XpresSpa Group, Inc.

Greetings and welcome to Express Bar Group third quarter 2021 earnings conference call. At this time, our participants are in a listen-only mode. A question and answer session will follow the form of presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Doug Satchman for opening remarks. Please begin, sir.

This is James Ferry, the Chief Financial Officer, and good afternoon. Thank you for joining us today and for your interest in Express Bar Group. Before our CEO, Doug Sassman, provides a business update and I briefly review third quarter 2021 financial results, I first 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 that 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 our SEC filings, including our report on Form 10-K for the year ended December 31, 2020, as well as our earnings release and 10-Q issued this afternoon. along with other current and periodic reports that we file with the SEC. I would now like to turn the call over to Doug.

Thank you, James, and hello, everyone. We appreciate you taking the time today to join us this afternoon. Let me begin by expressing my appreciation to both our institutional and retail shareholders and for their continued confidence in us and for their support as we execute our business plan. I know that I speak for the entire board and management team when I say that our interests are firmly aligned and that we are all working very hard every day to significantly enhance the value of our company. With that in mind, let's now briefly discuss our extraordinary financial results. This was a record-breaking quarter for Express Spa Group across both sales and profitability, and I couldn't be prouder of our teams for getting us here. This is truly remarkable achievement. We generated our highest quarterly top line ever with a consolidated revenue surpassing $26.8 million, including a $25.4 million contribution from ExpressCheck and a $1.4 million contribution from our legacy Express Spa business. We also achieved our first ever full quarter of profitability as measured by both net income and adjusted EBITDA. Net income came in at $5.6 million, and adjusted EBITDA reached $8.7 million in Q3. In fact, based on the performance of this third quarter, Express Spa Group has reached a record year-to-date consolidated revenue of $44.4 million, with a year-to-date net income of $74,000, and a year-to-date adjusted EBITDA of $6.6 million. At the segment level, ExpressCheck generated operating profit of $12 million, or 47.4% of ExpressCheck revenue, which demonstrates its incredibly strong profitability and margin. Our liquidity position also remains strong. Our cash balance has grown to $109.2 million, and we have had positive working capital of $96 million and under $6 million of debt. James will walk through all the financials in greater detail shortly, including a change in how we are recognizing revenue for ExpressCheck. We believe this change will result in reporting that more clearly reflects the full COVID-19 testing economics in terms of patient volumes and per-test charges. But first, I would like to discuss our three distinct brands and how they each contribute toward sustainable revenue streams to ExpressSpa Group as we work towards our goal of generating $500 million in annual revenue by 2025. Recall that on the onset of the pandemic in March 2020, we began our pivot from a company with a singular operating concept, Express Spa, to a leading global health and wellness holding company that is now operating three distinct brands, Express Check, Express Spa, and Treats. Our intention is for each to generate healthy unit-level economics and operate adjacent to the others. But together, they will collectively leverage an efficient corporate structure along with our relationships and experience operating in global airports. With an ambitious target to reach in the next few years, we truly believe that we are just getting started and have a runway of meaningful growth ahead of us. This is particularly true for ExpressCheck and Treat. which we believe have the potential each to contribute more than $200 million towards our long-term revenue goal of $500 million by 2025. Today, ExpressCheck is the largest COVID testing company in U.S. airports, currently operating 14 locations and 12 airports. This includes our recent conversion of a legacy express spa in Hartsfield-Jackson Atlanta International Airport in Concourse E, which opened in October. Looking ahead, we expect to add at least four to six ExpressCheck locations in 2022. It is important to note our first three ExpressCheck locations cost more than $500,000 each to open. But since then, we have developed a modular set that has cut the build-out cost in half, enabling a significantly faster payback. Currently, an ExpressCheck location is averaging less than a three-month payback period, which is truly amazing. While our initial concept launch was certainly very challenging, ExpressCheck has since vastly surpassed all of our expectations and we think it will remain a vital and necessary service going forward, even as vaccination rates rise. COVID-19 testing has become a standard requirement for international travel, similar to extended security measures that came out of 9-11. Even when vaccinated, often a A negative COVID test prior to entry is still required. International travel represents a significant portion of our patient base, as many countries outside the U.S. require a PCR test prior to arrival. We do not foresee this policy changing in the near future, because even in countries like Israel, which have a much higher vaccination rate than the U.S., they do not want to expose their citizens or other countries to this additional risk. Of course, this is even more true for the rest of the world, where vaccination rates are lower than in the U.S. It is important to remember that we've built the infrastructure and airports that can test for other future infectious diseases that could arise and threaten border safety. Since our launch of ExpressCheck in June 2020, ExpressCheck has administered nearly 300,000 COVID tests. Specific to third quarter, patient volume increased 23% to 113,000 compared to 92,000 in the second quarter. While increased airport traffic, particularly to international destinations, has significantly boosted our patient volumes since we launched ExpressCheck, what has been driving our success in dollar terms is the majority of our patients are choosing the rapid PCR test, which is at a substantially higher price point of $200 to $250 per test versus the $75 standard PCR test. This has dramatically elevated the margin profile of the business and through the first nine months of the year enabled us to generate $6 million in operating cash flow. Notably, we administered 789 rapid PCR tests per day during the third quarter versus 402 in the second quarter. representing a 96% sequential increase. As a percentage of all COVID tests, rapid PCR tests were 67% during the third quarter and have grown to 77% in September. As we enter one of the seasonally busiest travel periods of the year, we would expect testing volumes to rise further before slowing down again early next year due to the resumption of more normal seasonal traveling patterns in Q1. Furthermore, the CDC has also revised its policy towards non-US citizens this month to allow for international tourists who are fully vaccinated to enter the US with a negative COVID-19 test. While ExpressCheck does not directly benefit of this additional incoming traffic into the US, we do believe that we will benefit when these international tourists return home depending on their respective countries' COVID-19 testing requirements for reentry. Also driving ExpressCheck's success is our ability to form working relationships with major airlines and government agencies. We have arrangements with several airlines such as United, Delta, and El Al through which we provide COVID testing for passengers traveling to select locations. We have a contracted relationship with the Center for Disease Control and Prevention, the CDC. As we first announced in August, we received approval for a $2 million contract with the CDC for biosurveillance tracking at three major airports, JFK International Airport, Liberty, Newark Liberty International Airport, and San Francisco International Airport. We are very pleased to have been granted this contract as it demonstrates the confidence that they have placed in the ExpressCheck brand. This is an eight-week program aimed at identifying existing and new COVID variants, such as including the highly contagious Delta variant that could start surfacing or resurfacing in the US. The pilot has shown positive results. So far during this pilot, we're seeing increasing numbers of participation and are testing multiple methods to maximize results. We also anticipate that this program may be expanded to monitor other countries or regions where we can see an uptick in COVID infections, like in the UK, Germany, Eastern Europe, and South Africa. The revenue recognition associated with this contract is based on certain milestones specified in this contract. And the three launches only began in September. And as the three launches only began in September, we were not able to recognize any revenue during the third quarter related to this agreement. However, we should be able to recognize about 75% of revenue during our fourth quarter. Importantly, the CDC program can similarly be implemented for any incoming port beyond airports coming into this country. Upon the CDC's discretion, if this program eventually expands, we could see this as a potentially significant business line extension for ExpressCheck with the foundation of this government contract already in place. Turning now to our legacy airport spa business, we're beginning to see early signs of encouragement with regards to the reopening of previously high-performing express spa locations. In fact, we believe there is a pathway toward restoring segment profitability over time which has led us to reopen additional select spas with several more to come however looking forward we expect express check and treat to be our predominant businesses through 2025 and beyond as discussed on our last conference call by july 1st we reopened four top performing express spa locations in the u.s with modified hours while limiting our services to massage, manicure, and pedicure. These four locations operated throughout the third quarter, while two additional spas were opened by mid-September. Since the beginning of the fourth quarter, another four additional locations were reopened, and as of today, there are currently 10 domestic Express Spa company-operated locations and one U.S. franchise location. We're planning two additional ExpressBah openings before the end of the year. Internationally, there are six ExpressBah locations operating. These consist of three in Dubai International Airport in the United Arab Emirates and three in Schiphol Amsterdam Airport in the Netherlands. We are considering further expansion to other major global hubs in the future. Our domestic ExpressBuy locations are operating approximately eight hours per day during the busiest hours compared to the 16 hours per day pre-pandemic, with sales volumes about 30 to 60% of pre-pandemic levels. We implemented a price increase in mid-October and are also planning to test some new touchless massage services and new retail items during the fourth quarter. Our operations team is continuing to review opportunities to find further efficiencies beyond operating during only the airport's busiest times. And as vaccinations rates increase and airport traffic approaches pre-pandemic levels, especially during the holiday season, we see a return for some travel spa services at our airports. Of course, we'll continue evaluating each spa location monthly and review learnings as the portfolio is reactivated. Now let's discuss our new brand treat, a comprehensive travel, health, and wellness concept providing access to integrated care services that can seamlessly fit into a health and wellness lifestyle. Empowering travelers to take a health-first approach to the journey ahead, treat acts like a wellness concierge, providing medical care and wellness services to customers to return to travel. Treat in Airport Wellness Centers will offer services such as testing, travel vaccines, anxiety care, emergency prescriptions, vitamin IV therapies, as well as private virtual wellness services including fitness, yoga, and guided meditation services. Treat Wellness Centers will also include a highly curated assortment of premium health and wellness items in their on-site retail collection. Through our analysis, we believe airport passengers typically have a dwell time of around 70 minutes between clearing security and boarding their flights. Right now, there are not many options inside the airport to occupy passengers during this dwell time beyond eating and drinking and shopping. We see a clear need and one that can be filled in the travel in a post-pandemic world. As we previously disclosed, we launched Treat.com website on June 1st, 2021. The Treat mobile app was then launched on August 16th, 2021. We have offered select freemium memberships for targeted customers as we launched the initial app. With Treat membership, customers will receive one free annual rapid PCR test valued at $250, an annual flu vaccine and unlimited on-demand virtual care, to name a few of the benefits. We expect to launch phase three in December when we open our first in-airport wellness center in JFK Terminal 4, followed by Phoenix Sky Harbor Airport in the first quarter of next year. We then intend to roll treat wellness centers across additional major U.S. airports in 2022 and 2023 and beyond. sometimes leveraging our existing real estate, other times securing new locations. Over the long term, we envision that Treat's digital products will provide more significant growth opportunities for revenue and profit than our airport real estate. The success of this revenue stream will be achieved through both subscription-based services that provide care and digital tools supporting travel, health, and wellness. As ExpressBot Group looks to the future in combination with our strong liquidity position and interest in growth, we are also considering accretive acquisitions and other strategic transactions to further broaden our service and retail offerings and would invest in new opportunities beyond this new evolving concept. So, as you can see, we have a clear vision with focus on elevating our brands, being nimble, and further expanding our services and products inside and outside the airports to increase value for all ExpressBot shareholders. Importantly, we have built an extremely strong management team over the past year, which is already contributing to the outstanding results we're seeing today, while laying the foundation for the long-term success of this developing global omni-channel company. We believe that our portfolio of health and wellness brands will enable us to build and enhance shareholder value over the long term. With that, I'll turn it to James.