XpresSpa Group, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Unaudited consolidated financial statements; amounts below are in millions of dollars unless stated otherwise. The filing reports the company as XpresSpa Group, Inc. (Nasdaq: XSPA).
Business context
The company operated two reportable segments: airport spa services and products (XpresSpa), and airport diagnostic testing through XpresTest/XpresCheck. Substantially all XpresSpa locations remained closed following pandemic-related shutdowns. XpresCheck operated 13 centers at 11 airports in 10 states at the time described in the filing.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $8.512 | $7.718 |
| Cost of sales | $4.159 | $7.168 |
| Gross profit / approximate gross margin | $4.353 / 51.2% | $0.550 / 7.1% |
| Operating loss | $(0.921) / (10.8%) of revenue | $(3.948) / (51.2%) of revenue |
| Net loss | $(0.808) | $(10.724) |
| Net loss attributable to XpresSpa Group | $(1.056) | $(10.616) |
| Basic and diluted loss per share | $(0.01) | $(1.74) |
| Adjusted EBITDA, non-GAAP | $0.850 | $(2.611) |
Q1 2021 revenue included $8.174 of managed-services fees, of which $3.186 related to 2020 and was recognized after reassessment of collectability. XpresTest recorded $8.179 of segment revenue and $2.177 of operating income; XpresSpa recorded $0.333 of revenue and a $1.567 operating loss. The filing’s revenue table reports managed-services fees of $8.174; segment reporting rounds XpresTest revenue to $8.179.
Operating cash use was $3.498, compared with $3.517 in Q1 2020; investing cash use, primarily property and equipment purchases, was $0.986, compared with $0.584. Financing provided $17.340, principally from warrant exercises. Cash and cash equivalents were $102.649 at March 31, with an additional $0.701 of restricted cash. Working capital was positive $93.947, up from $78.302 at December 31, 2020.
Total debt was $5.653, consisting of a 1% PPP loan due May 2022; forgiveness was not assured. Operating lease liabilities totaled $9.226. Current liabilities were $13.842. The company reported $1.963 in accrued legal liabilities.
Material changes versus prior period
- Revenue increased $0.794 year over year as XpresTest managed-services activity more than offset the collapse in spa revenue. XpresSpa revenue fell to $0.333 from $7.588.
- Operating loss narrowed by $3.027. Cost of sales decreased $3.009, partly due to lower spa activity and airport rent concessions; XpresCheck incurred $2.679 of cost of sales.
- General and administrative expense rose $1.275 to $4.508, mainly from XpresTest/XpresCheck start-up costs and legal fees.
- The prior-year $5.369 warrant and conversion-option revaluation loss did not recur. Stock-based compensation increased to $1.005 from $0.072.
- Warrant exercises issued 11.224 million common shares and generated approximately $19.161 gross proceeds. Common shares outstanding rose to 105.282 million from 94.059 million at year-end; 37.989 million warrants remained outstanding.
Outlook, risks and unusual items
- Management gave no quantified revenue or earnings guidance. It said it expects net losses for the foreseeable future and noted that pandemic duration, airport traffic, and XpresCheck’s success could materially affect results, liquidity, and access to capital.
- Management intends to reopen spa locations selectively when restrictions ease and traffic can support unit economics. It also described plans to develop technology-enabled travel health and wellness services, including potential subscription, digital-content, and e-commerce offerings; these are plans, not forecasts.
- Rent concessions on a majority of leases provided relief from minimum guaranteed payments. The company recorded approximately $0.472 of such concessions in Q1 2021 and expected further concessions while spas remained closed.
- Five customers represented approximately 93% of Q1 revenue; four customers represented approximately 91% of accounts receivable. This creates significant customer and collection concentration.
- Several legal matters remain unresolved or subject to settlement processes. Management recorded legal accruals of $1.963 and stated that outcomes are inherently uncertain. A separate claim had a $0.750 damages award plus interest, with another $0.150 claim still to be tried as of the filing’s discussion.
- The PPP loan’s forgiveness was uncertain. Cash deposits exceeded FDIC insurance limits, and overseas cash may be subject to approval and distribution procedures.
- Disclosure controls and internal control over financial reporting were reported ineffective at March 31, 2021 because a previously identified material weakness in the financial close and reporting process remained unremediated. Management described remediation steps, including additional personnel, outside advisers, and accounting-process changes.
Most important facts for investors to verify
- Whether managed-services fees, particularly the $3.186 catch-up amount, are collectible and sustainable after Q1.
- Post-quarter spa reopening progress, airport traffic, XpresCheck utilization, and the economics of each business segment.
- Customer concentration, receivable collections, and the large increase in accounts receivable to $3.019 from zero at year-end.
- Cash burn, future capital needs, warrant-related dilution, and the remaining 37.989 million warrants.
- PPP forgiveness status, lease obligations and concessions, and the resolution and adequacy of legal accruals.
- Whether management remediates the material weakness and restores effective disclosure and financial-reporting controls.