XWELL, Inc. quarterly report, Q1 FY2024

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XWELL, Inc. — Q1 2024 Form 10-Q

Reporting period: Three months ended March 31, 2024. Financial amounts below are in thousands of dollars, except per-share data. XWELL operates airport and off-airport wellness businesses across XpresSpa, XpresTest, Naples Wax Center and Treat.

Financial results and liquidity

  • Revenue: $8,726, up 24% from $7,063 in Q1 2023. Services revenue was $8,035 and product revenue was $691.
  • Gross profit and margin: $2,671, compared with $522; gross margin was approximately 30.6%, versus 7.4%.
  • Operating loss: $2,379, improved from $6,288. General and administrative expense declined 47% to $2,092.
  • Net loss: $2,358, versus $5,829. Net loss attributable to XWELL was $2,512, versus $5,509; basic and diluted loss per share was $0.60, versus $1.32.
  • Cash flow: Operating cash use was $3,682, compared with $5,865. Investing cash use was $371; financing cash flow was zero. Cash, cash equivalents and restricted cash ended the quarter at $5,068, down from $9,188 at year-end.
  • Liquidity: Cash and cash equivalents (excluding restricted cash) were $4,317; marketable securities were $14,784. Current assets were $24,456 and current liabilities $9,187, leaving working capital of $15,269, down from $17,236 at December 31, 2023.
  • Debt and leases: The filing reports no conventional borrowings. Operating lease liabilities totaled $12,110, including $2,585 current and $9,525 long-term; future lease payments before discounting were $14,855.
  • Equity: Total equity was $18,765, down from $20,971 at year-end. The company reported 4,183,435 common shares outstanding as of May 14, 2024.

Material changes and segment results

  • Revenue growth was attributed primarily to higher XpresTest CDC program revenue and the addition of Naples Wax, acquired in September 2023. XpresSpa revenue declined to $4,345 from $4,499; XpresTest revenue rose to $3,643 from $2,360; Naples Wax contributed $648; Treat revenue was $90 versus $204.
  • Segment operating results were: XpresSpa loss of $2,107; XpresTest income of $1,670; Naples Wax loss of $78; Treat loss of $673; and Corporate and Other loss of $1,191.
  • Cost of sales fell 7% to $6,055, which management attributed partly to three XpresSpa location closures in 2023. Depreciation and amortization fell to $225 from $587.
  • The company recorded a $652 long-lived-asset impairment charge in Q1 2024, compared with none in Q1 2023. It reported a $166 foreign-exchange loss, versus a gain of $85, and net interest income of $110, down from $393.

Outlook, risks and unusual items

  • Management says it believes liquidity is sufficient to fund operations for the next 12 months. It is focused on returning to profitability through expense reductions, operational streamlining, strategic partnerships, Naples Wax expansion and off-airport growth. No specific earnings or revenue guidance was provided.
  • The CDC bio-surveillance program’s funding and scope expanded in March 2024 by $4,000, to an estimated $11,044 in revenue for XpresTest. The filing also describes additional collection locations and multi-pathogen testing. The separate contract discussion cites approximately $16,000 in expected program support and potential value exceeding $61,000 subject to program options and priorities.
  • XWELL planned its first TreatStudios location in Jacksonville, Florida, for 2024. It decided in April 2024 to close Treat’s Salt Lake City airport location; the filing also attributes the Q1 impairment charge to that location’s write-off and refers to closure as of May 1, 2024.
  • Legal matters include an OTG Management lawsuit seeking between $864 and $2,250 in accelerated rent related to a Philadelphia airport sublease. The court placed the matter on Civil Suspense in January 2024. XWELL recorded litigation accruals of $424 and says it does not expect outstanding matters to have a material adverse effect, while noting outcomes are uncertain.
  • Management concluded disclosure controls and procedures were not effective as of March 31, 2024, citing material weaknesses in internal control over financial reporting. Remediation efforts include accounting-system changes and assistance from outside providers; the company cautions that remediation may not succeed.
  • Cash held in overseas accounts totaled $2,155 and is not FDIC-insured; the filing says access to those funds may be delayed or reduced by approval and distribution requirements. The company also disclosed that some U.S. deposits exceeded FDIC insurance limits.

Most important facts for investors to verify

  • Whether operating cash burn continues to moderate and whether cash plus marketable securities can support the stated 12-month liquidity outlook.
  • Whether CDC program expansion translates into sustained revenue and positive segment cash generation, and how the contract’s different stated values and scope relate.
  • The basis and timing of the $652 impairment charge, particularly given the filing’s descriptions of the Salt Lake City closure and write-off.
  • Progress and testing of remediation for the material weaknesses in internal control and disclosure controls.
  • Developments in the Philadelphia OTG litigation, lease obligations, and the company’s ability to execute its planned off-airport growth while returning to profitability.