XWELL, Inc.
Q3 2016 Earnings Call Transcript

Published: 9 Nov 2016

[Executives:]

Andrew Perlman - Chief Executive Officer Anastasia Nyrkovskaya - Chief Financial Officer Cliff Weinstein - Executive Vice President and President of FLI Charge

[Analysts:]

[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-time in the company’s SEC filings including the company’s annual report on Form 10-K for the year ended December 31, 2015 and other current and periodic reports the company files with SEC. At this time I’d like to introduce Andrew Perlman, the Chief Executive Officer of FORM Holdings. Sir, the floor is yours.

[Andrew Perlman:]

Good afternoon and thank you all for taking the time to join us for an investor update and earnings call. I'd like to update our shareholders on recent events at the company as well as give some color on the status, the acquisition of XpresSpa and reiterate why our team has won such a great transaction for the company’s shareholders. Joining me on the call are members of FORM Holdings, XpresSpa and Group Mobile management. From FORM Holdings we have Anastasia Nyrkovskaya, our Chief Financial Officer, as well as Cliff Weinstein our Executive Vice President and President of FLI Charge. From Group Mobile we have Darin White, the company’s President and from XpresSpa we have Ed Jankowski, the company’s CEO. For those dialing in that are unfamiliar with the recent repositioning of the company. We’re a holding company that focuses on acquiring or investing in small to middle market businesses that have the opportunity to become category leaders. We are sectored in NASDAQ and look for companies in need of additional capital, marketing, recruiting for the implementation of best practices and system improvements, which we believe we can bring to the table to help maximize value for shareholders. As part of our strategy, we acquired Group Mobile and FLI charge at the end of 2015 and most recently announced our pending acquisition of XpresSpa. Prior to our acquisition, Group Mobile was a reseller of rugged mobile and field use computing products with limited resources and flat revenue. Upon completing system level enhancements and adding key hires, the company is now a fully integrated solutions provider whose revenue is expected to double in just one year. Prior to our acquisition, FLI Charge developed a promising technology, but lacked the ability to commercialize it. We rebranded the company, redesigned and launched a consumer product line and partnered with leading companies in automotive, education and hospitality markets. As you’ll see, we take a disciplined approach looking at businesses where we’re confident our skill sets will add value. We’ll continue to utilize this approach on our existing businesses as well as XpresSpa and other future endowers. In addition to our existing businesses and recently announced pending acquisition, we also earn a minority interest in Infomedia, a leading UK based mobile technology and payments company and have continued to realize value from our intellectual property portfolio of more than 600 patents. I’ll now provide brief updates on Group Mobile, FLI Charge and our IP segment and then conclude with an update on the acquisition of XpresSpa, which we anticipate closing towards the end of the month. So far this year, Group Mobile has generated 5.5 million in revenue of which 1.8 million came in the third quarter. The third quarter is seasonally the slowest quarter for government and more general price owners. About five weeks into the fourth quarter, we’ve already received orders for more than $2 million worth of products and services. As such, we anticipate that the rate of orders will continue to increase as we move through the reminder of the quarter. Keeping in line with management’s guidance from our previous investor call, we expect full year revenues to reach 12.5 million in 2016, representing 135% increase over 2015. Lastly, in the past few months we announced partnerships in the body-worn video market as well as the launch of our services business. We believe that the addition of these offerings will grow our customer base, increase margins and yield recurring revenues as we move into 2017. Now on to FLI Charge, earlier this summer we explained the FLI Charge launched its consumer product line on Indiegogo, a crowd funding platform. In an effort to support existing and future partners as well as get a sense of the consumer marketers demand for FLI Charge’s products and technology, today the campaign has generated more than $225,000 of pre-sales in the form of orders to more than 1,800 backers ranking 500 campaign in the top 400 or the top one tenth of one percent of the more than 550,000 campaigns that have launched on Indiegogo since its inception. Tooling for FLI Charge’s product line complete and manufacturing inventory is underway. FLI Charge will be facilitating pre-orders this month and simultaneously launching an ecommerce presence, independent of Indiegogo, to provide a direct to consumer marketplace for FLI Charge’s product line as well as a more dynamic platform to educate consumers on FLI Charge’s technology. In the third quarter, we signed a MOU with Papp Plastics, a multinational Tier 1 auto parts for the leading auto brands in the world. Last week, FLI Charge’s products and concepts for future integrations into the auto and power tool industries were on display Papp Plastics booth as SEMA, the world’s largest automobile show. FLI Charge’s also featured in the MITO Corporation booth. So far this quarter FLI Charge’s managing team has been laser focused on expanding new availability of its consumer product line through online, direct to consumer and brick in more allocations. The team is also working on securing additional partnerships in addition to those that it already has to expand the FLI Charge ecosystem. Now I’ll touch briefly on our IP portfolio, our intellectual property operating segment generated $11 million of revenue year-to-date and $1.4 million of revenue during the third quarter. The revenue was derived from one time licensing payments from multiple companies. We continue to actively license our IP portfolios as well as the strategic alternatives that we believe enhance shareholder value. Next, I’ll discuss XpresSpa, as announced on August 8, we entered into a definitive agreement to acquire 100% of XpresSpa, the industry leading luxury airport spa business. The transaction which has been approved by FORM Holdings’ and XpresSpa’s respective board of directors is subject to closing conditions and approval by the FORM Holdings’ stockholders at our annual meeting on November 28. Afterwards we expect to close the transaction immediately. To review, XpresSpa provides air travelers with premium health environment services as well as the branded line of exclusive luxury travel products and accessories at its 51 locations across 21 major airports in the United States, Amsterdam and Dubai. We believe XpresSpa is a great acquisition for our shareholders for several reasons, of which I’ll highlight a few. To start, XpresSpa occupies the airport retail market which is rapidly expanding and is on pace to grow at 19% compound annual growth rate to $9.9 billion in 2020. Within airport retail, XpresSpa is the market leader in its category, with 49 locations domestically, a number we can grow to over 100 locations over the course of the next three years. Furthermore, we believe that XpresSpa’s total number of locations can grow to 250 globally. To accomplish this growth the company is participating in over 20 RFPs for new spa location. During the third quarter of 2016, XpresSpa announced that it was strengthening its presence by opening its fourth spa location, a Dallas Fort Worth in Texas and its first spa location at the Dubai International Airport. The company’s pipeline of RFPs and new store openings remain strong, with multiple new stores planned to open by year end and in the first quarter of 2017. XpresSpa stores have strong unit level economics with store level EBITDA of 20%. Furthermore, with the operational enhancements that have and will be implemented, we’re targeting same store sales growth of 11%. In the first three quarters of 2016, XpresSpa generated over 32.4 million in revenue, which represents 11% increase as compared to the revenue generated in the first three quarters of 2015. Furthermore, 11.9 million was generated in this past quarter, representing 16% increase over the third quarter of last year, so not only our revenue is increasing, but they’re doing so in an accelerating pace. Once again the transaction is subject to closing conditions and approval by the FORM Holding stockholders at our annual meeting on November, after which we expect to close the transaction immediately. I’ll close by updating our shareholders on the financial strength of the company. So far this year, not including XpresStar, FORM Holdings generated total revenue of 16.5 million of which 3.1 million was generated in the third quarter. At this point last year we had generated approximately $200,000. At the end of the third quarter, we had approximately $26 million of current assets of which 21.7 million was cash and our balance sheet was completely free of debt. At the start of this call, I explained what we’re, what we work for and why? We look for businesses with tremendous growth potential where our team can add value in the form of implementation of best practices, increased visibility, capital to execute on opportunities that would otherwise not be available and synergies at the corporate level. While these things take time, we’re seeing the fruits of our labor payoff in each of our individual business units. On behalf of the entire team and board of FORM Holdings, I would like reiterate how excited we are at this point of the company’s history. We’re seeing strong growth at Group Mobile and the beginning stages of commercialization at FLI Charge. The growth that we’ve seen in XpresSpa in the short time since the announcement of the acquisition has further solidified our strategy as a diversified holding company focused on superior growth companies that could benefit from our team’s skill set and resources. We continue to see many opportunities in the near term to make investments that we believe would enhance shareholder value by deploying strategic capital to fund growth ultimately resulting in strong return at the parent company level. Before concluding, I’d like to once again remind those listening that our annual shareholders meeting is scheduled for November 28, 2016 in New York City, as always we encourage you to go through shares. Operator, you can now open the call for Q&A

[Operator:]

Thank you [Operator Instructions]. And our first question comes from David Huff [ph], a private investor. David, go ahead.

[Unidentified Analyst:]

Hi, good afternoon. I just had a couple of quick questions. Was there anything done specifically in XpresSpa that saw the growth year-over-year and quarter-over-quarter? Is it the addition of more locations or we’re seeing a same store growth and if there is anything done, can you may be explain what it was that saw the growth?

[Andrew Perlman:]

Sure, so it’s Andrew. Thanks for the question David. So I’ll start off and I’ll let Ed add to this if he’d like to. The growth is a combination of the two things that you said out, one is same store growth, the second is the addition of a few new stores. In terms of same store growth and we’re actually not going to break them out for the purposes of this call because we’re just giving some top line numbers so that we’re able to give investors color, ultimately we’ll break those out in our financials as we did in our S4. But one the things and one of the goals that we set when we announced the transaction was that we would have over 11% same store growth. We are meeting or exceeding that and that is largely due to the management changes that Ed implemented. And there’s been C change in improving corporate culture and optimizing labor within the stores around peak travel times and that’s why we’re seeing the growth in same store sales.

[Unidentified Analyst:]

Okay, I guess I’ll move on to Group Mobile. At Group Mobile are you seeing any large budget increases in adjacent state and county and local governments for any RFPs that might be out there?

[Andrew Perlman:]

So there are a number of RFPs that we are participating in both in the body-worn space, but also in the computing area. In terms of whether or not that’s the result of an increase of a decrease in state and local budgets, I don’t think I can answer that squarely. But what I will say is, historically the company has not participated in that RFP process at the level that we’re currently participating in it and that’s largely because of the strategies that Darin and his team have implemented. And so for us even in a stable environment for state and local contracts, you’re going to see a bigger portion of our revenue coming from those big RFPs because we’ve chosen to aggressively go after those contracts.

[Unidentified Analyst:]

Okay, a lot of these contracts are hard to track, I guess publicly, if not impossible, is the plan to I guess put out press releases and announcements when some of these significant RFPs are won and closed.

[Andrew Perlman:]

To the extent that we’re able to we absolutely will do that to try and help give more color to our investors.

[Unidentified Analyst:]

Okay, I guess I want to switch to FLI Charge, I know clips on the call, if you give kind of an idea on the six month and 12 month planned. I know the Indiegogo was very successful and it’s going to be shipping within the next two weeks. Just trying to get an idea of what’s going on for the next six months, 12 months, online store going into direct stores.

[Cliff Weinstein:]

Yeah, and David its Cliff, so Indiegogo, we ramped up manufacturing and we anticipate shipping to backers in the next two weeks, simultaneously launch our ecommerce site and start to drive traffic there. I think it’s important to keep in mind that our consumer product line really sits at the bottom of an upside down pyramid when you think about how we can build out this ecosystem and the next six months are really - there’s two avenues that we’re taking, one is to be continuing to drive traffic to the website and to also expand via online retails, with larger retailers as well as big box retailers and getting placement in the stores. And we’re having those conversations now with our partner Power Play Marketing and outside them with some other retailers. And separately to build that ecosystem that I mentioned, we’ve landed quality partners in auto, both in aftermarket and at the OEM level, where we presented at SEMA and had a very good show, as we did at CES last year. In education our partner Bradford will begin to roll out likely end of this year or Q1 sometimes into the schools. We’re talking to companies in the power tool space and hope to land a partner there in near term as well as other consumer electronics products. I notice they’re going to build that ecosystem. So it’s really a multiplying approaching, we believe that ecosystem will drive demand with our existing consumer products and new consumer products going forward. Another one that I didn’t mention is hospitality, which we’re dealing with a number of groups globally to bring this to restaurants, bars, hotels, convention centers, to bring charging in power to people’s fingertips allow them to charge their mobile devices easier and more affordable quite frankly. So we’re excited about those opportunities and hopefully as we start lending some additional partners will start to announce them.

[Unidentified Analyst:]

Okay, great. Thank you. Last question, any plans for non-deal road show, trying to get some additional analyst coverage or some new analyst coverage, not really patent story anymore which no one understands. You have a couple of tangible businesses that can be bottled out and I guess analyzed in a much more efficient fashion, is that something that’s in the work to deliver in that six months.

[Andrew Perlman:]

Sure, so it’s Andrew again, I’ll take that. So we’re just at the phase where we’re completing a big acquisition. Once we get on the other side of closing, we’re 100% want to get more active in telling the story. I think what you said was absolutely spot on, which is we now own businesses that have metrics that are tractable and results that people are going to see quarter-over-quarter and the plan 100% is to start to tell that story.

[Unidentified Analyst:]

Okay, that’s it for me. Thank you.

[Operator:]

[Operator Instructions] And that appears to be the last question at this time. Thank you. Thank you this does conclude today’s conference. We thank you for your participation. You may disconnect your lines at this time and have a great day.