XpresSpa Group, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Amounts below are in U.S. dollars; financial statement amounts are shown in millions unless stated otherwise. The filing identifies the registrant as XpresSpa Group, Inc.
Business context
The company reported three segments: XpresSpa airport spa services and products; XpresTest, which provides airport diagnostic-testing center management services through XpresCheck; and Treat, a developing travel health and wellness brand. It operated 13 XpresCheck centers at 11 airports in 10 states. Most XpresSpa locations remained closed during the quarter; four locations reopened between June 28 and July 1 with modified hours and services. Treat’s website launched in Q2.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $9.092 | $0.143 | $17.604 | $7.861 |
| Operating loss | $(4.201) | $(9.484) | $(5.122) | $(13.432) |
| Net loss | $(4.730) | $(58.471) | $(5.538) | $(69.195) |
| Net loss attributable to XpresSpa Group | $(4.467) | $(58.078) | $(5.523) | $(68.694) |
| Adjusted EBITDA loss (non-GAAP) | $(2.927) | $(3.782) | $(2.077) | $(6.393) |
Q2 revenue included $8.669 million of XpresTest managed-services fees; six-month fees were $16.843 million and included $3.186 million recognized for 2020. The company had not recognized these fees previously because collectability criteria were not met. Cost of sales was $7.701 million in Q2 and $11.860 million for six months; revenue less cost of sales was $1.391 million and $5.744 million, respectively, before depreciation and amortization. The filing does not present a consolidated gross-margin measure.
Q2 basic and diluted loss per share was $0.04, versus $1.51 in Q2 2020; six-month loss per share was $0.05, versus $3.09. The much larger prior-year losses included noncash warrant and conversion-option revaluation losses of $48.298 million for Q2 and $53.667 million for six months in 2020; there was no such loss in 2021.
At June 30, cash and cash equivalents were $102.497 million, restricted cash was $0.751 million, and working capital was positive $87.245 million, up from $78.302 million at year-end 2020. Six-month operating cash use was $1.814 million; investing cash use was $2.654 million; financing provided $17.207 million, including warrant exercises. Cash, cash equivalents and restricted cash increased $12.746 million to $103.248 million.
Total liabilities were $26.435 million. Unsecured promissory debt was $5.653 million, all current; this was the PPP loan, due May 2022, for which the company was finalizing a forgiveness application. Operating lease liabilities totaled $8.709 million, including $2.610 million current. The filing reports no interest paid in the first half of 2021.
Material changes versus the prior comparable period
- Revenue rose substantially year over year as XpresTest managed-services revenue began to be recognized; XpresSpa revenue remained limited while most spas were closed.
- Six-month operating loss narrowed to $5.122 million from $13.432 million, while net loss narrowed mainly because 2020 included large warrant and conversion-option revaluation losses.
- Q2 general and administrative expense increased 37.8% to $4.646 million; the company attributed the increase to XpresTest start-up costs, Treat development and legal fees, partly offset by lower costs at closed spa locations and cost controls.
- Warrant exercises generated approximately $19.161 million gross proceeds and added 11.224 million common shares. At June 30, 37.989 million warrants remained outstanding; 40.898 million potentially dilutive securities were excluded from diluted loss per share as anti-dilutive.
Outlook, risks and unusual items
- No numeric revenue, earnings or cash-flow guidance was provided. Management expects net losses to continue in the foreseeable future and said the duration and severity of COVID-19 and the success of XpresCheck could materially affect results, liquidity and access to capital.
- The company expects further airport rent concessions while most spas remain closed. Reported minimum-guaranteed-rent concessions were $0.983 million for the first half of 2021; concessions since March 2020 totaled $3.015 million through June 2021.
- Management described plans to expand strategic partnerships, right-size the corporate structure and streamline operations. Treat’s longer-term plans include digital subscriptions, affiliate revenue and e-commerce; these are plans, not quantified guidance.
- A material weakness in internal control over financial reporting remained unremediated, and management concluded disclosure controls and procedures were ineffective as of June 30, 2021. Remediation efforts included finance hires, outside consultants, process changes and additional accounting software.
- Legal matters included a $2.053 million litigation accrual. A judgment of $0.948 million, including prejudgment interest, was entered against the company in the Jenkins/Jones matter; the company appealed. Other disclosed matters included wage-hour claims and settlements, some subject to court approval or finalization.
- Cash deposits exceeding FDIC insurance limits were $100.689 million at June 30. Management also noted overseas cash may be subject to approval and distribution processes.
Important facts for investors to verify
- Whether XpresCheck fees are collected as recognized, and whether the MSAs remain collectible as testing demand and operations change.
- Progress reopening XpresSpa locations, airport traffic levels, and the operating performance of reopened spas.
- PPP loan forgiveness outcome and the timing of repayment if forgiveness is denied.
- Warrant and equity-plan dilution, including the potential effect of the outstanding warrants and other excluded securities.
- Resolution of the material weakness, litigation exposures and appeal, and the company’s cash use relative to its liquidity.