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spk00: and welcome to Exwell's first quarter 2023 earnings conference call. During today's presentation, all parties will be in a listen-only mode. As a reminder, this conference call is being recorded on May 15th of 2023. I would now like to turn the conference over to Mr. Omar Haynes, Interim Chief Financial Officer for Exwell. Please go ahead, sir.
spk01: Good day, everyone. Welcome to our conference call to review Exwell's first quarter 2023 operating results. Joining me on today's call is Scott Milford, Exwell's Chief Executive Officer. We have posted our fiscal quarter earnings release on the investor relations section of our website located at www.exwell.com. A link to the webcast of today's conference call can also be found on our site. Before turning the call over to Scott for his prepared remarks, 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 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 filing. including our report on Form 10-K for the year ended December 31st, 2022, as well as other current and periodic reports as we file with the SEC. With that said, I'd now like to turn the call over to Scott.
spk02: Thanks, Omar, and welcome everyone to our first quarter earnings call. We appreciate you joining us today. I'll begin by providing an update on recent business activity. Then I'll turn the call back over to Omar, who will review our financial results. In December, We outlined Expo's strategic vision for 2023 and provided an operating update during our year-end earnings call in April. The quarter played out largely as expected, and while there is still much work to do, we continue to make steady progress. We're implementing strategies to deliver a leaner, more profitable spa business by driving retail revenue, expanding internationally, adding new customers, and systematically reducing infrastructure costs. We're also diligently executing our biosurveillance partnership with nine stations in seven of our busiest airports. And as we continue to grow those verticals organically, we continue to actively pursue high value-added acquisitions, turning to Exel's first quarter performance. While Q1 is a historically slower travel period, the company realized good operating momentum year over year in our retail operation. And as we communicated last month, most of our spas performed better during the first quarter compared to a year ago taking a closer look first quarter revenue with our express spa business increased 7.4 percent sequentially and 70.2 percent versus the same period prior year as a result of expanded hours and hiring efforts our international spas also continue to be an area of strong profitable performance delivering net sales growth of over 8.9% compared to the same period prior year. And I'm pleased to note that our new spa locations in Istanbul Airport performed very well and delivered net sales of over $249,000 for the first quarter, despite the devastating effects of the earthquake in Turkey. We're confident in our ability to drive retail revenue over the long term, and contributing to that growth will be Exel's new retail strategy in our airports and online, As you may recall, in 2022, we built an entirely new approach to retail. New, higher value-added retail products were added to our store mix. And over the past few months, we've made considerable progress in this area. During the first quarter, retail sales at our express spa locations increased 44.3% when compared to the same period in the prior year. We were also able to achieve a total product margin of 63.5%. We remain very encouraged by the positive momentum we've achieved to date from these new offerings, and that momentum has continued into April with a 10.5% increase over March at our U.S. ExpressBot locations. At the same time, to better support our customers and enhance efficiencies, we continue to integrate new technologies into our ExpressBots and began replacing some of our existing loungers with new therapeutic chairs. We're seeing strong initial performance from these new Novo XT massage chairs that we installed in seven ExpressBall locations during the quarter, realizing sales of approximately $51,000 in Q1. We're estimating that revenue from these chairs, once deployed across the entire system, could generate more than a million dollars incrementally, with a service margin of 75%. And further, we anticipate that 80% of those revenues will be incremental to our existing neck and back massage business. As we began the second quarter, we started deploying hydromassage units at our JFK Express spot and Dubai International Airport locations. Early customer response and demand has been good, and we have plans to deploy as many as 50 of the massage units across our business domestically and internationally. We continue to see incremental improvement in sales of minicures, through our new robotic manicure machines. Located in JFK Airport, this is the first test location under our agreement with Clockwork, in which we plan to launch at least five of their AI-powered manicure machines across various spa locations during the initial three-month trial. As profit from these services reaches a stable point, we have the option of expanding the agreement to include up to 25 units, which, when we achieve full rollout, represent an estimated annualized revenue potential of up to $2.5 million at an attractive 50% service margin. On the subject of margins, we're committed to be a leaner business with a path to profitability, and we continue to successfully execute against numerous initiatives to control costs, optimize our margins, drive down expenses, and aggressively manage our spend. During the quarter, we closed the treat location in Phoenix Sky Harbor Airport. Earlier this year, we removed unprofitable medical services from the treat menu of offerings in both our JFK and our Salt Lake City locations. As outlined in our December shareholder letter, we've been successfully rationalizing our cost structure elsewhere, primarily closing locations that no longer fit our profile for a successful business, implementing meaningful spending cuts through headcount and G&A expense reductions, coupled with labor optimization in our stores. It's important to note our work under this initiative is not complete, though we were able to reduce first quarter G&A expense by $0.9 million, or approximately 12.7% sequentially, and by $4.1 million, or approximately 40.2% year over year. In support of the ongoing execution of our strategic plan, Our cost-cutting initiatives continue to take shape, and we will continue efforts to build an efficient and cost-effective operation. In short, we're focused on near-term profitability. To that end, and in addition to the work that we have executed on so far, we will continue to take additional steps over the next quarter that support this plan and position us to effectively leverage our capital to grow. And you'll see more of that throughout the rest of this year. positioning us to achieve a clear path to profitability. Turning to our biosurveillance business, as I previously stated, we're operating nine biosurveillance testing centers in seven of the nation's busiest airports, JFK, Newark Liberty, San Francisco, Atlanta International, Washington Dulles, Seattle, and LAX. And during the first quarter, we delivered revenue of over $1.7 million. We expect to grow revenue in the second quarter of 2023. Importantly, the program has been seen as very successful at the CDC and across the federal government regarding it as an essential tool in our nation's pandemic preparedness program. For example, for investors who may not have seen it, White House COVID-19 coordinator, Dr. Ashish Jha, recently cited the value of the Traveler Genomic Surveillance Program in an associated press interview, saying how the U.S. was protected by the Traveler Genomic Surveillance Program, which, for instance, tests for different virus strains in aircraft wastewater. Looking ahead, the Biosurveillance Program continues to be the United States' first line of defense against future threats and is on track to make a number of key milestones. including conducting approximately 200,000 tests in the past year from over 100 countries. We are very proud of the role the company has in continuing to support this critical collaboration. In summary, over the past few quarters, we've been active within each of our three verticals, retail wellness, biosurveillance, and health, to position each of these for long-term success. Looking forward, I believe Exel's path to growth has significant upside. We're focused on expanding internationally. We're adding new products and technologies and spas that can leverage those tools to drive stronger profit. We're upgrading the physical aesthetic of spas where we believe those improvements will drive more revenue. We continue to solidify our relationship with the CDC and our partner. to create a full-service biosurveillance business, and we continue to make progress managing our cost structure. In addition to maximizing and optimizing what we have, we continue to explore M&A opportunities within the health and wellness space. Saying that, to help address recent questions from investors regarding our acquisition strategy and anticipated timing, we thought it would be beneficial to take a deeper look into our approach. Strategically, our pursuit of M&A is intended to strengthen our growth profile, expand the value that we provide to our customers, and expand the business outside of the airport. Over the past several months, we've been working diligently on opportunities to buy or to invest in businesses either within or complementary to one of our existing health and wellness verticals. A critical screen for potential business combinations is being able to see accretive EBITDA, while some target verticals could include providers of health services, regenerative services, or aesthetic services. Exxon's acquisition path will potentially involve one or more businesses, and we're pursuing opportunities on multiple fronts. First, in an effort to expand our wellness capabilities, enhance our scale, diversify our revenue streams, and launch new strategic opportunities. We've been exploring opportunities for larger, transformative acquisitions. We continue to believe there is immense value creation here. However, unsurprisingly, executing sizable, highly complex M&A takes time. And the timing of transformative deals tends to be driven by the seller. Second, we're also exploring bolt-on acquisition opportunities. where we see good businesses in solid markets that will immediately provide a new product set or standalone service offering outside of the airport. Over time, we'll look to create even further value by cross-selling respective services and offerings among existing and new locations. The pipeline for lower-cost accretive bolt-on acquisitions is very appealing, and due to continued macroeconomic uncertainty, and volatility within the banking sector, we believe Exwell is ideally situated to efficiently execute these types of opportunities while also pursuing transformative M&A. Behind the scenes, there's a lot of work that happens on trying to select the right opportunity and the right deal to grow from. Companies we welcome to Exwell need to be good strategic fits financially and operationally with a long-term mindset. and bold ambition. While we continue to conduct due diligence, it's worth noting that we have no debt on our balance sheet and sufficient dry powder. So we'll provide an update subject to negotiation and execution of definitive documentation. To help us accelerate Exwell's organic growth and acquisition strategy, I'm very pleased to welcome our new Chief Financial Officer, Valerie Lightfoot. Valerie is a highly regarded business executive with more than 25 years of deep financial experience. She also has a unique combination of strategic and operational expertise, and we believe her track record of successfully helping companies execute growth initiatives to drive revenue and cash flows will be invaluable to Exwell. She's also highly skilled in executing and integrating acquisitions, having successfully completed multiple transactions during her career. As we position the company for our next growth phase, we're excited to have Valerie as a key member of our team. Further, on behalf of the board and the entire Expo leadership team, we'd be remiss not to acknowledge Omar for his willingness to serve as interim CFO while we conducted this extensive and thorough search. His financial leadership and insights over the past year have been an extremely important contributor as we made meaningful strides in executing our long-term business strategy. Thank you, Omar. We look forward to your continued guidance as Vice President, Finance, and Treasury. And now I'll turn the call back over to you to report on our financial results.
spk01: Well, thanks, Scott. I appreciate the kind words and look forward to resuming my role in finance while also ensuring a smooth transition for Valerie. I'm now going to provide a brief synopsis of our first quarter 2023 results. For the quarter, total revenue was approximately 7.1 million compared to 24 million in the prior year. This decline is primarily driven by softening in demand at our express check testing facilities. First quarter revenue primarily consists of 4.7 million in revenue from expressed by locations as well as our treat locations, 0.6 million in revenue from our hyperpoint segment, and approximately 1.7 million in revenue from our biosurveillance partnership. Turning to expenses, our total cost of sales decreased to $6.5 million from $15 million in the prior year first quarter. The principal factor leading to this decline was the closure of underperforming express check locations. As we've discussed on prior calls, the cost of testing kits and location-level labor costs remain the largest factors in our cost of sales. Switching to general and administrative. These expenses decreased to 6.1 million compared to 10.2 million for the year prior comparable period. The decrease was primarily a result of closing underperforming location and our right-sizing efforts to the overall cost structure. We reported an operating loss for the first quarter of 6.3 million compared to an operating loss of 2.5 million in the prior year first quarter. Our net loss attributable to common shareholders was 5.5 million compared to $4.3 million in the prior year's same period. As Scott discussed, it is important to note that we continue to strategically invest in our long-term growth initiatives. Turning to our balance sheet, our liquidity remains strong with cash and cash equivalents totaling $9.9 million and $25.2 million in marketable securities. Our net working capital was approximately $30.8 million. And again, we have no long-term debt. This concludes our financial review. I'll now turn the call back to Scott for some closing remarks. Thank you, Omar.
spk02: As we progress towards our return to profitability, we're making meaningful strides executing against our strategic vision, and we continue to lay the groundwork to capitalize on new growth opportunities, drive efficiencies, and pursue EBITDA-creative acquisitions. As CEO, my mandate is clear. To return the business to profitability, set a path forward towards growth, and improve shareholder value. While that has not been an easy path to build, my management team and I are taking the steps necessary to ensure that mandate is achieved. I am excited for the future ahead and continue to believe 2023 will be a transformative year for Exwell. We look forward to updating you again next quarter. Thank you.
spk00: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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