Greetings and welcome to XpresSpa Group, Inc. third quarter 2018 earnings conference call. At this time, all participants are in listen-only mode. An interactive question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. Before I turn the call over to the company for opening remarks, I 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 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 and other current and periodic reports the company files with the SEC. During today's call, the company will refer to certain non-GAAP financial measures, which it believes can be useful in evaluating its performance. The presentation of these measures or other information should not be considered in isolation or as a substitute for the results prepared in accordance with GAAP. For reconciliations of these non-GAAP financial measures to GAAP measures and a discussion of why the company considers these measures useful, please refer to today’s earnings release. With that, I’d like to turn the call over to Ed Jankowski, CEO of XpresSpa. Ed?

Thank you, operator. Please note that I'm joined this afternoon by Janine Canale, our Controller and Principal Financial and Accounting Officer. Janine will walk through our third quarter financials momentarily. As you may have already read in our joint press release on Monday and our earnings press release issued earlier today, Calm, the leading app for sleep, meditation and relaxation, is making a strategic investment in XpresSpa of up to $3 million in preferred equity. Calm has funded $2 million of the $3 million preferred yesterday and will fund the remaining million by December 31, 2018 subject to compliance with the operating agreement. The convertible preferred equity has a seven-year maturity and is convertible at $0.62 per share. This is a significant premium to our current market price and demonstrates the inherent value of our industry-leading platform. Our intention is to use these funds and our new partnership to enhance XpresSpa customer experience in a number of different ways, including raising our brand profile across new and existing markets, elevating the assortment of retail products, and upgrading facilities. In doing so, we will further our mission of giving busy travelers wellness and the opportunity to destress while on the go. Calm is led by cofounders and CEO, Michael Acton Smith and Alex Tew. It was named Apple’s 2017 iPhone App of the Year and boasts more than 35 million downloaders to date, averaging 75,000 new users daily. The new Calm’s investment in XpresSpa has demonstrated of their confidence in our business model and interest in leveraging their brand across our health and wellness presence. As you know, we not only have a unique offering and value proposition, but over the past 14 years, we have become the leader in providing premier wellness solutions in 30 minutes or less. We also…

Thank you, Ed. For the third quarter ended September 30, 2018, we generated revenue of $12.9 million, representing a slight increase of 0.5% compared to the prior-year three-month period. The revenue increase was due to six additional XpresSpa locations opened year-over-year as we ended the third quarter 2018 with a total of 57 XpresSpa collocation. This increase was offset by a decrease in comparable store sales. Comparable store sales fell 3% overall, which was largely due to airline reconfiguration and enplanement changes in three of our key terminals, which had a direct impact on traffic and, ultimately, revenue. On a sequential basis, comparable store sales improved 0.5%, marked by a 1.9% improvement at domestic spas, while international spas turned negative as they lapped a formidable gain from the prior-year period. Cost of sales decreased 4.7% to $10 million from $10.5 million in the prior-year. Notably, our labor costs declined 9.6% as a percentage of revenue due to efforts to optimize scheduling. Decreased labor costs was partially offset by higher product and other operating costs because of our shift to a higher retail mix. We have, however, been able to reduce warehousing and shipping charges as we completed the transition of inventory sourcing through our strategic partner. We generated a 28.5% increase in store operating profit to $3 million compared to $2.3 million in the prior-year period, while store margin increased to 22.9% from 18.2% in prior year. General and administrative expenses were $3.9 million, representing a 5.7% decrease compared to the prior-year three-month period. And as a percentage of revenue, fell to 30.5% versus 33% in the prior year. We are clearly making traction in reducing our administrative costs through streamlined processes at the corporate level, but also incurred $194,000 in lower stock-based compensation year-over-year. Notably, contained within our general…

Thank you, Janine. In closing, we’re very excited by our new partnership with Calm and for what their investment in XpresSpa means for the future of our company in capturing more health and wellness discretionary dollars. We are still a company in transition, but are creating a stronger foundation for the future by capitalizing on our position as the leading on-the-go spa experience provider through new avenues that are complementary to our core competencies, pursing growth through our existing XpresSpa platform, improving our store model from labor optimization which is leading to expanded operating margins and streamlining our G&A. These efforts, we believe, will lead to sustainable profitability and positive cash flow over the long-term. We look forward to updating XpresSpa shareholders on our pursuit to enhance shareholder value on our next conference call. Thank you.

[Operator Instructions]. The first question comes from Anthony Grillo, a private investor. Please go ahead.

Hi, Ed. Tony here. Thanks for the call. Can you go through a little bit in greater detail what the Calm preferred means when you say it matures in seven years for purposes of how that – what actually happens over the time horizon of the seven years and then the maturity of a preferred stock?

When we first announced we’re in conversation with Calm, Tony, we had asked them to buy common stock originally. And they felt the need for a convertible preferred structure at the premium of $0.62. So, as I said, it is a seven-year period to convert. But bottom line is that was what they were looking for.

So, to make sure we understand, so in seven years converts at – it automatically converts at the $0.62, which is three times the price it’s selling at now.

Exactly.

Okay, all right. And is there an accrual rate on the preferred or not?

I don’t believe so.

Okay, all right. Thank you. One other question while I have you, with regard to the three locations where enplanement has changed and the like, can you give us a little color on whether that is a very abnormal thing or is this the kind of thing that the company has to deal with more frequently than just once every long time?

Tony, it’s literally at the airport discretion. The three airports which are pretty big airports for us, they were LAX – LAX in the third quarter of last year literally changed every single airlines and the terminal that we were in. So, we were in a very, very Delta terminal and they ended up moving Delta to another terminal and our terminal turned into an overflow terminal for American, which really impacts our enplanement. JFK Terminal 4A was the wing in Terminal 4. That was Virgin America. When it merged with Alaska Airlines, they moved over to terminal 7 and the enplanements suffered dramatically in Terminal 4A. And then, in La Guardia, we’re in La Guardia C. And our terminal was American airlines – one of the terminals that American went out of. And American consolidated all of their flights into Terminal B. And what ended up happening is we just became – our terminal became an overflow for Delta.

Okay, thank you very much. Thanks for answering those questions. Good luck with everything.

Our next question comes from Keith Goodman with Maxim Group.

Hi. Just want to follow-up on the Calm investment. The money, so, basically, you’re not paying them back. They're just getting equity.

Exactly.

Okay, all right. Great. And the relationship with Calm, so they're basically – they're going to be selling some of their retail products in your store. Do you get a royalty on that? Or how does that work?

We spoke profit share with about a 50% margin on anything that we sell. We are also sharing revenue on any subscriptions that we sign up. Every single subscription card that we give out to anyone that walks by or enters our spa can be downloaded with a code that places that subscriber back to our store. And the subscriptions are currently $60. They would keep $40 and they will give us $20 for every subscriber that signs up in XpresSpa.

Got you. Got you. Okay, great. Thank you. And your margins were up pretty nicely. I guess, that’s a function of having more of a retail component in your store?

It was definitely the fact that we were 20% retail in the third quarter. But our store contributions were one of the highest that it’s been at at 22.9%. That was also directly impacted by our control of payroll through the scheduling model that we rolled out in the third quarter and it really worked very, very well to get our store margins up.

Great. Okay, thank you, guys. Good quarter.

The next question comes from Will Martin, a private investor.

Hi, guys. Thanks for taking my question. First one from me, a little bit more on the Calm partnership. What attracted Calm to want to partner with XpresSpa as their first investment in brick-and-mortar? Thanks.

Well, I think the opportunity for them, obviously, to go from digital into brick-and-mortar and to have 52 prime locations in the health and wellness space in some of the busiest airports throughout the US was very, very appealing to them. We have 1 million customers that we actually service every year and hundreds of millions of customers that pass through the airports and by our spas on an annual basis. So, this is really a great opportunity for them and for us, obviously, to really join hands and to take care of the weary travelers from a meditation, relaxation and sleep mode within the XpresSpa brand.

Got it. Thank you. It makes sense. And then, can you talk about how Calm’s integration into XpresSpa location will drive revenue for you guys?

Yes. Obviously, with the 35 million users and the 1 million subscribers, we will be communicating with them, along with our own loyalty members, to really cross-promote. And we have a whole list of different offerings that we will be giving to the Calm users on a monthly basis. When we kicked this off on Tuesday, actually, any Calm user can come in and get a free gift with purchase, a free luggage tag, and the subscribers will come in and get a free 10-minute massage chair experience, which usually runs about $20. And we have a number of different offers that we will be communicating with both our loyalty members and their users on a regular basis.

Got it, thanks. That’s it for me.

This concludes the question-and-answer session and today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.