XpresSpa Group, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. The filing was signed May 16, 2022. Amounts below are in millions of dollars unless otherwise stated.
Business context
The company operated four reportable segments: airport spa services (XpresSpa), airport testing and related services (XpresTest), travel health and wellness (Treat), and digital healthcare marketing and analytics (HyperPointe). HyperPointe was acquired in January 2022. The company reported 15 XpresCheck locations in 12 airports, 19 domestic XpresSpa locations and six international XpresSpa locations. Treat operated centers at JFK and Phoenix.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $24.048 | $8.512 |
| Cost of sales | $15.047 | $4.159 |
| Gross profit / margin | $9.001 / 37.4% | $4.353 / 51.2% |
| Operating loss | $(2.451) | $(0.921) |
| Net loss | $(2.762) | $(0.808) |
| Net loss attributable to XpresSpa Group | $(4.283) | $(1.056) |
| Basic and diluted loss per share | $(0.04) | $(0.01) |
| Adjusted EBITDA, non-GAAP | $0.356 | $0.850 |
| Cash used in operating activities | $(1.774) | $(3.498) |
Cash and cash equivalents were $82.990 at quarter-end, down from $105.506 at December 31, 2021. Working capital was $69.815, versus $89.152 at year-end; current assets were $88.463 and current liabilities were $18.648. Total liabilities were $25.949, including $1.433 of current unsecured promissory note debt and $10.134 in operating lease liabilities. The PPP loan was paid off on May 2, 2022.
Cash used in investing activities was $6.779, including $4.853 for the HyperPointe acquisition and $1.659 for property and equipment. Financing activities used $13.943, including $11.095 for share repurchases and $2.151 for PPP loan repayment. Cash, cash equivalents and restricted cash declined by $22.516 to $83.741.
Material changes versus the prior period
- Revenue increased 183%, primarily reflecting XpresTest patient-service revenue and consolidation of its affiliated medical entities as variable interest entities, as well as reopened spa locations. The accounting and business mix differ materially from Q1 2021, so the comparison is not fully like-for-like.
- XpresTest reported $20.596 of revenue and $6.205 of operating income; XpresSpa reported $2.643 of revenue and a $4.455 operating loss. Treat generated $0.286 of revenue and a $1.296 operating loss. HyperPointe contributed $0.523 of revenue and a $0.277 operating loss.
- Cost of sales rose 262% to $15.047; general and administrative expense rose 126% to $10.188. Management attributed the increases to expanded operations, the consolidation of medical entities, reopened locations and HyperPointe.
- The company repurchased 7.142 million shares for $11.095 at an average cost of $1.55 per share. Quarter-end shares outstanding were 95.071 million, compared with 101.269 million at December 31, 2021.
Outlook, commentary and risks
- No formal financial guidance was provided. Management said it expected net losses in the foreseeable future and noted that the pandemic’s duration and severity could adversely affect liquidity and access to capital.
- The company expected to reopen additional spa locations and continued to assess operating hours and new services. It reported that many domestic spas operated about eight hours daily, compared with up to 16 hours before the pandemic.
- The extended CDC biosurveillance contract totaled $5.534. The company recognized $1.396 in Q1 2022 and anticipated recognizing the remaining $2.770 in Q2 and Q3 2022.
- HyperPointe’s acquisition consideration included cash and stock, plus potential earnouts of up to $7.5 million over three years. The company estimated the earnout’s fair value at zero as of acquisition and quarter-end; the arrangement could also result in additional share issuance.
- A lawsuit filed May 9, 2022 by OTG Management alleged breach of a Philadelphia airport sublease and claimed accelerated rent of $0.864 million to $2.250 million. The company had not been formally served as of the filing. Management reported $0.845 million accrued for legal matters and said it did not expect outstanding matters to have a material adverse effect, while acknowledging outcomes are uncertain.
- A material weakness in internal control over financial reporting, identified in 2019, remained unremediated. Management concluded disclosure controls were not effective as of March 31, 2022, citing insufficient experienced accounting and controls personnel; it described remediation efforts and use of outside consultants.
Investor verification priorities
- Assess the comparability and sustainability of revenue after the XpresTest consolidation and consider the potential effect of changing demand for COVID-19 testing.
- Review operating cash use, the $22.516 million total cash decline, and planned spending on Treat, reopened locations and acquisitions.
- Verify the status and terms of the Philadelphia sublease lawsuit, other legal matters, and the related accruals.
- Monitor remediation and independent testing of the material weakness in financial reporting controls.
- Check future performance against management’s expected CDC contract revenue timing and the HyperPointe earnout terms, including potential dilution.
- Consider the company’s substantial outstanding warrants and options, which were excluded from diluted loss per share as anti-dilutive.