Q3 2022 Xwell Inc Earnings Call

Greetings and welcome to expose third quarter 2022 earnings conference calls.

During todays presentation, all parties will be in a listen only mode.

Following the presentation. The conference will be open to questions that were received from investors via email.

As a reminder, this conference call is being recorded on Thursday November 10 2022.

I would like to turn the conference over to Omer Haynes entry.

Interim Chief financial Officer for XL.

Please go ahead Sir.

Good day everyone.

Welcome to our conference call to review <unk> third quarter 2022 operating results.

Joining me on today's call is Scott <unk>, Chief Executive Officer.

We have posted our third quarter earnings release.

That's the relations section of our website located at Www Dot <unk> Dot com.

A link to the webcast of today's conference call can also be found on our site.

Before turning the call over to Scott for his prepared remarks, we need to advise you of the following.

With me on today's call may contain forward looking statements.

Within the meaning of the private Securities Litigation Reform Act of 1995.

These forward looking statements are based on current assumptions and opinions that involved a variety of known and unknown risks and uncertainties.

Actual results may differ materially.

<unk> contained in or suggested by such forward looking statements.

Important factors that might.

Cause such differences include those set forth time to time in our SEC filings.

Our report on Form 10-K for the year ended December 31st 2021, as amended as well as other current and periodic reports that we filed with the SEC.

That said I would now like to turn the call over to Scott.

Yeah.

Thank you Omar.

Good afternoon, everyone. We appreciate you joining us today.

Since our second quarter earnings conference call, we've made considerable progress executing against our four key imperatives.

And more importantly, we continued laying the foundation to enter 2023.

A leaner business with a path to return to profitability.

As outlined on previous calls, we're rolling out our new retail strategy, enhancing our spa and wellness locations and adding new customers, while simultaneously reducing overhead costs.

Illustrating the progress we're making on our transformation efforts, we recently unveiled a new corporate identity and began trading under our new NASDAQ ticker symbol X W. E L for X well on October 25th.

The seamless evolution to export captures our emphasis on wellbeing and our commitment to being a leading authority in delivering innovative wellness solutions for people on the go.

Supporting our efforts, we just opened a new treat location and concourse B at Salt Lake City Airport in Utah.

This opening reaffirms <unk> commitment to the company's transformation and focus on evolving our existing brands to include more desirable services and products.

Aimed at capturing more customers.

Taking a closer look at our existing brands.

Our spa business continues to improve as we staff up to meet continued demand.

Our wellness footprint currently includes 20 spas in the United States and eight internationally.

We're also growing in advance of the holiday travel season.

We reopened three express spa locations during the third quarter and we're expanding internationally.

This includes the launch of five New express spas in Istanbul, Turkey three.

Three of which are already open with two more expected to open by year end.

I was one of the largest and fastest growing airports in Europe .

<unk> is an ideal location for us to extend our international presence.

Regarding 2023 growth we plan to open our 12 international location at Abu Dhabi International Airport in the first quarter of 2023.

Third.

Over the next 18 to 24 months, we will continue to explore opportunities for expansion overseas as we believe the unit economics and appeal of our retail offering in the U S.

Create a significant opportunity for growth.

Supporting our position as a leading authority in the health and wellness industry.

We're refining our airport retail ecosystem.

To attract more customers and drive revenue.

This included integrating our treat an spa businesses into a unified offering.

As well as rolling out new enhancements focused on driving customer engagement and broader differentiation.

With almost a year of collecting and analyzing quantitative and qualitative data on our first street location in New York.

We are in the process of positioning the treat business as the premium wellness provider that is a complementary extension.

Our core spine business.

I'm also excited to share that.

The quarter X will made substantial progress building a completely new retail business.

Initially.

We piloted our new retail strategy at our treat locations.

And after realizing substantial growth in retail sales, we began rolling out new products to our express spa locations.

New retail products began hitting ourselves in August .

Ranging from individual traveler wellness items more comprehensive traveler kits designed to Holistically address a wider set of travel specific needs.

As part of our reinvention of retail we introduced products online through our treat dotcom retail platform.

And continue to leverage our expertise and technology to meet consumer demand as well as achieve our aggressive retail revenue goals.

First in September we rolled out an expanded line of products dedicated to women's health category, where we see significant opportunity.

This includes personal hygiene pregnancy prevention reproductive health first aid and additional wellness products.

It's important to note that revenue from retail sales has historically accounted for approximately 17% of our total revenue.

We're very encouraged by the positive momentum we have.

<unk> achieved to date from our new retail offerings.

Illustrating the meaningful role retail can have on our top line.

For the 2023 first quarter, we expect to grow retail revenues by approximately 15% to 25% sequentially.

Baird.

Focused on providing an incredible seamless customer experience, we're integrating new technologies into select spa locations.

For example, we recently announced plans to introduce fully autonomous Express Manicures into select express Spa wellness centers through a new partnership with Clockwork.

As we refreshed our spa offering.

Use of innovative technology is a key strategy that we intend to leverage further.

As it not only complements our existing services.

But also allows us to more efficiently manage their labor and demand in our wellness locations.

We're in the final phase of deploying new therapeutic massage and muscle recovery services provided to high Tech autonomous chairs.

We're also incorporating VR technology and content to create a completely new and therapeutic experience for travelers.

In addition to enhancing the experience to attract more customers and incremental sales.

We're also rolling out a new loyalty program under our parent ex wall moniker.

This offering will work across all of our brands, providing repeat users with retail discounts and free services based on us.

Taken together, we believe these steps will help drive operational excellence by increasing brand visibility.

Augmenting foot traffic and interest.

Which will in turn drive future revenue growth and margin.

I'd now like to update you on the progress, we're making to grow our business outside of the airport.

This past September we retained the services of benchmark a top ranked M&A advisor to help us identify potential acquisition targets.

Our intent is to acquire a company that will accelerate our ambition to diversify and grow our revenue base as well as drive long term customer demand.

Our thoughtful approach to acquisitions is focused on identifying complementary profit generating businesses with solid growth potential that will advance X wells off airport strategy.

While we cannot provide any assurance that a transaction will be consummated.

Absolutely believe <unk> remains well positioned to accelerate our growth by pursuing value accretive opportunities.

Regarding our fourth key imperatives.

We've been embracing a lean and agile approach to our business and optimizing our available capital to achieve our goal of reaching sustainable profitability.

As discussed last quarter, we identified meaningful potential savings that we believe could be eliminated from the business without compromising our other strategy.

The work required to achieve the savings began in earnest during the third quarter, enabling us to remove approximately $1 million from our cost structure in the quarter.

Although we experienced some delays in being able to close unprofitable express check units.

Those hurdles have been cleared and we expect to accelerate our savings in Q4, allowing.

Allowing us to shed additional costs from the system, which we expect will accelerate our path towards profitability.

Specifically.

During the quarter, we closed five unprofitable express check locations and expect to close another seven during Q4.

This will leave us with two remaining express check locations.

And five bio surveillance station, serving the express check business.

The decision to close these unprofitable locations simplifies and Optimizes, our operating model for speed and growth, while still enabling us to efficiently evolve express check into a full service bio surveillance business, serving our partnership with Ginkgo and CDC.

Financially speaking during the third quarter, we recognized $1 $8 million of revenue under our bio surveillance partnership.

As announced in August the new two year contract received initial funding of approximately $16 million and the total contract value has the potential to reach approximately $61 million.

We're excited to be able to continue to evolve our express check segment to serve the traveler based genomic sequencing program.

And look forward to seeing it expand with additional surveillance efforts in order to combat potential threats.

Further illustrate this ongoing effort, we continue to work with airlines to collect test and sequence wastewater samples from selected international flights.

On a tour for pathogens, including COVID-19, and also others.

The program and collection methodology is one of the first of its kind globally.

It will allow for passive monitoring of samples from international flights in order to continue to be prepared now and for any future pandemics.

And our recent pilot program to test arriving passengers for flu pathogens further demonstrates the potential application of this program the combat pathogens coming into the country.

Before I pass the call back over to Omar to review our specific financial results.

I want to reiterate my opening comment regarding our plan to emerge as a leaner and profitable company.

We've taken measured steps so far this year to not only remove costs from our business without interrupting the operations.

But also build the necessary foundation to grow revenue.

Executing our retail strategy improving unit economics in our spas reshaping the approach of our treat business.

And growing our international business.

We are confident these measures.

And our continued focus on revenue optimization will result in a profitable business as we come out of our historically slower travel period in Q1.

And realize the full benefits of our efforts during the remainder of 2023.

I'll now turn the call over to Omar for an update on our financial results for the quarter. Thank.

Thank you Scott.

I'm now going to provide.

A brief synopsis of our third quarter results.

In the third quarter total revenue was $10 7 million compared to $26 8 million in the prior year third quarter.

This decline is primarily driven by softening in demand at our express check testing facilities.

Q3, 2022 revenue primarily consists of $4 million in revenue from reopened expressed by location as well as our treat locations.

<unk> 7 million in revenue related to our acquisition of hyper point earlier this year.

$1 8 million in revenue from our <unk> partnership and $4 3 million from our express check locations.

Turning to expenses.

Our total cost of sales decreased to $9 3 million from $13 7 million in the prior year third quarter.

We'll factor leading to this decline was the closure of underperforming express check locations.

As we've discussed on prior calls the cost of testing kits and location level labor costs remained the largest factors.

And our cost of sales.

Switching to general and administrative.

These expenses totaled $6 4 million compared to $5 2 million for the year prior comparable period.

The $1 $2 million variance was primarily due to certain nonrecurring credits.

Were recorded in Q3 2021.

We reported an operating loss in the quarter of $7 6 million compared to an operating profit of $7 1 million in the prior year third quarter.

Our net loss attributable to common shareholders for Q3 was $7 2 million compared to net income of $5 6 million in the prior year third quarter.

As Scott with Scott.

It is important to note that we continue to strategically invest in our third and our long term.

Growth initiatives.

Currently.

On the capital management front, we have successfully remove approximately $1 million in costs from our system and began to see the benefits of those initiatives in the late third quarter.

Scott also mentioned, we have begun shuttering unprofitable express check location.

Will yield further savings in the fourth quarter of this year.

With respect to our GAAP financial our liquidity remains strong with cash and cash equivalents totaling.

<unk> $49 4 million working capital of $44 2 million and no long term debt.

I will now provide an update regarding our stock buyback program.

Year to date, we have purchased approximately $19 5 million shares outside of blackout periods.

As of November nine approximately <unk> 8 million shares remain available under the 25 million share repurchase program that was announced on August 31, 2021, and subsequently increase on May 22022.

On a non-GAAP basis, adjusted EBITDA was minus $4 5 million compared to adjusted EBITDA of $8.7 million in the prior year third quarter.

We define adjusted EBITDA as earnings before interest taxes, depreciation and amortization expense.

Adjusted for stock based compensation and impairment.

Yes.

We consider adjusted EBITDA to be an important indicator, but please understand that it does not.

Contained transactions not related to our core cash operating activities.

We also furnished in the earnings release metrics with respect to patient testing along with the percentages.

They are opting for rapid testing.

This concludes our financial review.

Let's open the call up for questions.

Thanks Omar.

Scott and.

An investor pointed out new language on the website about how ex wells brands are conveniently located around the world.

Our soon to be in local communities as well they were hoping you could share some insight regarding us.

Thanks, Joe absolutely.

Our expansion into local communities as part of our overall strategy to expand outside the airport.

Something I've discussed during prior earnings call and strategically I believe extending our innovative wellness presence outside of the airport is a natural extension for our brands.

The question is wet.

We're still laying the groundwork to be able to do this effectively.

Off airport is very appealing to us and I also think it's appealing to our customers.

And as the right opportunity presents itself, we plan to make a strategic acquisition or make an investment in an off airport health and wellness business.

Thanks Scott.

Speaking of acquisitions.

We have a question regarding the M&A agreement with benchmark.

I don't know if you're willing to talk about timing on that.

But there is interest from investors and hearing more.

Sure as.

As I mentioned earlier.

In September we engage benchmark to help us identify potential new acquisition opportunities.

We've maintained that growth by acquisitions is something that we fully tend to take advantage of and we're actively focused on it.

As of today I don't have any definitive agreement in place.

So I'm not able to comment on anything specific regarding timing, we are looking at 3% to four potential opportunities, but I can't really speak to those opportunities just yet.

Can't say that acquisitions are a core component of our overall growth strategy and growth outside the airport is key to that.

Thanks Scott.

We have an email asking if you could comment on plans to increase ex wells global reach.

Sure.

For those of you that might be new to our story.

Our health and wellness wellness brands operate outside the U S in Dubai, the Netherlands and of course now is bull as I mentioned earlier.

We've been expanding our addressable markets and our international customer base for some time.

Last month, we opened two express spa locations in Istanbul, and I was fortunate enough.

To be able to attend those openings. We just opened our third location in that same airport today.

Opening two more locations in that airport before the end of the year.

We believe there is opportunity for additional growth in that large airport, but also additional growth potentially in assembles original airport.

And we're taking that momentum into the new year with the planned opening of our 12 international location as I referenced in Abu Dhabi International Airport.

I think further out we're considering other overseas markets and continuing to leverage our existing footprint.

I think our innovative wellness service offerings resonate with international travelers and our continued international growth is not only realistic, but a tangible opportunity for us.

Great. Thanks for that Scott.

Omar sure we have a question on labor.

Can you comment on staffing trends and if your locations are seeing any challenges with hiring.

Sure as you know, it's no surprise that the labor market in general continues to be challenging.

Especially for airports that were hit hard by the pandemic.

To further add complexity, we are staffing for licensed professionals.

Who have you know.

Pick their environments to work then fortunately.

We have refined our recruiting tactics and have made some considerable inroads towards being fully staffed for example, we've added incentives and programs to retain and incentivize our staff like retail sales targets and other Goldman Sachs.

We have also dedicated resources to training our team members to upsell.

It's not only in line with our growth objectives, but increases the earning potential in lieu of other opportunity that they may have.

Staffing and training.

We will continue to be a focus for our business.

We complete 2022 and move into 2023.

Great. Thanks Omar.

Scott we have a question regarding your reduction of expenses.

Investor was hoping you could share some thoughts into how these actions will get you to profitability quicker than before.

Sure.

The team has worked very hard on this.

The balance of the year and although we didn't see the results we expected in Q3, which were due in large part to delays in our ability to close unprofitable express check locations, where the cost of labor is significant we're pleased with the plan that we have in place and we're very confident.

The savings we identified will accelerate as we materialize not only for closures, but related infrastructure cuts and refinement to our spot economics.

As mentioned.

Our plan reduces over $1 billion, a month from our cost structure without compromising the growth of our wellness brands and investing in marketing. So that we can continue to connect and grow our customer base.

I expect as these cuts further materialize, we'll actually see an acceleration in our path towards profitability.

Thanks Scott.

Next we have a housekeeping question asking how they should think of your express check footprint going forward.

That's a great question.

Looking back beginning just over two and a half years now.

This company met the COVID-19 pandemic head on.

Implementing health and wellness screening testing through our express check locations and also helping to build the nation's first bio surveillance capability, which is now fully in place.

Based on how we see testing evolving globally.

We've begun shuttering unprofitable express check locations as I mentioned.

We realized that Thats a shift for some of you but.

It's the right short and long term economic decision.

We'll enter 2023 with two check locations and five bio surveillance locations, serving the express check business.

Keep in mind, though that we firmly believe our strong bias survey safety program is critical to the control of COVID-19.

Another potential viruses and.

And as demonstrated by our partnership X well is focused on supporting the invaluable national effort.

The landscape changes again, we can certainly come back and update our approach and our existing locations are available to pivot back into that.

Great Thanks for that.

Directionally.

Are you able to make any comments in terms of growth next year.

Yeah. Thanks for the question.

We believe there is a lot of opportunity for attractive growth.

First.

As I've said before we need to refresh our existing core spa locations to attract more customers into our ecosystem and grow the profitability of our existing business that is first and foremost paramount.

I've already discussed our growth internationally and our emphasis on international growth going forward.

To reiterate we.

Continue to have plans to grow through potential acquisitions as evidenced by our agreement with benchmark.

And also disc.

Discuss plans to grow our customer base through our enhanced retail.

That coupled with how we are evolving express check into a full service bio surveillance business.

Encourages me to see solid momentum in the area in these areas.

And we're confident in our long term strategy.

We're optimistic about finishing the year strong and in a good place to accelerate our path towards profitability.

Theres still more work to do.

Clearly, we're entering 2023 as a leaner more profitable business and I'm excited about the path ahead.

The fastest way for us grow our overall business.

Is to ensure we create a sustainably profitable core business and use that to expand our brand globally.

On future earnings calls I think investors are going to want to hear more about how we are delivering operationally to drive revenue.

Maintaining a disciplined and efficient cost basis, and how we're progressing on our path towards profitability.

I'm going to ask you to stay tuned and I look forward to sharing that progress with each and every one of you in future earnings calls.

Thank you.

Ladies and gentlemen. This concludes today's conference you may disconnect your lines at this time.

Thank you for your participation.

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