FORM Holdings (NASDAQ: FH) employs a relatively simple yet extremely robust targeting matrix when it comes to acquiring new development candidates. It’s really all about what this diverse holding company can bring to table, as well as how much an otherwise promising, vetted target can benefit – whether it is additional capital and restructuring we are talking about, or full-scale rebranding and implementation of new best practice procedures. Similarly, candidates are selected that can clearly benefit from the kind of new talent recruitment, as well as tailored marketing, public relations, and visibility enhancement, that only an outfit of FORM Holdings’ caliber can provide.
The operational profile of FORM Holdings spans several wholly-owned operating units in technology, including built-to-order, rugged, field-ready mobile and computing products company, Group Mobile; the designer, developer and manufacturer of mobile device-agnostic, wire-free rapid charging and power systems, FLI Charge; and an IP monetization company, Vringo, which works a growing portfolio with more than 75 technology patents, covering everything from telecom infrastructure, remote monitoring and internet search, to ad-insertion, wireless charging, and mobile technologies. The Company also maintains an 8.5 percent stake in Infomedia, a privately-owned, leading UK-based CRM (customer relationship management) and monetization tech provider to mobile carriers and device manufacturers.
However, FORM Holdings has shifted a good deal of its overall corporate focus in recent quarters to its newly-acquired health and wellness subsidiary, XpresSpa. For, as CEO and Director Andrew Perlman recently pointed out in an interview with Bloomberg Market’s Pimm Fox, airport traffic in the U.S. was up 3.2 percent to 929 million passengers last year alone, according to the latest data from the Bureau of Transportation Statistics. XpresSpa represented approximately 70 percent of FORM Holdings’ 2016 revenues, whereas the aforementioned other four business units represented only the remaining 30 percent. XpresSpa raked in some $43.6 million last year, with hearty store level profitability margins of around 20 percent.
Unlike traditional brick and mortar retail that has seen increasingly dramatic erosion by e-commerce (as antiquated and vulnerable operations become displaced by digital commerce of some form or another), airport terminals provide a comparatively captive consumer audience that is willing to spend more for immediate satisfaction. This only becomes more and more the norm in a world where enhanced security procedures often mean longer wait times and increased stress. Indeed, checkpoint traffic rose 15 percent from 2011 to 2016, while the number of screeners declined roughly 5.5 percent. Even with TSA PreCheck, more travelers and fewer screeners has led to long wait lines and grumpy passengers.
According to the Department of Transportation, consumer complaints from all categories against airlines were up 47 percent from 2014 to 2015, and they rose another 10 percent last year. With a variety of well-publicized stories in the news recently about airline carriers failing to live up to customers’ service expectations, the welcoming promise of a pre- or post-flight XpresSpa decompression session may be just the ticket when it comes to encouraging travelers to keep flying the not-always-so-friendly skies. One look at the full-service spa offerings available – from massage, manicure/pedicure, facials, and waxing, to hair and grooming, as well as shower facilities at some locations – and even the lay investor can see why the XpresSpa business model has caught fire with travelers. This is especially true when one considers the demographic of U.S. air travelers, who have as much as double the median household income, or that of the frequent fliers, who generally have more than double the median household income and make most of their airport retail purchases on impulse due to the same factors which plague all airline travelers, such as boredom, stress, and the hectic nature of most airports.
XpresSpa is more than just a well-recognized and trusted brand that consumers have come to rely on to de-stress before or after a wearying journey. It is also the dominant player in the industry domestically with 3.3 times as many locations in the U.S. market as its next closest competitor, Be Relax, and more locations than all of its competitors combined if we look at total global market saturation (U.S. included). This is an interesting metric indeed, given that the company’s international footprint currently consists of just three stores in Amsterdam and one in Dubai. If we look at the choice CAPEX to profitability data on the Company’s new kiosks, which pulled on average about half the $1 million in sales last year that the in-line stores did, the expansion potential for this sector front-runner becomes even more tantalizing.
While XpresSpa is likely the most recognized and popular airport spa brand among travelers today, with 53 locations in 40 terminals at 22 airports, one of the real keys to building the company’s presence has been to deploy multiple locations at a single airport. For instance, the Company has seven stores and a kiosk at New York’s JFK alone, which was actually the number one large U.S. hub last year for international enplanements, and was the fifth busiest U.S. air travel hub (by total boarding).
Just to underscore the viability of this multiple location per venue model, and to dissuade investors from the notion that eight is enough when it comes to venue saturation, the company has another location slated to open at JFK in Q2 FY17. It says a lot about the business model’s expansion potential to see XpresSpa going for a ninth location at JFK (3.4 percent increase last year to nearly 28.9 million passengers), and the Company has three more locations slated for this year as well, which will make seven total new locations opened in all since the acquisition of XpresSpa was announced by FORM Holdings back in August of 2016.
Another key to the success and overall profitability of the XpresSpa model has been a superb and growing selection of retail items ranging from high-quality but affordable grab-and-go travel accoutrements, like best seller $18.00 travel pillows and $10.00 satin eye masks, to the $180.00 luxurious cashmere travel set, which includes a 100 percent silk eye mask, in addition to the 100 percent cashmere blanket, pillow, and mask cover case. Beyond travel blankets, masks and pillows, XpresSpa sells a wide variety of other spa products, including bath & body, hair and personal care items, hydrogel eye and face masks to revitalize tissues, and therapeutic massagers. The global airport retail market is on pace to hit $90 billion by 2023 according to a new report from Credence Research, and the U.S. space alone was estimated at around $4.5 billion back in 2015 by Micro Market Monitor.
Add to XpresSpa’s established store/product driven brand presence with the May 8 announcement of an exclusive partnership with hot, on-trend private label and branded product designer/manufacturer Capelli New York, and you have the formula for retail dynamite. Capelli has serious traction in the coveted junior and contemporary markets, with coordinated product lines in the fashion accessory and jewelry segments, as well as in hosiery, footwear, sleepwear, and home fashion (among others). The move to have Capelli co-produce and sell XpresSpa’s branded travel, spa products and accessories is something which should translate handily into expanded reach, brand presence, and overall gross margins. On this subject, it is worth pointing out to investors that XpresSpa is helmed by the former VP of premium, luxury and sports eyewear brand Luxottica, Ed Jankowski, who was also formerly Senior VP for gourmet Belgian chocolatier Godiva. This is a company that understands how to connect with high earners through premium offerings.
Furthermore, FORM Holdings has some big overhauls coming this year for XpresSpa, including XpresSpa 2.0 locations with improved aesthetics, layout, efficiency optimizations, and service offerings. Additionally, a new POS system (slated for Q4) will be fully integrated with the reservation system, open up expanded digital marketing capabilities, and leverage an already-signed user base of over 140,000 affinity members.
The other 30 percent of 2016 revenues is nothing to sneeze at either. Group Mobile has a solid pipeline of request for proposals with law enforcement, and an emphasis on long term corporate/municipality contracts for its rugged computing options, which are well-served by an experienced sales team who knows the prevailing hardware landscape like the back of its hand. Group Mobile saw 25 percent year over year sales growth last year to $6.6 million, even as bookings and customer commitments increased 128 percent to $12.1 million. Group Mobile serves a wide range of clients, from military and first responders to large select customers such as Macy’s. Rugged laptops, tablets and handhelds, as well as its wide range of other solutions, from body cameras to drones, are just a taste of the thousands of products from top brands that allow Group Mobile to tap an increasingly large slice of the $5 billion and growing domestic rugged mobile computing market.
FLI Charge also deserves a closer look, as it has some of the most advanced/efficient wire-free conductive technology available today. The sheer adaptability of this technology when it comes to working with essentially any battery-powered/DC device on the market today is enough to make FLI Charge worth further investigation on its own – but the usage characteristics of this technology are the real head-turners. Able to deliver wattage via a protocol that is as safe as plugging into a wall outlet, FLI Charge enablements can be embedded easily into any battery operated or DC-powered device, allowing them to be charged or powered via a pad such as the FLIway 40. This same ease of use becomes available for iPhone and Samsung Galaxy phones with FLI Charge’s FLIcases (70 percent thinner than extra battery packs), which remove the need for an enablement and allow the phone to be FLI Charged by simply setting it on the pad in any direction.
Investors can get a good look at FORM Holdings at the upcoming Oppenheimer Emerging Growth Conference, which will be held at the luxurious InterContinental Barclay Hotel in New York City next week. CEO Perlman will be available for one-on-one meetings throughout the day for those who arrange a meeting with Oppenheimer & Co. Inc.
To take a closer look, visit http://www.formholdings.com/corp_overview
