XWELL, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Unaudited results; dollar amounts below are in millions unless stated otherwise.
Business context
XWELL operates airport-focused wellness and related businesses through XpresSpa, XpresTest, Treat and HyperPointe. It had 25 domestic and 10 international XpresSpa locations, two Treat locations, and had closed all XpresCheck testing locations by June 30, 2023. The company says its strategy is to integrate and scale wellness and retail offerings, including outside airports and internationally.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $8.175 | $13.597 | $15.238 | $37.645 |
| Gross profit (margin) | $1.190 (14.6%) | $1.240 (9.1%) | $1.712 (11.2%) | $10.241 (27.2%) |
| Operating loss | $(4.724) | $(7.767) | $(11.012) | $(10.218) |
| Net loss | $(5.679) | $(7.927) | $(11.508) | $(10.689) |
| Net loss attributable to XWELL | $(5.730) | $(7.918) | $(11.239) | $(12.201) |
| Basic and diluted loss per share | $(0.07) | $(0.08) | $(0.13) | $(0.12) |
- Q2 revenue fell 40%; first-half revenue fell 60%, primarily due to sharply lower testing revenue as COVID-related testing demand subsided. XpresSpa revenue rose to $5.228 million from $3.290 million in Q2, while XpresTest revenue fell to $2.285 million from $9.253 million.
- Q2 operating loss narrowed as operating expenses declined, but first-half operating loss increased. First-half net loss also increased, despite lower operating costs, reflecting the steep revenue decline and foreign-exchange losses.
- Q2 included a $1.141 million realized and unrealized foreign-exchange loss, mainly related to Turkish operations, and a $0.201 million realized and unrealized gain on securities.
- First-half operating cash outflow was $8.618 million, approximately unchanged from $8.615 million in the prior-year period. Investing cash outflow was $3.770 million; financing cash outflow was $0.142 million. Cash, cash equivalents and restricted cash declined by $12.660 million to $7.129 million.
- At June 30, cash and cash equivalents excluding restricted cash were $6.378 million; marketable securities were $25.526 million. Current assets were $36.128 million and current liabilities $9.266 million, yielding working capital of $26.862 million, down from $36.376 million at year-end 2022.
- Total liabilities were $19.587 million, principally operating lease liabilities: $12.564 million in total, including current and long-term portions. The balance sheet shows no conventional borrowings. The company says it repaid its Paycheck Protection Program loan in 2022.
Changes, outlook and risks
- Management attributed lower costs to resizing operations, reducing overhead and closing XpresCheck centers. It said it continues to focus on returning to overall profitability.
- Management stated it believes available liquidity is sufficient to fund operations for the next 12 months. This is a management assessment, not a reported profitability or cash-flow forecast. The filing provides no specific earnings or revenue guidance.
- The CDC biosurveillance program’s second contract year was estimated at approximately $6.0 million in revenue on August 11, 2023, after quarter-end. The renewed program’s first-year revenue was described as approximately $7.331 million.
- On August 4, 2023, XWELL filed a Form S-3 that, if accepted and effective, could permit offers of up to $200 million in securities. This is potential financing capacity, not proceeds raised.
- Legal matters include an OTG lawsuit alleging breach of a Philadelphia airport sublease and seeking $0.864 million to $2.250 million in accelerated rent. XWELL disputes the claim; its response deadline had been extended to September 5, 2023. The company had accrued $0.449 million for litigation overall at June 30.
- Disclosure controls and procedures were concluded to be ineffective as of June 30, 2023. Management reported ongoing remediation of material weaknesses, including outside accounting support and the hiring of a permanent CFO on July 10, 2023; it cautioned that remediation may not succeed.
Key facts for investors to verify
- Whether XpresSpa growth and the CDC biosurveillance contract can offset the continuing loss of COVID-testing revenue.
- How quickly the company is consuming cash, and whether marketable securities are readily available and sufficient to support operations and planned expansion.
- Progress toward profitability given recurring operating losses and $12.564 million of operating lease liabilities.
- The status and potential outcome of the OTG dispute and other legal claims.
- Whether internal-control remediation is completed and disclosure controls become effective.
- The status and terms, if any, of the proposed Form S-3 offerings and the resulting dilution or financing impact.