XWELL, Inc.
Q3 2017 Earnings Call Transcript

Published: 9 Nov 2017

[Executives:]

Andrew Perlman - CEO Anastasia Nyrkovskaya - CFO Ed Jankowski - SVP, FORM and CEO, XpresSpa

[Analysts:]

Camilo Lyon - Canaccord Genuity David Bain - ROTH Capital

[Operator:]

Thank you for joining us for today’s call. Before I turn the call over to the Company, we need to advise you of 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 differences include those set forth from time to time in the Company’s SEC filings including the Company’s report on Form 10-K for the year ended December 31, 2016, and other current and periodic reports the Company files with the SEC. At this time, I’d like to introduce Andrew Perlman, the Chief Executive Officer of FORM Holdings. Please go ahead, sir.

[Andrew Perlman:]

Good afternoon and thank you all for taking the time to join us for an investor update and earnings call. Joining me today on the call are Anastasia Nyrkovskaya, FORM Holdings’ Chief Financial Officer; Ed Jankowski, FORM SVP and XpresSpa’s Chief Executive Officer. As we’ve discussed on previous earnings call, 2017 has been a year of transition. We were focused on our health and wellness business and the Company's to a pure-play its rapidly approaching completion. These efforts began with the transfer of the majority of our patent portfolio to Nokia in December 2016, followed by the closing of the XpresSpa acquisition shortly thereafter and just two weeks ago the closing of the FLI Charge divestiture. The Company is actively building options for the Group Mobile business and we expect to communicate our plans prior to the year and calendar 2017. We are focused on the health and wellness space because it provides a significant opportunity to build around our core XpresSpa’s asset. According to the Global Wellness Institute, the global wellness industry is growing at a double-digit rate and the global spa industry represented a nearly $100 billion mark in 2015, a strong customer to consumers desire to find relief from such. XpresSpa’s core addressable market has been focused on the size, but we seek to expand beyond our core to address and help to find a broader market focused on beauty and wellness on the go. The size and composition of the industry is attractive, and we aim to seek new partnerships and extend our brand into adjacent markets. Consumer preferences are shifting towards experiential outlets and the pronounce impact from the millennial demographic is providing fuels to this movement to continue in the future. Beside from the fitness oriented platforms, there are few moments company's with the focused corporate strategy and national brand equity, no less global brand equity. XpresSpa is the leader in a Specialize segment of the market that is four times the size of its next competitor in the United States, and we intend to press our advantage and leverage our brand opportunistically. In acknowledgement of our recent actions to transition to a pure-play health and wellness company, we intend to rebrand FORM Holdings as XpresSpa Group in January and have requested to change the ticker to XSPI. We are a service's company that is tailored towards quality, convenience and speed of service. We believe that our rebranding to XpresSpa Group will clearly communicate this mission to our customers, partners and shareholders. Our corporate focus will be to continue growing our revenues, brand and value, but while continuing to create efficiencies to position the Company for profitability as we complete the Company's transition to a pure-play health and wellness company in the current and coming quarter. Since closing on the XpresSpa acquisition in late December, our team has been completely emerged in refining our operations, identifying expense synergies and optimizing the business for growth. Consistent with our intention to streamline cost and optimize this business, we have made significant progress against these goals thus far in 2017, as we generated consolidated general and administrative saving of over 30% since taking ownership in December 2016. The impact of these efforts is visible and our Wellness segment performance where operating results improved by $400,000 in the third quarter as compared to the second quarter as well as the segments adjusted EBITDA, which was positive for the second quarter in a row. Within our Technology segment, a recently alignment is helping the organization drive sales and position us to maximize value for our shareholders. Combined we are approaching tipping point where we will be able to generate positive cash flow on a consolidated basis, and I would like to thank our team for their tireless efforts as we strive towards this goal. For the third quarter, FORM Holdings generated 17.7 million of sales representing an increase of 18% year-over-year on a pro forma basis including XpresSpa in the same period a year ago prior to our ownership. Consolidated adjusted EBITDA with a loss of $600,000 for the third quarter and represents the second sequential quarterly improvement. We continue to focus our energy on optimizing our businesses and positioning them for growth. Let's now shift to discussion around our progress on some of the operating initiatives that we are working on within our Wellness segment. First, let's talk about our expansion opportunities. As we have discussed, XpresSpa is a platform by which the Company is accelerating its growth in the health and wellness industry. XpresSpa provides air travelers with premium health and wellness services as well as branded line of exclusive luxury travel products and accessories at its 51 location across 23 major airports in the United States, Thailand and the United Arab Emirates as of the third quarter end. During the third quarter, we reopened one remodeled location and closed one location that was being adversely impacted by a large-scale construction project in its terminal. The growth opportunities available for the Company are significant. A revised growth plan which we introduced last quarter features a total of 12 new units in 2017. Today, we've opened up 6 of these 12 units with the balance scheduled to open later in the fourth quarter or before year end, putting us on pace to have 60 locations in operation by year end 2007. Beyond these 12 units, we have an additional nine units that have term sheet, lease agreement in place or 3 in RFP. These nine units will open in the upcoming fiscal 2018. XpresSpa has not seen this level store growth in its history and to help us manage these openings, we are having a former manager from dry bar for our team to help ensure that these locations are opened on time and on budget. XpresSpa success in penetrating new and existing airport speaks to the value of our airport partners see in our superior luxury spa offering, which is complementary with their strategy of enhancing retail and service offering. In addition to leveraging our relationships with airport operators, XpresSpa continues to be extremely competitive in an objective RFP process. In fact, we have recently won a new location Philadelphia which will be our fourth location there as well as a new location in Houston George Bush Intercontinental Airport, which will be our first location there. We express a number of decisions on RSFs that we are participant in the next nine months. The Company's relationships with its landlord are an important ingredient to our success and will be central to the Company's ability to grow our market share in backfill markets. The great example is a recent expansion in Charlotte's Douglas International Airport. Our first full service location was opened in Terminal B and this past week we opened up an additional location in the A/B connector and what is the sixth busiest airport in the country. We're off to an exceptional start there due in large part to extraordinary staff. In fact, after its first week operation, our Terminal B location with a number of chain best performers, which speaks to the speeds at which our units can ramp and we are able to execute our labor model. As we've noted in the past, engaged technicians and an efficient schedule make all the difference in a location's success. We are fortunate to have on-boarded the entire staff from our competitor whose location we takeover and now occupied in XpresSpa. We look forward two additional openings in partnership with Paradies who operates the confessions in Charlotte and many of the other terminals that XpresSpa occupies around the U.S. The Company's partnerships with its landlords are proving to have value across other retail format as well. Consistent with our strategy of raising XpresSpa’s profile, we've been working on a prototype for select venues operated by proven partners to gage XpresSpa’s liability beyond the airport. While it's preliminary to make a former announcement, we are excited to learn how we can adopt our model as the potential effects on our addressable market could be considerable. We've also been cementing our competitive position in key markets through investing in renovations of which we complete a number in the third quarter. In all cases, we see 15 concessions or extensions from our landlords in the case of making any material improvements. During the third quarter, we reopened our flagship location after nine years in operation in JFKs Terminal floor. The extensive remodel allowed us to execute a seven year lease extension on similar terms. Our ability to innovate has been essential to growing our long-term partnerships with terminal floors operator JFK, IAT since our first location opened there in 2005. Today, we have five locations in Terminal 4 alone, which speaks to the growth opportunity we have with our other airport partners across the country. As you might infer, there are variant degrees to a remodel ranging from 15 days for a light version to 90 days for the complete makeover that have described at JFKs terminal floor. Mostly importantly our team is focused on maximizing ROI at the project level and each of these is executed on time and on budget. One element of our growth story that we are extremely excited about is our franchising opportunity in secondary and tertiary markets here in the United States, as well as the international expansion of the model. We are in the final stages of gaining approval for our franchise disclosure documents which once approved will mark a crucial milestone for any franchising strategy and pay us the way for our team to begin formally engaging with potential partners. We remain extremely encourage, if there is an appetite for the XpresSpa model and other location and we intend to take a measured approach as we embark upon this new channel of growth which should kick-off by year-end. Now, I’ll transition to the operational aspects of the business starting with our store level model and some of the strategic initiatives we have in place to drive efficiencies and support long-term comfortable store sales there. XpresSpa’s units have strong store level economics with modest CapEx requirements that will deliver strong cash-on-cash returns. Further demonstrating uniqueness of the casted airport retail environment, our spas ramp quickly and are performing near chain average in the first few months of operation. This dynamic allows us to generate impressive cash on cash returns that has historical allowed for a full payback in approximately two and a half years with the typical lease terms of seven years. Our expectation is that these new units will produce in excess of $1 million of revenue with the store level contribution margin of approximately 20%. The Company’s recent class of openings continue to perform well and are actually generating higher relative return based on improvements we made in our design to lower build our cost. We are comfortable that we can further improve upon the store level profitability overtime as we continue to refine our operating model and implement initiatives that will not only drive margins but improve sales. XpresSpa is a service business where people are the difference between an outperforming unit and an average unit. In that vein, we took advantage of an opportunity to do right employee and send a message of compassion during the extreme weather event that impacted Houston and greater Florida. As I stated earlier our employees within our Houston Miami and Atlantis spas were greatly affected and was imperative that we demonstrate proper responsibility during these hardship by retroactively paying wages during our spa closures at Houston and proactively implementing the same program at our Florida location. Our intent was to make a cultural statement to our employee that we care about their well being and we aim to build upon this massage in the future to assist in our recruitment and retention effort. Another aspect of the business that the leadership team spent a lot of time on is our store format. As I mentioned, labor is our most important asset but once the customer is engaged, we want to ensure that we can offer a complete experience from both the service and retail perspective while casting the XpresSpa brand in the best possible way. To this end, we have announced three material partnership year-to-date 2017 that I'll touch on. In May, we announced our exclusive partnership with Capelli New York, global designers and manufacturers of on-trend private label and branded products to co-produce and sell XpresSpa's line to branded travel and spa products and accessories, which include neck pillows, blankets, massagers and masks among others. This partnership kicked off in October with the launch of their line of XpresSpa merchandise, it will be available within our spas as well as the broader retail channel through Capellis distribution relationships. Two weeks ago, we announced that they will be creating and manufacturing a full line of products which were featured at market reach, a buying market place for traditional retail. As a reminder, this partnership creates synergies from the margin and working capital standpoint while generating a new revenue stream via our licensing agreement that allowed for use of the XpresSpa brand outside the airport environment. In the next few months, our XpresSpa units will be transitioning to this upgraded merchandise as we sell through existing inventory and we are extremely excited to gauge the customer response. Our latest store layout continues to perform well and is helping us test new concepts and offerings that will expand our addressable market over time. Last quarter, we talked about an increased emphasis on nail care by providing a dedicated service area with clean and attractive workstations that immediately communicate our offering to potential customers. The initial enhancements in productivity are extremely encouraging. In addition by December 1, we will complete the rollout of stand up nail station featuring essie's gel couture branded polish in all U.S. locations which further differentiate our content. Aligning XpresSpa with premier brands like essie serves to raise our brand profile and is an excellent example of how we intend to build on our wellness platform and become one of the preeminent companies in the industry. XpresCryo facial is a service we launched in partnership with Nordic Cryotherapy at our location JFK Terminal 4 in B gate, and it's a great example of the innovative concepts we are bringing to the airport. This service is performed by a trained technician who uses handheld equipment to administer the vaporized nitrogen cryotherapy treatment that protects the skin to extreme deep freeze temperatures, which in turn improves the skin tone and collagen production. Our goal of expanding our services is threefold, create amazing experiences for our customers through innovation; drive same-store sales and enhanced margin. Finally, a few comments on technology. Upgrading our systems is a major opportunity for us to better leverage our customer relationships and harness that underline data to drive sales and allow us to operate more efficiently. Consistent with our original plan to rollout the new systems in the fourth quarter of 2017, we are essentially complete. These systems include an upgrade to our legacy IT infrastructure and point of sales system. The new point of sale platform in particular has already generated an overwhelming positive response from our customer facing staff. The upgrade is a long overdue and solves many of the simple challenges our employees face with vis-a-vis. More broadly, the entire technology package will allow our management team to be much more nimble with respect to reporting audits and most importantly deepen our understanding the complexities around scheduling and employee utilization, so we can take action to solve, but still a greatest challenge labor. Providing consistency to our customers will allow us to execute on our promise of timeliness, which is central to our efforts to put the express back on XpresSpa. These systems will also allow a more complete solution for the Company's traveling customers permitting reservations and opening up targeted digital marketing to approximately 180,000 affinity members already in our system. A quick note before I shift to the discussion of our Wellness segment financials. We ended the quarter with $10.1 million of cash. This balance was temporarily impacted by working capital investments and the inventory that were necessary as part of our transition to a new XpresSpa merchandise supplier as well as inventory investments required at Group Mobile and advance at some larger roll outs to customers. Both of these dynamics are already reversing and will release between 1.5 million to 2.5 million of cash in the fourth quarter. Now on the segment level financials for wellness, please note that we've provided a segment level income statement for quarter ended September 30, 2017 as well as an adjusted EBITDA reconciliation to further assist you in your analysis of our progress. Through the third quarter 2017, we generated revenues of $12.7 million which represents an increased at 6% versus the prior year period on a pro forma basis. Like many companies were negatively impacted by the hurricanes in Q3 particularly at a five spa locations in Florida and one location in Houston. Our Atlanta units were also impacted and felt the effects of Irma but to a lesser degree. As I mentioned earlier, we experienced store closures associated with the storms and a temporary decrease in airport traffic across the country due to itinerary changes in cancellation. While we carry business interruption insurance for reasons like this and has submitted a claim that claim has not yet been filed. With that said, we are seeing the fruits of our increasingly diverse geography and estimate the impact to total third quarter revenue was approximately 3%. This impact was more consistent with what airlines have reported and some most severe impacts within the theme park and major industry. As previously discussed, we continued to pay our employees during the store closures which amounted to approximately 200,000 of additional labor and other direct costs. We generated a gross profit $2.3 million representing 18.2% of sales which includes our slow labor as a component of cost to sale. Removing the additional labor and other direct costs resulting from the hurricane, our wellness gross profit margin would have been 19.7%, operating loss for the segment was 1.6 million in the third quarter which include $400,000 on a sequential basis from the second-quarter operating loss of 2 million. The third-quarter operating loss include 1.7 million of non-cash depreciation and amortization and 0.5 million of merger, acquisition and one-time hurricane related costs. Excluding these costs, we achieved adjusted EBITDA of $600,000 during the third quarter of 2017. Despite the weather-related headwinds we remain in a position to meet our full-year 2017 goals. Through the first nine months, the Wellness segment generated 36.6 million of revenues. As we noted last quarter, several renovations and plant openings were anticipated to fall at the end of the third quarter and beginning of the fourth making for a disproportionately large fourth-quarter relative to our historical norms, which gives us comfort in obtaining our 2017 forecast. To reiterate, we have taken considerable steps to optimize the cost structure within the Wellness segment and these initiatives are nearly complete. We're proud to report that our year-to-date segment level EBITDA of $1.5 million is just well on pace to achieve positive adjusted EBITDA for the full year 2017 for the wellness segment, which was our primary goal when we took ownership of the business nearly a year ago. Given our dynamic construction schedule, we intend to provide investors with a more complete update on our 2018 unit opening plan and revenue projections during our fourth quarter release. Now, I would like to transition and speak about our technology segment for a moment. We are making substantial progress towards our goal with creating a pure-play health and wellnesss enterprise. As I mentioned at the top of this call, we have isolated the bulk of our patent portfolio, the divested FLI Charge and we are in several discussion to take a strategic action with respect to Group Mobile. FLI Charge continues to be classified as its discontinued operation on the income statement and an asset held for disposal on the balance sheet in the third quarter of 2017 as the closing took place following end of the third quarter. We continue to anticipate that our technology segment let us to do process for conclude things and expect to provide investors with an update on our plans at year end 2017. For the third quarter 2017, our technology segment which reflects Group Mobile's operations generated 4.9 million of revenue and represents an increase of 179% versus the prior year period. Gross profit was a 1 million representing 20% of sales which is nearly double the prior year period margin of 11.3% and continues to benefit from the addition of our services business, which is driving an improved margin trends. Commensurate with its comprehensive platform, the Company has been busy putting agreements and partnerships in place, we began deployment of supply and mobile technologies and services to a large staff used utility company that’s on a multiyear contract, a large Texas county government agency Indianapolis-base transportation and bus route integrated software provider and Florida Marine Law Enforcement agency. We also received orders from larger key customers such as [indiscernible] DT systems, Mali Corporation, Nissan and Shaw a division of Berkshire Hathaway. In closing I would like to reiterate how excited we are about the path Form is on. We continue to expect steady improvement in cash flows as we began enjoying the resultant leverage of our smaller fixed cost base as revenue grow in concert with our accelerated opening plan. This will provide the foundation for expanding operating margin and ultimately consolidated profitability as we realize scale. We are in a great position to build upon our leadership position in the fast-growing health and wellness industry with the highly productive store model. We will continue to pursue growth through our existing XpresSpa platform of seeking out new avenues that are complementary to our core competencies. In the near term, our focus remains on growing XpresSpa while continuing to be conscious of cost and separately the rationalization of other asset. We look forward to updating foreign shareholders on our pursuit to enhance shareholder value. Operator, you can now open the call for Q&A.

[Operator:]

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Camilo Lyon with Canaccord Genuity. Please proceed with your question.

[Camilo Lyon:]

Could you just remind us how do you view the market opportunity within XpresSpa segment and the airport location market? And then maybe touch upon other opportunities outside the airport that you briefly mentioned as it relates to XpresSpa and it sounds like you are also contemplating the opportunity to expand into other concepts and categories, and if there is anything on that will be great?

[Andrew Perlman:]

In terms of the addressable market, we believe that the U.S. market could support 170 company-owned stores and up to 100 rental franchisees. Separately we think that the international market to support also approximately 150 company-owned stores. As I mentioned in the prepared remarks, we think it's premature to announce exactly what we are going to do outside airport, but we do think that it is important to test a prototype that we are quite for a long, we of course recognized that the service in merchandise mix often it will be different than what is inside the airport. So while the opportunity is potentially huge. We first want to make sure that we tested judiciously. In terms of other concepts that we are looking at things like we are doing like to cryofacial. We ultimately think it could be a standalone concept of something that we are still contemplating, but again our goal is to constantly innovate fast wellness services and also to think about the higher market. So we think that those might be able to live there and standalone brand but that’s very forward-looking at this point.

[Camilo Lyon:]

And then as you think about -- you mentioned in your prepared remarks your biggest hurdle is health. As you think about the new technology vetted the POS system. How does that help you engage in any talent, new therapy into the store and hopefully do you over that get people into the stores?

[Andrew Perlman:]

So, the technology really helps us to be efficient with the labor pool that we already have. In terms of actually recruiting talent the other thing that the technology and the store does, is it does give us more modern setting, it's easier for our employees to use. When you go into our stores now you will see an iPad at checkout that is something that looks like an old cash register, so the training program is much easier for us. But there is a separate component of talent recruitment that if anybody looks at or social media or even things like Glassdoor, you can constantly see that the morale of employees is improving, so part of when you say technology is our presence across every place that our brand, which is something that we are still working on, but we believe it steadily improving.

[Camilo Lyon:]

And then my final question is. Is there a thought to start to leverage that on the sales technology to perhaps create like a frequent travel visitor membership program or something that effect down the road, so that you can create a larger share of wallet opportunity to your customers? I'm assuming are probably more VIP customers that we came to know the brand and see the brand more or frequently at the, which is the travel that you motioned?

[Andrew Perlman:]

Yes, so while we haven't set actual goals and delivery dates for 2018, there are number of things that relate to your question and we are working on that. The first it is being able to take real time twice data and better schedule for our employees, but something that's really that we may ultimately be able to give any guidance. But it's premature to set dates around that as because our customers are frequent travelers and upper demographic, and we have an 180,000 loyalty card members. We could wrap all of that into an experience associated with our brand and it may get -- put it into a format that is very easy for our customers to use and constantly engage them with their movement. Is that something is definitely at the top of mind for us and something that we are beginning to plan for the next year.

[Operator:]

Our next question comes from David Bain with ROTH Capital. Please proceed with your question.

[David Bain:]

First, Andrew just on guidance I understand that the 50 million of wellness was reiterated on technology. Are we still looking for 20 million fairly sizeable increase quarter-over-quarter?

[Andrew Perlman:]

David, there definitely would be a sizeable increase quarter-over-quarter. Like I said as it relates to technology generally what we wanted to do is that to announce our plans for the business before the first quarter was over.

[David Bain:]

And then looking at calendar '18 and they indicated December quarterly run rate based on your 50 million wellness guide. Then you look at your pipeline as you announced it for next year as the same-store sales increases I mean unless the openings are really back half loaded like really back half loaded it seems somewhat conservative but I'm hoping to maybe get some thoughts like reasons just to why you are waiting is this a timing to schedule with openings is it ongoing negotiations that you can look to potentially incorporated service expansion planning trying to get understanding as to kind of why were what the methodology is around your upcoming discussion and guidance in the fourth quarter?

[Andrew Perlman:]

Yes, absolutely. So in our case everything people that have been following the Company now. The current pipeline of openings in the second quarter started to come together very quickly and as I mentioned in the prepared remarks we already have nine that are in the pipeline and for next year. And we do have this possible increasing and one of this thing that we were really focused on again as I mentioned is the Company has never seen store growth like this ever before so when we give guidance. We want to be in a position where we can commit to it we believe that many of those openings that are already schedule will happen in the first half of the year but until. We get to the for really deepen things like the permitting process we just we want to be able to deliver something that we can move by and so like I said you can expect that form us when we deliver our fourth-quarter at early next year.

[David Bain:]

Okay and just two more quickies. One, just to clean up the -- you did a great job of kind of letting out the whole margin components for the fourth-quarter, so we should be expecting margin just normalized margin like 20% or 19.7%? This is in the…

[Andrew Perlman:]

Yes, so our expectation is that we will do that or better. I mention three partnerships that have launched so far this year. All three of those will be in full swing as we get into the fourth quarter and you can also expect more innovative things from us in the fourth quarter that will help us expand margin. So you could expect a more normalized margin and as I think we gave some color around the hurricane obviously had a very, very limited but specific impact both to the top and to margin level.

[David Bain:]

Just with that I guess my final one will be on things cryofacial and what have you -- as you look at JFK terminal post that you have added that. Is there any sort of financial impact either on a margin level of revenue level? When you put these services across some of the platform what's been the response today is there anything you can share with us?

[Andrew Perlman:]

I think I should share a little bit about nail care and I talked about Cryo for the second. In the case of Cryo, we know it's exciting its simply too early for us to get no material guidance, again it's right now we're limited, we're in one location and the service that we are very, very excited about. We see the promise there but because it's limited we know that it will cause an uptick in margin, but I wouldn't give a number yet. I'll turn it over to Ed to talk a little bit about what we've done with essie in the third quarter?

[Ed Jankowski:]

We had a full year track in seven of our locations. We are in the beginning of year we started covering the essie market share. It was only in seven locations and literally there was a 22% spread between the performance for nail -- performance is richer performance in that spa and the rest of spa. So it's tremendously successful. In addition in our relationship with essie here, as of December 1st, we are committing a fourth perception in the front of the store, a retail front of the store to really display, top of the display our essie product, our gel couture and enamel. Prior to that it was done on the corner and was located throughout the store. So this commitment to the front center is very, very exciting. We set up T4 -- the JFK T4 main store that we remodeled. We set that up at the beginning of October with the new essie fixturing and our retail nail sales are up 115% over the same period for last year. So we are very, very bullish on our ability to really grow our essie business to use essie gel couture to grow our manicure and pedicure, and then also to see some strong retail sales of the product for next year.

[Operator:]

[Operator Instructions] Our next question comes from Josh Caddle [ph], a Private Investor. Please proceed with your question.

[Unidentified Analyst:]

Andrew, I had a couple for you. Going from easy to hard. Store count, one by one store during the quarter, you mentioned that was a construction loan closing is that temporary or permanent?

[Andrew Perlman:]

It was a permanent of course it was all terminal and DSW was the delta terminal, we're actually tearing it down. We stayed right to left that was opened, but at the end of the day they are remodeling that whole area, so that’s terminal is actually going away as it exist today.

[Unidentified Analyst:]

So you guys get to refocus that equipment or is it just lost?

[Andrew Perlman:]

That was a more of a key also we are storing and we are using the opportunity is up to us to bring it somewhere else.

[Unidentified Analyst:]

Okay, second one should be a quickie. I know in the past you guys have disclosed some sort of quarterly issues seasonality estimate and I was looking forward and I couldn't find it. Can you remind me of what the quarterly breakdown as in terms of revenues?

[Andrew Perlman:]

Sure. So historically we the third quarter has been 2016 has changed first quarter is the latest Q2 and Q3 are the busiest. I think in this case as I mentioned then in the prepared remarks I think we are going to break out at the historical norms because of the number of store opening that are happening in the fourth quarter, as we mentioned, we would opened up three locations just in the past five weeks. And so that's various -- I think grows us a little bit out of what's been historical on the new layer on the approximately 400,000 that we estimate for those loss that results of the hurricane, and if are going to be fairly out of that with the historical seasonality.

[Unidentified Analyst:]

Quicker question for you about the line in the K about the there were 1.8 million of M&A integration re-org and non-recurring costs. I know that I think that includes 200,000 of hurricane cost regarding so which gets it down to 1.6 million. I think you said also in the prepared remarks about a $1 million of D&A and the year or two did I get it right?

[Andrew Perlman:]

No, I don’t think we address the depreciation and amortization in that prepared remarks.

[Unidentified Analyst:]

Okay, so in this $1.8 million merger and acquisition integration for the third quarter. Can you talk about that?

[Andrew Perlman:]

So that's actually the year-to-date number that's in the queue I think what you are referring to is the liquidity table that we inserted in the queue.

[Unidentified Analyst:]

No, I'm looking at the, I'm sorry I'm looking at the K that says the Company's operating loss from continuing operations for the quarter of fiscal 2017 included approximately 1.8 million of merger and acquisition integration re-org and onetime non-recurring costs related to the interruption of business due to hurricane? It's under operating results the second line under operational results, second paragraph right above the balance sheet and cash flows in the K and I think…

[Andrew Perlman:]

Sorry, I think I apologize I don't have Q, the Q in front of me, so I'm not concerned of paragraph you are referring to.

[Unidentified Analyst:]

I can talk to you about that off line, if you like.

[Andrew Perlman:]

Yes, I mean happy to, but I think that but just to address that I believe what we said is $1.8 million of M&A related costs year-to-date. Definitely, I think if you look at the adjusted EBITDA tax moving to page on 20, and I'll give a breakout of the Q3 related costs by segment. And then I think in that case it's about 529,000 for XpresSpa’s which is the one that if you are referring to something that actually include the hurricane that includes the additional cost of the hurricane.

[Unidentified Analyst:]

Okay, I guess the final question. I don’t think I'm the only shareholder asking this question. Just when we talk about understand the goal to get cash flow positive on a consolidated basis. You have get this obviously still 18-months out, you have new stores that are opening in cash and you have current operations that are still burning cash because the corporate overhead. What can you say to rely shareholders concerns about the current stage of cash despite your continued desire on goals are getting cash flow positive with the consolidated basis.

[Andrew Perlman:]

And so I think I would say a couple of things. So first of all if you look at FH corporate operating cost must be XpresSpa cost on an ongoing basis. We believe that on an operating basis that what we've had that day-to-day operating cash flow breakeven point and about 60 units, which will be right there at the end of the year. So I would say that's number one. Number two as I mentioned we are about to generate cash from inventory. And then number three as we talk about and as was the case although in small amount but FLI Charge as we started to spin off and look at what we do with our other assets and actually goals and believe this will generate cash as well.

[Operator:]

Ladies and gentlemen, we have reached to end of the question-and-answer-session. We thank you for participation today. You may disconnect your lines at this time and this concludes the call.