XWELL, Inc. (XWEL) - Q2 2024 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2024. XWELL, Inc. is a global wellness company operating four reportable segments: XpresSpa (airport spa services), XpresTest (bio-surveillance and diagnostic services), Naples Wax Center (off-airport waxing and skincare), and Treat (wellness centers for travelers). The company is transitioning from a pandemic-focused testing model to a pure-play wellness services strategy, expanding into off-airport markets.
Key Financial Metrics
| Metric | Q2 2024 (3 Months) | Q2 2023 (3 Months) | YTD 2024 (6 Months) | YTD 2023 (6 Months) |
|---|---|---|---|---|
| Total Revenue | $9.28 million | $8.18 million | $18.01 million | $15.24 million |
| Gross Profit | $3.08 million | $1.19 million | $5.74 million | $1.71 million |
| Gross Margin | 33.2% | 14.6% | 31.9% | 11.2% |
| Operating Loss | $(1.89) million | $(4.72) million | $(4.27) million | $(11.01) million |
| Net Loss (Attributable to XWELL) | $(1.99) million | $(5.73) million | $(4.51) million | $(11.24) million |
| Loss Per Share (Basic/Diluted) | $(0.48) | $(1.37) | $(1.08) | $(2.70) |
| Cash & Cash Equivalents | $5.42 million | As of June 30, 2024 | ||
| Marketable Securities | $12.97 million | |||
| Total Current Assets | $23.14 million | As of June 30, 2024 | ||
| Total Current Liabilities | $10.44 million | |||
| Working Capital | $12.70 million | As of June 30, 2024 | ||
| Net Cash Used in Operating Activities (YTD) | $(4.13) million |
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 14% QoQ and 18% YTD, driven primarily by an expanded CDC bio-surveillance contract within the XpresTest segment and the addition of the Naples Wax Center segment.
- Margin Expansion: Gross margin improved significantly to 33.2% in Q2 2024 from 14.6% in Q2 2023. This was due to cost reductions from closing underperforming XpresSpa locations in 2023 and the higher-margin profile of the new CDC contract.
- Expense Reduction: Operating expenses decreased significantly. General and administrative expenses dropped 29% YTD due to headcount reductions and rightsizing. Depreciation and amortization fell 62% YTD due to the write-off of closed locations.
- Impairment Charges: The company recorded a $0.65 million impairment charge in the first half of 2024, primarily related to the closure of the Treat location in Salt Lake City and an XpresSpa location in Orlando.
- Foreign Exchange: The company recorded a $0.25 million foreign exchange gain in Q2 2024, compared to a $1.14 million loss in the same period in 2023.
Guidance, Outlook, and Risks
- Strategic Outlook: Management is focused on returning to profitability by reducing overhead and expanding off-airport operations (Naples Wax, XWELL Studios). The company plans to leverage international travel recovery to expand XpresSpa and bio-surveillance services globally.
- Liquidity: As of June 30, 2024, the company held $18.39 million in cash, cash equivalents, and marketable securities. Management believes this is sufficient to fund operations for the next 12 months.
- Subsequent Events: On August 6, 2024, the company completed a registered direct offering of 652,705 shares, raising approximately $1.4 million in gross proceeds.
- Legal Proceedings:
- OTG Management: A lawsuit regarding a Philadelphia sublease was settled and discontinued with prejudice in June 2024.
- CPC Pain & Wellness: A shareholder derivative suit filed in July 2024 regarding board fiduciary duties was dismissed by the plaintiff in August 2024.
- Settlement Agreement: In August 2024, the company issued 416,000 shares to settle a dispute with certain parties.
- Internal Controls: Management concluded that disclosure controls and procedures were not effective as of June 30, 2024, due to material weaknesses. Remediation efforts include engaging outside service providers for valuation and accounting and upgrading cloud-based accounting systems.
Investor Verification Checklist
- Revenue Sustainability: Verify the duration and renewal terms of the CDC bio-surveillance contract, which is a primary driver of recent revenue growth.
- Location Performance: Assess the financial impact of closing the Salt Lake City Treat location and the Orlando XpresSpa location versus the performance of new off-airport ventures like Naples Wax.
- Internal Control Remediation: Monitor the progress of the remediation plan for material weaknesses in internal controls over financial reporting, as noted in Item 4.
- Cash Burn Rate: Track the net cash used in operating activities ($4.13 million YTD) against the current cash balance to validate the 12-month liquidity runway.
- Dilution Impact: Review the impact of the August 2024 registered direct offering and the settlement share issuance on existing shareholder equity.