XWELL, Inc.
Q1 2019 Earnings Call Transcript

Published: 15 May 2019

[Operator:]

Greetings and welcome to XpresSpa Group, Inc.’s First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. Today's conference call is being hosted by Mr. Doug Satzman, CEO. Before I turn the call over to him, I need to advise you for the following. 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. Actual results may differ materially from those contained in or suggested by such forward-looking statements. Important factors that might cause such difference include those set forth from time-to-time in company's SEC filings, including the company's report on Form 10-K for the year ended December 31, 2018, and report on Form 10-Q for the three months ended March 31, 2019 and other current and periodic reports the company files with the SEC. During today's call, the company will refer to certain non-GAAP financial measures, which it believes can be useful in evaluating its performance. The presentation of these measures or other information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. For reconciliation of these non-GAAP financial measures to GAAP measures and a discussion of why the company considers these measures useful, please refer to today’s earnings release. With that, I’d like to turn the call over to Mr. Doug Satzman. to date the earnings release. With that, I'd like to turn the call over to Mr. Doug Satzman..

[Doug Satzman:]

That you, operator, and thank you all for joining us today. I would like to begin by providing a brief business update and then reiterate our near term longer term focus areas. Afterwards, I will review our first quarter financial results in greater detail before concluding the call with a few closing remarks. Since joining the company three months ago, I've been working diligently with the team to prioritize initiatives geared towards enhancing the customer experience, turning around negative comparable store sales and identifying cost savings measures to improve our overall financial condition. We are obviously still very early in that process and would therefore like to remind everyone that 2019 will be a transitional year at XpresSpa. But our goal is simple

[Operator:]

Thank you. We will now start our Q&A session. Our first question today comes from [Steven Calderon]. Steven?

[Unidentified Analyst:]

I have two questions, so I will start with the first one here. How have you been able to turnaround comp so quickly and is it sustainable?

[Doug Satzman:]

Thanks for the question. I have received the same question from my Board. And I’d love to say there’s some magic that I brought to the table and there’s initiative behind it but really I attribute it to two things. One, we put a new middle management in the fall in the place before I arrived and many of them upgraded, some of the spa managers -- management team we have in the airport. And when you have new operational leaders that can take three, six months before you start seeing results, and I attribute the part of the success there. The other part, my first six weeks, I went out on a listening tour and visited over half the airports. We spent several hours in each spa and through this I got my education into the XpresSpa business that I think equally I it did something for morale and the feedback I received is our field of innovation is feeling much closer to the support center and on top of the organization. And that’s employee engagement and when you have employee engagement with regular ongoing communication after that listening tour which I provided to kind of cheer them on and let them know I'm watching their results and encouraging them and I think the combination of the two have helped lift up. And these are softer reasons but I'm excited with the initiatives that we have planned that directly tie to the increasing frequency of the customers and our throughput, that too I'm really excited to see what can happen.

[Unidentified Analyst:]

Okay, thanks. Appreciate the color. And if I may, can you also discuss the Easter calendar shift between Q1 and Q2 and its impact on March and April?

[Doug Satzman:]

Sure. So in March we were comping over Easter weekend with a traditional week and Easter break vacation shifted into April and into Q2. So we did have some lumpiness there in March when we had a traditional business traveler week comping against the vacation week. In April, I was prepared to gather the counter side and it really didn’t impact us as much as I thought. In fact as I shared earlier our comp sales were even higher -- positive in April than they were in March. So in some ways, I didn’t see the typical trade-off in the [indiscernible] fiscal periods and other fiscal period based on how we handled demand.

[Operator:]

Thank you. And second question that we have is coming from [Ryan Miller]. Ryan?

[Unidentified Analyst:]

Hey, Doug. This is Ryan Miller. Could you provide an update on the Calm relationship and if you expect to renew the partnership before it expires in July?

[Doug Satzman:]

Sure. Calm has been a very valuable strategic partners since they've come onboard. And we are currently working with them on some new products to complement their offering that fits their brand that are really pretty cool, again we are not ready to announce them yet. But more importantly our partnership expires this summer in July and we are in conversations with them on terms to extend it. Both parties are interested, but we still need to finalize detail.

[Operator:]

Thank you. And we have another quick question coming from [Michelle Corly]. Michelle?

[Unidentified Analyst:]

Hi, Doug. So I noticed you have one franchise opening in Austin but now you are also opening a company operated spa in the same airport. I saw the strategy was for franchisees to open in smaller markets and for the company to concentrate on further penetrating existing airports. What has changed there the strategy?

[Doug Satzman:]

So the strategy remains as it has been presented before. Franchisee network is well suited for the midsized and lower volume airport environment and -- but because we are a new franchiser and we believe that Austin airport can support two spa locations, we made the decision for the first time to open a company-owned alongside our franchisees in different terminals. It’s primarily there to help support a very first franchisee of a great start and we still have a lot to learn about being a franchiser as this is our first time and I made the decision to help them open simultaneously where we can support our new business partner and they have direct access to us to have a good first experience and often that first franchisee experience is critical and supporting future franchisees coming in. And long-term though our intent is not to have a company-owned and franchisees in the same airport and eventually may sell that company-owned store to that franchisee as things develop over time. There’s no change in strategy.

[Operator:]

Thank you. Our next question comes from [Will Listing], Will?

[Unidentified Analyst:]

How many more closures are planned for this year beyond the one that was closed in Q1?

[Doug Satzman:]

Well, as I shared before I've been looking at the new store pipeline to make sure we're only opening medium and high volume stores. And I think we had a history of being a bit opportunistic where we've opened. And as a result, we have a range of performance of the new stores and I've clustered it down to the ones that have the most -- the clear path to having a good return on investment. Similarly if I haven't talked much about is I am looking at the underperforming store costs and where I can get out of contract and leasing, to have a penalty and close underperforming assets. We're going through that exercise now. In fact we closed another store in the month of April that was a cost generating store. So how many more that we have this year? I'm not sure. We’re going through the review now in context of our contracts that we have. So I don’t think it will be a significant number but there are a few that we’ll drive down the portfolio, that’s not of that interest to wash those out of the system.

[Unidentified Analyst:]

And on the remodeled, how much does it cost to do a remodel, what kind of sales lift you project as a consequence of doing one and how much downtime is involved?

[Doug Satzman:]

Yes, the remodel question, of only one, you’d like to think every time you invest capital into remodel you’re going to see return on that investment. In my experience, you sometimes do. So when you’re expanding services or offering something new, very often you see a uptick in sales and return on that investment. But there’s other times so you need protect your brand and refurnish carpets and walls and mirror, and those may or may not see an increase in sales but often you heard me talking about offense and defenses. We’re often acquiring some contracts to renovate our stores. But regardless when we invest dollars we try to do it very smartly, again that’s probably return on investment, but sometimes it’s just protecting the brand and making sure we not become uncompetitive. Certainly it’s a luxury service that we’re providing to the traveler and we need to make sure our environment is at the same level of our services. You asked about how much do we spend, it range from 15,000 to 20,000 to 250,000 so it’s really a wide range. And that can be attributed to kiosks that I have, much expensive stores and very large stores on the other end of the spectrum and impacting some of our contracts and therefore they classify certain minimum dollar amount that needs to be spent. So we make sure on our contract are very careful that we’re not spending about the minimum unless there is any sales generating initiative that we’re having. And then I think the third part is that how much downsize is involved. My goal is to have no downtime, so we can do a remodel, any redo over multiple nights and we’re still operating during the day, that’s always the first choice. Sometimes we look at it as a temporary situation to keep some level of sales and revenue going if there’s more work and more time that we may have to close for a couple weeks when we don’t have the option to be relocated to a temporary space and we’re doing pretty material construction work. So always the goal is to minimize downtime but it changes case by case.

[Operator:]

Thank you. At this moment, we don’t have any further questions. Thank you for joining the call today and you may now disconnect the lines.