Business context and reporting period
XpresSpa Group, Inc. (now identified in the request metadata as XWELL, Inc.; the filing is under the former name) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2020. Its core business was airport spa services and products. In response to COVID-19, it also launched XpresCheck, an airport COVID-19 testing venture. The filing was submitted August 19, 2020, after a late-filing notice; management said pandemic-related demands diverted resources from completing the report.
Financial results and liquidity
Amounts below are in millions of dollars unless stated otherwise.
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $0.143 | $12.908 | $7.861 | $25.138 |
| Operating loss | $(9.484) | $(2.991) | $(13.432) | $(5.108) |
| Net loss | $(58.471) | $(6.093) | $(69.195) | $(8.937) |
| Adjusted EBITDA loss | $(3.389) | $0.441 | $(5.892) | $(0.053) |
| Operating cash flow | Not provided quarterly | $(11.719) | $0.244 |
- Q2 revenue fell 98.9% year over year; six-month revenue fell 68.7%. Q2 services and product sales were zero; $0.143 million was reported as other revenue. Six-month comparable-store sales declined 68.4%.
- Q2 cost of sales was $0.978 million, exceeding revenue by $0.835 million. Q2 impairment/disposal expense was $4.092 million, including impairment of property/equipment and lease right-of-use assets.
- The $48.298 million Q2 and $53.667 million six-month warrant/conversion-option revaluation losses were major noncash contributors to net losses. They were driven primarily by changes in the company’s share price and conversion terms.
- At June 30, cash and cash equivalents were $37.765 million, plus $0.701 million restricted cash; working capital was positive $19.424 million versus a $12.287 million deficit at year-end 2019. Total assets were $58.162 million and total liabilities $28.501 million; stockholders’ equity was $29.661 million, versus a $2.536 million deficit at year-end.
- Total debt was $6.230 million: a $5.653 million unsecured PPP note and $0.577 million net B3D note. The balance sheet also showed $6.359 million of current derivative liabilities and $8.372 million of operating lease liabilities.
- Six-month investing cash outflow was $1.345 million and financing cash inflow was $48.893 million. Financing included $42.661 million of direct-offering proceeds and $5.653 million of PPP borrowing. Q2 registered direct offerings generated $38.397 million net of stated fees and expenses.
Material changes versus prior period
- COVID-19 closures drove the collapse in spa revenue: all global spa locations temporarily closed effective March 24, 2020, and substantially all remained closed at the reporting date.
- The company raised equity, converted the remaining $5.664 million B3D note and the $2.500 million Calm note into common stock, and repaid the Credit Cash advance. Common shares outstanding rose from 5.16 million at year-end to 56.47 million at June 30, in addition to warrants and other potential dilution. A 1-for-3 reverse stock split took effect June 11.
- The company reported $4.092 million of impairment/disposal expense in the first half, compared with $1.971 million in the prior-year period.
- Q2 general and administrative expense increased 35.0% to $3.371 million, primarily from XpresCheck start-up costs and legal fees; cost reductions partly offset the increase.
Outlook, commentary, risks, and unusual items
- Management said it expected to incur losses for the foreseeable future. It believed completed financing and debt transactions addressed substantial doubt about liquidity for at least 12 months from issuance of the statements, but said longer-term liquidity remained uncertain.
- No quantified revenue, earnings, or cash-flow guidance was provided. Reopening spa locations depends on easing restrictions and airport traffic returning to levels that support operations. The company anticipated further rent concessions while spas remained closed; reported minimum-guaranteed-rent concessions were $0.693 million for Q2 and $0.768 million for the first half.
- XpresCheck’s JFK pilot began June 22, with stated capacity above 500 tests per day. A Newark airport contract was announced August 13, after quarter-end, with a planned capacity above 350 tests per day. Management emphasized that XpresCheck’s results and the pandemic’s duration and effects were highly uncertain.
- The $5.653 million PPP loan bears 1% interest and matures May 2, 2022. Forgiveness is conditional; the filing said there was no assurance any amount would be forgiven.
- Key risks include prolonged travel disruption, uncertain reopening and testing demand, reliance on medical-practice and testing suppliers, test performance, healthcare and privacy regulation, and costs or delays in building testing facilities. Litigation includes matters with uncertain outcomes; the company recorded $1.286 million of legal accruals at June 30. A separate $1.5 million demand in the Jenkins/Jones matter remained unresolved.
- Disclosure controls were reported ineffective as of June 30, reflecting a previously reported material weakness in financial close and reporting, including insufficient accounting and controls expertise. Management described a remediation plan but had not completed it.
Most important facts for investors to verify
- Whether spa locations reopened, airport traffic recovered, and XpresCheck facilities achieved sustained testing volume and positive economics.
- Actual cash burn and liquidity after June 30, including the extent and terms of further landlord concessions and any need for additional financing.
- PPP loan forgiveness status, remaining debt and lease obligations, and the effect of derivative liabilities and warrants on reported earnings and dilution.
- Share count and potential dilution following the equity offerings, note conversions, warrant exchanges, and reverse split.
- Progress remediating the material weakness and any subsequent developments in significant litigation and regulatory matters.