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

XWELL Inc. saw a revenue increase in Q3 2024, driven by growth in its testing segment and the acquisition of Naples Wax Center, despite an overall operating loss.

Summary

• XWELL Inc. reported its financial results for the third quarter ended September 30, 2024.
• The company's total revenue increased to $8.42 million, up from $7.47 million in the same quarter of the previous year.
• This revenue growth was primarily driven by the XpresTest segment, which includes the CDC bio-surveillance program, and the addition of Naples Wax Center.
• Despite the revenue increase, XWELL reported an operating loss of $4.77 million for the quarter, compared to a loss of $12.09 million in the prior year.
• The company's net loss attributable to XWELL, Inc. was $4.75 million, or $0.99 per share, compared to a net loss of $11.53 million, or $2.76 per share, in the third quarter of 2023.
• For the nine months ended September 30, 2024, total revenue was $26.43 million, compared to $22.71 million for the same period in 2023.
• The net loss attributable to XWELL, Inc. for the nine-month period was $9.26 million, or $2.11 per share, compared to a net loss of $22.77 million, or $5.46 per share, in the prior year period.
• As of September 30, 2024, XWELL had cash and cash equivalents of $4.37 million and marketable securities of $11.66 million.

Sentiment

Score: 6

Explanation: The document shows a mixed picture. While revenue is up and losses are reduced, the company is still operating at a loss and has some financial challenges. The strategic initiatives and expansion plans are positive, but the company needs to demonstrate consistent profitability.

Positives

• Revenue increased by 13% in Q3 2024 compared to Q3 2023, indicating growth in the business.
• The operating loss improved significantly, decreasing from $12.09 million in Q3 2023 to $4.77 million in Q3 2024.
• The net loss per share improved from $2.76 in Q3 2023 to $0.99 in Q3 2024.
• The company successfully raised $1.4 million through a registered direct offering in August 2024.
• The company is expanding its business with the planned opening of XWELL Studios in 2025.

Negatives

• The company continues to operate at a loss, with a net loss of $4.75 million in Q3 2024.
• General and administrative expenses increased by approximately $1.5 million in Q3 2024, primarily due to legal fees.
• Salaries and benefits increased by approximately 61% in Q3 2024, due to increased payroll accruals and severance costs.
• The company's working capital surplus decreased from $17.24 million at the end of 2023 to $9.66 million as of September 30, 2024.

Risks

• The company's ability to achieve profitability is dependent on continued revenue growth and cost management.
• The company's legal proceedings, including the CPC lawsuit, could result in significant expenses and impact operations.
• The company's reliance on the CDC bio-surveillance program for a significant portion of its revenue in the XpresTest segment poses a risk if the program is discontinued or reduced.
• The company's international operations are subject to various risks, including currency fluctuations and political instability.
• The company's internal controls over financial reporting were deemed not effective as of September 30, 2024.

Future Outlook

The company plans to expand its retail strategy, add new service offerings, and build its capability for delivering health and wellness services outside of the airport. The company also plans to further expand internationally and open its first XWELL Studios location in Jacksonville, Florida in 2025.

Management Comments

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

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 bio-surveillance and health-related services aligns with current public health concerns and trends. The company is also expanding into out-of-airport locations, which is a growing trend in the wellness industry.

Comparison to Industry Standards

• XWELL's revenue growth of 13% in Q3 2024 is a positive sign, but it is important to compare this to the growth rates of other companies in the travel retail and wellness sectors.
• The company's operating loss of $4.77 million in Q3 2024 is an improvement over the previous year, but it is still a significant loss. It is important to compare this to the profitability of other companies in the same industry.
• The company's cash and cash equivalents of $4.37 million and marketable securities of $11.66 million as of September 30, 2024, should be compared to the liquidity positions of its competitors.
• The company's expansion into out-of-airport locations with XWELL Studios is a strategic move that should be compared to the strategies of other wellness companies.
• Comparable companies in the travel retail space include Dufry and WHSmith, while companies in the wellness space include Life Time Fitness and Planet Fitness. It is important to compare XWELL's performance to these companies to assess its relative position in the market.

Management Changes

Legal Proceedings

• The company was involved in a lawsuit with OTG Management at Philadelphia International Airport, which was settled on June 20, 2024.
• CPC Pain & Wellness SPV, LLC filed a lawsuit against the company, which was dismissed on August 9, 2024.

Stakeholder Impact

• Shareholders may be concerned about the company's continued losses, but encouraged by the revenue growth and strategic initiatives.
• Employees may be affected by the company's cost-cutting measures and management changes.
• Customers may benefit from the company's expanded service offerings and locations.
• Suppliers may be affected by the company's changing business strategy and expansion plans.
• Creditors may be concerned about the company's financial performance and ability to repay debts.

Next Steps

• The company plans to open its first XWELL Studios location in Jacksonville, Florida in 2025.
• The company will continue to expand its retail strategy and add new service offerings.
• The company will continue to build its capability for delivering health and wellness services outside of the airport.
• The company will continue to look for opportunities to expand internationally.

Key Dates

Keywords

XWELL, XpresSpa, XpresTest, Naples Wax Center, Treat, Wellness, Airport Retail, Bio-surveillance, COVID-19 Testing, Financial Results, Quarterly Report