XpresSpa Group, Inc.
Q3 2020 Earnings Call Transcript

Published: 16 Nov 2020

[Operator:]

Good afternoon ladies and gentlemen and thank you for standing by. Welcome to the XpresSpa Group Third Quarter 2020 Earnings Conference Call. Please note this conference is being recorded. I will now turn the conference over to your host; Dougl Satzman, CEO for XpresSpa Group. Thank you. You may begin.

[Doug Satzman:]

Good afternoon and thank you for joining us today and for your interest in XpresSpa Group. Before I provide an update on our business and briefly review our third quarter 2020 financial results, I first need to advise you of the following. The comments made on today's call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current assumptions and opinions and involve a variety of known and unknown risks and uncertainties.

[Unidentified Analyst:]

Thank you for taking my question. I'm curious as to why you wouldn't want to reopen the traditional spas after the rollout of the vaccine and once travel resumes. Isn't that a lower risk option? Because you could then add some of these incremental services under the original framework versus trying to completely reimagine the entire business model?

[Doug Satzman:]

Thank you, Rob for your question. This is a big debate we have with our leadership team. Naturally, we would love to reopen our spas as a viable business. We've identified how we might change services and retail in a post-COVID environment, but we do need to see a significant lift in travelers coming through the airports. As we model out these incremental services and reimagine the business model, we're keeping a keen eye on what we think will come out of this in a post-COVID world an environment. And some may have heard me before even media say where 9/11 changed security protocol on travel, I do believe COVID will change travel security protocol and other parts of travel for a long time. So we're building in a range of solutions, whether it's reopening some of our past spas, converting them to XpresCheck in the meantime is the highest and best use is COVID testing right now. But further developing a future concept that we think will be a big idea and highly relevant having medical and health and wellness services in airports in a post-COVID world.

[Unidentified Analyst:]

Very helpful. Thank you very much.

[Operator:]

Thank you. Our next question is from Alexandra Thomas Private Investor.

[Unidentified Analyst:]

Hi. Thanks for taking my question. I was wondering what level of patient volume or what average patient spend would be needed in order for you to recognize your management fee? Any color you could provide would be helpful?

[Doug Satzman:]

So it's interesting as we've been watching this build, we remind ourselves and I remind you the listeners that when we first opened, it was a proof of concept and it was to airport employees and airline employees only and it was during the slowest period of traffic. We then expanded to passengers, first at JFK, but then soon we opened our second location in Newark and that was only open to airport employees and airline employees. And then, towards the end of the quarter, it expanded to travelers. Then we added in a rapid test, which -- our first test the PCR and the blood antibody test, people can submit it to insurance. And we have a range of insurance reimbursables that will be collected or will be collected through the physician. And then, -- but with the rapid test, we're not putting that through insurance. And the patient would pay $200 upfront into the physician that then gets built-up into the management fees. The point is, these newer services that we're adding have different benefits or weight to the model. Some of these rapid mono and strep tests, these are relatively inexpensive tests. These are added on in the fall typically, when people are symptomatic. So all of this is to say, there's not an average patient volume, because it really depends on what services they opt for, let alone flu shots being added on which is a very recent thing for us. But I would say that, even anytime we're averaging over 100 patients a day, that's a good mark to be at. So we can recognize that management fee. Again, I'm speaking very generally. It really depends. But when, you start seeing them north of 100, that's a healthier place to be. Thank you, Alexandra.

[Unidentified Analyst:]

Thank you.

[Operator:]

Thank you. Our next question is from Carl Plit , Private Investor.

[Unidentified Analyst:]

Hi Doug, thanks for taking the time you speak with us today. Actually this is a bit of a follow-up to the previous question. But given the limited airport traffic, is it even possible for the management fee to be reached? And with that said, can you renegotiate the free threshold?

[Doug Satzman:]

Yeah. Well, yes, the management threshold can be reached. So the way it works is again I shared earlier, companies can't practice medicine, doctors can practice medicine. So in most states almost all of them you have a state-licensed physician, they provide through their nurse practitioner, themselves or other mid-levels. They provide the medical service. They're the only ones who can get paid for their medical service. And they hold back their -- the cost of the doctor and other medical professionals, who have to be on their staff like a nurse practitioner, the cost of their malpractice insurance. There's a couple of other minor holdbacks. But then, the balance of the revenues that come into the practice they get -- their accounts get swept. And it comes to us as a management fee. So because this is new and keep in mind, I talked about, how we've been opening up to a broader range of patients going from employees to then include passengers, we're adding services. And air traffic is coming back slowly, so that's another variable. We're starting to see that tipping point ahead. And again each of the airports, the three airports we have so far have different rates of being used. But typically they start off a little slow as people find the business, the employers start sending folks, the airlines start sending folks. And then we saw it in our first two build up pretty nicely. And we're seeing the same thing for Boston. We do have the ability to renegotiate the management fees. So this is a highly regulated environment, mostly it's on the medical side to make sure anti-kickback provisions, regulations when doctors aren't triggered. But we can periodically and we will periodically go back and revise, the management fees based on the level of business that we see. So -- but frankly we need a little more time and a little more data, because the environment is moving so often. Again as we layer in more services and more people start coming back into the airports. Hopefully that was a little simpler of an explanation than what I tried to do on the call. I was trying to be very thorough, but it's actually quite simple and it's a very common model for clinics and healthcare providers all around the country.

[Unidentified Analyst:]

No. Thank you for the color. Appreciate it.

[Operator:]

Thank you. Our next question is from Marge Rolsten , Private Investor.

[Unidentified Analyst:]

Hi, Doug. Thanks for taking the question. If COVID testing is currently not profitable and it may never be profitable that is if airport traffic does not increase substantially. Why don't you just skip this interim step that is burning a lot of cash and move directly into the health and wellness concept, which could be implemented once the COVID vaccine is widely available?

[Doug Satzman:]

The -- fair question fair question. We -- I mentioned my leadership team before we are constantly evaluating the environment. We're constantly speaking with peers, peers being airport operators airlines other operators and airports, clinics outside of airports in the communities to try to get a bead on where things are going and then to plan accordingly. So we have this new concept that is being developed and likely it will be an evolution of what we have learned with our historic business and kind of spawn, beauty and wellness and health and airports than what we've learned with medicine. I feel -- I've been very excited to like share this is me with the investor community for a while. But it's going. It's I think going to be ideally positioned to be aligned with expectations of travelers in the future. But it's not going to be up and running like in a month or two. So right now the highest and best use of our resources is going towards COVID testing. As we see employments coming up and once and if once -- if a couple of these airline deals come through, I'm going to be worried about potentially the capacity to do 400 or 500 tests in a day. So it's easy to see that I have a -- my JFK unit can do up to 500 a day. But let's say, one or two airlines decides to include COVID testing on certain international flights or mandated as part of their policy very quickly I can blow through that capacity. That's why this pop-up the concept that we developed is so helpful because now in a much lower investment vehicle, we can justify adding a second pop-up or adding a pop-up where we already have our full clinic or maybe going to a new airport with two pop-ups and then we can increase our capacity to meet the testing requirements of the that might be coming with the airlines. And hopefully as traffic picks up, you'll see that demand naturally pick up as well. I want to make sure I answer your questions. And I think it was because I feel like I'm getting off track is why not skip this interim step you said that's burning cash. The fact is there's no revenue coming in right now. Like a lot of businesses there's going to be some cash burn. We worked very carefully to minimize it as much as possible. Often landlords or airports we've been getting free rents. They're kind of extending a month or two months at a time. Most of our workforce has been furloughed. So a lot of our big costs have been allayed for the time being. The airports are looking for help with COVID testing. So if we weren't able to offer this. And again I know you don't have visibility to the wide range of airports that we're speaking to. They're highly focused on some on getting COVID testing up and running. And once you get your foot in the door and we've demonstrated our chops being a medical provider or service provider through XpresCheck that opens the door for this whole next concept work that we're doing. So I do think it is -- has the ability to be a profitable venture the XpresCheck COVID testing. Even with the vaccine coming out, it's going to be COVID and other infectious disease testing is going to be here to stay for a long time. But, it does remain this important interim step while we develop a much more attractive model, off of what we've developed and learned with XpresCheck. Thanks for the question. And I realize, I started blending a few topics, but they all kind of start to fit together to reveal the picture.

[Operator:]

Thank you. Our next question is from Kole Perkins, Private Investor.

[Unidentified Analyst:]

Hi, guys. In your opening remarks, you were talking to us about the air bridge and the evolving medical passport apps. I was wondering if you could give us a little bit more color around those evolving items. And how those will work with XpresCheck in the future?

[Doug Satzman:]

So, this is where I see kind of a short and mid-term of COVID testing evolving in airports domestically, but even internationally, especially for the long-haul flights. And it's been the airlines, who have stepped up to provide some leadership in creating the path at haven't been the federal government, hasn't really been the state government, hasn't been the airports. And I have and my team has good visibility because we talk to all of these groups very regularly, but it's really the airlines. And what an air bridge is and you'll -- it can be defined different ways, but it's when a passenger can buy a ticket with a major carrier, and they know what is required on entry in the destination and they have an easy path and then their return flight home is assured and they can manage the quarantine regulations on both sides of the bridge. And what makes it -- it sounds like an easy concept, you can just see what test is required and take it before you go. But what happens is you have a lot of these jurisdictions country states with evolving requirements. So, the Hawaii example is a good one. Because Hawaii, if you read the press, you can take a flight to Hawaii and come with a negative COVID test and you can eliminate your 14-day quarantine. But when you actually look into it, you discover you can only get a COVID test from a very few select partners that have been vetted by the state of Hawaii. And we are very pleased to be able to get on that list. It was very hard to get in, because they limit it to at least now a small number of "trusted partners". So, the average to Hawaii from San Francisco that United helped pioneer was working with the State Department, the department -- the state of Hawaii's Health Department to understand what kind of tests and what criteria would be required for them to start sending people over from SFO. Could SFO offer testing on-site to make sure that connecting passengers from other cities funneling through FFO, because that's kind of the beginning of this bridge, can either come with the right test or they can get it on site? And then, United tells them, we -- if you follow our steps we can get you to Hawaii and you can go on your vacation and we will get you back from Hawaii back through San Francisco and help you meet the requirements of your return trip. So it's not that hard, but it's complicated and takes a lot of coordination. So, there is some testing centers in London where I've been now working with the CEO of that company to see where we can work out the different cities that we might open in and help facilitate these averages for the major airlines. So, we're all going about it different ways. And frankly, there's a couple of major airlines that are sitting and waiting for others to figure it out, it feels like to me. And where the health app comes into play, is it adds one more point of convenience for that traveler to say, okay, you need this type of test and you need it 72 hours before you depart. And guess what, here is a pre-approved app that will automatically import the results from the lab if you go to one of these few labs that are designated and then you walk up to the gate, you flash your phone, it shows that you're using the approved -- one of the approved apps and your results are there, you get on flight, you land in that international destination, that health agency of that government recognizes that's an approved app who knows they've already vetted the type of test that's required for entry into the country within 72 hours, et cetera, et cetera. So you can see how the pieces are coming together, testing is just one important part. But I can tell you testing on airports is a key unlock and that's why we're so bullish on the future of just infectious disease testing in airports, whether it's COVID-19 today, maybe there's a COVID-2020. All it needs to do is have another strain that's discovered this fall, or other infectious diseases that people are worried about. I guarantee you -- well, as Americans in the past when we read about swine flu or bird flu in some exotic country or a far away place, that's never going to come here. I guarantee you, as soon as three people are discovered somewhere remote in the world with some news something is going over -- there's going to be an overreaction. So -- probably for years. So the idea of medical-use as being an integral part of travel is going to be a reality in a post COVID environment. It's very complicated to do in multiple states and multiple cities, especially in airports, but that is where we are uniquely positioned to do it and it takes a little bit of time to build this structure. But once it's there, it's going to be the tracks that I think a lot of people will be using as part of their travel regimen for sure. Thank you, Cole.

[Unidentified Analyst:]

Well, thank you, Doug.

[Operator:]

Our next question is from Alan Schumacher a private investor.

[Unidentified Analyst:]

Yes. I had a question about the health and wellness brand and its relevance, perhaps outside of the airport environment. What just gives you confidence that passengers are going to kind of triangulate what you provide in the airport to something external? I mean, isn't -- aren't kind of airport services really only relevant to customers if they address those needs when they're captive inside the airport? Can you just kind of shed some light on your thinking there?

[Doug Satzman:]

Yes. I'm going to stay kind of high level and it may be unsatisfying not to get enough details, because I'm not at that point yet to unveil all the pieces or many of the pieces. And frankly, we're still putting some together now. But the point is travel is a huge segment. Pre-COVID, more people are traveling every year. The world is getting smaller and people have more access around the world through travel. Health and wellness, big growing segment, already on its own. It's nothing to do with travel, it just health and wellness. It's not just for baby boomers who are trying to live longer. It's not just for millennials who want to see the world. It's -- and take care of themselves. It's -- they're big growing segments. Now if you put together travel and health and wellness together in a subsegment, that's what we think is going to emerge. And one piece is having real estate and airports that you can offer a range of wellness experiences, some medical, some mental health, some other health and wellness cutting technologies in new cool therapies. But travel planning happens outside the airport. And when you're deciding to go on a vacation, especially, if its health and wellness-focused, there's a lot of work that's done ahead of the curve. And there's not a lot of resources. Go Google and see how easy it is to find a lot of consolidated information that's easy to digest. If you want to travel and you lead a health and wellness lifestyle, there's a little bits here and there, but that's where there's an opportunity to provide content upstream and to monetize that upstream is if, we do a good job with it with a lot of traffic and clicks. Now we're starting to build a model that's bigger than just being an airport service provider. We're starting to touch people upstream. Then they come through the airport and they stop in for a service or a need. It could be your travel meds that you need to go on safari with your family to a whole range of things. But when you're in the airport especially during the layover when you have a lot of time, there are a range of compelling services some that you may need for a trip but others you may choose to because it is part of this travel help ones lifestyle. And then you can continue post on your trip through telemedicine and other technologies that are available to continue to engage with maybe a provider that you started with in one of our wellness centers. So it's starting to connect the dots of kind of the pre-trip planning and how do you capture mind share there, while they're on their journey through airports, going their way out on their return, but even when they're out away from home having tools and services that make it easier as well.

[Operator:]

Thank you. Our next question is from Laura Grif private investor.

[Q – Unidentified Analyst:]

I was just wondering if you had any more insight when we can expect the first of these reimagine health and wellness centers to open?

[Doug Satzman:]

They will be in 2021. The concept work is happening now. We've identified potential pieces of real estate in our portfolio. But the timing I can't set a date yet but we will. Like we do with XpresCheck and like I've done in my past development and other companies you do a couple of proof-of-concept models. Invariably you'll need to refine it and develop it further. All the while, we will continue to push into COVID testing and infectious disease testing especially with the pop-up prototype that's been developed and then continue to evaluate the XpresCheck business model with some of other services in retail that we're prepared to offer, if we decide it's time to reopen.

[Q – Unidentified Analyst:]

Okay. That's helpful. Thank you. And then just as a follow-up can you explain a little more why now it's the right time to be hiring more senior level people, just knowing that they'll be expensive?

[Doug Satzman:]

Now is absolutely the time. And anyone that's hired there will be an expected return on that investment. With bringing on a Medical Director was critical for us getting XpresCheck off the ground and other specialized professionals because it was a part of health and wellness that we didn't have a lot of experience in. And what we plan to develop with technology and services there are certainly some very strong thought leaders that we're talking to that can help accelerate. Go into your first question. When can we expect to see what this concept looks like? It's done by a combination of our internal talent, but certainly there's going to be some external talent that we need to bring in. It's not expensive when you consider the return on investment and what the unlock of the model will be. So, thank you. Did I -- did you have another question on that?

[Q – Unidentified Analyst:]

I am good. Thank you. That was helpful.

[Operator:]

Ladies and gentlemen we have reached the end of the question-and-answer session and are out of time for today's call. XpresSpa Group thanks you for your time and your participation. You may disconnect your lines at this time and have a good day.