 

(6,946

)

 

10,954

 

 

 

15

 

Trade name

 

6,200

 

 

(700

)

 

5,500

 

 

Indefinite-life

 

Licensing agreement

 

1,000

 

 

(1,000

)

 

-

 

 

 

8

 

 

$

629,800

 

$

(82,832

)

$

546,968

 

 

 

 

The Company amortizes intangible assets with definite lives on a straight-line basis over their estimated useful lives. Amortization expense for the three months ended March 31, 2024 and 2023 was $4.1 million and $4.2 million, respectively. Amortization expense is estimated to be $16.6 million in each of the next five years beginning in 2024.

 

4. LONG-TERM DEBT, NET

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Rate As of

 

 

 

As of

 

 

 

March 31,
2024

 

December 31,
2023

 

Maturities Through

 

March 31,
2024

 

 

 

December 31,
2023

 

First lien term loan facility

 

9.2%

 

9.2%

 

2026

 

$

139,639

 

 

 

$

159,639

 

Less: unamortized debt issuance cost

 

 

 

 

 

 

 

 

(1,086

)

 

 

 

(1,432

)

Long-term debt, net

 

 

 

 

 

 

 

$

138,553

 

 

 

$

158,207

 

 

During the first quarter of 2024, we repaid $20 million on the First Lien Credit Facilities. As of March 31, 2024, there are no minimum principal repayments on the First Lien Credit Facilities until 2026 when the remaining principal balance of $139.6 million becomes due.

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On March 19, 2024, the First Lien Revolving Facility expired in accordance with its terms and was not renewed. As of March 31, 2024, we had no outstanding borrowings under the First Lien Revolving Facility.

 

The First Lien Credit Facilities contain a financial covenant related to the maintenance of a leverage ratio and a number of customary negative covenants including covenants related to the following subjects: consolidations, mergers, and sales of assets; limitations on the incurrence of certain liens; limitations on certain indebtedness; limitations on the ability to pay dividends; and certain affiliate transactions. As of March 31, 2024 and December 31, 2023, the Company was in compliance with all of the covenants contained in the First Lien Credit Facilities. If we do not comply with these covenants, we would have to seek amendments to these covenants from our lenders or evaluate the options to cure the defaults contained in the credit agreements. However, no assurances can be made that such amendments would be approved by our lenders. If an event of default occurs, the lenders under the First Lien Credit Facilities are entitled to take various actions, including the acceleration of amounts due under the First Lien Credit Facilities and all actions permitted to be taken by a secured creditor, subject to customary intercreditor provisions among the first lien secured parties, which would have a material adverse impact to our operations and liquidity.

The following are scheduled principal repayments on long-term debt as of March 31, 2024 for each of the next five years (in thousands):

 

 

 

 

Year

 

Amount

 

2024

 

$

-

 

2025

 

 

-

 

2026

 

 

139,639

 

2027

 

 

-

 

2028

 

 

-

 

Total

 

$

139,639

 

 

 

 

 

 

5. WARRANT LIABILITIES AND EQUITY

Sponsor and Public Warrants

 

As of December 31, 2023, 3,823,847 and 841,414, respectively, Sponsor and Public Warrants were issued and outstanding. During the first quarter of 2024, certain holders of the Sponsor and Public Warrants elected to exercise 4,502,970 warrants for which the Company issued 4,502,970 of common shares. Net cash proceeds from the exercise of the warrants amounted to $51.7 million. Immediately prior to the exercises, the Sponsor and Public Warrants exercised were remeasured to fair value, resulting on a gain of $7.4 million in "Change in fair value of warrant liabilities" on the condensed consolidated statement of operations for the quarter ended March 31, 2024 and a warrant liability of $5.9 million, which was then reclassified to additional paid-in capital on the condensed consolidated balance sheet as of March 31, 2024. The Sponsor and Public Warrants expired on March 19, 2024 and there were no amounts outstanding as of March 31, 2024.

2020 PIPE Warrants

As of March 31, 2024 and December 31, 2023, 21,667 and 828,334, respectively, 2020 PIPE Warrants were issued and outstanding. During the first quarter of 2024, certain holders of the 2020 PIPE Warrants elected to exercise 806,667 warrants on a cashless basis pursuant to the agreement governing the warrants, in exchange for which the Company issued 484,040 of common shares. Immediately prior to the exchanges, the 2020 PIPE Warrants exercised were remeasured to fair value, resulting on a gain of $0.3 million in "Change in fair value of warrant liabilities" on the condensed consolidated statement of operations for the quarter ended March 31, 2024 and a warrant liability of $6.6 million, which was then reclassified to additional paid-in capital on the condensed consolidated balance sheet as of March 31, 2024.

Repurchase Agreement

On March 13, 2024, the Company entered into a Shares Repurchase Agreement between the Company and Steiner Leisure Limited (the “Seller”), pursuant to which the Company purchased 606,386 common shares, par value $0.0001 per share, from the Seller at a purchase price of $12.76 per Common Share (the “Repurchase”). The Repurchase resulted in the sale of all remaining common shares of the Company held by the seller, who ceased to be a shareholder of the Company after the closing of the Repurchase. The Repurchase closed on March 20, 2024. Upon the consummation of the Repurchase, such shares reverted to authorized but unissued shares of the Company. We allocated the excess of the repurchase price over the par value of the shares acquired between additional paid-in capital and accumulated deficit.

 

Dividends Cancelled

 

In November 2019, the Company adopted a cash dividend program and declared an initial quarterly payment of $0.04 per common share. On March 24, 2020, the Company announced that it was deferring payment of its dividend declared on February 26, 2020 (the "2020 Dividend"), for payment on May 29, 2020, to shareholders of record on April 10, 2020, until the Board reapproves its payment. The Company also

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announced it was withdrawing its dividend program until further notice. As of December 31, 2023, dividends payable amounted to approximately $2.4 million which was presented as other-long term liabilities and other current liabilities in the accompanying condensed consolidated balance sheets. During the first quarter of 2024, the Board decided that although the Company now has the liquidity to enable it to pay the 2020 Dividend, such payment can no longer be made to the shareholders of record as of the original record date for the 2020 Dividend and it is therefore in the Company’s best interest to cancel the 2020 Dividend. As a result, we reversed the dividend payable of $2.4 million against additional paid-in capital during the first quarter of 2024.

6. STOCK-BASED COMPENSATION

The share-based compensation expense for the three months ended March 31, 2024 and 2023 was $2.1 million and $2.6 million, respectively, which is included as a component of salaries, benefits and payroll taxes in the accompanying condensed consolidated statements of operations.

 

The following is a summary of PSUs activity for the three months ended March 31, 2024:

 

PSUs activity

 

Number of Performance -Based Awards

 

 

Weighted-Average Grant Date Fair Value

 

 

 

Non-vested share units as of December 31, 2023

 

 

731,889

 

 

$

11.19

 

 

 

Granted

 

 

146,618

 

 

 

10.30

 

 

 

Vested

 

 

(153,662

)

 

 

10.30

 

 

 

Non-vested share units as of March 31, 2024

 

 

724,845

 

 

$

11.20

 

 

 

 

7. REVENUE RECOGNITION

The Company's revenue generating activities include the following:

Service Revenues

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

Product Revenues

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

Gift Cards

The Company only offers no-fee, non-expiring gift cards to its customers. At the time gift cards are sold, no revenue is recognized; rather, the Company records a contract liability to customers. The liability is relieved, and revenue is recognized equal to the amount redeemed at the time gift cards are redeemed for products or services. The Company records revenue from an estimate of unredeemed gift cards (breakage) in net sales on a pro-rata basis over the time period gift cards are redeemed. At least three years of historical data, updated annually, is used to determine actual redemption patterns. The liability for unredeemed gift cards is included in “Other current liabilities” on the Company's consolidated balance sheets and was not material as of March 31, 2024 and December 31, 2023.


 

Customer Loyalty Rewards Program

The Company initiated a customer loyalty program during October 2019 in which customers earn points based on their spending on timetospa.com. The Company recognizes the estimated net amount of the rewards that will be earned and redeemed as a reduction to net sales at the time of the initial transaction and as tender when the points are subsequently redeemed by a customer. The liability for customer loyalty programs was not material as of March 31, 2024 and December 31, 2023.

Contract Balances

 

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Receivables from the Company’s contracts with customers are included within accounts receivables, net. Such amounts are typically remitted to us by our cruise line or destination resort partners, except for online sales, and are net of commissions they withhold. Although paid by our cruise line partners, customers are typically required to pay with major credit cards, reducing our credit risk to individual customers. Amounts are billed immediately, and our cruise line and destination resort partners typically remit payments to us within 30 days. As of March 31, 2024, and December 31, 2023, our receivables from contracts with customers were $43.5 million and $40.8 million, respectively.

 

Costs incurred to enter into new or to renew long-term contracts are capitalized and amortized to cost of revenues over the term of the contract. Deferred contract costs, which relate to fees accrued to cruise line partners, amounted to $23.7 million and $2.6 million as of March 31, 2024 and December 31, 2023, respectively, and is presented within other non-current assets in the accompanying condensed consolidated balance sheets.The increase in other non-current assets and other long-term liabilities as of March 31, 2024 was primarily due to fees accrued as a result of a new contract entered into during the first quarter of 2024. Amortization of the deferred contract cost was $1.0 million and $0.2 million for the three months ended March 31, 2024 and 2023, respectively. Amortization of deferred costs are included in cost of services in the accompanying condensed consolidated statements of operations. Our contract liabilities for gift cards and customer loyalty programs are described above.

Disaggregation of Revenue and Segment Reporting

The Company operates facilities on cruise ships and in destination resorts, where we provide health, fitness, beauty and wellness services and sell related products. The Company also sells health and wellness, fitness and beauty related products through its timetospa.com website which is a post-cruise sales tool where guests may continue their wellness journey after disembarking. 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. The following table disaggregates the Company’s revenues by revenue source and operating segment (in thousands):

 

 

 

 

 

Three Months Ended March 31,

 

 

2024

 

2023

 

Service revenues:

 

 

 

 

Maritime

$

161,713

 

$

140,333

 

Destination resorts

 

10,496

 

 

9,788

 

Total service revenues

 

172,209

 

 

150,121

 

Product revenues:

 

 

 

 

Maritime

 

37,730

 

 

31,021

 

Destination resorts

 

711

 

 

723

 

Timetospa.com

 

576

 

 

590

 

Total product revenues

 

39,017

 

 

32,334

 

 

 

 

 

 

Total revenues

$

211,226

 

$

182,455

 

 

8. SEGMENT AND GEOGRAPHICAL INFORMATION

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

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

 

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Three Months Ended March 31,

 

 

 

2024

 

2023

 

Revenues:

 

 

 

 

 

U.S.

 

$

5,083

 

$

5,078

 

Other countries

 

 

6,876

 

 

6,216

 

Not connected to a country

 

 

199,267

 

 

171,161

 

Total

 

$

211,226

 

$

182,455

 

 

 

 

As of

 

 

 

March 31,
2024

 

 

December 31,
2023

 

Property and equipment, net:

 

 

 

 

 

 

U.S.

 

$

5,012

 

 

$

4,536

 

Other countries

 

 

1,909

 

 

 

2,022

 

Not connected to a country

 

 

8,254

 

 

 

8,448

 

Total

 

$

15,175

 

 

$

15,006

 

 

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9. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table presents the changes in accumulated other comprehensive income by component (in thousands):

 

 

Accumulated Other Comprehensive Income for the Three Months Ended March 31, 2024

 

Accumulated Other Comprehensive Income for the Three Months Ended March 31, 2023

 

Foreign Currency Translation Adjustments

 

 

Changes Related to Cash Flow Derivative Hedge (1)

 

 

Accumulated Other Comprehensive Income

 

 

Foreign Currency Translation Adjustments

 

 

Changes Related to Cash Flow Derivative Hedge (1)

 

 

Accumulated Other Comprehensive Income

 

 

Accumulated other comprehensive income, beginning of period

$

(917

)

 

$

2,372

 

 

$

1,455

 

 

$

(1,229

)

 

$

5,026

 

 

$

3,797

 

 

Other comprehensive (loss) income before reclassifications

 

(38

)

 

 

267

 

 

 

229

 

 

 

188

 

 

 

(232

)

 

 

(