XWELL, Inc. — FY2022 Form 10-K
Business context and reporting period. This filing covers the fiscal year ended December 31, 2022, not standalone fourth-quarter results. XWELL operates airport spa and wellness services (XpresSpa), diagnostic testing and biosurveillance (XpresTest), Treat wellness centers, and healthcare marketing services (HyperPointe). The company rebranded from XpresSpa Group, Inc. in October 2022. Unless noted otherwise, financial amounts below are in millions of dollars.
Financial results and liquidity
| Metric | FY2022 | FY2021 | Change / context |
|---|---|---|---|
| Revenue | $55.9 | $73.7 | Down 24%; lower testing revenue more than offset growth in spa and Treat activity and HyperPointe revenue. |
| Gross profit / margin | $12.0 / 21.5% | $32.3 / 43.9% | Lower revenue and higher labor and occupancy costs pressured gross margin. |
| Operating income (loss) | $(31.2) | $4.1 | From profit to loss; included higher G&A, depreciation, impairments and asset-disposal losses. |
| Net income (loss) attributable to XWELL | $(32.8) | $3.3 | Basic and diluted loss per share was $0.35, versus earnings per share of $0.03. |
| Cash from (used in) operations | $(24.2) | $14.6 | Cash generation reversed as XpresTest activity declined and Treat incurred operating costs. |
| Cash used in investing | $(34.8) | $(5.2) | Included $23.2 invested in marketable securities, $6.5 of property and equipment purchases, and $4.9 for HyperPointe, net of cash acquired. |
| Cash from (used in) financing | $(27.4) | $6.4 | Included $23.8 of share repurchases and $3.6 repayment of the PPP loan. |
At year-end, cash and cash equivalents were $19.0 and marketable securities were $23.2; current assets totaled $47.3 and current liabilities $11.0, for working capital of $36.4, down from $89.2 a year earlier. Total liabilities were $22.5, including $14.1 of operating lease liabilities. The PPP loan was repaid in May 2022; no promissory note balance remained at year-end. Cash, cash equivalents and restricted cash together were $19.8.
Revenue by segment
- XpresTest: $38.5, down from $69.1 in 2021 as COVID-19 testing volumes fell.
- XpresSpa: $13.7, up from $4.6 as locations reopened and expanded.
- Treat: $1.4, compared with $0.04; management said the business was underperforming.
- HyperPointe: $2.3, following its January 2022 acquisition.
Material changes and unusual items
- XWELL recorded $5.9 of impairment charges on long-lived and intangible assets and $0.8 of losses on asset disposals in 2022. Impairments related principally to Treat, XpresCheck and spa locations.
- XpresCheck’s testing business contracted sharply as testing requirements eased. Most centers closed during 2022; by March 31, 2023, only one location remained open.
- HyperPointe was acquired for cash and stock consideration; potential earn-out payments of up to $7.5 over three years were disclosed, but the company estimated their fair value at zero at year-end.
- The company repurchased and retired 19.5 million shares for $23.8 during 2022. Year-end shares outstanding were 83.2 million.
- Net foreign-exchange losses were $0.7, primarily related to Turkish operating leases. The company also recorded a $0.6 unrealized loss on its Route1 investment.
Outlook, risks and contingencies
Management provided no specific numerical revenue or earnings guidance. Its stated priorities are to integrate services across brands, right-size airport operations, expand retail and wellness offerings, pursue off-airport growth and international opportunities, and improve profitability and cost structure. A CDC biosurveillance contract with Ginkgo included approximately $7.3 of first-year consideration; additional program options could increase the overall opportunity, but the filing does not establish that those options will be funded or realized.
- Liquidity and funding: Operating cash outflow and large 2022 repurchases reduced cash and working capital. Management said additional capital may be needed and financing could be unavailable, dilutive, or on unacceptable terms.
- Internal controls: Management concluded disclosure controls and internal control over financial reporting were ineffective at December 31, 2022. Identified material weaknesses involved lease accounting, close and reporting oversight, financial-statement reviews and reconciliations, service-provider controls, and revenue processes. Remediation was ongoing; success was not assured.
- Operating exposure: Results depend on airport passenger traffic, concession leases and minimum rent, skilled labor, suppliers, local partners, and the success of Treat and expansion initiatives. XpresTest and Treat also face healthcare, laboratory, privacy and corporate-practice-of-medicine regulation.
- Legal matters: Accrued litigation liabilities were approximately $1.0. A California employment class/PAGA settlement was approved and funded in January 2023. An airport landlord lawsuit claims $0.9–$2.3 in accelerated rent over a disputed sublease; the outcome is uncertain.
- Listing and share risks: Nasdaq notified the company in October 2022 that it did not meet the $1.00 minimum bid-price requirement; the filing identified an April 26, 2023 compliance deadline. Management cited a possible reverse split and the risk of delisting.
The financial statements received an unqualified audit opinion. The auditor identified long-lived-asset and goodwill valuations as critical audit matters; the auditor did not express an opinion on internal-control effectiveness.
Important facts for investors to verify
- Current cash, marketable securities, operating cash burn and the extent to which marketable securities are available to fund operations.
- Progress in remediating the five disclosed internal-control material weaknesses and any effect on the reliability or timing of future reporting.
- Revenue, margins and cash generation after the decline in XpresTest testing activity, including the remaining CDC contract’s funding and performance.
- Whether Treat’s revised offerings and planned growth initiatives can achieve sustainable returns, given the 2022 underperformance and impairment charges.
- Resolution and potential financial exposure from the OTG lease dispute, as well as other legal contingencies and lease commitments.
- Nasdaq listing compliance and any future equity financing, share repurchases, dilution or reverse stock split.