XpresSpa Group, Inc.

Greetings and welcome to Express Spa Group's fourth quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal 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 this conference over to James Berry, Chief Financial Officer. Thank you, sir. You may begin.

Good afternoon. Thank you for joining us today and for your interest in ExpressBot Group. Before our new CEO, Scott Milford, offers his prepared remarks, and I review fourth quarter and full year 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, 2021, which will be filed by the end of the month, as well as our earnings release issued this afternoon, along with other current and periodic reports that we file with the SEC. Please note that the financials mentioned on this call are preliminary. Final financial results and other disclosures will be reported in our annual report on Form 10-K for the year ended December 31st, 2021, and may differ from the results and disclosures in the document due to, among other things, the completion of final review procedures, the occurrence of subsequent events, or the discovery of additional information. I would now like to turn the call over to Scott.

Thank you, James, and hello, everyone. We appreciate you taking the time to join us this afternoon. Since taking over as CEO in January, I have been working with my leadership team to develop a set of strategic imperatives that we believe will accelerate our evolution as a leading health and wellness provider for people on the go. I'm incorporating my prior experience with Express Spa as well as my experience leading teams to help us realize the many opportunities we believe are achievable at this company as we pursue generating $500 million in revenue by 2025. And I'll share the strategic imperatives that I believe will get us there in just a moment. But first, I share the collective disappointment in our stock price and want our shareholders to know that we are doing everything we can to strengthen the foundation of our business to improve our stock value and return to our investors. Be assured that the interests of the board and management team are firmly aligned with your desire and that the efforts we engage in to accomplish are designed to have both short and long-term positive impacts. In the near term, we will continue to be active in repurchasing shares under our prior authorization. We are doing this because we believe there is a disconnect between the stock's current price and our view of its value. Adding further to this, during most of the first quarter of this year, we were subject to blackout periods that restrained our ability to do so, even as the share price has declined. However, because we were able to accelerate the delivery of our fourth quarter reporting by two weeks compared to when we would have reported it in previous years, we have a wider window to repurchase shares before the onset of our next blackout period, and we intend to do so. Briefly on the quarter, we generated our highest quarterly top line ever with consolidated revenues surpassing $29 million and achieved our second ever full quarter of profitability as measured by both net income and adjusted EBITDA. Net income came in at $3.3 million and adjusted EBITDA reached $4.5 million. These are all incredible achievements. Our liquidity position also remains strong. Our cash balance has grown to $105.5 million, and we had positive working capital of $89.2 million with no long-term debt. And with a healthy balance sheet as a foundation, I would like to share how we intend to leverage our past accomplishments to grow our future. As we all know, the pandemic has proven to be the great equalizer. And we believe that now more than ever, consumers are focused on their well-being, safety, and health. And even as restrictions begin to lift, we are confident that the safety and wellness infrastructure we've built with our airport footprint as a start will serve our long-term growth. To ensure we're able to deliver on that expectation, our first strategic objective has to be to create and leverage a fully integrated set of products and services that are both profitable and scalable across our portfolio of brands. Being able to identify and execute a unified set of services supported by a relevant retail offering and a technology platform to optimize efficiency and delivery across all three of our brands is critical to driving more customer traffic and more revenue. This will include efforts to invigorate post-COVID diagnostic health services and incorporating them into our express check and even certain express spa locations. We will also incorporate wellness services such as hydration and vitamin IV therapies, all higher margin services, into our express check and express spa locations. Additionally, we have already begun to expand our retail strategies. not only adding more products for sale, but aligning those products more efficiently to our service offerings. For example, adding fortified water and hydration packets to the delivery of an on-site hydration IV or adding muscle relaxation patches to a neck or back massage continue treatment even after delivery of the service. We have also begun to work on a set of health and wellness kits that customers will be able to purchase at our locations and online that are specifically designed to address issues affecting travelers, including sinus and respiratory issues, travel anxiety, sleep and well-being, all supported by an e-commerce platform that allows for purchase long after the customer leaves our location. This integration of products and services strategy also allows us to further advance our work to unify under a single brand name. We have already begun this effort and will report on our progress at a later date. Our second strategic imperative will be to build our capability for delivering health and wellness services outside the airport. We believe operating outside of the airport complements our offering and allows us to scale growth faster without many of the requirements imposed by airports and concessionaires to locate in an airport. We also believe we can accomplish this as a natural expansion of our treat brand. We think there are opportunities in other travel venues like the cruise business as well. And we see businesses who are starting to return to the office as an opportunity to sell treat health and wellness services as well. We have already begun work towards this strategic priority and will be announcing our first off-airport partnership soon. Aligned with our growth strategy outside of the airport, we are also looking to further expand internationally. And while international travel has not picked back up to pre-pandemic levels, we want to be opportunistic in our approach, taking advantage of the current market to grow in preparation for a full return of travel. We already have strong relationships with our partners operating express files in Dubai, Amsterdam, and soon in Istanbul, and expect to leverage those relationships further. We also intend to leverage our strong cash position to grow through acquisition. And as those opportunities arise, we will report our progress in subsequent calls. We believe a strategy for international expansion further advances our biosurveillance efforts as well, especially as it relates to the work we are currently doing with the CDC. Despite the progress being made to manage the pandemic, there is still an ongoing threat, whether it's another variant or a new virus altogether. And having boots on the ground internationally will help to further efforts to protect our country when the next threat emerges. And finally, A strong growth platform like we are building has to be supported by an infrastructure that enables scalable and efficient growth. Our fourth strategic imperative is focused on building an organization that can not only facilitate growth, but as a size and scale that optimizes cost and allows us to dedicate more of our available cash to drive shareholder value, and long-term viability. Our efforts to date include investments we are in the process of making to build an efficient supply chain that serves our brands collectively, hiring key leaders with experience in brand and sales building, and further investments in technology to streamline an infrastructure that was largely manual and cost ineffective. My team and I are committed to delivering on these strategic imperatives, and I expect to report on our progress as milestones are reached and during our regular earnings calls. I am very fortunate to work with such a dedicated group of leaders in the pursuit of growth, and I want to thank the hard work and dedication of our support and field teams who each and every day deliver on our vision to transform care or people on the go. And now, let me share our business update. Beginning with ExpressCheck, vesting volumes were strong during the fourth quarter, as James will address, resulting in second quarter revenue and record profitability. This was driven by increases in leisure travel during a rebounding holiday season and continued improvement in business travel, although at a slower pace. The rise of the Omicron variant certainly drove more testing, and because of the relationships we fostered with test kit providers, we didn't suffer as much as many of the other testing centers when lines increased at the end of the year. In the first quarter of this year, which is seasonally a weaker quarter for airport traffic than the fourth quarter following the holidays, we have seen a slight reduction in testing volume. This is not surprising to us and perhaps compounded by hesitancy to embark on European travel in particular, given what's going on with Russia and the Ukraine. But even as vaccinations are now more widely available and the Omicron variant has waned in the U.S., we have not seen the same reduction in overseas and are seeing only a modest relaxation in testing requirements. This demonstrates the continued need and importance for reliable and convenient biosurveillance testing within an airport setting. Still, we recognize the importance of evolving ExpressCheck into something that goes beyond COVID testing, which is why we are integrating our health and wellness services across our brands, including ExpressCheck. Having already established a footprint with COVID testing, we now have a platform to augment our services for the traveling public, supplementing COVID testing with other higher-margin medical and wellness services, such as vitamin IVs, boosters, all from the treat model. Importantly, these services are sustainable by their very nature and will have a longer shelf life than COVID testing. ExpressChat, which is now led by Ezra Ernst, who also heads our recent HyperPoint acquisition, currently consists of 15 locations across 12 airports. It is the largest COVID testing company in U.S. airports. Most recently, we opened in Hartsfield-Jackson Atlanta Airport in October, where we converted a Legacy Express spa location located in Concourse E and in Denver International Airport in the Great Hall pre-security early this year in February. We have one express check that will open shortly in Orlando, pre-security in the South Walk area of the main terminal. Under previous leadership, we had shared the potential to open two to four additional express check locations this year. However, given our shift in thinking, our intention now is not to proceed with additional openings at this time. but we'll look at how we leverage existing locations across all our brands to integrate and support our biosurveillance efforts. Notably, the overwhelming majority of patients are choosing the rapid PCR test, which is at a substantially higher price point of $200 to $275 versus the $75 standard PCR test. This has dramatically elevated the margin profile of the business and supported us generating $9.7 million in operating cash flow for the year. We also administered 1,116 rapid PCR tests per day during the fourth quarter, up from 789 rapid PCR tests per day during the third quarter, and 402 tests per day during the second quarter. As a percentage of all COVID tests, Rapid PCR tests accounted for 98% of those during the fourth quarter and 67% during the third quarter. Also driving express check success is our ability to form working relationships with major airlines and government agencies. Our initial contract for biosurveillance with the CDC at our four major airports was for $2 million. but has since been extended and expanded for an additional $3.6 million, totaling $5.6 million. This expansion included additional pool testing beyond the initial India pilot, adding the UK, France, Germany, and South Africa, among other at-risk countries. Our biosurveillance platform now has the ability to pivot rapidly to monitor additional countries as the threat of a new variant or virus changes. Most of the initial $2 million in revenue was recognized in the fourth quarter last year, but the remainder of the contract's revenue will be recognized during the first half of this year. We believe the program demonstrates the confidence that they have placed in us and are hopeful that it will lead to further expansion. We will be releasing data in the coming weeks which will demonstrate the efficacy and value of the robust biosurveillance platform we have built with our network of partners. Importantly, the program can similarly be implemented for any incoming port beyond airports upon CDC's direction. If this program eventually expands further, we could see this as a potentially significant business line extension for ExpressCheck, with the foundation of this government contract already in place. Now, turning to our airport spa business. We currently have 16 spas operating domestically and have four to five additional locations slated to open. Performance continues to improve as we are still running modified operating hours, but we took a price increase in October, which is helping us as well. Our domestic express spa locations are operating approximately eight hours per day during the busiest hours, compared to up to 16 hours per day pre-pandemic. And sales volumes are about 50% of pre-pandemic levels, but sales per hour are tracking at about 90% of pre-pandemic levels. We are seeing renewed interest in wellness services among travelers, along with a willingness to spend additional dollars on products and services that will improve their well-being while they travel. And as we roll out new services that are more on trend with today's travel consumer, we expect to see improvement in service sales and related retail revenue. Further, we expect to drive revenue through the delivery of integrated services where we're able to, which will dramatically improve the size of our service footprint. To bring this integrated strategy further to life in our spas, we are currently looking at our ability to deliver minor health services such as cold and flu diagnostics or hydration therapy in a spa environment. And we will look at other services we can add to the business to further drive a unified offering across all brands. Internationally, there are six Express Spa locations operating. These consist of three in Dubai, and three, operating out of Schiphol Amsterdam Airport. We are preparing for further expansion to other major global hubs, including our newest location in Istanbul, Turkey, where we have signed to build up to five locations at that airport and expect to open the first stores this summer. And now, let's discuss Treat. Our newest brand is designed for people on the go, looking for a one-stop travel health and wellness solution through a suite of integrated services. Health and wellness services for travelers include diagnostic testing for virus, cold, flu, and other illnesses, as well as IV drip and hydration infusion therapy. Travelers can also purchase interactive wellness services like self-guided yoga, meditation, and low impact weight exercises, all in a relaxing environment where they can unplug from the hectic pace of the airport and renew themselves before or after their trip. Through our analysis, we believe airport passengers typically have a dwell time of around 70 minutes once they clear security and board their flights. And with much more focus today on health and improving individual well-being, we see a clear opportunity to address these needs through treat and the delivery of a more integrated product strategy in our other brands. We are currently open at JFK and will be opening soon in Phoenix, Sky Harbor, and Salt Lake City. While we originally anticipated a more limited demographic centered on an affluent organizer and manager of family travel, We believe there is an opportunity to attract a wider variety of discerning consumers to the treat brand with a more varied array of products and services. Phoenix, unlike JFK, will be our first pre-security location, and we expect to learn a great deal as it relates to differences in customer buying patterns pre versus post security. Our third treat in Salt Lake City will be our first location value engineered from our original JFK and Phoenix design. It is a post-security location in a former express spa. It is also the first treat to provide a more open floor plan and use hybrid rooms that can offer both health and wellness services in the same room, providing a greater opportunity to meet travel demand. It will also offer more retail products, We think the open floor plan, with a cost-efficient design at about half that of JFK, will be our default design going forward, creating a more inviting experience to passersby because they will be able to see more retail and more activity to catch one's eye. We intend to roll out additional treat locations across other major U.S. airports this year and next. Our growth strategy will include both greenfield builds as well as leveraging existing spa and express check locations to convert to this brand. Treat also offers a website at www.treat.com and a mobile app to complement the offering with relevant health and wellness content designed to help people on the go with information that could impact their travels. The platform provides travelers access to a comprehensive online marketplace of services, including global illness tracker tools, such as the COVID requirements map, on-demand chat care by a licensed provider, a health wallet to store personal and family medical records, and a scheduler to arrange for direct care at one of our onsite locations. We will see a modest revenue contribution from Treat this year, but view the brand as a mid-term play with long-term value creation. This is because it extends our health and wellness leadership position in travel, offering multiple revenue channels outside of just operating in the airports. Treat will be the brand we leverage in our out-of-airport strategy. Finally, We recall that in January we acquired HyperPoint, a leading digital healthcare and data analytics relationship marketing agency servicing the global healthcare and pharmaceutical industry. HyperPoint has significant experience in patient and healthcare professional marketing and deep technological experience with customer experience management and data analytics. We have been working with HyperPoint for nearly two years and their teams and suite of services and technology were used to develop and deploy the technological infrastructure for ExpressCheck. HyperPoint is now operating as a standalone entity led by its CEO, Ezra Ernst, who is also now serving as CEO of ExpressCheck and reporting to me. In this capacity, he is spearheading efforts to integrate ExpressCheck's COVID testing business with HyperPoint's customer experience management technology and data management know-how. This has the potential to further product and service offerings to additional airports, other travel centers, and other business customers within the healthcare and pharmaceutical verticals. We look forward to sharing further details in upcoming quarters. And so, we now have a portfolio of health and wellness brands with a vision of expanding our services and products both inside and outside of the airports, pursuing accretive acquisitions and other strategic acquisitions where appropriate to further broaden our service and retail offerings. The outstanding results we are generating today are only the beginning, but they lay the foundation for the long-term success of this developing global omni-channel company and increasing value for its stakeholders. With that, I'll turn it over to James.