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XpresSpa Group, Inc. (NASDAQ: XSPA) Q1 2022 earnings name dated Could. 16, 2022
Name contributors:
James Berry — Chief Monetary Officer
Scott Milford — President and Chief Government 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, Could 16, 2022.
I’d 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 as we speak and on your curiosity in XpresSpa Group.
Earlier than our CEO, Scott Milford, provides his ready remarks, and I overview first quarter 2022 monetary outcomes, I have to advise you of the next. Feedback made on as we speak’s name could comprise forward-looking statements throughout the which 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 could differ materially from these contained in or instructed by such forward-looking statements. Necessary elements that may trigger such variations, embody these set forth sometimes in our SEC filings, together with our report on Kind 10-Okay for the 12 months ended December 31, 2021, in addition to different present and periodic stories that we file with the SEC.
I’d now like to show the decision over to Scott.
Scott Milford — President and Chief Government Officer
Thanks, James, and hiya, everybody. We admire you all becoming a member of us this afternoon. Since taking up as CEO in late January, my workforce and I’ve been laying the muse for our future by growing a set of strategic imperatives to speed up our Firm’s evolution in order that we are able to change into a number one well being and wellness supplier for folks on the go.
In the present day, my intention is to stroll you thru our first quarter efficiency and the progress we’ve got 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 accessible capital to allow us to regulate the tempo of our work in gentle of adjusting market circumstances for our enterprise, at the same time as we proceed repurchasing our undervalued inventory by means of our buyback program. In fact, it’s necessary for everybody to remember that as a public firm, we are able to repurchase our inventory throughout sure restricted open window durations. In the course of the first quarter, we repurchased 7.1 million shares through the accessible open window interval, and we’ll proceed to repurchase shares as the chance arises.
To assist set the stage for our dialogue as we speak, 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’ve got no long-term debt.
I additionally wish to name out that whereas the quarterly decline in general airport testing relative to final 12 months was not stunning as the primary quarter is usually the weakest quarter by way of airport visitors. We did see a lower that was quicker and extra vital than we had deliberate as nations have moved to considerably relaxed their testing necessities. We additional see this lowering development by means of April and Could for a similar causes.
No matter the truth that we’re seeing a rest in testing necessities, COVID nonetheless posed as a danger, each right here and overseas. Our relationship with the CDC stays robust, and we proceed to assist their efforts to construct a strong biosafety program by means of the gathering of check samples from worldwide vacationers arriving within the U.S. Our intention has been and can proceed to be to assist preserve COVID below management and to assist put together for a possible new risk.
In April, as a part of the CDC’s traveler-based surveillance program and along with our companion, 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 function in detecting new variants getting 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 up to now 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’ve got accessible to speed up our efforts. We proceed to reopen our spas, rehire workers and resume operations, whereas figuring out methods through which 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 progress. 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 steering right now.
I acknowledge the anticipated change in income just isn’t what any of us wishes. Nonetheless, we had anticipated the eventual leveling off of testing and are already actively engaged in deploying methods that we consider will assist to safe our progress sooner or later. As I said in our final earnings name, the work my workforce and I are doing now will assist construct a sustainable progress engine for our enterprise sooner or later.
And now, I’d wish to shift gears and discuss what we’re setting up to assist us obtain this long-term aim. Our first strategic crucial is organizing our enterprise for progress. As a administration workforce, 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 companion with? Will it develop our present in airport enterprise? Or will it assist us develop our out-of-airport enterprise?
As a substitute 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 means. This contains investments we’re making within the course of of constructing 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 and marketing 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 at present largely guide and price ineffective.
Our second crucial is growing 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 at present targeted on aggressively rebuilding our retail functionality to supply extra related merchandise to shoppers 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 out 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 overview our present portfolio of airport places and are making the troublesome selections required to completely shut present shops that won’t 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 growth effort extends past the U.S. market as we’re additionally specializing in growing our worldwide portfolio with present companions. Our overarching aim right here is to maximise the income potential of our spa enterprise by means of higher-margin providers and a stronger retail providing, which I’ll elaborate on in only a minute, decreasing prices the place we are able to by closing suboptimal spas and buying higher places for brand new spas that may construct income for us sooner or later.
Our third strategic crucial is growing income with a stronger retail presence. We just lately employed a seasoned retail progress professional to assist us rebuild our retail enterprise, each on-line and in-store. Our in-store retail providing will probably 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 are tailor-made to vacationers and serve a wide range of well being and wellness wants and are planning to start deployment through the busy summer time journey season. Traditionally, our retail technique has not been a core energy of our enterprise regardless of accessing thousands and thousands of potential consumers in our airport. And somewhat than focus our efforts on promoting higher-margin merchandise with a decrease labor value, we relied on pushing increased value providers within the hopes of driving extra income. We consider we are able to reinvent our retail providing and add new and inventive providers that appeal to shoppers with out including considerably extra prices to our labor mannequin.
Our fourth strategic crucial is increasing out-of-airport income. This will probably be the place we put a great deal of our vitality by means of the steadiness of 2022 and into subsequent 12 months. We consider to ensure that us to develop, we should put our capital to work by means of acquisitions. So whereas we could contemplate opportunistic acquisitions throughout the airport, our need is to broaden outdoors the airport. We consider an out-of-airport technique permits us to scale our progress quicker with fewer constraints. We at the moment are within the strategy of figuring out a banking companion and have already begun discussions with potential firms that, we consider, could also be accretive to our enterprise.
Our effort to develop the Deal with model additionally has helped gas our B2B enterprise outdoors of the airport. We now have an built-in set of services and products that we are able to promote to companies trying to offset the rising value of healthcare, whereas providing a horny profit to firms that may assist them retain labor. We may also focus this effort with our present authorities relationships in an effort to maximize that potential.
My workforce 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 progress. And I wish to thank the laborious work and dedication of our assist and discipline groups, who, every day, ship on our imaginative and prescient to rework take care of folks on the go.
And now, let me share a enterprise replace on present operations, starting with XpresCheck. We’ve got 15 places throughout 12 airports, and we’ll proceed to overview the portfolio of places and regulate in response to the wants and necessities of the market and CDC. As testing numbers decline, we are going to take a look at methods to optimize prices related to working our XpresCheck enterprise. This will embody closing some places. We’re figuring out extra artistic methods to proceed to ship needed testing in a more cost effective method. We are going to report extra particular particulars about these efforts sooner or later.
To reiterate, COVID-19 continues to be with us, which is why we proceed to assist develop a biosurveillance effort with the CDC at 4 of our main airports by means of a $5.6 million contract that entails pool testing in over 20 nations, and we proceed to work with the CDC to establish different at-risk nations. We acknowledged $1.6 million in income within the fourth quarter final 12 months and $1.4 million within the first quarter this 12 months, with the rest being recorded within the second quarter. We consider this contract is demonstrative of the boldness that they’ve positioned in us and are hopeful that it’s going to result in renewal within the close to time period and that it’s going to result in an growth of this system with a aim of getting a steady biosurveillance program deployed within the U.S.
Turning now to our present airport spa enterprise. We at present have 19 spas working domestically, together with two franchise places, and we’ll have not less than 23 of our spa places reopened over the summer time to reap the benefits of that necessary journey season. Efficiency continues to enhance. Because of this, we’re slowly returning to pre-pandemic scheduling. And whereas gross sales volumes have been about 50% of pre-pandemic ranges earlier, we’re beginning to see a rebound. We are going to proceed to watch 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 and products that may enhance their general well-being whereas they journey. We proceed to judge touchless providers similar to gentle remedy, [Indecipherable] and digital actuality goggles, which we started including to our spas late final 12 months. We count on so as to add extra of some of these 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 at present working. These encompass three in Dubai Worldwide Airport; and three in Schiphol Amsterdam Airport. Nonetheless, we even have 5 XpresSpa places that will probably 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 consider worldwide growth is a vital a part of our continued progress as margins are typically increased, value of operations typically decrease. These elements, coupled with a extra subtle worldwide traveler, who’s prepared to expertise new applied sciences and spend extra on wellness, will serve our progress efforts sooner or later.
As you understand, 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 by means of a set of built-in providers, the JFK location has acquired optimistic suggestions from prospects. 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 aim 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 nicely, 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 count on to introduce among the learnings we’ve got from JFK into the Phoenix Deal with location to additional enhance that enterprise.
Our third Deal with location will open in Salt Lake Metropolis, put up safety in a former XpresSpa location. It’s our first location worth engineered from our unique 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 common spa providers, in addition to provide well being and wellness providers in the identical room, offering a better alternative to satisfy journey demand. It is going to additionally provide a better assortment of retail merchandise. This can doubtless be our default design going ahead, since it’s extra inviting to passersby, as they may have the ability to see extra retail and extra exercise to catch anyone’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 may also use the chance to align spa providers with among the extra common Deal with choices to additional combine our new and legacy companies below a unified menu.
As we stated earlier than, we count on to see a modest income contribution from Deal with this 12 months, 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 knowledge analytics relationship advertising company, servicing the worldwide healthcare and pharmaceutical trade. Below the management of Ezra Ernst, HyperPointe will proceed to play an necessary function in our ongoing biosafety technique. Moreover, we’re starting to search for methods to additional combine our two organizations to optimize our enterprise for progress. In the course of the first quarter, HyperPointe contributed $523,000 to whole income of the XpresSpa Group.
Earlier than I flip the decision over to James, let me reiterate that our plan is to broaden 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 capable of understand this imaginative and prescient and we’re working laborious on daily basis to take action, we can enhance worth for all XpresSpa stakeholders. And at any time when doable, we are going to repurchase shares below our authorization. We’re doing this as a result of we consider there’s a disconnect between the inventory’s present worth and its intrinsic worth. Once more, we aren’t at all times able to behave even when the inventory value declines as a result of we’re topic to blackout durations.
With that, I’ll flip it over to James, excuse me.
James Berry — Chief Monetary Officer
Thanks, Scott. I’m going to supply a quick synopsis on our first quarter outcomes, however please consult with the 10-Q that we filed this afternoon for better particulars. Income rose to $24 million within the first quarter of 2022 in comparison with $8.5 million within the prior 12 months 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 12 months first quarter. The rise was primarily attributable to increased prices to function the XpresCheck places and the reopening of sure XpresSpa places that have been quickly closed through the first quarter of 2021. Word that the most important part in the price of gross sales are value of testing kits and labor prices on the location stage.
Basic and administrative bills have been $10.2 million in comparison with $4.5 million for the 12 months in the past comparable interval. The rise was associated primarily because of the practical prices related to the operations of XpresCheck and Deal with wellness facilities, XpresSpa places and the newly acquired HyperPointe phase.
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 12 months first quarter. We generated internet loss attributable to widespread shareholders for the quarter of $4.3 million in comparison with $1.1 million within the prior 12 months first quarter.
Lastly, with respect to our GAAP financials, our liquidity stays strong with money and money equivalents totaling $83 million, and we’ve got no long-term debt. Working money circulate additionally improved to minus $1.8 million from minus $3.5 million, and we deployed $11.1 million for share repurchases. In the course of the first quarter, we repurchased 7.1 million shares outdoors of blackout durations. As of Could 16, 2022, 3.2 million shares stay accessible below the $15 million share repurchase program introduced on August 31, 2021. Given the present share value, which we view as considerably undervalued, we intend to be lively through 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 12 months 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 belongings. We contemplate 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 are choosing fast and fast PCR exams.
Lastly, as Scott referenced, we anticipate revenues to be decrease than we initially forecasted.
Thanks on 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 as we speak’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 title and ticker to one thing extra related to the place you’re headed?
Scott Milford — President and Chief Government 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’ve got recognized an company and are already nicely underway. As soon as we rent Pablo and he joins us on Could 31, this will probably be one among 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 loads of money in comparison with the fourth quarter of final 12 months, and your core enterprise is deteriorating. Must you actually be taking a look at acquisitions at this cut-off date?
Scott Milford — President and Chief Government Officer
Let me say that we completely consider that progress by means of acquisition is the appropriate path for us to attain longer-term income and profitability. To make sure that we’re optimizing the money we do have readily available, we’re going to proceed chopping prices all through the group and ensuring that our sources that, we consider, we have to drive probably the most alternative for accretive income technology are firmly in place.
Raphael Gross — Investor Relations, ICR
Okay. Subsequent query is about evolving your present enterprise from XpresCheck into Deal with. Are you not assured sufficient in Deal with that you must look elsewhere for income? I’m assuming meaning by means of acquisitions.
Scott Milford — President and Chief Government 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 have been created at a time and with particular limits on the varieties of providers that we may provide, so we could not have the ability to 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 broaden these providers on the identical time, whereas we additionally look outdoors of the airport to broaden our enterprise.
Raphael Gross — Investor Relations, ICR
A query on the CDC. When do you count on 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 Government Officer
We count on to listen to about this at any time, that’s the intention. And we’re going to proceed to refine schedules, stretch accessible labor {dollars}, in addition to even decreasing the variety of flights that we’re screening. So, up to now, the place we could have screened 5 or 6 flights coming in from India, we could scale back that down to 2, nonetheless permitting us to pool check, however stretching that accessible 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 in that case, do you want shareholder approval? How involved are you about getting a discover for delisting?
Scott Milford — President and Chief Government Officer
We’re very delicate to the inventory value proper now. And my workforce and I are targeted on delivering methods that we’ve outlined in our earlier feedback that we consider will drive shareholder worth long-term. We received little or no credit score for the outcomes that we’ve delivered during the last 12 months, however we’re assured that the methods that we’re growing now and deploying now will reverse the present development and assist drive long-term worth on our inventory value.
Raphael Gross — Investor Relations, ICR
Okay. What number of XpresSpas aren’t at present open? And what do you propose to do with them? Why would you be buying different non-XpresSpa airport spas when you have got your individual airport places which are 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 Government Officer
Okay. That’s a giant query. So let me see if I can reply it altogether. So we at present have 11 spas which are in varied phases of decision-making round doable closure. A few of these we could reopen. Others are both poor website places or require very excessive value to function. And so, we’re utilizing this chance now to make powerful selections to scale back our publicity later. The pandemic affected a lot of companies, together with a few of our rivals who could not have the monetary means to have stayed closed and now they is likely to be on the lookout for methods to exit. We’re going to be opportunistic in these situations. If it permits us to enter a brand new airport or enhance our airport places, we’re going to reap the benefits of that, and we’ll discover a number of paths to extend our footprint and preserve 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 likewise, are you making any cash from the digital part 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 Government Officer
So I’m going to reply the latter a part of the query first. We absolutely count on to leverage each retail and digital within the Deal with model. We’re within the course of now of retooling our digital belongings to higher align with the product, providers and evolution of Deal with as we see it now that we’ve got a few retail models below 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 prospects 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 general enterprise?
Scott Milford — President and Chief Government Officer
So once we made the HyperPointe acquisition, it was carried out partially to assist assist our general growth 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 could loosen up, 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 means to make sure that we are able to preserve prices consistent with the income that they drive.
Raphael Gross — Investor Relations, ICR
Thanks, Scott. I’m not seeing anymore questions right now.
Scott Milford — President and Chief Government Officer
Thanks very a lot.
Raphael Gross — Investor Relations, ICR
I consider that concludes our name for this night. I admire everybody’s participation. I feel you now can disconnect your traces.
Scott Milford — President and Chief Government Officer
Thanks very a lot.
Raphael Gross — Investor Relations, ICR
Thanks.
Operator
[Operator Closing Remarks]
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