Business context and reporting period
FORM Holdings Corp. (the registrant named in this filing; the filing does not identify the company as XWELL) reported results for the three months ended March 31, 2017. It operated wellness (XpresSpa), technology (Group Mobile, FLI Charge and Excalibur), and intellectual-property businesses. XpresSpa was acquired in December 2016; Excalibur was acquired February 2, 2017 and merged into Group Mobile.
Financial results and liquidity
Amounts below are in millions of dollars unless otherwise noted.
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Revenue | $14.609 | $2.044; up 614.7% |
| Gross profit and margin | $2.715; 18.6% | Cost of sales was 90.4% of revenue in Q1 2016; comparable gross profit is not stated in the MD&A |
| Operating loss | $(6.044) | $(3.606) |
| Net loss attributable to company | $(6.425); $(0.34) per diluted share | $(3.955); $(0.28) per diluted share |
| Operating cash flow | $(4.899) | $(5.429) |
| Cash and cash equivalents | $11.673 at March 31 | $17.910 at December 31, 2016 |
| Total current assets / liabilities | $17.696 / $10.825 | At March 31, 2017 |
| Debt | $6.500 long-term | Unchanged from December 31, 2016 |
Cost of sales was $11.894 million, or 81.4% of revenue. General and administrative expense was $6.860 million, including $0.741 million of stock-based compensation. Depreciation and amortization was $1.899 million; interest expense was $0.189 million. Cash declined $6.237 million during the quarter. Investing activities used $0.933 million and financing activities used $0.361 million. The filing reports no off-balance-sheet arrangements.
Material changes versus the prior comparable period
- Revenue growth primarily reflects the first full quarter of XpresSpa results; wellness contributed $10.984 million. Technology revenue was $3.525 million, up 172.4% year over year, while intellectual-property revenue fell to $0.100 million from $0.750 million.
- Operating loss widened despite higher revenue, with newly consolidated wellness operations, higher depreciation and amortization, and increased G&A contributing. Management also cited lower intellectual-property enforcement costs versus Q1 2016.
- Excalibur was acquired for consideration valued at $2.125 million, including 888,573 common shares and $0.316 million of contingent consideration. Further earnout payments may be due based on specified account gross profit, payable in cash or stock at the company’s election.
- Common shares outstanding increased to 19.198 million at March 31 from 18.305 million at year-end. The filing lists 12.902 million potentially dilutive instruments excluded from diluted loss per share as anti-dilutive.
Outlook, risks and unusual items
Management said existing cash and expected operating cash flows should fund at least the next 12 months under current plans. It may seek additional capital for new spa locations or acquisitions; no quantified revenue or earnings guidance was provided. Planned uses include opening and maintaining XpresSpa locations, technology working capital and corporate costs.
- The $6.500 million debt is owed to an entity controlled by a company director. In May 2017, the company elected to extend maturity from May 1, 2018 to May 1, 2019, with the lender’s consent; Q1 interest paid was $0.150 million.
- Management recorded $0.650 million for legal matters. XpresSpa’s Cordial and Ross lawsuits remained pending; a wage-hour class action had a settlement in principle, with a formal agreement being drafted. Outcomes remain uncertain.
- Goodwill was $27.486 million, including $2.320 million recognized in the preliminary Excalibur purchase-price allocation. The allocation may change during the measurement period. The filing identifies valuation estimates, including goodwill and intangibles, as judgment-sensitive.
- Management said controls were effective, but the internal-control assessment excluded XpresSpa and Excalibur, which together represented $11.682 million of quarterly revenue and $58.507 million of assets.
- Management expected cost of sales as a percentage of revenue to decline over time through better store performance and technology offerings; this is an expectation, not quantified guidance.
Most important facts for investors to verify
- Confirm the issuer identity and corporate lineage: this Q1 2017 filing is for FORM Holdings Corp., not a registrant named XWELL.
- Assess whether cash burn, working-capital needs and planned store investment are consistent with management’s stated 12-month liquidity expectation.
- Track XpresSpa store-level performance and whether margins improve as management anticipated.
- Review the related-party debt extension, interest burden and any future financing needs.
- Monitor litigation developments, the $0.650 million legal accrual, and Excalibur earnout obligations and purchase accounting.
- Consider dilution from equity awards, warrants, preferred stock and acquisition-related share issuance, as well as the acquired businesses’ excluded status in the internal-control assessment.