Executive Summary / Key Takeaways

• Strategic Transformation Underway: XWEL is executing a significant pivot from its traditional airport spa origins and pandemic-era testing to a diversified "wellness solutions for people on the go" provider, emphasizing both in-airport and off-airport expansion, underpinned by technological innovation.
• Technology as a Core Differentiator: The company is leveraging autonomous massage chairs, robotic nail systems, and HydroMassage units to enhance service efficiency, reduce labor costs, and improve margins, with early results showing promising performance and significant incremental revenue potential.
• Dual Growth Strategy with Specific Targets: XWEL is expanding its Naples Wax Center brand with a goal of 10 locations in Florida by early 2025, alongside developing a "labor-lite" XpresSpa model for new transit hubs like Penn Station, and extending its critical bio-surveillance partnership with the CDC.
• Intensified Focus on Profitability: Despite recent operating losses, management is aggressively pursuing cost optimization, having removed $11 million from the business in 2023 and targeting an additional $5 million in savings for 2024, aiming for a clear path to profitability by holding labor costs constant while growing revenue.
• Liquidity and Execution Risks: XWEL faces a "going concern" warning due to recurring losses and insufficient liquidity, necessitating future capital raises. The successful execution of its ambitious growth and cost-cutting initiatives, alongside managing geopolitical and travel-related dependencies, remains critical for its long-term viability.

A New Era of Wellness: XWEL's Strategic Evolution

XWEL, Inc., once known as XpresSpa Group, Inc., has embarked on a profound transformation, evolving from its roots as a global airport spa retailer into a diversified wellness solutions provider. The company's journey, marked by its agile response to the COVID-19 pandemic with XpresCheck testing and subsequent pivot to bio-surveillance, culminated in its 2022 rebranding to XWEL. This strategic shift signals a clear intent to build a "pure-play wellness services company" that extends beyond airport terminals into broader metropolitan and health-related marketplaces. This vision positions XWEL within the burgeoning global wellness industry, where convenience, technology, and integrated services are increasingly valued by consumers.

The competitive landscape for XWEL is multifaceted, encompassing large healthcare retailers, specialized diagnostic providers, and beauty retail chains. Giants like CVS Health (CVS), with its extensive retail footprint and MinuteClinic services, offer broad accessibility and diversified healthcare solutions, often demonstrating robust revenue growth and strong cash flow. Diagnostic specialists such as Quest Diagnostics (DGX) command significant market share in laboratory testing, leveraging advanced technological capabilities and wide networks for efficient operations and higher profitability. In the beauty and wellness retail space, Ulta Beauty (ULTA) excels with its omnichannel strategy, diverse product offerings, and strong brand partnerships, leading to consistent revenue growth and solid margins.

XWEL differentiates itself through a unique, integrated wellness model, particularly within high-traffic travel hubs. Its core competitive advantage lies in its established airport network, which provides high-traffic access and fosters customer loyalty, potentially leading to stable recurring revenue and improved margins through efficient service delivery. This specialized focus allows XWEL to offer targeted convenience for travelers, a niche less effectively served by broader retail health providers like CVS. However, XWEL's smaller scale compared to these larger entities presents vulnerabilities, potentially leading to higher operational costs and lower margins, making it challenging to match the efficiency and market reach of its more established rivals. The company's strategic response involves leveraging technology and expanding its footprint to overcome these scale disadvantages and carve out a distinct market position.

Technological Innovation: The Engine of Efficiency and Growth

At the heart of XWEL's strategic pivot is a commitment to technological differentiation, aimed at enhancing service delivery, optimizing costs, and expanding its market reach. The company is actively integrating advanced solutions across its service portfolio, moving towards a more efficient and scalable operating model.

XWEL's core differentiated technologies include autonomous massage chairs, robotic nail systems, and HydroMassage units. These innovations offer tangible, quantifiable benefits. The autonomous massage chairs, for instance, have demonstrated a significant operational improvement, reducing their payback period from seven weeks to just five weeks since their launch. These chairs are already a notable contributor, representing nearly 10% of all XpresSpa services in 2023. Management estimates that once fully deployed across the system, these chairs could generate over $1 million in incremental annual revenue with an attractive 75% service margin, with 80% of that revenue being incremental to existing neck and back massage services.

Similarly, the pilot program for robotic nail systems, initiated through a partnership with Clockwork, has shown promising results, achieving 15% to 20% blended growth in service. Should this pilot expand to 25 units, it represents an estimated annualized revenue potential of up to $2.5 million at a 50% service margin. The company is also deploying HydroMassage units at key locations like JFK and Dubai International Airport, with plans to roll out as many as 50 units across its domestic and international operations, indicating a clear roadmap for technological expansion.

The "so what" for investors is clear: these technological advancements are not merely novelties but strategic tools designed to build a stronger competitive moat. By reducing reliance on labor, these technologies directly address a significant cost component, leading to higher margins and improved operational efficiency. They enable XWEL to offer a more consistent and convenient customer experience, differentiate its services, and support its "labor-lite" expansion model into new, high-traffic transit hubs like Penn Station. This technological roadmap is foundational to XWEL's strategy for achieving profitability and sustainable long-term growth by making wellness services more accessible and cost-effective.

Strategic Expansion and Diversification

XWEL's growth strategy is multifaceted, focusing on both expanding its core airport presence and aggressively building its out-of-airport portfolio. This dual approach aims to diversify revenue streams and capitalize on broader wellness trends.

In the airport segment, XWEL is refining its XpresSpa model. A recently opened XpresSpa at Philadelphia International Airport fully integrates the company's tech-forward concept, showcasing the autonomous massage chairs and robotic nail systems. Looking ahead, the company plans to open a "tech-forward, labor-lite" XpresSpa in New York City's Penn Station in 2025, designed to cater to commuters, local residents, and tourists with wellness-focused retail and autonomous services. This model, leveraging technology for efficiency, is a key component of its expansion into other transportation hubs. Furthermore, partnerships, such as the expanded collaboration with Priority Pass in May 2025, are enhancing brand awareness, broadening customer reach, and driving increased foot traffic and revenue to XpresSpa locations. The company's international footprint is also growing, with the 11th international location opening in Abu Dhabi International Airport in Q4 2023, exceeding initial expectations by approximately 25%.

The out-of-airport strategy is a major contributor to long-term top-line growth. The acquisition of Naples Wax Center in September 2023 for $1.624 million marked a significant entry into the upscale hair removal and skincare market. This brand is performing above initial expectations, with revenue growth of approximately 25.15% in Q2 2025 compared to Q2 2024. XWEL plans to expand the Naples Wax brand across the Southeast, targeting approximately 10 locations by early 2025, particularly in attractive Florida markets. The company also intends to incorporate additional aesthetic services into these new locations to further diversify revenue. Beyond Naples Wax, XWEL announced plans in March 2025 to acquire select medical spas by the end of 2025, leveraging its recent $4 million private placement to tap into the high-growth wellness and beauty sector. This move aligns with the broader industry trend of rising demand for advanced beauty and wellness treatments in metropolitan areas.

The XpresTest segment has fully transitioned from COVID-19 diagnostic testing to focus on its critical bio-surveillance program. This program, a collaboration with the CDC and Ginkgo Bioworks (DNA), monitors pathogen transmission at international airports. In February 2025, the program secured a three-year contract extension with a base value of $22.20 million and a maximum ceiling value of $24.80 million. This initiative, which detects over 30 viral and bacterial pathogens, is considered an essential tool in national pandemic preparedness, providing a stable and significant revenue stream for XWEL.

Financial Performance and Operational Discipline

XWEL's financial performance in the most recent period reflects a company in transition, balancing strategic investments with an aggressive push for cost optimization. For the three months ended June 30, 2025, total revenue was $7.689 million, a 17% decrease from $9.282 million in the prior-year period. This decline was primarily attributed to higher CDC revenue for XpresTest and increased XpresSpa revenue from the Priority Pass partnership in Q2 2024, which did not recur at the same levels in Q2 2025. Despite the revenue dip, the company's gross profit stood at $1.775 million.

Operating expenses, while still substantial, show the impact of ongoing cost-cutting efforts. The operating loss for Q2 2025 was $2.692 million, an increase from $1.893 million in Q2 2024, indicating that while cost-cutting is in progress, it has not yet fully offset revenue pressures and other expenses. Net loss attributable to XWEL, Inc. for the quarter was $2.269 million, worsening from $1.996 million in Q2 2024. However, on an annual basis, the company's estimated revenue for 2024 is $33.90 million, a 12.6% increase from $30.11 million in 2023, with a projected net income improvement to -$16.85 million from -$27.74 million in 2023.

Segment-wise, XpresSpa revenue slightly decreased by 0.75% to $4.886 million in Q2 2025, but its operating loss significantly improved by 59.9% to $579,000. XpresTest revenue saw a notable decline of 43.88% to $2.156 million, yet its operating loss improved by 58.04% to $689,000, reflecting the shift away from high-volume, lower-margin COVID testing. Naples Wax Center demonstrated strong growth, with revenue increasing by 25.15% to $647,000 and operating income surging by 700% to $240,000, highlighting the potential of the off-airport strategy.

Management is committed to optimizing its business structure, having removed $11 million from the business in 2023 and targeting an additional $5 million in savings for 2024. This includes initiatives like "your business, your unit, your team," which has yielded 10-50% labor savings in U.S. spas and up to 3% revenue increases in those locations. The decrease in cost of sales for Q2 2025 was partly due to the termination of the Clockwork manicure machine agreement and reduced labor from XpresSpa closures. General and administrative expenses also saw reductions due to lower accounting, legal, and public company costs. This operational discipline is crucial for XWEL's stated "clear path to return to profitability."

Liquidity and Risk Considerations

XWEL's liquidity position remains a critical area of focus for investors. As of June 30, 2025, the company reported cash and cash equivalents of $5.263 million and marketable securities of $2.885 million.

Total current assets stood at $11.833 million against total current liabilities of $9.476 million, resulting in a working capital surplus of $2.357 million. However, the company explicitly stated that "substantial doubt exists about the Company's ability to continue as a going concern for at least one year" due to recurring losses and negative cash flows from operations. Net cash used in operating activities for the six months ended June 30, 2025, was $6.564 million, an increase from $4.125 million in the prior-year period.

To address these challenges, XWEL is actively pursuing strategic initiatives, including cost reduction, capital spending controls, and exploring additional financing options. A private placement in January 2025 raised $4 million in gross proceeds, providing some capital for general corporate purposes. However, the Series G Convertible Preferred Stock issued in this placement requires redemption in quarterly installments starting July 1, 2025, and mandates maintaining unrestricted cash and cash equivalents equal to 200% of certain outstanding preferred stock obligations. This highlights the ongoing need for prudent cash management and potential future capital raises.

Key risks for XWEL include its dependency on air travel volumes, which are subject to various external conditions, and geopolitical conflicts that could impact the global economy and market volatility. The company also acknowledges material weaknesses in its internal control over financial reporting, particularly concerning lease accounting, financial close processes, IT vendor controls, revenue processes, and foreign subsidiaries. Management is actively implementing remediation plans, including leveraging cloud-based accounting systems and engaging external service providers. While XWEL recently regained compliance with Nasdaq's minimum bid price requirement in August 2025, the historical volatility of its stock price and the potential for future non-compliance remain a concern.

Conclusion

XWEL is undergoing a significant transformation, aiming to redefine itself as a leading provider of wellness solutions for individuals on the go. The company's strategic pivot, characterized by aggressive expansion into off-airport markets, a steadfast commitment to technological innovation, and a critical role in national biosecurity, forms the core of its investment thesis. By leveraging autonomous services and an expanding physical footprint, XWEL seeks to carve out a defensible niche in the competitive wellness landscape, offering convenience and efficiency that larger, less specialized rivals may struggle to replicate.

Despite the compelling strategic narrative and operational advancements, the company's financial performance, marked by recurring losses and a "going concern" warning, underscores the high-stakes nature of its current trajectory. The successful execution of its ambitious growth targets, coupled with the continued realization of cost-cutting efficiencies and the ability to secure necessary future capital, will be paramount. Investors should closely monitor XWEL's progress in achieving profitability, the scalability of its tech-driven models, and its ability to navigate liquidity challenges, as these factors will ultimately determine the long-term value creation potential of this evolving wellness enterprise.