XpresSpa Group, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. The filing identifies the registrant as XpresSpa Group, Inc. (ticker XSPA), rather than XWELL. Unless otherwise noted, financial amounts below are in millions of dollars.
Business context and reporting period
The company reported four segments: airport spa services (XpresSpa), airport testing and related services (XpresTest), travel health and wellness (Treat), and digital healthcare services (HyperPointe, acquired in January 2022). It operated 15 XpresCheck locations in 12 airports, 18 domestic and six international XpresSpa locations, and Treat centers at JFK and Phoenix. A significant number of spa locations remained closed.
Effective July 1, 2021, the company began consolidating affiliated medical entities as variable interest entities. Consequently, it reports their patient-service revenue and costs, rather than only management fees, which limits direct comparison with earlier periods.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $13.6 | $9.1 | $37.6 | $17.6 |
| Gross profit (revenue less cost of sales) | $1.2 | $1.4 | $10.2 | $5.7 |
| Gross margin | 9.1% | 15.3% | 27.2% | 32.6% |
| Operating loss | $(7.8) | $(4.2) | $(10.2) | $(5.1) |
| Net loss attributable to XpresSpa Group | $(7.9) | $(4.5) | $(12.2) | $(5.5) |
| Adjusted EBITDA loss | $(5.0) | $(2.9) | $(4.6) | $(2.1) |
| Basic and diluted loss per share | $(0.08) | $(0.04) | $(0.12) | $(0.05) |
Q2 revenue increased about 50%, and first-half revenue about 114%, primarily reflecting growth in XpresTest and consolidated patient-service revenue, reopened spa locations, and the acquired HyperPointe business. Costs and operating expenses rose faster than Q2 revenue; both quarterly and first-half losses widened. Adjusted EBITDA is a company-defined non-GAAP measure.
At June 30, cash and cash equivalents were $71.1; restricted cash was $0.8. Working capital was positive $61.8, down from $89.2 at year-end 2021. Operating cash use was $8.6 for the first half; investing cash use was $9.2, including $4.9 for HyperPointe net of cash acquired. Financing cash use was $16.5, including $12.1 of share repurchases and $3.6 to repay the PPP loan. Cash, cash equivalents and restricted cash declined $34.4 during the period.
The $3.6 unsecured PPP note was repaid at maturity in May 2022; no debt was reported at June 30. Operating lease liabilities totaled $11.9. Total liabilities were $21.4 and total equity was $79.9. The company purchased 8.48 million shares for $12.1 million during the first half; 1.34 million shares held in treasury at June 30 were retired in August. Approximately 94.3 million common shares were outstanding as of August 12, 2022.
Outlook, commentary, risks and unusual items
- Management said it expects net losses to continue in the foreseeable future. It cautioned that the pandemic’s continuing effects could adversely affect liquidity and access to capital. No full-year revenue or earnings guidance was provided.
- The company anticipated recognizing the remaining $0.875 million of its extended CDC biosurveillance contract in Q3 2022. It expected to reopen four additional domestic spa locations and planned an initial Istanbul location later in 2022; these are stated expectations, not assured outcomes.
- Management described plans to expand integrated travel health and wellness services, retail offerings and activity beyond airports. Spa operating hours were generally shorter than pre-pandemic levels, and the company continued to assess reopening and operating hours by location.
- A Philadelphia airport sublease lawsuit filed in May 2022 seeks claimed accelerated rent of $0.864–$2.250 million. The filing reports an $0.845 million litigation accrual for outstanding matters and says management does not expect those matters to have a material adverse effect, while noting outcomes are uncertain.
- Disclosure controls and internal control over financial reporting were reported ineffective at June 30, 2022 because of a continuing material weakness in the financial close and reporting process. The company cited insufficient accounting and controls personnel, ongoing remediation, and a search for a new CFO after the prior CFO’s June departure.
- The HyperPointe acquisition included $7.1 million cash and $0.9 million in stock, with potential earnout payments of up to $7.5 million over three years. The company assessed the earnout’s fair value as zero at June 30, 2022; payments, if earned, may be cash or stock.
- Cash concentration is notable: $68.9 million of U.S. deposits exceeded FDIC insurance limits, and overseas cash may be subject to distribution restrictions. The company also reported 29.5 million outstanding warrants at June 30 and other potentially dilutive securities excluded from loss-per-share calculations.
Important facts for investors to verify
- Whether XpresTest revenue and profitability can be sustained as testing demand and pandemic-related activity change, and how consolidation of medical entities affects comparability.
- Cash burn, capital spending, share repurchases and remaining liquidity needs against management’s expectation of ongoing losses.
- Progress on reopening locations and the performance of Treat and HyperPointe, including the acquisition’s potential earnout and any dilution.
- Developments in the Philadelphia lease dispute and other legal matters, and whether recorded accruals remain adequate.
- Whether management’s remediation efforts resolve the disclosed material weakness and restore effective disclosure and financial reporting controls.