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XpresSpa Group, Inc. (NASDAQ: XSPA) Q1 2022 earnings name dated Might. 16, 2022
Name individuals:
James Berry — Chief Monetary Officer
Scott Milford — President and Chief Govt Officer
Raphael Gross — Investor Relations, ICR
Presentation:
Operator
Greetings, and welcome to the XpresSpa Group First Quarter 2022 Earnings Convention Name. [Operator Instructions] As a reminder, this convention is being recorded Monday, Might 16, 2022.
I might now like to show the convention over to James Berry, Chief Monetary Officer. Please go forward.
James Berry — Chief Monetary Officer
Good afternoon. Thanks for becoming a member of us at this time and in your curiosity in XpresSpa Group.
Earlier than our CEO, Scott Milford, provides his ready remarks, and I evaluation first quarter 2022 monetary outcomes, I must advise you of the next. Feedback made on at this time’s name might comprise forward-looking statements throughout the that means of the Non-public Securities Litigation Reform Act of 1995. These forward-looking statements are primarily based on present assumptions and opinions that contain a revised number of recognized and unknown dangers and uncertainties. Precise outcomes might differ materially from these contained in or recommended by such forward-looking statements. Vital elements that may trigger such variations, embody these set forth on occasion in our SEC filings, together with our report on Kind 10-Okay for the yr ended December 31, 2021, in addition to different present and periodic experiences that we file with the SEC.
I might now like to show the decision over to Scott.
Scott Milford — President and Chief Govt Officer
Thanks, James, and good day, everybody. We recognize you all becoming a member of us this afternoon. Since taking up as CEO in late January, my group and I’ve been laying the inspiration for our future by growing a set of strategic imperatives to speed up our Firm’s evolution in order that we are able to turn into a number one well being and wellness supplier for folks on the go.
At present, my intention is to stroll you thru our first quarter efficiency and the progress we now have made on the 4 enterprise transformation methods I laid out on our final earnings name. As we execute these methods, we’re grateful to have obtainable capital to allow us to regulate the tempo of our work in mild of fixing market situations for our enterprise, whilst we proceed repurchasing our undervalued inventory via our buyback program. After all, it’s necessary for everybody to remember that as a public firm, we are able to repurchase our inventory throughout sure restricted open window intervals. Through the first quarter, we repurchased 7.1 million shares in the course of the obtainable open window interval, and we’ll proceed to repurchase shares as the chance arises.
To assist set the stage for our dialogue at this time, I’d like to start sharing our first quarter’s efficiency. We generated consolidated income of $24 million and adjusted EBITDA of $0.4 million. Our quarter finish money steadiness was $83 million, and we now have no long-term debt.
I additionally wish to name out that whereas the quarterly decline in total airport testing relative to final yr was not stunning as the primary quarter is often the weakest quarter by way of airport site visitors. We did see a lower that was quicker and extra important than we had deliberate as international locations have moved to considerably relaxed their testing necessities. We additional see this lowering pattern via April and Might for a similar causes.
No matter the truth that we’re seeing a rest in testing necessities, COVID nonetheless posed as a threat, each right here and overseas. Our relationship with the CDC stays sturdy, and we proceed to assist their efforts to construct a sturdy biosafety program via the gathering of take a look at samples from worldwide vacationers arriving within the U.S. Our intention has been and can proceed to be to assist hold COVID underneath management and to assist put together for a possible new menace.
In April, as a part of the CDC’s traveler-based surveillance program and along with our associate, Concentric by Ginkgo, we collected, recognized and sequenced one of many first samples containing the novel BA.4 sublineage of the Omicron variant, and we delivered it to the CDC’s lab. This sequence represented one of many first of the brand new Omicron sublineages that was recognized in the USA. We’re thrilled that our biosurveillance program continues to play a pivotal position in detecting new variants coming into the nation, additional highlighting the significance of testing. And whereas testing has been a spotlight of ours since our enterprise pivot in 2020, our efforts previously quarter have expanded to incorporate bettering the profitability of our legacy spa enterprise and the long-term profitability of the Deal with model as COVID strikes from pandemic to endemic. All of those modifications are made doable by the capital we now have obtainable to speed up our efforts. We proceed to reopen our spas, rehire employees and resume operations, whereas figuring out methods wherein we are able to enhance unit economics, which I’ll replace everybody on in a second.
We’ve opened two Deal with places and are making ready for a 3rd later this summer time. We’re busy placing our consideration on long-term development. We can’t ignore {that a} major driver of our forecasted income for 2022 has been impacted by the continued swift rest of testing necessities abroad. On account of this, we anticipate revenues to be decrease than we initially forecasted and we’ll not be delivering extra particular steerage at the moment.
I acknowledge the anticipated change in income just isn’t what any of us needs. Nevertheless, we had anticipated the eventual leveling off of testing and are already actively engaged in deploying methods that we imagine will assist to safe our development sooner or later. As I acknowledged in our final earnings name, the work my group and I are doing now will assist construct a sustainable development engine for our enterprise sooner or later.
And now, I’d prefer to shift gears and speak about what we’re setting up to assist us obtain this long-term purpose. Our first strategic crucial is organizing our enterprise for development. As a administration group, we’re aggressively figuring out areas of financial savings inside our present enterprise to make sure we are able to successfully meet the altering working panorama. We’re wanting throughout XpresSpa Group and asking ourselves these questions. Does this drive income in alignment with our imaginative and prescient? Will it work for or assist the mixing of any companies we purchase or associate with? Will it develop our current in airport enterprise? Or will it assist us develop our out-of-airport enterprise?
As an alternative of supporting three distinct manufacturers, Deal with, XpresCheck and XpresSpa, we’re integrating them extra holistically in order that we are able to leverage issues like our affected person scheduler, for instance, in a way more environment friendly manner. This contains investments we’re making within the course of of creating to construct an environment friendly provide chain that serves our manufacturers collectively, hiring key leaders with expertise in model and gross sales constructing, similar to our new Chief Advertising Officer, Pablo Henderson [Phonetic], who will be part of us shortly, and additional investments we’re making in know-how to streamline infrastructure that’s presently largely handbook and value ineffective.
Our second crucial is rising income by rising our airport enterprise. These efforts are targeted on constructing on our wellness enterprise by increasing providers and bettering our retail providing. We’re presently targeted on aggressively rebuilding our retail functionality to supply extra related merchandise to customers throughout our manufacturers. As we talked about final quarter, we’re testing touchless providers in our XpresSpas to drive further gross sales and save on labor prices. We’re additionally wanting so as to add well being and wellness providers to pick XpresSpas to drive income. This will embody merchandise from our Deal with model, like hydration therapies and vitamin outlets. However we’re additionally taking a look at including different extra profitable aesthetic providers like Botox and facials.
We proceed to evaluation our current portfolio of airport places and are making the tough selections required to completely shut current shops that will not serve our long-term technique, whereas figuring out new airport places, in addition to acquisitions of different spas to develop our footprint. Notably, this airport enlargement effort extends past the U.S. market as we’re additionally specializing in growing our worldwide portfolio with current companions. Our overarching purpose right here is to maximise the income potential of our spa enterprise via higher-margin providers and a stronger retail providing, which I’ll elaborate on in only a minute, lowering prices the place we are able to by closing suboptimal spas and buying higher places for brand spanking new spas that may construct income for us sooner or later.
Our third strategic crucial is rising income with a stronger retail presence. We lately employed a seasoned retail development skilled to assist us rebuild our retail enterprise, each on-line and in-store. Our in-store retail providing will likely be extra related to the providers we provide and supply alternative for add-on gross sales to develop common basket worth. We’re growing bundled merchandise in a kit-like format which can be tailor-made to vacationers and serve a wide range of well being and wellness wants and are planning to start deployment in the course of the busy summer time journey season. Traditionally, our retail technique has not been a core energy of our enterprise regardless of getting access to hundreds of thousands of potential patrons in our airport. And slightly than focus our efforts on promoting higher-margin merchandise with a decrease labor value, we relied on pushing greater value providers within the hopes of driving extra income. We imagine we are able to reinvent our retail providing and add new and artistic providers that appeal to customers with out including considerably extra prices to our labor mannequin.
Our fourth strategic crucial is increasing out-of-airport income. This will likely be the place we put a great deal of our power via the steadiness of 2022 and into subsequent yr. We imagine to ensure that us to develop, we should put our capital to work via acquisitions. So whereas we might think about opportunistic acquisitions throughout the airport, our want is to increase outdoors the airport. We imagine an out-of-airport technique permits us to scale our development quicker with fewer constraints. We are actually within the technique of figuring out a banking associate and have already begun discussions with potential corporations that, we imagine, could also be accretive to our enterprise.
Our effort to develop the Deal with model additionally has helped gasoline our B2B enterprise outdoors of the airport. We now have an built-in set of services that we are able to promote to companies seeking to offset the rising value of healthcare, whereas providing a horny profit to corporations that may assist them retain labor. We can even focus this effort with our current authorities relationships with a view to maximize that potential.
My group and I are dedicated to delivering on these strategic imperatives, and I’ll proceed to report on our progress as we obtain key milestones in our evolution. I’m very lucky to work with such a devoted group of leaders within the pursuit of development. And I wish to thank the onerous work and dedication of our assist and area groups, who, each day, ship on our imaginative and prescient to remodel take care of folks on the go.
And now, let me share a enterprise replace on present operations, starting with XpresCheck. We have now 15 places throughout 12 airports, and we’ll proceed to evaluation the portfolio of places and modify based on the wants and necessities of the market and CDC. As testing numbers decline, we’ll have a look at methods to optimize prices related to working our XpresCheck enterprise. This will embody closing some places. We’re figuring out extra inventive methods to proceed to ship essential testing in a less expensive method. We are going to report extra particular particulars about these efforts sooner or later.
To reiterate, COVID-19 remains to be with us, which is why we proceed to assist develop a biosurveillance effort with the CDC at 4 of our main airports via a $5.6 million contract that includes pool testing in over 20 international locations, and we proceed to work with the CDC to establish different at-risk international locations. We acknowledged $1.6 million in income within the fourth quarter final yr and $1.4 million within the first quarter this yr, with the rest being recorded within the second quarter. We imagine this contract is demonstrative of the arrogance that they’ve positioned in us and are hopeful that it’ll result in renewal within the close to time period and that it’ll result in an enlargement of this system with a purpose of getting a steady biosurveillance program deployed within the U.S.
Turning now to our current airport spa enterprise. We presently have 19 spas working domestically, together with two franchise places, and we’ll have at the very least 23 of our spa places reopened over the summer time to benefit from that necessary journey season. Efficiency continues to enhance. Consequently, we’re slowly returning to pre-pandemic scheduling. And whereas gross sales volumes had been about 50% of pre-pandemic ranges earlier, we’re beginning to see a rebound. We are going to proceed to observe gross sales by hour and optimize the place we’re ready to make sure productiveness and income are maximized. We’re seeing renewed curiosity in wellness providers amongst vacationers, together with a willingness to spend further {dollars} on services that may enhance their total well-being whereas they journey. We proceed to judge touchless providers similar to mild remedy, [Indecipherable] and digital actuality goggles, which we started including to our spas late final yr. We anticipate so as to add extra of these kinds of on-trend providers along with new retail, which is able to drive extra gross sales in our shops.
Internationally, there are additionally six XpresSpa places presently working. These include three in Dubai Worldwide Airport; and three in Schiphol Amsterdam Airport. Nevertheless, we even have 5 XpresSpa places that will likely be opening at Istanbul Airport with the primary to open later this summer time. These latest XpresSpas are all designed to enhance a traveler’s peace of thoughts and well-being at this main airport hub. We imagine worldwide enlargement is a crucial a part of our continued development as margins are usually greater, value of operations usually decrease. These elements, coupled with a extra refined worldwide traveler, who’s prepared to expertise new applied sciences and spend extra on wellness, will serve our development efforts sooner or later.
As you realize, our third enterprise model, Deal with, opened its first unit in JFK Airport in December 2021. Designed for folks on the go, on the lookout for a one-stop journey well being and wellness resolution via a set of built-in providers, the JFK location has acquired constructive suggestions from clients. We’re seeing continued curiosity in our vitamin IVs, our B12 and C injections and in our retail choices. As we proceed to judge this enterprise, we’re already making changes to our choices with the purpose of including a few of our extra profitable spa providers into the Deal with menu and are in discussions so as to add aesthetic providers as effectively, additional leveraging that house with higher-margin merchandise. In April, we opened a second brick and mortar location, this time in Phoenix Sky Harbor Airport. We anticipate to introduce a number of the learnings we now have from JFK into the Phoenix Deal with location to additional enhance that enterprise.
Our third Deal with location will open in Salt Lake Metropolis, submit safety in a former XpresSpa location. It’s our first location worth engineered from our authentic design at about half the price of JFK. As a result of it has a extra open ground plan, we are able to present a few of our extra well-liked spa providers, in addition to supply well being and wellness providers in the identical room, offering a higher alternative to satisfy journey demand. It’s going to additionally supply a higher assortment of retail merchandise. This may probably be our default design going ahead, since it’s extra inviting to passersby, as they are going to be capable of see extra retail and extra exercise to catch any person’s eyes. We are going to proceed to judge the Deal with mannequin as we evolve the product and repair choices in our present places. We can even use the chance to align spa providers with a number of the extra well-liked Deal with choices to additional combine our new and legacy companies underneath a unified menu.
As we mentioned earlier than, we anticipate to see a modest income contribution from Deal with this yr, however view an built-in product and repair technique as a midterm play with long-term worth creation. It’s because an built-in wellness providing extends our well being and wellness management place in journey, providing a number of income channels outdoors of simply working contained in the airports. This built-in product technique that we provide in our Deal with places will function a foundation for our B2B providing outdoors the airport.
Lastly, recall that in January, we acquired HyperPointe, a number one digital healthcare and information analytics relationship advertising and marketing company, servicing the worldwide healthcare and pharmaceutical business. Below the management of Ezra Ernst, HyperPointe will proceed to play an necessary position in our ongoing biosafety technique. Moreover, we’re starting to search for methods to additional combine our two organizations to optimize our enterprise for development. Through the first quarter, HyperPointe contributed $523,000 to complete income of the XpresSpa Group.
Earlier than I flip the decision over to James, let me reiterate that our plan is to increase our providers and merchandise each out and in of airports, whereas pursuing accretive acquisitions and different strategic transactions to additional broaden our providing. If we’re in a position to understand this imaginative and prescient and we’re working onerous on daily basis to take action, we can improve worth for all XpresSpa stakeholders. And at any time when doable, we’ll repurchase shares underneath our authorization. We’re doing this as a result of we imagine there’s a disconnect between the inventory’s present worth and its intrinsic worth. Once more, we aren’t all the time ready to behave even when the inventory worth declines as a result of we’re topic to blackout intervals.
With that, I’ll flip it over to James, excuse me.
James Berry — Chief Monetary Officer
Thanks, Scott. I’m going to offer a quick synopsis on our first quarter outcomes, however please discuss with the 10-Q that we filed this afternoon for higher particulars. Income rose to $24 million within the first quarter of 2022 in comparison with $8.5 million within the prior yr first quarter. The rise was primarily because of the recognition of revenues from XpresCheck places, though we additionally generated $2.6 million in income from our reopened XpresSpa location and $0.5 million associated to the HyperPointe enterprise we acquired early within the quarter.
Value of gross sales elevated to $15 million from $4.2 million within the prior yr first quarter. The rise was primarily resulting from greater prices to function the XpresCheck places and the reopening of sure XpresSpa places that had been briefly closed in the course of the first quarter of 2021. Word that the biggest element in the price of gross sales are value of testing kits and labor prices on the location stage.
Normal and administrative bills had been $10.2 million in comparison with $4.5 million for the yr in the past comparable interval. The rise was associated primarily because of the useful prices related to the operations of XpresCheck and Deal with wellness facilities, XpresSpa places and the newly acquired HyperPointe section.
We reported an working loss within the quarter of $2.5 million in comparison with an working lack of $0.9 million within the prior yr first quarter. We generated web loss attributable to frequent shareholders for the quarter of $4.3 million in comparison with $1.1 million within the prior yr first quarter.
Lastly, with respect to our GAAP financials, our liquidity stays stable with money and money equivalents totaling $83 million, and we now have no long-term debt. Working money move additionally improved to minus $1.8 million from minus $3.5 million, and we deployed $11.1 million for share repurchases. Through the first quarter, we repurchased 7.1 million shares outdoors of blackout intervals. As of Might 16, 2022, 3.2 million shares stay obtainable underneath the $15 million share repurchase program introduced on August 31, 2021. Given the present share worth, which we view as considerably undervalued, we intend to be lively in the course of the subsequent open window interval.
On a non-GAAP foundation, adjusted EBITDA was $0.4 million in comparison with adjusted EBITDA of $0.9 million within the prior yr first quarter. We outline adjusted EBITDA as earnings earlier than curiosity, taxes, depreciation and amortization expense and adjusted for stock-based compensation and impairment disposal of property. We think about adjusted EBITDA to be an necessary indicator, however please perceive that it does exclude sure transactions not associated to our core money working actions. We additionally furnished within the earnings launch metrics with respect to affected person testing, together with the chances which can be choosing speedy and speedy PCR assessments.
Lastly, as Scott referenced, we anticipate revenues to be decrease than we initially forecasted.
Thanks in your time this afternoon. I’ll now flip the decision over to Investor Relations to ask questions from our retail shareholders, who’re invited to submit questions forward of at this time’s name.
Questions and Solutions:
Raphael Gross — Investor Relations, ICR
Thanks, James. The primary query is as follows. When will you be altering the Firm identify and ticker to one thing extra related to the place you might be headed?
Scott Milford — President and Chief Govt Officer
Thanks for that query. I’m actually excited to have the ability to share that we’ve kicked off work already to begin a rebranding train. We have now recognized an company and are already effectively underway. As soon as we rent Pablo and he joins us on Might 31, this will likely be certainly one of his first priorities to have him lead this train for us in order that we are able to finalize it and conclude it.
Raphael Gross — Investor Relations, ICR
Nice. Subsequent query is about money. You’ve earned a variety of money in comparison with the fourth quarter of final yr, and your core enterprise is deteriorating. Do you have to actually be taking a look at acquisitions at this cut-off date?
Scott Milford — President and Chief Govt Officer
Let me say that we completely imagine that development via acquisition is the suitable path for us to realize longer-term income and profitability. To make sure that we’re optimizing the money we do have readily available, we’re going to proceed reducing prices all through the group and ensuring that our sources that, we imagine, we have to drive probably the most alternative for accretive income era are firmly in place.
Raphael Gross — Investor Relations, ICR
Okay. Subsequent query is about evolving your current enterprise from XpresCheck into Deal with. Are you not assured sufficient in Deal with that you have to look elsewhere for income? I’m assuming meaning via acquisitions.
Scott Milford — President and Chief Govt Officer
Yeah. So we really assume we are able to do each on the identical time. I feel it’s necessary to notice with our XpresCheck leases, they had been created at a time and with particular limits on the sorts of providers that we might supply, so we might not be capable of embody built-in providers at each XpresCheck location. So, on account of that, I feel we’re going to offer further providers and reinvented retail the place we are able to and work with airports to see if we are able to increase these providers on the identical time, whereas we additionally look outdoors of the airport to increase our enterprise.
Raphael Gross — Investor Relations, ICR
A query on the CDC. When do you anticipate to listen to from them on renewing the present contract, which expires shortly? And as of now, are you going to cease the biosurveillance work on the finish of June when the contract ends?
Scott Milford — President and Chief Govt Officer
We anticipate to listen to about this at any time, that’s the intention. And we’re going to proceed to refine schedules, stretch obtainable labor {dollars}, in addition to even lowering the variety of flights that we’re screening. So, previously, the place we might have screened 5 – 6 flights coming in from India, we might scale back that down to 2, nonetheless permitting us to pool take a look at, however stretching that obtainable labor out sufficient and lengthy sufficient in order that we are able to safe hopefully the renewal of the contract.
Raphael Gross — Investor Relations, ICR
Subsequent query, are you contemplating a reverse inventory break up? And if that’s the case, do you want shareholder approval? How involved are you about getting a discover for delisting?
Scott Milford — President and Chief Govt Officer
We’re very delicate to the inventory worth proper now. And my group and I are targeted on delivering methods that we’ve outlined in our earlier feedback that we imagine will drive shareholder worth long-term. We obtained little or no credit score for the outcomes that we’ve delivered over the past yr, however we’re assured that the methods that we’re growing now and deploying now will reverse the present pattern and assist drive long-term worth on our inventory worth.
Raphael Gross — Investor Relations, ICR
Okay. What number of XpresSpas are usually not presently open? And what do you intend to do with them? Why would you be buying different non-XpresSpa airport spas when you’ve gotten your personal airport places which can be sitting dormant? Is it due to higher actual property? Why can’t you simply take over the true property with out having to accumulate something?
Scott Milford — President and Chief Govt Officer
Okay. That’s a giant query. So let me see if I can reply it altogether. So we presently have 11 spas which can be in numerous levels of decision-making round doable closure. A few of these we might reopen. Others are both poor website places or require very excessive value to function. And so, we’re utilizing this chance now to make robust selections to cut back our publicity later. The pandemic affected plenty of companies, together with a few of our rivals who might not have the monetary means to have stayed closed and now they may be on the lookout for methods to exit. We’re going to be opportunistic in these cases. If it permits us to enter a brand new airport or enhance our airport places, we’re going to benefit from that, and we’ll discover a number of paths to extend our footprint and hold value of entry down.
Raphael Gross — Investor Relations, ICR
Okay. How a lot of the Deal with income is definitely COVID testing versus different providers at this level? And in addition, are you making any cash from the digital element of Deal with? Or is that this actually going to be a retail play versus a digital play by way of Deal with?
Scott Milford — President and Chief Govt Officer
So I’m going to reply the latter a part of the query first. We totally anticipate to leverage each retail and digital within the Deal with model. We’re within the course of now of retooling our digital property to higher align with the product, providers and evolution of Deal with as we see it now that we now have a few retail items underneath our belt open.
In reference to the primary a part of the query, when Deal with opened, a good portion of the income was testing-related. It has begun to shift as testing a slowdown and extra wellness providers are being bought. Proper now, about 66% of our Deal with income is from testing and 34% is from different providers in retail. However these percentages themselves are even shifting as extra clients are exploring Deal with’s different providers like hydration remedy and vitamin boosts.
Raphael Gross — Investor Relations, ICR
Okay. If COVID testing is waning, how does the latest HyperPointe acquisition even assist your total enterprise?
Scott Milford — President and Chief Govt Officer
So after we made the HyperPointe acquisition, it was achieved partly to assist assist our total improvement of our biosecurity packages and designed to guard vacationers. That technique was and continues to stay an necessary a part of our enterprise. And whereas testing necessities might calm down, it doesn’t scale back the necessity for constructing out that technique. I feel as we proceed to optimize prices inside our personal G&A construction, we’ll leverage sources between HyperPointe and XpresSpa in a extra holistic manner to make sure that we are able to hold prices according to the income that they drive.
Raphael Gross — Investor Relations, ICR
Thanks, Scott. I’m not seeing anymore questions at the moment.
Scott Milford — President and Chief Govt Officer
Thanks very a lot.
Raphael Gross — Investor Relations, ICR
I imagine that concludes our name for this night. I recognize everybody’s participation. I feel you now can disconnect your strains.
Scott Milford — President and Chief Govt Officer
Thanks very a lot.
Raphael Gross — Investor Relations, ICR
Thanks.
Operator
[Operator Closing Remarks]
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