Q1 2021 XpresSpa Group Inc Earnings Call
Greetings and welcome to express spar groups first quarter 2021 earnings conference call. At this time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
And should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded I would now like to turn the conference over to your host James Perry Chief Financial Officer.
Good afternoon. Thank you for joining us today and for your interest and express that group before our CEO, Doug that's been and provides an update on our business and I briefly review our first quarter 2021 financial results I first need to advise you of the following comments made on today's call may contain forward looking.
And within the meaning of the private Securities Litigation Reform Act of 1995. These forward looking statements are based on current assumptions and opinions that and balk, a variety of known and unknown risks and uncertainties actual results may differ materially from those contained in or suggested by such forward looking statements important factors that might cause.
Cause such differences include those set forth from time to time, and our SEC filings, including and report on form 10-K for the year ended December 31, 2020, as well as our earnings release and 10-Q issued this afternoon, along with other current and periodic reports that we file with the SEC I would now like to turn the call over to Doug.
Okay.
Thank you James and good afternoon, everyone. Let me begin by sharing some of our brief thoughts on where we currently stand with respect to our airport based express Spa and express check businesses.
Afterwards, I'd like to introduce and share some of our thoughts on our new brand tree and how we intend to capitalize on what we think is a substantial opportunity and the travel health and wellness space that can transform the way people access health care with technology and personalized services as we are entering a poll.
COVID-19 World.
Beginning with the spot business and we're encouraged to see that the airport traffic is recovering nicely and even with the year over year and sequential increases and passengers.
We're still far away from 2019 industry performance, even with a growing proportion of people being vaccinated. It is still likely to take until next year before passenger volumes reached pre pandemic levels.
We currently have free express spots open to and the United and UAE, and Dubai International Airport, and providing select spot services and selling various retail products, such as net pillows and travel blankets and one in Austin, Texas operated by a franchisee.
They are still underperforming despite the modest increase and airport traffic. We believe this is because despite the rate of vaccination rollout theres still some passengers who are not enthusiastic at this moment and.
And time.
How about having such close instrument interactions with massage therapists, and cosmetologist and and airports setting.
We have run analysis on moderate volume scenarios based off.
Passenger traffic and none of them project and acceptable financial outcome. At this point, we will continue to reevaluate each airport on a month by month basis evaluating select re openings and the future based upon customer traffic patterns and consumer confidence.
Accordingly, we are having ongoing discussions with various airports to monitor passenger traffic and recovery and some continued to extend rent relief.
But fundamentally we believe that there are that we are and a new environment.
That is that is in need of more relevant retail and services company.
Companies that can anticipate evolving consumer needs.
And innovate and offer new services to meet these emerging needs will be in the future winters. Therefore, we're extremely excited about our developing path and to be introducing you to our new concept, which I'll detail shortly.
But first let's discuss express check with the addition of our two most recent pop up locations and Seattle Tacoma International Airport and San Francisco International Airport. We are now operating 13 express check wellness seven centers seven days a week across 11 airports.
As travel returns are operational hours have also expand it to meet these needs. While we have been deliberate to open when the terminals and operate when they are the busiest.
Encouragingly, we have benefited from the popularity of rapid COVID-19 testing on site at the airport. This is by far the most preferred testing option and commands a substantially higher price point of 200 to $250.
$75 for the standard PCR test or a blood antibody tests.
Roughly three quarters of all tests are now rapid which has helped improve gross margin.
Gross profit margin, while reducing our monthly cash burn.
Recall that we do not report revenue on a per patient basis or service.
But rather receive our revenues as a management.
Management service fee from the state licensed physicians.
This is because express check operates as a management service organization or an MSL.
This is a health care specific administrative and management service and James and provides a range of administrative and management functions with the company and management services agreement contracting, but they transition as governed by state by state regulations.
And the first quarter of 2021, we reassessed, our 2020 management services agreements and the agreements for our new locations adjusting them they are necessary to better reflect the actual patient volumes, we are seeing and our locations and doing so we were able to recognize.
Revenue for the first quarter of 2021 related to express check for the first time since we launched the concept last June.
James will provide details shortly.
This is certainly a welcome change from the last few quarters and ahead of our original projection of being able to recognize revenue on the first half of this year.
On a related note, we also substantially narrowed our net loss compared to last year.
Well, what I'm about to say, it's not directly related to revenue recognition our transition to a fee for service model on all testing not just rapid tests and began on March eight and helped improve cash flow.
Now all patients pay express check directly at the time and service and then they are able to submit their testing fees and insurance reimbursement on their own.
However, external lab fees are still submitted for Ryan for insurance reimbursement through our partner lab companies.
James will discuss some express check metrics around COVID-19 testing shortly let me reiterate and even with the rollout of vaccines to more and more segments of the population one fight COVID-19 testing at airports will still be and important and necessary service for airline employees airline staff.
And passengers for the foreseeable.
Foreseeable future at our existing locations.
And this is particularly true for international travel, which represents most of our current patient base as many countries outside the U S still require COVID-19 testing prior to arrival because they have not been able to get their own population vaccinated efficiently.
This situation May continue for a long time as many countries are far from reaching herd immunity.
Since late January we have been working with United Airlines Delta Airlines KLM Royal Dutch Airlines out of our JFK terminal four location, our Newark Liberty International Airport locations, and our Boston Logan International Airport locations for flights to the Netherlands and.
Nevertheless, the Netherlands, COVID-19 testing policy for international passengers or is it negative COVID-19 PCR test within 72 hours before departure as well as a negative COVID-19 rapid test or hours before departure.
This was the strictest travel requirement globally at the time.
We are collaborating with these major airlines to meet the rapid four hour test requirements at these select airports and.
In April we signed an agreement with Delta Airlines to administer the new rapid antigen test the customers traveling from John F. Kennedy International Airport, and Milan, and our Panther and Rome Fiumicino International airports.
Now, let's discuss the introduction of our new brand tree.
And how we're working on bringing to market a more comprehensive travel health and wellness concept design for a post pandemic world.
And our intention here is to become the leader what we view as an emerging new category health focused travel and personal wellness services that would still include COVID-19 testing and other related services.
We believe that there is a coming convergence of a customer need and one states.
People all want to return to travel.
We need to do so safely and responsibly.
Our new model is positioned to meet consumers at this precise intersection and deliver on their travel health and wellness needs throughout their journey.
<unk> will be a multi channel business and lifestyle brand, bringing together virtual and on site integrated care services at airports as well as content and support our newly developed digital platform relevant to the post COVID-19 returning traveler.
Travel wellness was skyrocketing trend prior to COVID-19, 19, and adding health to that combination will enable it to rise again.
Lee will provide a content rich website.
Current global travel health information original travel health and wellness editorial content and a curated retail shop with emerging products targeting the savvy traveler living a wellness lifestyle.
The initial web site is expected to launch in June representing phase one of our concept introduction.
Travelers will be able to access healthcare records and real time information all in one place right now people are using multiple sources and possibly multiple apps.
We're currently building and modal.
Mobile App unlimited access to on demand virtual care and establish telemedicine providers.
Access to virtual wellness care, such as guided meditation and yoga.
And the travel wallet medical records and test results.
Mobile App is expected to launch later this summer and represents phase two of our concept rollout.
We will have a strong presence on social media engagement email and paid marketing campaigns.
Provide a bi weekly newsletter, who are often audience and digital subscription members.
On site locations and airports will offer integrated health and wellness personalized services and a premium environment.
Upon entering customers will see a beautifully curated retail environment and check and area and will be greeted by a wellness concierge.
Travelers will be able to access appointments for COVID-19 testing, but also travel vaccines traveling variety care inoculations metabolic panel testing and the like from a list of convenience care services.
They will also be able to book time, and a wellness room.
With services like wellness coaching yoga classes, mindfulness sessions and specialized services like vitamin IV therapy.
The first to treat locations are slated to open and late summer or early fall representing phase III of our concept rollout.
We then followed that up over time by converting some legacy express by locations and to treat and or open additional locations and suitable terminals and airport venues.
Most importantly, we are building the one travel brand and provides access to integrated care and can seamlessly fit into a health and wellness lifestyle.
Over the long term, we envision trades digital channels will provide more significant growth opportunities for revenue and profit and just our airport real estate alone.
This is because we believe this customer is everywhere and not just captive audience sitting and airports.
Access of this revenue stream will be achieved through both subscription based services that provide care and tools supporting travel health and wellness.
Let us also share that while we are not actively pursuing acquisitions, given our strong liquidity and eagerness for profitable growth, we will consider acquisitions and other investments to further broaden our service and retail offerings.
And we're excited about this new brand and the future of express spar group.
With that I'll turn it over to you James.
Thank you Doug.
That said, we were very pleased to have been able to recognize revenue during the first quarter based on reassessment of the management service agreements relative to ASC 606, specifically, we recognized total a total of $8 $5 million and the first quarter compared to $7 7 million and the first quarter last year. The increase in revenue was primarily due to.
The recognition of revenue from eight of the 11, we express check wellness centers that were wholly or partially opened during the quarter. While the majority of express scripts expressed by our locations remain closed and the ability to recognize $3 $2 million at 2020 deferred revenue on underlying management services agreements.
<unk> meeting and the Collectability criteria during the first quarter 2020 one.
Managed service fees totaled $8 2 million as I said, which included $3 2 million retroactively from last year. We also generated revenue from services and products with 265060 $5000, respectively from sales and marketing agreements with strategic lab partners related to our two locations and Dubai.
Cost of sales decreased to $4 2 million from $7 2 million and the prior year first quarter. This decrease was due to the decrease and variable costs associated with the decline and express spot revenues and decreases in occupancy cost as a result of rent concessions. We received from the airports and these were offset somewhat by cost of sales.
Provided pursuant to the express check management services agreement of $2 7 million.
Note that costs associated with the deferred revenues of 2020, we're already booked last year, which also favorably impacted cost of sales.
Gross profit was $4 4 million compared to $550000 and the prior year first quarter, primarily due to higher revenue and the impact from the 2020 cost of sales.
General and administrative expenses were $4 5 million compared to approximately $3 2 million for the year ago comparable period. The increase was related and the increase was related to startup costs for the additional express check wellness centers and development costs for treat these were offset by reduced variable costs related to Clos.
And as the expressed by our locations and the realized benefits of cost cutting and control initiatives instituted throughout 2020, primarily in salaries and occupancy and professional fees.
Our operational on operating losses from operations decreased at $921000 compared to $3 $9 million and the prior year first quarter, primarily due to the higher revenue net loss attributable to common shareholders was $1 1 million compared to net loss attributable to common shareholders of $10 6 million and the prior year.
Your first quarter, primarily due to higher interest expense werent readout valuations and cost of goods sold in 2020.
Finally, with respect to our GAAP financials, our liquidity remains strong with cash and cash equivalents totaling $102 6 million as of March 31, 2021. During the first quarter. A total of $11 2 million warrants were exercised for common shares we received gross proceeds of approximately $19 two.
And paid cash EPS of $2 $2 million in accordance with the placement agent and green.
On a non-GAAP basis, adjusted EBITDA was a positive $900000 compared to adjusted EBITDA loss of $2 6 million in the prior year first quarter. This represents an improvement of $3 $5 million and is indicative of the profitability of the express check and wellness centers.
We define adjusted EBITDA and earnings before interest taxes, depreciation and amortization expense and adjusted for stock based compensation and impairment and disposal of assets. We considered adjusted we consider adjusted EBITDA to be an important indicator for the performance of our operating business Express check in particular, we believe that it's useful.
For analysts and investors to understand that the adjusted EBITDA excludes certain transactions not related to our core cash operating activities, which are primarily related to express check wellness sector. We believe that excluding these transactions allow investors to meaningfully analyzed.
<unk> of our core cash operations and further.
Details please refer to our annual report on.
Our quarterly report on form 10-Q filed today.
Let me now conclude with the non-GAAP financial metrics with respect to express check that we believe will be helpful and providing greater transparency in terms of its performance.
And though we do not generate revenue directly from patient testing volumes as detailed above and the interest and providing investors with greater transparency regarding express checks performance. We have opted to disclose recent and current average daily patient testing volume along with other relevant non-GAAP financial metrics.
During the first quarter 2021 average daily patient testing volume for express check Wellness Center was approximately 70% to 100 people with the additional centers open total patient volumes grew nearly $2 five ex in the first quarter 2021 versus the fourth quarter of 2020.
Notably the number of higher revenue higher marriage, and COVID-19 rapid test as a percentage of total tests averaged 74% during the first quarter. This year. The average revenue per patient was $160 during that quarter and total patient volume was 38755, including 28000 and 338 rapid tests.
And during April the average revenue per patient with $170, while higher revenue higher merit and COVID-19 rapid test as a percentage of total tests averaged 81% total patient volume for April alone was 23166, including 18800 <unk> rapid test.
And with that we would be happy to take your questions.
Thank you.
This time, we will be conducting a question and answer session.
And I would like to ask a question. Please e-mail IR at express small group Dotcom Michelle you May now proceed with questions.
Hi, Doug how are you Tonight.
The first question. We have is airport traffic is rising but your patient volume are still basically the same as Q4 and you think we have maxed out on average patient volume has already given the rollout of vaccine.
Thank you Michelle.
<unk>.
Let me start by answering the question.
It's hard to predict patient volumes as we know.
And it certainly is going to depend on the spread of new variants.
And not just related to vaccination rates and the U S.
While the U S.
Is one of the leaders and the plant.
One of the international leaders and spreading vaccine dissemination like the U K and Israel and a few other countries on most of the world is still one to two years away from.
In vaccinated and reaching we're coming closer to herd immunity. It's my opinion that countries will need to continue to protect the actually large percentage of.
Vaccinated.
People and their communities and that will continue to lead to demand for on site airports COVID-19 testing.
Great. Thank you, Doug you recognize about $5 $3 million and revenue for Q1, specifically during the quarter and yet the patient volume times average revenue per patient was about $6 2 million can you explain the differential.
Is it reasonable to assume that if we take the same metric for April and discounts and by 20% we can.
April revenue.
And I'm going to.
And this question to you James Thanks, Pat.
Actually a very good question two again described the managed services arrangement and.
Non-GAAP patient services revenue presented are rare.
Our revenues to the professional practices and from that amount practice expenses, including the license providers, but the services are paid and the balances.
And.
It made available or express test for current and past provided management services.
And those centers that we have assessed and.
ASC 606 revenue recognition criteria those amounts are applied to the cash receivable that were created from that revenue recognition for centers that we've determined and have not yet quantified to revenue recognize revenues primarily those.
Due to limited operating data those payments are booked as a deposit contract liability. So the amounts are not as straightforward as discounting by 20%.
Okay. Thank you James the next question, we received it and.
Do you plan on renewing.
The express check leases that are and then the sooner.
Yes at this point, we're planning and having conversations with the landlords for our first round at least on explorations.
But in each instance, it'll depend on airport approval, but so far everyone has been very supportive of the service that we've offered and believe it.
And should continue.
Great. Thank you.
I got it and now over the weekend offering me and membership to treat is this the only way youre announcing a new express by business group.
No.
And asked our investors, we're part of and inside audience that were targeted with the first communication and.
As we are now and the pre heat phase of our soft launch.
Extending those emails going live with free social media channels, and putting up a landing page at treat care Dot com, we are starting a multi week phase of audience gathering so that when we launch.
And it isn't and with a base of zero people beginning in early June we will broaden our launch with a national digital AD campaign.
And in.
And in airport marketing campaign as well as the launch of our website and later on this summer.
<unk> III of the launch will rollout with a big earned media and press push.
On another campaign, driving app downloads and the launch of our mobile App soon.
Soon after the App our first on site location is targeted to open.
These phases have been planned to start audience building early.
And the summer as people start to plan their travel and fall travel and then staggers throughout the season as our technical or technology.
Pieces land.
Probably a longer answer than you wanted but that's the plan.
Thanks, Doug.
When do you think we will begin to see revenue from trade and will you be reporting it as a separate line items, how long can you run the business with no revenue.
We think the revenue will build each with each phase.
As one with the website launch phase II with the App launch phase III with our on site locations. So it will build we will be reporting it.
We will likely reported as its own segment at a certain point.
And then I think the last piece is how long can we run without revenue, while Fortunately express check is providing us.
Revenue that we can show on our P&L now.
As well as providing cash flow, which helps support this bridge to this additional concept.
Okay.
Okay, great. Thanks, Doug when you think you will make the final determination as to reopen the express balls or not.
Surely you do not plan on evolving every location and to treat.
The Cdc's new guidelines factor anything into your decision making process.
Yes, so any reopening of spas will be related to customer traffic and consumer confidence.
And we're watching that very closely hard to predict where that will land recent CDC guidelines will open up greater confidence and domestic travel, but as I mentioned earlier that is not where our core of our volume is coming from today, which is it's coming from international travelers and I spoke earlier.
As to why we think.
Sure.
And so the testing requirements will remain in place for the near future.
Great. Thank you.
Bob.
Expand and focus and other parts of the world other than the U S.
So our express portfolio, we do operate we have historically operated and the Netherlands and.
And and.
UAE.
And it's something that we'll continue to keep an eye on.
But the market needs to recover a little bit more like it does domestically and if we're looking at express check or treat frankly.
And frankly, there is a lot of business to be captured here domestically first with a much simpler regulatory environment.
But it is something that we hope over time to to address my part of my background.
And when I was at Starbucks coffee.
It was supporting 35 countries and Europe, Middle East, Russia and Africa.
So it is and environment I'm very familiar with I ever saw one of one of the businesses was the travel channel. So that's something I'd love to get back to at some point.
And with with any of these brands, but right now our focus is domestic here in the U S.
Great Thanks, and what we do.
And more flexible hours of operation at express.
I I addressed this a bit earlier.
During my Mic.
During this call.
We are now operating seven days, a week and all of them all of our existing locations.
We are setting the hours based on when the terminals are the busiest and.
And I know there were some that felt we should've been open seven days a week many months ago, but frankly, the weekends and once that busy and most airports.
They are busier now so we've expanded our operating hours and we continue on a site by site even terminal by terminal basis Watch this and then adjust accordingly.
Okay.
Great. Thank you.
If you believe so much and treat why now convert all fabs to treat.
Well, we have to evaluate real estate case by case, one it needs airport approval.
And.
And anything that happens and the airports due but frankly there are some sites that we do have some kiosks and our system and treat won't fit on a kiosk as an example express check won't fit on a kiosk. We also have some real estate tax.
At the head of a terminal where it's very accessible.
Travelers from multiple terminals summer at the very and the backend of the terminal and that may not create a good opportunity where maybe for a spot was fine but for.
Press check or treat it doesn't work so.
It requires a case by case analysis, we're going through our portfolio now and including US and some of our early discussions with some of our.
Airport partners.
But I don't expect 100% conversion and probably wouldn't make business sense anyway.
Yes.
Great. Thanks, Doug what will you do with the rest of the real estate, how many leases expire and the near term and what will you have to decide shortly on the Gulf power and pass it all these locations.
So as I mentioned before.
It's going to depend on traffic rates and consumer confidence that is returning.
But theyre all at different places semi parents. Some airports are granting lease extensions because of COVID-19 and some are working to re merchandise. So.
It requires a airport by airport almost terminal by terminal analysis and negotiation and our teams are.
Very very focused on that right now.
Great. Thanks, Doug.
It does expect to see the possibility for testing for stds.
Stds are on the list of potential services for treat I'm not sure if we will be launching with that service.
Have started with a range of convenience care services that we think will have the most demand.
And we want to launch with those and then we can add and other services.
And they're supplement our launch services or maybe replace ones that arent as active.
STD testing is on the board.
But I can't commit yet whether that'll be part of launch or or maybe after if at all.
Great. Thanks, Doug and is expressed by tapping into the CBD market at all.
Okay.
Yes, and no we tried it.
We did a pilot with express spa.
Before COVID-19 and.
And we had mixed results.
We're much more optimistic it was probably at the height of.
Peoples interest and.
And testing and trying out CBD products I'm not here to say, whether they work or they don't I know that they just didn't sell very well for us before.
It's not on our immediate launch plan for any of our brands and.
And.
But it doesn't mean it couldn't appear in the future also not every state allows.
BD to be sold anyway and theirs.
Even some airports that didn't support it when we did our pilot even though the state allowed it.
I'm not convinced it's a big opportunity.
Great. Thanks, Doug and how do you think treat will compare compete with airline lounges.
That's an interesting one.
I think.
To be more viable and and interesting alternatives than some of the airport lounges.
And frankly, when you have people still get to the airport typically with a lot of time, they don't want to be rushed, especially if you're someone anxiety when you travel.
To see more of that as people begin to travel.
<unk>.
On your options are you either go sit and eat and drink somewhere for a while before you get on a plane to Sydney and drink some more or less.
Less people might be doing that and.
And the future.
My conjecture, but you also or you can go shopping and that Hudson news or Chanel, and I can only spend so much time shopping and.
And I think a lot of other travelers are that way will big GAAP is wellness services or you sit in an airport lounge and waiting not at the gate and.
And tucked away a little bit with a salad bar with tongues and free drinks again. So again, that's that's great for some people, but there is this GAAP and alternative opportunities wellness treatments.
And other things will be offering.
And will be.
Very interesting and alternative to airport lounges, especially if you want to.
Go on to a private room, and basically run time for a various number of things.
Services will be offering.
Okay. Great. Thanks, Doug are you planning on doing a reverse stock split given where the shares are currently trading.
So just to be clear and I think most people are aware of this but in order to do a stock split or even reverse stock split we would need shareholder approval.
We have not determined if we will seek it on ex shareholder meeting and the date for that has not been determined yet.
So.
And.
Again anything that we do that require shareholder approval. We always get ahead of time and this is one of those questions at net requires shareholder authorization.
Thanks, Doug.
How much are two locations. The two locations that are being built going to cost where are they located.
And what we're in negotiations with two airports right now our drawings are being developed so I can't share the price yet.
Likely the first couple.
A little more and then you value engineers, you roll a concept out and you see what works and what doesn't work.
But I.
I don't have cost to share yet still.
And the negotiation phases.
Again, with the airports and getting quotes from <unk> and <unk>.
Finalizing the designs.
Great Thanks, Doug and.
And what express Bobby shy to start their own beverage.
But express Bob be shy to start their own beverage.
What I think has been asked and I know these are being submitted in writing is when we started our own beverage.
And generally airports have restrictions on certain items.
It's.
Not easy for us to come and open and add a lot of food and beverage there's other operators that get protected on those services.
And we may.
Have a private labeled.
Alkaline.
Bottled water with benefits.
And we'll see.
But I don't intend to put a lot of resources and developing a beverage line, especially if only.
And if some leases where our airports we'd be restricted from from doing it based on other food operators.
Okay great.
Okay.
And then is on.
It's expressed strictly.
Airport are you trying to branch out to water port testing.
Our water Port I'm guessing these are our seaports true.
Cruise line terminals ferry terminals.
Like airports on the water right.
Right now we are purely focus.
With our bread and butter and airports, we are very experienced airport operators.
And it's where we are.
And have our current relationships and frankly airports.
Many many more.
Customers are much more traffic than ferry terminals or even <unk>.
Cruise line terminals, so and.
And the early phases, we want to fish, where the most fish are.
But one of the important parts about the treat concept development as the digital footprint that were and that we're investing and.
We will have additional lines of revenue that will come in for travelers, whether they are flying or maybe taking a boat or driving somewhere.
But it will expand beyond literally the airports, where we have these locations with the tools and services that anyone can use.
Pretty much anywhere.
And that was.
That was our last and final question, Doug now turning it back to you for closing remarks.
Okay, well. Thank you very much for calling in and your continued interest and express spar group I Hope you are.
And as excited as our management team is on.
On continuing to to pivot again and grow our business and provide more sources and more lines of revenue.
Over this year and and as we look to 2022 and 2023. Thank you very much for your time and I will end here.
Ladies and gentlemen. This concludes today's conference you may disconnect. Your lines at this time. Thank you very much for your participation and have a great day.
Yes.
Okay.