XWELL, Inc. Q3 FY2022 earnings call

• Unveiled a new corporate identity and began trading under the NASDAQ ticker symbol XWEL. - Opened a new treat location at Salt Lake City Airport. - Spa business improved with 20 US spas and 8 international locations; reopened 3 XpresSpa locations and expanded internationally with 5 new Express spas in Istanbul (3 open, 2 expected by year-end), and plan to open the 12th international location in Abu Dhabi in Q1 2023. - Refined the airport retail ecosystem, integrating treat and spa businesses, rolling out new retail products starting in August, and launching a new loyalty program. - Removed approximately $1 million from the cost structure in Q3, closed 5 unprofitable Express Check locations, expect to close 7 more in Q4, leaving 2 Express Check locations and 5 biosurveillance stations; biosurveillance partnership had $1.8 million revenue in Q3 with a new 2-year contract initial funding of ~$16 million and potential total value of ~$61 million.

In the third quarter, XWELL reported total revenue of $10.7 million, down from $26.8 million in the prior year. Revenue components included $4 million from reopened Express spa locations and treat locations, $1.8 million from the biosurveillance partnership, and $4.3 million from XpressCheck locations. Cost of sales decreased to $9.3 million from $13.7 million in the prior year due to the closure of underperforming XpressCheck locations. General and administrative expenses totaled $6.4 million compared to $5.2 million in the prior year, with a variance due to nonrecurring credits in Q3 2021. Retail sales have historically accounted for approximately 17% of total revenue.

• Plan to open the 12th international location in Abu Dhabi in Q1 2023. - Expect to accelerate cost savings in Q4, shedding additional costs to speed the path to profitability. - Anticipate retail revenues to grow 15%-25% sequentially in 2023 Q1. - Actively exploring overseas expansion opportunities over the next 18-24 months.

• Delays initially in closing unprofitable Express Check units, though hurdles have been cleared. - Labor market challenges in staffing licensed professionals. - Uncertainty in timing and specific details of acquisitions identified with Benchmark.

Q: Insight on XWELL's brands expanding to local communities?

A: Expansion into local communities is part of the off-airport strategy. We're working on the groundwork to do this effectively and plan to make a strategic acquisition or investment in an off-airport health and wellness business.

Q: Timing on M&A agreement with Benchmark?

A: In September, we engaged Benchmark to help identify potential acquisition opportunities. We're actively focused on growth acquisitions but don't have any definitive agreement in place yet. We're looking at 3-4 potential opportunities but can't comment on specifics.

Q: Plans to increase global reach?

A: Our brands operate internationally in places like Dubai, the Netherlands, and Istanbul. We've been expanding internationally, opened 2 XpressCheck locations in Istanbul, and plan to open the 12th international location in Abu Dhabi in Q1 2023, continuing to expand our international customer base.

Q: Labor staffing trends and hiring challenges?

A: The labor market is challenging, especially for airports. We've added incentives and programs to retain and incentivize staff, and dedicated resources to training team members for upselling. Staffing and training will remain a focus.

Q: Reduction of expenses and path to profitability?

A: The team has worked on cost reduction, and we expect the savings identified to accelerate our path to profitability as cuts materialize, reducing over $1 million a month from our cost structure without compromising growth.

Q: XpressCheck footprint going forward?

A: We began shuttering unprofitable XpressCheck locations. Entering 2023, we'll have 2 XpressCheck locations and 5 biosurveillance locations serving the business. A strong safety program remains critical.