10-K: XWELL, Inc. Reports Full Year 2024 Results, Focuses on Strategic Growth and Cost Optimization

XWELL, Inc. reports a 13% increase in total revenue for 2024, driven by Naples Wax acquisition and XpresSpa's touchless locations, while addressing going concern doubts and material weaknesses in internal controls.

Summary

• XWELL, Inc. reported a 13% increase in total revenue for the year ended December 31, 2024, reaching $33.9 million compared to $30.1 million in 2023.
• The revenue increase was primarily driven by a full year of service revenue from the acquired Naples Wax business and increased service revenue from XpresSpa's new touchless locations.
• Cost of sales decreased by $1.45 million, primarily due to the closure of underperforming XpresSpa locations.
• Depreciation and amortization expenses decreased by $1.127 million due to fewer long-lived assets available for depreciation.
• The company recorded impairment charges of $1.711 million for long-lived assets and $2.805 million for operating lease right-of-use assets.
• General and administrative expenses decreased by $415 thousand, or 3%, due to rightsizing and cost optimization efforts.
• Salaries and benefits expenses decreased by $414 thousand, or 5%, due to spa closures and headcount reductions.
• The company reported a net loss attributable to XWELL, Inc. of $16.853 million, compared to a net loss of $27.741 million in the previous year.
• As of December 31, 2024, the company had approximately $4.55 million in cash and cash equivalents and $7.247 million in marketable securities.
• The company's independent registered public accounting firm expressed substantial doubt about its ability to continue as a going concern.
• The company is working to improve its liquidity position through cost reductions, strategic partnerships, and potential capital raising activities.
• The company identified material weaknesses in its internal controls over financial reporting and is implementing remediation measures.
• The company is strategically positioned to capitalize on the growing consumer interest in travel, health, and wellness.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While revenue increased, the company faces significant challenges, including a going concern warning, material weaknesses in internal controls, and ongoing losses. The strategic initiatives and cost optimization efforts offer some hope, but the overall outlook is uncertain.

Positives

• Total revenue increased by 13% to $33.9 million in 2024.
• Cost of sales decreased by $1.45 million due to the closure of underperforming XpresSpa locations.
• General and administrative expenses decreased by $415 thousand, or 3%, due to rightsizing and cost optimization efforts.
• The XpresTest bio surveillance monitoring program was extended through a three-year contract with a total base value of $22.2 million.
• The company is focusing on expanding and integrating offerings across its brands, unifying airport and off-airport locations under the XWELL brand.
• The company is pursuing an off-airport growth strategy through acquisitions, particularly in the med spa sector.

Negatives

• The company's independent registered public accounting firm expressed substantial doubt about its ability to continue as a going concern.
• The company reported a net loss attributable to XWELL, Inc. of $16.853 million.
• The company identified material weaknesses in its internal controls over financial reporting.
• Depreciation and amortization expenses decreased by $1.127 million due to fewer long-lived assets available for depreciation.
• The company recorded impairment charges of $1.711 million for long-lived assets and $2.805 million for operating lease right-of-use assets.

Risks

• The company's ability to continue as a going concern is uncertain.
• The company may not be able to raise sufficient capital to fund its operations.
• The company's internal controls over financial reporting are not effective.
• The company's expansion into new markets may present increased risks.
• The company's operating results may fluctuate significantly due to various factors.
• The company relies on international and domestic airplane travel, which is subject to various risks.
• The company is subject to various laws and regulations, and changes in such laws and regulations could adversely affect the company.
• The company may be involved in litigation that could divert management's attention and harm the company's business.

Future Outlook

The company's forward-looking plan focuses on expanding and integrating offerings across its brands, unifying airport and off-airport locations under the XWELL brand, and pursuing an off-airport growth strategy through acquisitions.

Management Comments

• The company believes it is well positioned to benefit from consumers growing interest and pent-up demand in travel health and wellness.
• The company is positioning itself for both financial and operational growth now and in the future.

Industry Context

The company operates within the travel health and wellness industry, which is experiencing growing consumer interest and demand for related services and products. The company faces competition from other airport-based spa companies and spa companies outside of the airport.

Comparison to Industry Standards

• The largest domestic competitor operated 15 locations in 11 airports in the United States.
• Airport retailers benefit from a steady and predictable flow of traffic from a constantly changing customer base.
• XWELL historically opened multiple locations annually, which have ranged in size from 200 square feet to 2,600 square feet, with a typical size of approximately 800 square feet.

Management Changes

Legal Proceedings

• OTG Management PHL B v. XpresSpa Philadelphia Terminal B et al.: A lawsuit was filed in the Philadelphia Court of Common Pleas by OTG Management at Philadelphia International Airport, claiming that XWELL improperly backed out of its sublease for space at Terminal B and now owes between $864 and $2,250 in accelerated rent for the 12-year contract; the case was settled.
• CPC Pain & Wellness SPV, LLC: CPC Pain & Wellness SPV, LLC filed suit in the Court of Chancery of the State of Delaware against the Company, Chairman Bruce T. Bernstein, and directors Michael Lebowitz, Robert Weinstein, Galle Wizenberg, and Scott R. Milford alleging breach of fiduciary duties; the case was dismissed.
• XpresSpa Holdings, LLC (XpresSpa) v. Cordial Endeavor Concessions of Atlanta, LLC (Cordial), et al.: The Companys subsidiary, XpressSpa Holdings, LLC, is party to an arbitration proceeding (the Arbitration) which was mandated by the City of Atlanta, Georgia related to the Operating Agreements by and between Cordial and XpresSpa for the operation of the XpresSpa locations in Hartsfield-Jackson Atlanta International Airport (ATL) in ATL Terminal A and ATL Terminal C.

Related Party Transactions

• On January 30, 2025, the Company entered into a consulting agreement (Consulting Agreement) with XWEL INV I, LLC (XWEL INV I) and Jason Aintabi (the Consultant). Mr. Aintabi serves as the Manager of XWEL INV I. The Consulting Agreement is deemed to be related party transaction as Mr. Aintabi is a greater than 5% beneficial owner of the Companys securities.

Stakeholder Impact

• Shareholders face potential dilution from future equity offerings and the conversion of preferred stock and warrants.
• Employees may be affected by cost reduction efforts and potential changes in operations.
• Customers may experience changes in service offerings and locations as the company implements its strategic initiatives.
• Suppliers and vendors may be impacted by changes in the company's operations and cost structure.
• Creditors face increased risk due to the company's going concern warning and potential need for additional financing.

Next Steps

• The company is working to improve its liquidity position through cost reductions, strategic partnerships, and potential capital raising activities.
• The company is implementing remediation measures to address the material weaknesses in its internal controls over financial reporting.
• The company is focusing on expanding and integrating offerings across its brands, unifying airport and off-airport locations under the XWELL brand.
• The company is pursuing an off-airport growth strategy through acquisitions, particularly in the med spa sector.

Key Dates

Keywords

XWELL, revenue, XpresSpa, Naples Wax, XpresTest, financial results, going concern, internal controls, impairment, acquisitions, wellness, travel, bio surveillance