Greetings, and welcome to the XpresSpa Group Fourth Quarter 2017 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Carolyn Capaccio of LHA. Thank you. You may begin.

Thank you, operator, and good morning, everyone. I'm joined on the call today by Andrew Perlman, XpresSpa Chief Executive Officer; Anastasia Nyrkovskaya, XpresSpa Chief Financial Officer; and Ed Jankowski, XpresSpa President. Before we begin, please note that comments made on today's call may contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current assumptions and opinions and involve a variety of known and unknown risks and uncertainties. Actual results may differ materially from those contained in or suggested by such forward-looking statements. Important factors that might cause such differences include those set forth from time to time in the company's SEC filings, including the company's report on Form 10-K for the year ended December 31, 2017, being filed today, and other current and periodic reports the company filed with the SEC, which you are advised to read. At this time, I'd like to introduce Andrew Perlman, the Chief Executive Officer. Andrew?

Good morning, and thank you all for joining us today. I'll begin by giving you a recap of our achievements in 2017, where we stand today and our 2018 priorities. Then Anastasia will take us through the financials, after which we'll take your questions. 2017 was a transformational year as we established our leading position as a health and wellness experience provider, perfected the short-format spa and revolutionized our operations in preparation for growth. During the year, we accomplished a tremendous amount. We installed top retail talent in our corporate and field teams, we overhauled our corporate culture, fixing retention and recruiting throughout the organization and making the company a great place to work. We completed a firm-wide point of sale and technology backbone upgrade, creating the framework for stronger systems and labor efficiency going forward. We enhanced our retail offering through partnerships with essie, Dermalogica and Nordic Cryotherapy. We created efficiency and broadened our reach beyond the 4 walls of our stores with our Capelli partnership. We opened 9 new XpresSpas and closed 5 underperformers, giving us a more productive store base. We created the XpresRecover brand extension concept and identified locations to launch it. We put our franchising strategy in motion, and we began divestitures of noncore assets to focus solely on our health and wellness opportunity. These are now complete, allowing management to fully focus on our core business. And we rebranded the company with the XpresSpa name and XSPA ticker symbol. Today, 15 months after the XpresSpa acquisition, we speak to you as a branded, on-the-go health and wellness pure play with a solid foundation for growth. We are entirely focused on capturing the enormous opportunity we enjoy through our unique position in our underserved market. Let's talk for a moment about the fourth quarter specifics.…

Thank you, Andrew, and good morning, everyone. As noted in the press release we issued this morning, consolidated results for 2016 include only 8 days of operations for the Wellness segment, from December 3, 2016, and as such are not comparable to the 2017 results. Specifically, the tables do have GAAP results presented in the press release, compares 2017 results, which include the Wellness and intellectual property segments, to 2016 results that include only 8 days of Wellness segment and a full year of intellectual property segment results. Also, FLI Charge and Group Mobile are presented as discontinued operations. The businesses were sold in October 2017 and March 2018, respectively. As such, I will focus my comments on the Wellness segment only. Moving to the fourth quarter of 2017. XpresSpa revenue was $11.8 million in the quarter. As Andrew mentioned, we estimate that the revenue was affected by approximately $1.2 million due to delayed new store openings. During the quarter, we opened 5 airport locations. Gross profit was $2.4 million or 20.4%. We also incurred approximately $100,000 in labor and other indirect costs related to new store openings. General and administrative expenses were $2.1 million. We further optimized our expenses and expect to realize the reductions in 2018. Operating loss was $1.2 million. Adjusted EBITDA was $0.4 million. In December, Congress enacted the Tax Cuts and Jobs Act of 2017. This legislation resulted in revaluation of our deferred tax assets and liabilities, which was largely offset by our U.S. valuation allowance. There is no material net impact to the company's consolidated financial statement. With respect to full year 2017 Wellness segment performance and compared to the unaudited full year 2016 results, total revenue is $48.4 million, an increase of $10.4 million from 2016. Hurricanes had a $400,000 negative impact on our revenue. Same-store sales growth was 3%. During the year, we opened 9 stores, completed 2 major renovations and closed 5 nonperforming stores, resulting in a more productive store base as average sales per store increased 18% to over $1 million in 2017. Gross profit for the year was 19.4% as compared to 20% in 2016, primarily due to increased labor and set-up costs from new store opening. General and administrative expenses were $8.7 million compared to $15.7 million in 2016. Net operating loss was $7.3 million as compared to $12.4 million in 2016. Adjusted EBITDA of $1.9 million improved $8.8 million from a loss of $6.9 million in the prior year, inclusive of $1.3 million of integration and onetime costs. Now moving to the balance sheet. At December 31, 2017, our cash balance was $6.4 million and current assets was $16.1 million. Assets held for disposal was $6.4 million, and liabilities held for disposal was $3.8 million. Our long-term debt was $6.5 million. This concludes our prepared remarks. Operator, would you please give the instructions for the Q&A?

[Operator Instructions] Our first question comes from the line of [ John Riley ] with Eden Rock Advisors.

With regard to corporate overhead, are you taking a look at management compensation levels and structure as a means to reduce the corporate overhead given the size of the company? And the second part of the question is, will management receive equity performance incentives?

So we absolutely are looking at both the overhead and executive compensation. We're clearly a much simpler company as we're completely focused on the wellness component of our business. And we're actively talking internally and to our board about reducing or deferring, or both, executive compensation. You can expect to hear more from us before we report our first quarter financials.

Does that complete your question?

Yes, thank you.

Our next question comes from the line of [ Charles Anderson ], a private investor.

Nice to see we're moving forward in a positive direction. Pardon me, I've got a bit of a cold. I got a question concerning corporate headquarters in Manhattan. Can you address how much longer we're going to have to sit in that particular space, and what you all might envision in terms of reducing that part of the overhead in terms of -- at least I realize it's not a whole heck of a lot of money, but still it's somewhat -- could be considered a concern?

Yes, absolutely. So our lease term in Manhattan runs through October of 2019. I believe that's disclosed in the K. As for corporate overhead, I think that this fits with the general theme, which is that we are actively looking at every way to drive value by putting the capital in the right places, which is adding stores and building on the talent. So over time, we'll absolutely look to move the company to a cheaper office and/or venue.

That's great to know. And one other question I have concerning any remaining IP on the docket or holdover from the Vringo/FORM Holdings period of life. What's the intent on doing that? Are we going to continue to try to monetize that? How much attention -- and that's sort of a hard question to answer, is how much attention you are going to do to monetize that, but if you might be able to discuss that briefly?

Sure. As is noted in our K, it accounted for about $450,000 of revenue in 2017 relative to our Wellness segment. Obviously, that's very small. And I think that in terms of management's focus, we are completely focused on building the Wellness segment. If monetization opportunities arise, we'll absolutely take them. The focus is total and complete on health and wellness.

[Operator Instructions] Our next question comes from the line of Josh Kattef, a private investor.

Can you shed light on what's contained in the assets and liabilities held for disposal lines on the balance sheet?

This is Anastasia. Absolutely. So the way -- how assets and liabilities are presented, it's basically one line accumulating all various assets. And what's in there are predominantly inventory, fixed assets that are being also sold over time or used in operations. And those amounts are offset by amounts of regular trade payables and receivables.

It seems like there was a big quarter-over-quarter increase in both of those lines?

Yes, absolutely. That increase is driven by the fact that in the fourth quarter of this year, we presented Group Mobile as discontinued operations. In the prior quarters, you would notice that only FLI Charge was presented as the DiscOp, whereas the Group Mobile was still continued operations. Therefore, you see the increase.

Okay. Got it. One more question for you -- 2 more questions, actually. The products, supplies and other operating costs line for the quarter was significantly lower, an improvement. Is that just a result of the efficiencies?

Yes. It was -- we were in the transition to Capelli, which happened in the end of December. We were trying to liquidate as much of the product that was either ready to expire or that was [ all ] product as possible. And literally, on January 1, we transferred all the inventory that we had in our outside third-party warehouse over to Capelli to manage our inventory going forward. We will be out of the inventory that we actually owned probably by the end of this month. And all go-forward inventory will be housed by Capelli. And we will not own that inventory, but we will do purchase orders to fill in any of the inventory that we're buying from them.

So in the reconciliation of operating loss from continuing operations to adjusted EBITDA, that products, supplies and other operating costs, should we expect that to be lower than $1 million, whereas it's been in the $1.7 million to $2.6 million range for the first 3 quarters of the year?

We definitely expect a reduction in this line item as compared to the first 3 quarters of the year. I'm not going to advise on the exact number.

And the K [ is expected to be ] filed this afternoon, which will give you a breakdown.

Okay. And Andrew, I know in your remarks you said that you didn't have an estimate for total store distribution between franchise owned and company owned for the end of the year 2018. Do you have any guidance on the number of new store openings in the pipeline for the traditional corporate-owned model?

Yes, absolutely. But I would just say as a general theme, even a number of stores that are in the pipeline we may choose to open as franchise locations. Overall, there are 13 locations that are in the pipeline that have been in the pipeline for some time. And we'll address the mix between company and franchise owned as we go through the coming months.

When we say in the pipeline, does that mean that they've won RFPs or they've submitted RFPs?

What I would consider firmly in the pipeline is either an RFP win, an identified and agreed -- identified space with agreed upon terms, a signed term sheet or a signed lease.

Okay. So should investors be reading into the movement to the franchise model as a way to reduce corporate cash burn?

Well, it unquestionably is a way to mitigate and reduce the capital outlay for new locations. It's also, in our view, a way to grow our footprint more quickly.

Mr. Perlman, we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

Thanks again, everyone, for joining us on the call today. Later this afternoon, I'll be presenting at the Sidoti Spring Conference, and it will be webcast as well. Look forward to giving you an update when we report the first quarter results. Thank you, and have a great day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.