10-Q: XWELL Inc. Reports Second Quarter 2024 Results, Revenue Increases Driven by Testing and Acquisitions

XWELL Inc. saw a revenue increase in the second quarter of 2024, driven by growth in its testing segment and the acquisition of Naples Wax Center, despite an overall operating loss.

Summary

• XWELL Inc. reported a net loss of $1.996 million for the second quarter of 2024, compared to a net loss of $5.730 million for the same period in 2023.
• Total revenue for the quarter was $9.282 million, up from $8.175 million in the prior year, primarily due to increased revenue from the XpresTest segment and the addition of Naples Wax Center.
• The company's cost of sales decreased by 11% to $6.203 million, mainly due to the closure of three XpresSpa locations in 2023.
• Depreciation and amortization expenses decreased by 62% to $228,000, due to write-offs of closed stores and impairments of fixed assets.
• General and administrative expenses decreased by 3% to $3.072 million, reflecting cost optimization efforts.
• Salaries and benefits decreased by 22% to $1.653 million due to headcount reductions.
• For the six months ended June 30, 2024, the net loss was $4.508 million, compared to a net loss of $11.239 million for the same period in 2023.
• Total revenue for the first six months of 2024 was $18.008 million, up from $15.238 million in the prior year.
• The company had cash and cash equivalents of $5.418 million and marketable securities of $12.965 million as of June 30, 2024.
• The working capital surplus was $12.695 million as of June 30, 2024, compared to $17.236 million as of December 31, 2023.

Sentiment

Score: 6

Explanation: The document shows a mixed sentiment. While the company has improved its financial performance by reducing losses and increasing revenue, it still faces challenges with profitability and internal controls. The recent capital raise is a positive sign, but the company's future success is not guaranteed.

Positives

• Revenue increased by 14% in Q2 2024 compared to Q2 2023, driven by the XpresTest segment and the acquisition of Naples Wax Center.
• Cost of sales decreased by 11% due to the closure of some XpresSpa locations.
• Depreciation and amortization expenses decreased by 62% due to write-offs and impairments.
• General and administrative expenses decreased by 3% due to cost optimization efforts.
• Salaries and benefits decreased by 22% due to headcount reductions.
• The net loss improved from $5.730 million in Q2 2023 to $1.996 million in Q2 2024.
• The company completed a registered direct offering in August 2024, raising approximately $1.4 million.

Negatives

• The company reported a net loss of $1.996 million for the second quarter of 2024.
• The company's working capital surplus decreased from $17.236 million as of December 31, 2023, to $12.695 million as of June 30, 2024.
• The company has ongoing legal proceedings, including a lawsuit filed by CPC Pain & Wellness SPV, LLC, although this was subsequently dismissed.

Risks

• The company's ability to achieve profitability is dependent on continued revenue growth and cost optimization.
• The company faces risks related to legal proceedings and potential liabilities.
• The company's international operations are subject to currency fluctuations and other risks.
• The company's reliance on a limited number of airport locations could impact its revenue if those locations are not successful.
• The company's internal controls over financial reporting were deemed not effective as of June 30, 2024.

Future Outlook

The company is focused on returning to overall profitability by reducing operating expenses, pursuing strategic partnerships, and expanding its retail strategy and international presence. They plan to build their capability for delivering health and wellness services outside of the airport.

Management Comments

• Management believes there is opportunity to leverage a segment of their products and services across the company's platform of brands.
• Management is expanding their retail strategy, not only adding more products for sale but aligning those products more efficiently to their service offerings.
• Management plans to build their capability for delivering health and wellness services outside of the airport.
• Management believes operating outside of the airport complements their offering and represents the fastest way to scale the XWELL family of brands.
• Management will be looking to further expand internationally.

Industry Context

The company is operating in the wellness and travel retail sectors, which are experiencing a recovery as travel returns to pre-pandemic levels. The company's focus on expanding its services beyond airports aligns with a trend of wellness companies seeking broader market reach.

Comparison to Industry Standards

• XWELL's performance can be compared to other airport retail and wellness service providers such as Paradies Lagardère, which operates retail and food and beverage locations in airports, and companies like Massage Envy, which offer massage and skincare services.
• XWELL's revenue growth in the XpresTest segment is unique due to its focus on bio-surveillance, which is not a common offering among traditional airport retailers.
• The company's expansion into off-airport locations with XWELL Studios is similar to strategies employed by other wellness brands seeking to diversify their revenue streams.
• The company's financial performance is below that of established profitable companies in the wellness and retail sectors, but the company is in a growth phase and is focused on improving profitability.

Legal Proceedings

• On May 9, 2022, 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, this was settled on June 20, 2024.
• On July 19, 2024, 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, this was dismissed on August 9, 2024.

Stakeholder Impact

• Shareholders may be impacted by the company's ongoing losses and the potential for future dilution.
• Employees may be impacted by the company's cost optimization efforts, including headcount reductions.
• Customers may benefit from the company's expanded service offerings and locations.
• Suppliers may be impacted by the company's changing business strategy and focus on cost optimization.
• Creditors may be impacted by the company's ongoing losses and the potential for future capital raises.

Next Steps

• The company plans to continue to focus on returning to overall profitability.
• The company plans to pursue strategic partnerships.
• The company plans to expand its retail strategy.
• The company plans to expand its international presence.
• The company plans to build its capability for delivering health and wellness services outside of the airport.

Key Dates

Keywords

XWELL, XpresSpa, XpresTest, Naples Wax Center, Treat, wellness, airport, spa services, COVID-19 testing, biosurveillance, revenue, net loss, financial results, stock offering