XWELL, Inc. — Q3 2023 Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three and nine months ended September 30, 2023; balance-sheet comparisons are to December 31, 2022. XWELL operates airport wellness and retail businesses through XpresSpa, XpresTest (including HyperPointe), and Treat (including Naples Wax). It had 21 domestic and 10 international XpresSpa locations, two airport Treat locations, and acquired three Naples Wax locations on September 12, 2023, for approximately $1.6 million.
XWELL closed all XpresCheck testing locations as testing demand declined. Its CDC/Ginkgo bio-surveillance program remains an important source of XpresTest revenue. The company effected a 1-for-20 reverse stock split on September 28, 2023.
Financial performance and liquidity
Amounts below are in millions, except per-share data and percentages. Margins are calculated from reported figures.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $7.468 | $10.736 | $22.706 | $48.381 |
| Gross profit / margin | $1.091 / 14.6% | $1.397 / 13.0% | $2.803 / 12.3% | $11.638 / 24.1% |
| Operating loss | $(10.476) | $(7.654) | $(21.488) | $(17.872) |
| Net loss | $(9.978) | $(7.679) | $(21.486) | $(18.368) |
| Net loss attributable to XWELL | $(9.918) | $(7.179) | $(21.157) | $(19.380) |
| Basic and diluted loss per share | $(2.38) | $(1.52) | $(5.07) | $(3.99) |
- Q3 revenue fell 30%; nine-month revenue fell 53%. Management attributed the decline mainly to reduced COVID-19 testing revenue. Q3 XpresSpa revenue increased to $4.955 million from $3.557 million, while XpresTest revenue fell to $2.322 million from $6.754 million.
- Operating results included $6.782 million of long-lived-asset impairment in Q3, including a $4.024 million goodwill impairment and impairment of Treat- and HyperPointe-related intangible assets. Goodwill was zero at September 30, 2023.
- Cash used in operations was $12.873 million for the first nine months, versus $17.406 million a year earlier. Investing activities used $1.172 million; financing activities provided $0.008 million. Cash, cash equivalents and restricted cash decreased $14.211 million to $5.578 million.
- At September 30, cash and cash equivalents were $4.827 million, marketable securities $21.311 million, and current assets $29.962 million. Current liabilities were $8.157 million; working capital was $21.805 million, down from $36.376 million at year-end 2022.
- Total liabilities were $17.280 million, including $11.498 million of operating lease liabilities. The filing reports no conventional borrowings on the balance sheet; lease obligations remain material.
Material changes and management commentary
- Although lower testing revenue drove the top-line decline, services revenue rose to $6.709 million in Q3 from $5.583 million, and nine-month services revenue rose to $20.485 million from $15.341 million. Products revenue also increased.
- Management said it had reduced overhead and operating expenses through rightsizing and streamlining, and was focused on returning to profitability. It stated that liquidity was sufficient to fund operations for the next 12 months, while identifying maintenance of existing locations and expansion of Naples Wax and its off-airport strategy as capital needs.
- The company is pursuing an integrated wellness and retail offering, growth beyond airports, and potential international expansion. The filing provides no specific financial guidance or quantified profitability targets.
- Q3 foreign-exchange remeasurement generated a $0.366 million gain; the nine-month period recorded a $0.690 million loss. Nine-month results also included a $0.703 million gain on securities.
Risks, contingencies and controls
- Management concluded disclosure controls and procedures were not effective as of September 30, 2023, due to material weaknesses in internal control over financial reporting. Remediation efforts include outside accounting and valuation support, control reviews, accounting-system enhancements, and hiring a permanent CFO in July 2023. The company cautioned that remediation may not succeed.
- In an OTG Management lawsuit concerning a Philadelphia airport sublease, the claimant seeks between $0.864 million and $2.250 million in accelerated rent. The parties filed a stipulation to hold the case in civil suspense on October 20, 2023. XWELL accrued $0.449 million for legal matters and said it does not expect outstanding matters to have a material adverse effect, while noting outcomes remain uncertain.
- Cash held overseas may be delayed or limited in availability under partnership and operating agreements. Airport lease commitments total $14.082 million undiscounted, with a reported present value of $11.498 million.
Most important facts for investors to verify
- Whether operating cash burn moderates and available marketable securities can support the stated 12-month liquidity outlook.
- Whether XpresSpa, bio-surveillance, and the newer off-airport business can offset the continued decline in testing-related revenue and move the company toward profitability.
- The assumptions and subsequent developments behind the $6.782 million impairment, including the remaining value and performance of Treat and HyperPointe assets.
- Progress and independently verifiable effectiveness of remediation for the disclosed material weaknesses in financial reporting controls.
- Developments in the Philadelphia sublease litigation and any changes to accrued legal liabilities or lease commitments.