XpresSpa Group, Inc. — FY2021 Form 10-K
Filing identity and period: The filing is for XpresSpa Group, Inc. (Nasdaq: XSPA), for the fiscal year ended December 31, 2021—not a filing under the name XWELL. Financial figures below are in U.S. dollars; amounts are shown in millions unless otherwise noted. The 2021 results are compared with FY2020.
Business context
The company operated three reportable segments: airport spa services and retail (XpresSpa), airport diagnostic testing and related services (XpresTest/XpresCheck), and the newly launched travel wellness brand Treat. COVID-19 closures continued to constrain the spa business, while testing services became the main source of 2021 revenue. At year-end, 22 spa locations were open, including 16 domestic and six international locations; 15 XpresCheck centers operated across 12 airports as of the filing date. Treat’s first location opened at JFK in December 2021.
Financial results and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $73.729 | $8.385 |
| Cost of sales | $41.385 | $11.983 |
| Gross profit / gross margin | $32.344 / 43.9% | Not meaningful: cost of sales exceeded revenue |
| Operating income (loss) | $4.107 | $(40.104) |
| Net income (loss) | $2.893 | $(92.232) |
| Net income (loss) attributable to common shareholders | $3.349 | $(90.488) |
| Adjusted EBITDA (non-GAAP) | $11.001 | $(18.210) |
| Cash from operating activities | $14.561 | $(25.012) |
- Revenue rose 779%, principally from XpresTest: $69.078 million of segment revenue, versus $4.614 million for XpresSpa and $0.037 million for Treat. Segment operating income was $25.452 million for XpresTest; XpresSpa and Treat reported operating losses of $9.617 million and $5.735 million, respectively.
- Operating margin was approximately 5.6%; net margin was approximately 3.9%. General and administrative expense increased to $24.199 million from $15.940 million, including startup costs for XpresCheck and Treat and legal expenses.
- Cash and cash equivalents were $105.506 million; current assets were $108.979 million and current liabilities $19.827 million. Working capital was $89.152 million, up from $78.302 million. Total liabilities were $27.331 million, including $3.584 million of current unsecured promissory notes and $10.240 million of operating lease liabilities.
- Investing activities used $5.156 million; financing activities provided $6.350 million. The company received $19.245 million gross from warrant exercises and repurchased 4.702 million shares for $7.825 million during 2021.
Material changes and unusual items
- The transition to consolidating professional medical practice entities as variable interest entities from July 1, 2021 materially changed revenue presentation: $50.689 million of patient-service revenue was consolidated in the second half. The first-half managed-services revenue included a $3.186 million catch-up adjustment. This accounting and business-model change limits direct comparability with 2020.
- The 2020 net loss included a $51.147 million loss on revaluation of warrants and conversion options and $15.356 million of impairment/disposal charges. No warrant or conversion-option revaluation loss was recorded in 2021; impairment/disposal charges fell to $0.837 million.
- FY2021 impairment included approximately $0.090 million for property and equipment and $0.747 million for operating lease right-of-use assets. The XpresSpa trade name had been impaired by $3.934 million in 2020; Treat intangibles were not impaired in 2021.
- In January 2022, the company acquired HyperPointe for $5.612 million cash and $1.000 million in stock, with potential earn-outs of up to $7.500 million over three years. This is a subsequent event, not a FY2021 operating result.
- In March 2022, the company repurchased a further 7.142 million shares for $11.095 million. The filing reported 95.071 million common shares outstanding as of March 28, 2022; it also disclosed substantial outstanding warrants and options that may dilute shareholders.
Outlook, risks and contingencies
- Management plans to integrate services across the three brands, expand Treat and XpresCheck, develop off-airport and international offerings, and reopen spas selectively when traffic and unit economics support operations. No clear consolidated revenue or earnings guidance is provided.
- The CDC biosurveillance program began as an approximately $2.001 million pilot and was extended to a total contract of $5.534 million. The company expected to recognize the remaining approximately $3.977 million in the first and second quarters of 2022; this is management’s expectation, not a guarantee.
- COVID-19, travel demand, testing requirements and competition could materially affect revenue and liquidity. Other key risks include airport minimum rent commitments, dependence on limited suppliers, healthcare regulation and professional-practice arrangements, labor availability and costs, data privacy/security, and the need for capital to fund expansion.
- Management identified a material weakness in financial close and reporting controls, which remained unremediated at December 31, 2021. Disclosure controls and internal control over financial reporting were deemed ineffective. The independent auditor gave an unqualified opinion on the financial statements but was not engaged to audit internal controls.
- The company accrued approximately $0.845 million for outstanding legal matters. It stated that it did not expect the matters to have a material adverse effect, while cautioning that outcomes are uncertain. A California wage-and-hour/PAGA settlement remained subject to preliminary court approval at the filing date.
- The company had approximately $207.262 million of federal net operating loss carryforwards, subject to potential Section 382 limitations, and maintained a full valuation allowance against deferred tax assets.
Important facts for investors to verify
- Confirm the filing and issuer identity: the document is XpresSpa Group, Inc. (XSPA), despite the request metadata naming XWELL.
- Review XpresTest revenue recognition and the July 2021 VIE consolidation, including the effects on reported revenue, segment profitability and comparability.
- Assess the sustainability of testing-related revenue and cash generation as COVID testing demand and travel rules change; verify realization of the CDC contract balance expected in 2022.
- Track cash use after the reporting date, including the March 2022 repurchases, HyperPointe purchase and potential earn-out, and assess remaining liquidity against planned investment needs.
- Evaluate dilution exposure from outstanding warrants, options, acquisition-related equity and any future financing; verify the post-repurchase share count.
- Monitor remediation of the material weakness, the status and costs of legal matters, and compliance with healthcare, privacy and airport concession requirements.