XWELL, Inc. (NASDAQ:XWEL) is a global wellness company operating multiple brands, including XpresSpa, Treat, Naples Wax Center, XpresCheck, and HyperPointe. The company has faced significant challenges in recent years, reporting a combined net operating loss of $207.3 million from 2018 through 2023. Despite these headwinds, XWELL is working to streamline its operations, expand its footprint, and position itself for a return to profitability.

Business Overview

XWELL's core business is XpresSpa, a global airport retailer of spa services, offering travelers premium services such as massage, nail and skin care, as well as spa and travel products. As of March 31, 2023, the company had 21 domestic XpresSpa locations and 11 international locations, including in the United Arab Emirates, the Netherlands, and Turkey.

The company's XpresTest segment previously offered COVID-19 testing services but has since transitioned to a biosurveillance program in partnership with the Centers for Disease Control and Prevention (CDC) and Concentric by Ginkgo BioWorks. This program, which has expanded to include seven of the nation's busiest airports, leverages voluntary nasal swabs, wastewater sampling, and air sampling to detect a variety of viral and bacterial pathogens.

XWELL's Naples Wax Center, acquired in September 2023, operates three high-performing locations in Florida, offering a range of skin care and cosmetic services. The company plans to expand the Naples Wax brand to approximately 10 locations by early 2025.

The Treat segment is a wellness brand that provides access to wellness services for travelers at on-site centers, while HyperPointe provides marketing and data analytics services to the healthcare industry.

Financial Performance

XWELL's financial performance has been challenging in recent years. In fiscal year 2023, the company reported revenue of $30.1 million, a decrease from $55.9 million in the prior year. This decline was primarily driven by a decrease in revenue from the XpresSpa and Treat segments, which generated $19.5 million and $650,000, respectively, in 2023. The XpresTest segment, including the biosurveillance partnership and HyperPointe, contributed $9.9 million in revenue.

The company's net loss attributable to XWELL in 2023 was $28.0 million, compared to a net loss of $32.7 million in the prior year. This improvement was largely due to the company's cost-cutting initiatives, which reduced total cost of sales to $26.4 million from $43.9 million in the prior year, and a decrease in salaries, general, and administrative expenses to $20.9 million from $31.2 million.

XWELL's operating cash flow in 2023 was -$16.1 million, and its free cash flow was -$18.4 million. The company ended the year with $8.4 million in cash and cash equivalents and $14.6 million in marketable securities, with no long-term debt.

Quarterly Performance

In the first quarter of 2023, XWELL reported revenue of $8.7 million, an increase of 24% compared to the same period in 2022. This growth was driven by a $1.3 million increase in the XpresTest segment, which includes the biosurveillance partnership, and the addition of the Naples Wax Center, which contributed $648,000 in revenue.

The company's net loss attributable to XWELL in the first quarter of 2023 was $2.5 million, compared to a net loss of $5.5 million in the same period of 2022. This improvement was primarily due to a 7% decrease in cost of sales and a 47% decrease in general and administrative expenses, as the company continued to optimize its cost structure.

XWELL's operating cash flow in the first quarter of 2023 was -$3.7 million, and its free cash flow was -$3.6 million. The company ended the quarter with $4.3 million in cash and cash equivalents and $14.8 million in marketable securities.

Guidance and Outlook

XWELL has not provided specific financial guidance for the full year 2024. However, the company has outlined several strategic priorities, including:

1. Delivering improved results and increasing retail revenue through the deployment of new wellness products and services.
2. Leveraging new retail technologies, such as autonomous massage chairs and manicure stations, to drive operational efficiencies and higher margins.
3. Expanding its footprint both domestically and internationally, with a focus on the Naples Wax brand and the launch of the Treat Studios concept.
4. Continuing its collaboration with global governments on biosurveillance programs to detect new pathogens.
5. Optimizing efficiencies and driving a strong operational execution to return the company to profitability.

Risks and Challenges

XWELL faces several risks and challenges that could impact its future performance. These include:

1. Continued decline in travel demand, which could negatively impact the company's XpresSpa and Treat segments.
2. Increased competition in the wellness and spa services industry, both in airports and off-airport locations.
3. Regulatory changes or uncertainties related to the company's biosurveillance program and other healthcare-related services.
4. Difficulties in successfully integrating and scaling new business initiatives, such as the Naples Wax Center and Treat Studios.
5. Ongoing cash burn and the need to secure additional funding to support the company's growth and transformation efforts.

Conclusion

XWELL is navigating a challenging period, having reported significant net losses in recent years. However, the company is taking steps to streamline its operations, expand its footprint, and leverage new technologies to drive operational efficiencies and higher margins. While risks and uncertainties remain, XWELL's focus on cost optimization, strategic growth initiatives, and its partnership with the CDC on biosurveillance suggest that the company is charting a path towards profitability. Investors will need to closely monitor the company's progress in executing on its strategic priorities and managing the various risks it faces.