XWELL Inc (XWEL) 2017 Q3 法說會逐字稿

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 Private Securities Litigations 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 reports 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.

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; and Ed Jankowski, FORM SVP and XpresSpa's Chief Executive Officer.

As we've discussed on previous earnings calls, 2017 has been a year of transition. We're focused on our health and wellness business and the company's transition to pure-play is 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 2 weeks ago, the closing of the FLI Charge divestiture. The company is actively vetting options for the Group Mobile business, and we expect to communicate our plans prior to the year- end calendar 2017.

We are focused on the health and wellness space, because it provides us a significant opportunity to build around our core XpresSpa 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 market in 2015, a strong testament to consumers' desire to find relief from life's stresses. XpresSpa's core addressable market has been focused on massage, but we seek to expand beyond our core to address and help define 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 pronounced impact from the millennial demographic is providing fuel for this movement to continue in the future.

Aside from the fitness-oriented platforms, there are few wellness companies with a focused corporate strategy and national brand equity, no less global brand equity.

XpresSpa is the leader in a specialized segment of the market that is 4x the size of its next competitor in the United States, and we intend to press our advantage and leverage our brand opportunistically.

In acknowledgment 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 XSPA. We are a services company that is tailored towards quality, convenience and speed of service. We believe that a rebranding to XpresSpa Group will clearly communicate this vision to our customers, partners and shareholders. Our corporate focus will be to continue growing our revenues, brand and value, 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 immersed in refining our operations; identifying expense synergies; and optimizing the business for growth. Consistent with our intentions to streamline costs and optimize this business, we've made significant progress against these goals thus far in 2017 as we generated consolidated general and administrative savings of over 30% since taking ownership in December 2016.

The impact of these efforts is visible in our Wellness segment's performance, where operating results improved by $400,000 in the third quarter as compared to the second quarter as well as the segment's adjusted EBITDA, which was positive for the second quarter in a row.

Within our Technology segment, a recent realignment is helping the organization drive sales and position us to maximize value for our shareholders. Combined, we are approaching a tipping point, where we will be able to generate positive cash flow on a consolidated basis, and I'd 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 is 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 business -- businesses and positioning them for growth.

Let's now shift to a 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've discussed, XpresSpa is the 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 a branded line of exclusive luxury travel products and accessories at its 51 locations across 23 major airports in the United States, Holland and 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. Our revised growth plan, which we introduced last quarter, features a total of 12 new units in 2017. To date, we've opened up 6 of these 12 units, with the balance scheduled to open later in the fourth quarter, but before year-end, putting us on pace to have 60 locations in operation by year-end 2017. Beyond these 12 units, we have an additional 9 units that have term sheets, lease agreements in place or where we've one in RFP. These 9 units will open in the upcoming fiscal 2018. XpresSpa has not seen this level of store growth in its history. And to help us manage these openings, we are having a former construction manager from Drybar to our team to help ensure that these locations are opened on time and on budget.

XpresSpa success in penetrating new and existing airports speaks to the value our airport partners see in our superior luxury spa offering, which is complementary with their strategy of enhancing retail and service offerings. In addition to leveraging our relationships with airport operators, XpresSpa continues to be extremely competitive in an objective RFP process. In fact, we've recently won a new location in Philadelphia, which will be our fourth location there as well as a new location in Houston's George Bush Intercontinental Airport, which will be our first location there.

We expect a number of decisions on RFPs, that we are participants in, in the next 9 months. The company's relationships with its landlords are an important ingredient to our success and will be central to the company's ability to grow market share and backfill markets. A great example is our recent expansion in Charlotte Douglas' International Airport. Our first full-service location was opened in Terminal D. And this past week, we opened up an additional location in the A/B Connector, in what is the sixth busiest airport in the country. We're off to an exceptional start there, due in large part to our extraordinary staff. In fact, after its first week in operation, our Terminal D location was among our chain's best performers, which speaks to the speed at which our units can ramp when you 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 onboarded the entire staff from a competitor, whose location we took over and now occupies an XpresSpa. We look forward to additional openings in partnership with Paradies, who operates the concessions 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 formats 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 gauge XpresSpa's viability beyond the airport. While it's preliminary to make a formal announcement, we are excited to learn how we can adapt 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 completed 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 9 years in operation, in JFK's Terminal 4. The extensive remodel allowed us to execute a 7-year lease extension on similar terms. Our ability to innovate has been essential to growing our long-term partnerships with Terminal 4's operator, JFKIAT, since our first location opened there in 2005. Today, we have 5 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 varying degrees to a remodel, ranging from 15 days for a light version to 90 days for the complete makeover that I described at JFK's Terminal 4. Most importantly, our team is focused on maximizing ROI at the project level, and each of these was 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 pave the way for our team to begin formally engaging with potential partners. We remain extremely encouraged that there is an appetite for the XpresSpa model in 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 comparable store sales growth. XpresSpa units have strong store-level economics, with modest CapEx requirements, that deliver strong cash-on-cash returns. Further demonstrating the uniqueness of the captive airport retail environment, our spas ramp quickly and are performing near our chain average in the first few months of operations.

This dynamic allows us to generate impressive cash-on-cash returns that has historically allowed for a full payback in approximately 2.5 years, with a typical lease term of 7 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 returns based on improvements we've made in our design to lower build-out costs. We are comfortable that we can further improve upon this store level profitability over time 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 by our employees and send the message of compassion during the extreme weather events that impacted Houston and greater Florida. As I stated earlier, our employees within our Houston, Miami and Orlando spas were greatly effective and it's imperative that we demonstrate corporate responsibility during these hardships by retroactively paying wages during our spa closures at Houston and proactively implementing the same program at our Florida locations. Our intent was to make a cultural statement to our employees that we care about their well-being, and we aim to build upon this message in the future to assist in our recruitment and retention efforts.

Another aspect of the business that the leadership team spent a lot of time on is our store format. As I mentioned, laborers are 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 light. To this end, we've announced 3 material partnerships 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 coproduce and sell XpresSpa's line of 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 new line of XpresSpa merchandise that will be available within our spas as well as the broader retail channel through Capelli's distribution relationships. Two weeks ago, we announced that they will be creating a manufacturing of full line of products which were featured at Market Week, a buying marketplace for traditional retail. As a reminder, this partnership creates synergies from a margin and working capital standpoint, while generating a new revenue stream via our licensing agreement that allows their 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're 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 have completed the rollout of stand up nail stations, featuring essie's gel couture-branded polish in all U.S. locations, which further differentiates our concept. Aligning XpresSpa with premier brands like essie serves to raise our brand profile and is an excellent example of how we intend to build upon 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 in JFK Terminal 4 in the B Gate and is a great example of the innovative concepts we are bringing to the airport. The service is performed by a trained technician, who uses handheld equipment to administer the vaporized nitrogen cryotherapy treatment that subjects the skin to extreme deep-freeze temperatures, which in turn improves skin tone and collagen production. Our goal of expanding our services is three-fold: create amazing experiences for our customers through innovation, drive same-store sales, and enhance 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 underlying 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-sale systems. The new point-of-sale platform, in particular, has already generated an overwhelming positive response from our customer-facing staff. The upgrade is long overdue and solves many of the simple challenges our employees face with its ease of use. More broadly, the entire technology package will allow our management team to be much more nimble with respect to reporting, audits and most importantly, keeping our understanding of the complexities around scheduling and employee utilization so we can take action to solve, but it's still our 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 [Xpres] back in XpresSpa. These systems will also allow a more complete solution to 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 a discussion of our Wellness segment's financials. We ended the quarter with $10.1 million of cash. This balance was temporarily impacted by working capital investments and inventory that were necessary as part of our transition to a new XpresSpa merchandise supplier as well as inventory investments required at Group Mobile in advance of some larger rollouts 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 provided a segment level income statement for quarter ended September 30, 2017 as well as an adjusted EBITDA of reconciliation to further assist you in your analysis of our progress. For the third quarter 2017, we generated revenues of $12.7 million, which represents an increase of 6% versus the prior-year period on a pro forma basis. Like many companies, we're negatively impacted by the hurricanes in Q3, particularly at our 5 spa locations in Florida and 1 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 and cancellations.

While we carry business interruption insurance for reasons like this and have submitted a claim, that claim has not yet been settled. That said, we're 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 than some of the more severe impacts within the theme park and leisure industry. As previously discussed, we continue 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 of $2.3 million, representing 18.2% of sales, which includes our store labor as a component of cost of sales. Removing the additional labor and other direct costs resulting from the hurricanes, our Wellness gross profit margin would have been 19.7%.

Operating loss for the segment was $1.6 million in the third quarter, which improved $400,000 on a sequential basis from the second quarter operating loss of $2 million. The third quarter operating loss includes $1.7 million of noncash 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 2017.

Despite the weather-related headwinds, we remain in a position to meet our full year 2017 goals. Through the first 9 months, the Wellness segment generated $36.6 million of revenues. As we noted last quarter, several renovations and planned 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 attaining our 2017 forecast.

To reiterate, we've taken considerable steps to optimize the cost structure within the Wellness segment, and these initiatives are nearly complete. We are proud to report that our year-to-date segment level EBITDA of $1.5 million puts us well in 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 plans and revenue projections during our fourth quarter release.

Now I'd like to transition and speak about our Technology segment for a moment. We are making substantial progress towards our goal of creating a pure-play health and wellness enterprise. As I mentioned at the top of this call, we've offloaded the bulk of our patent portfolio; we've divested FLI Charge; and we're in several discussions to take a strategic action, with respect to Group Mobile. FLI Charge continues to be classified as a 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 to place, following the end of the third quarter. We continue to anticipate that our Technology segment divestiture process will conclude soon and expect to provide investors with an update on our plans by 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 $1 million, representing 20% of sales, which was nearly double the prior-year period's margin of 11.3% and continues to benefit from the addition of our services business, which is driving an improved margin mix.

Commensurate with its comprehensive platform, the company has been busy putting agreements and partnerships in place that began deployment of supplying mobile technologies and services to a large southeast utility company that's on a multiyear contract; a large Texas County government agency; an Indianapolis-based transportation; and bus routing integrated software provider and the Florida marine and law enforcement agency. We also received orders from larger key customers such as [Forever Win], VT Systems, MAHLE Corporation, Nissan and Shaw, a division of Berkshire Hathway.

In closing, I would like to reiterate how excited we are about the path (inaudible) is on. We continue to expect steady improvement in cash flows as we begin enjoying the result and leverage of our smaller fixed cost base as revenues grow in concert with our accelerated opening plan. This will provide the foundation for expanding operating margins and, ultimately, consolidated profitability as we realize scale.

We're in a great position to build upon our leadership position in the fast-growing health and wellness industry with a highly productive store model. We'll continue to pursue growth through our existing XpresSpa platform, while 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 costs and, separately, through rationalization of other assets. We look forward to updating FORM shareholders on our pursuit to enhance shareholder value.

Operator, you can now open the call for Q&A.

(Operator Instructions) Our first question comes from Camilo Lyon with Canaccord Genuity.

Good to see the progress that you're making and the momentum that you're making in the business. If you could just remind us, how do you view the market opportunity within the 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 sounded like you're also contemplating the opportunity to extend into other concepts and categories. And if there's anything you could share on that, that'd be great.

Sure. Thanks for the question, again. So in terms of the addressable market, we believe that the U.S. market could support 170 company-owned stores and up to 100 potential franchisees. Separately, we think that the international market could support also approximately 150 company-owned stores. As I mentioned in the prepared remarks, we think it's premature to announce exactly what we're going to do off airport, but we do think that it's important to test a prototype that we're quite far along with. We, of course, recognize that the service and merchandise mix off of the airport will be different than what it is inside the airport. So while the opportunity is potentially huge, we first want to make sure that we test it judiciously. In terms of other concepts that we're looking at, things like we're doing, like the Cryo facial, we ultimately think could be a standalone concept. That's something that we're still contemplating. But, again, our goal is to constantly innovate fast wellness services and also do things that ultimately are higher margins. So we think that those might be able to live as their standalone brand that -- I think that's very forward-looking at this point.

That's great. And then if you think about -- I think you mentioned in your prepared remarks, the -- your biggest hurdle is talent. As you think about the new technology that you've netted to POS system, how does that help you engage in new talent, new therapists into the store and hopefully get you over that hurdle of getting good people into the stores?

Sure. So the technology really helps us to be efficient with the labor pool that we already have. In terms of actually recruiting talent, there are other things that the technology in the store does is it does give us a more modern setting. It's easier for our employees to use. When you go into our stores now, you'll see an iPad at checkout instead of something that looks like an old cash register, so the training program is much easier for us. But there's a separate component of talent recruitment that, if anybody looks at our 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 lives, which is something that we're still working on, but we believe is steadily improving.

Great. And then my final question is, is there a thought to start to leverage that point-of-sale technology to perhaps create kind of like a frequent travel visitor membership program or some things that affect down the road so that you can create a larger share wallet opportunity with your customers? I'm assuming there are probably more VP customers that begin to know the brand and see the brand more or frequently add to their travel destination.

Yes. So while we haven't set actual goals and delivery dates for 2018, there are a number of things that relate to your question that we're working on. The first is being able to take real-time flight data and better schedule for our employees but something that's related that we may ultimately be able to do it again. It's premature to set dates around it is because our customers are frequent travelers and upper demographic, and we have 180,000 loyalty card members, we could wrap all of that into an experience associated with our brand and make it -- put it into a format that is very easy for our customers to use and constantly engage them with the brand. And it's something that's definitely top of mind for us and something that we're beginning to plan for next year.

Our next question comes from David Bain with Roth Capital.

First, Andrew, just on guidance. I understand that the $50 million in Wellness was reiterated. On Technology, are we still looking for $20 million, so fairly sizable increase quarter-over-quarter?

So there definitely will be a sizable increase quarter-over-quarter. Like I said, as it relates to Technology, generally, what we want to do is to announce our plans for the business before the fourth quarter is over.

Okay. Fantastic. And then looking at calendar '18 and the 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, 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 as to why you're waiting? Is it tightening the schedule with openings? Is it ongoing negotiations that you could look to potentially incorporate the service expansion planning? I'm trying to get a understanding as to kind of why we're -- what the methodology is around your upcoming discussion on guidance in the fourth quarter?

Yes, absolutely. So in our case as I think people that have been following the company know, the current pipeline of offerings -- openings in the second quarter started to come together very quickly. And as I mentioned in the prepared remarks, we already have 9 that are in the pipeline and firm for next year. And we view that as constantly increasing. And one of the things that we're 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 commit to it. We believe that many of those openings that are already scheduled will happen in the first half of the year. But until we get to the point where we're really deep in things, like the permitting process, we just -- we want to be able to deliver something that we can live by. And so, like I said, you can expect that from us when we deliver our full first quarter early next year.

Okay. And just 2 more quickies. One, just to clean up the -- you did a great job of kind of vetting out the whole margin component for the third quarter or for the fourth quarter. So we should be expecting margins -- just normalized margins, right, like 20% or 19.7%, this is in the Wellness sector?

Yes. Our expectation is that we'll do that or better. I mentioned 3 partnerships that we've launched so far to date this year. All 3 of those would 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 boost that margin. So if you can expect a more normalized margin, as I think we gave some color around -- the hurricane, obviously, had a very, very limited, but specific impact goes to the top end to the margin at the store level.

Right. And so just with that, I guess, my final one would be on things like Cryo facial and what have you -- if you look at JFK Terminal 4, since you've added that. I mean, is there any sort of financial impact, either on a margin level or revenue level? When you put these services across some of the platform, what's been the response to date? Is there anything you can share with us?

I think I should share a little bit about nail care and I'll talk about Cryo for a second. In the case of Cryo, we know it's exciting, but it's simply too early for us to give real material guidance. Again, it's -- right now, we're limited. We're in one location. It's a service that we're 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 at essie in the third quarter.

We had a full year (inaudible) in 7 of our locations, where, in the beginning of the year, we started carrying the essie gel couture. It was only in 7 locations and, literally, there was a 22% spread between that performance -- the nail performance is -- region performance in that spa and the rest of the spa. So it's tremendously successful. In addition, in our relationship with essie, we, as of December 1, we are committing a 4-foot section in the front of the store -- the retail front of the store, to really display -- properly display our essie product of both gel couture and enamel. Prior to that, it was done on a corner and it was located throughout the store. So this commitment to the front and center is very, very exciting. We set up the T4 -- JFK T4 main store that we remodeled. We set that up at the beginning of October, with the new essie of fixturing, and our retail nail sales are up 115% over the same period for last year. So we're very, very bullish on our ability to really grow our essie business; to use the essie gel couture to grow our manicure and pedicure business; and then also to see some strong retail sales of the product for next year.

(Operator Instructions) Our next question comes from [Josh Cadle], a private investor.

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

It was a permanent closing. It was an old terminal in DFW with the Delta Terminal. We're actually tearing it down. We stayed right to the last day it was open. But at the end of the day, they're remodeling that whole area. So that terminal is actually going away as it exists today.

Okay. Do you guys get to repurpose that equipment elsewhere or is it just lost?

It was -- that was more of a kiosk. So we're storing it, and we'll use it when an opportunity comes up to bring it somewhere else.

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

Sure. So historically, the third quarter has been 26 and change, first quarter is the lightest. Q2 and Q3 are the busiest. I think in this case as I mentioned again in the prepared remarks, I think we're going to break out of the historical norms because of the number of store openings that are happening in the fourth quarter. As we mentioned, we've opened up 3 locations just in the past 5 weeks. And so that pace will -- I think throws us a little bit out of what's been historical and then you layer on the approximately $400,000 of the estimate we've lost as a result of the hurricane, I think we're going to be fairly out of whack with the historical seasonality.

Okay. Great. Quick question for you about the line in the K about the $1.8 million of M&A integration, reorg and nonrecurring costs. I know that -- I think that includes $200,000 of hurricane costs that you already said, which gets it down to $1.6 million. I think you said something in your prepared remarks about $1 million of D&A in there, too. Did I get that right?

No. I don't think I addressed the depreciation, amortization in that prepared remarks.

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

No. That actually is a year-to-date number that's in the Q. I think what you're referring to is the liquidity table that we inserted in the Q.

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 third quarter of fiscal 2017 included approximately $1.8 million of merger and acquisition, integration, reorg and one-time nonrecurring costs related to the interruption of business due to hurricane.

Again...

It's under operating results, the second line under operating results, second paragraph. Right above balance sheet and cash flows, in the K and not the (technical difficulty)

Sorry. I think -- I apologize. I don't have the Q in front of me, so I'm not exactly sure which paragraph you're referring to.

I can talk to you about that offline if you like.

Yes. I mean, I'm happy too, but I think that -- which is to address that, I believe, would be that is $1.8 million of M&A-related costs year-to-date definitely. I think if you look at the adjusted EBITDA, (inaudible) on Page 20, it will give you a breakout of the Q3-related costs by segment. And I think, in that case, it's about $529,000 for XpresSpa, which is the one that if you're referring to something actually include the hurricane, that includes the additional cost of the hurricane.

Okay. I guess the final question. I don't think I'm the only shareholder asking this question, just when we talk about -- understanding the goal to get cash flow positive on a consolidated basis. You have debt that's obviously still 18 months out. You have new stores that are opening, [you need] cash, and you have current operations that are still burning cash because of corporate overhead. What can you say to allay shareholder concerns about the current state of cash, despite your continued desire and goals of getting cash flow positive at a consolidated basis?

And so I think I would say a couple of things. So, first of all, if you look at -- if you look at FH corporate operating costs plus the XpresSpa costs on an ongoing basis, we believe, at an operating basis, that we'll be past that day-to-day operating cash flow breakeven point at about 60 units, which will be right there at the end of the year. So I'd say that's number one. Number two, as I mentioned, we're in a process of generating cash from inventory and then number three is, we talked about and as with the case, although in small amount, but FLI Charge as we start to spin off and look at what we do with our other assets and actually reach those goals, we believe that that will generate cash as well.

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