Below is Joint Corp (NASDAQ:JYNT)’s 2014 Q3 earnings call transcript.
Host
Peter Vozzo– Managing Director, Westwicke Partners
Company Representatives
John Richards– Chief Executive Officer, Joint Corp
David Orwasher – Chief Operating Officer, Joint Corp
Analyst
Tony Brenner – Roth Capital Partners
Operator
Good morning, ladies and gentlemen,and welcome to the Joint Corp (NASDAQ:JYNT) 2014 Third Quarter and Nine Months Results conference call. At this time, all participants are in listen-only mode. Later, we’ll conduct a question-and-answer session and instructions will follow at that time.
I would now like to turn the conference over to your host, Peter Vozzo of Westwicke Partners, the Joint Corp investor relations firm.
Peter Vozzo, Managing Director, Westwicke Partners
Thank you, Saeed. Good morning, everyone, and welcome to the Joint Corp Third Quarter and Nine Months 2014 results conference call. I am joined by John Richards, Chief Executive Officer, and David Orwasher, Chief Operating Officer.
Before we begin, if you do not already have a copy, the third quarter and nine month results press release with financial statements and our 10-Q can be found in the investor relations section of our website at www.thejoint.com.
Please be advised that today’s discussion includes forward-looking statements including predictions, expectations, estimates, and other information that might be considered forward-looking. Throughout today’s discussion, we will present some important factors relating to our business, which could affect these forward-looking statements. The forward-looking statements are also subject to risks and uncertainties that may cause actual results to differ materially from the statements we make today. As a result, we caution you against placing undue reliance on these forward-looking statements and we encourage you to review our filings with the SEC for discussion of these factors and other risks that may affect our future results with the market price of our stock.
Finally, we are not obligating ourselves to revise the results or publicly release any updates to these forward-looking statements in light of new information or future events.
With that, I’ll turn the call over to John.
John Richards, Chief Executive Officer, Joint Corp
Thank you, Peter, and welcome to everyone on the call. And thank you for joining us on our first conference call as a public company.
Now, we met many of you in the process leading up to our IPO in November. But for those new to the Joint Corp (NASDAQ:JYNT), I would like to provide a brief summary of what we do and highlight some of the strength of our business model. David will then discuss briefly our results for the quarter and nine months ended September 30, 2014, and provide a general outlook on the business.
The Joint Corp provides a portable, high quality chiropractic services for more than 240 chiropractic clinics in the US. Our affordable, private pay/cash-only plans and packages eliminate the need for insurance and our no appointment policy, convenient hours and locations, make care more accessible to a broad cross-section of our customers.
Our strategy is to become the leader in the national market for core chiropractic adjustment services through the rapid expansion of corporate-owned clinics and the continued more focused expansion of franchised clinics. While all of our clinics today are operated by franchisees, our future growth strategy will increasingly focus on opening clinics that are directly owned and operated by us while continue to grow through sale of additional franchises. This strategy is based on an existing and proven unit model at the franchise level that is inexpensive to build and lends itself to rapid expansion.
On the average, these units turn cash positive when they are approximately 12 to 15 months and generates EBITDA margins in the range of 25% to 35% as they approach maturity. A greater control over company-owned clinics will enable us to accelerate our clinic development, implement our operating standards, and capture a greater share of clinic economics.
This strategy development and ownership of these units will have a substantial impact on the overall profitability and enterprise value of the Joint Corp moving forward.
We are pleased to have completed a successful IPO in November. This public fund raising resulted in net proceeds of approximately 20 million and allows us to set the stage for continued and accelerated national expansion. Also, as we mentioned in our press release issued this morning, I am pleased to announce the appointment of Francis T. Joyce as Chief Financial Officer and Treasurer of the Joint Corp. Frank comes to us with a wealth of emerging and established public company experience as CFO of the IMAX Corporation, theglobe.com, and the Mistras Group, among others. We believe Frank’s public company experience and diverse background will enable him to make an immediate impact on our company and its future.
Now, I’d like to turn the call over to David Orwasher, our Chief Operating Officer, to discuss the third quarter and nine months results and provide a general outlook. David.
David Orwasher, Chief Operating Officer, Joint Corp
Thanks, John. We have provided detail on our financial performance for the three months and nine months ending on September 30, 2014 in the press release and 10-Q issued this morning. I will take a few minutes and discuss some of those highlights.
We have 230 clinics opened as of September 30, 2014. It represents an increase of 76 clinics or 49% as compared to 154 as of September 30, 2013. As a result, revenues increased 23.3% in third quarter 2014 and increased 17.6% for the first nine months of 2014 as compared to the year ago period. Revenue growth for both periods was partially offset by a reduction in initial franchise fees as a result of fewer clinics being opened during the third quarter and nine month period as compared to the same period a year ago.
Net loss in the third quarter of 2014 was $202,373 or $0.04 a share,as compared to net income of $42,548 or one penny per diluted share in the third quarter of 2013. For the first nine months of 2014, net loss was $464,019 or $0.10 per share,as compared to net income of $155,899 or $0.02 per diluted share in the same period in 2013. Net loss in 2014 periods compared to the same periods a year ago reflects the increase in the number of employees hired during the ’14 and the increase in the infrastructure support to support our growth initiatives.
As of September 30, 2014, cash-and-cash equivalents were 2.59 million as compared to 3.58 million as at September 30, 2013. During November 2014, we completed an initial public offering issuing 3,450,000 common shares at a price of $6.50 per share, totaling net proceeds of approximately $20 million. As of December 10th, there were approximately 9.72 million shares outstanding.
While our plan for expansion is well underway, we do not expect to provide more complete annual financial guidance until the release of our 2014 fourth quarter year-end results in March. This will allow us time to rewrite a more complete frame of reference for 2015 and beyond.
However, in general, we expect to add between 70 and 90 clinics during 2015, which will be comprised of a blend of company and franchise units. The company-owned clinics will be further broken down into buybacks of existing franchise units and greenfielded or newly constructed units.
Moving forward, our revenue will be composed of three distinct streams. Franchise revenue derived from royalties, franchise revenue derived from the sale of franchise licenses, and corporate revenue derived from acquired or newly built greenfield corporately operating clinics. In 2015, we expect this revenue to evolve our enterprise from one of 100% franchise-generated revenue in 2014 to one that will reflect an increase in proportion of corporate revenue contributed by the year end. This plan will continue to evolve in favor of corporate units as our growth in this area accelerates.
As we noted previously, the addition of corporate units will have a positive impact on overall profitability and enterprise value over the long term. With that, I’ll now turn it back to John.
John Richards
Thank you, David. This has been a very exciting year for the Joint Corp,both in terms of our successful IPO as well as the continued momentum we are now experiencing in our business. I like to take a moment to thank each and every one of our employees, our franchisees, and of course, our investors, for their support and dedication to our business.
As a reminder, our strategy is to become the leader in the national market for routine chiropractic care through the rapid expansion of private pay, corporate-owned clinics, and the continued, more-focused expansion of franchise clinics. We have a proper unit model which is inexpensive to build, lends itself to rapid expansion, is convenient and affordable, and is staffed by an exceptional team of licensed chiropractors.
We are continuingto execute our plan today and look forward to update you on our progress going forward. Thank you.
And with those comments, we’d like to open the floor for questions. Operator?
Question and Answer Session
Operator
Thank you, sir. (Operator Instructions). And our first question comes from Tony Brenner from Roth Capital Partners. The line is open. Please go ahead.
Tony Brenner, Roth Capital Partners
Thank you very much. Good morning. I wonder if you could, John, give a little bit of sense with respect to company clinics. The timing of those openings, will they be back-ended during the year or fairly even during the four quarters?
John Richards
I can start that, Tony. This is John Richards. I think we are in the process of wrapping up our execution plan as we speak and of course as soon as the offering was completed, we had a sense as to what was possible and the timing of it. And I think in general, the opening of corporate clinics will be spread evenly throughout the year. I think in this first quarter, we’ll start a little slow and then it will begin to build obviously as the system gets set up.
Tony Brenner, Roth Capital Partners
Okay. You mentioned a more focused franchise expansion. Does that simply mean fewer franchise openings or does it mean something else?
David Orwasher
No, it means – this is David, Tony. It means focusing our strategy around our cluster development to leverage and optimize both our marketing and operating efficiencies. So it’s targeting those units to fill in those territories and to the extent that they’re entirely new, it’s to enter with the cluster. Our development strategy remains intact whether it’s through franchising units or company units. It’s to gain leverage through optimal penetration in a given market and we’re going to direct the strategy in that fashion.
Tony Brenner, Roth Capital Partners
Got it. One last question. I know you’ve been setting up some sort of a marketing and advertising effort. I wonder if you could just elaborate a little bit on what we might expect on that end.
David Orwasher
Well, this is consistent with our overall strategy to bring concentration of effort, focus of our messaging, and really efficient use of resources that comes from the consolidation of not only the franchise group, but then increasingly, the corporate units as they begin to open up. I think that’s critical in any business. It’s certainly critical in a multi-unit retail business. So I think the process really have a couple of things with it. First, we’ve hired a national marketing firm, Moroch, who is also known for their efforts with McDonald’s and Midas among others. So the firm is very experienced in supporting a multi-unit businesses of our type. And I think importantly after that, we are now in the process of developing consolidated messaging of themarketing product as we go out and then we’ll begin to focus on both digitally-oriented customer acquisition tools in those markets where we have enough scale more broadcast marketing as we move forward. So a lot of concentration of that against key target markets.
Tony Brenner
Thank you very much.
John Richards
Thanks, Tony.
Operator
Thank you. Our next question comes from [unintelligible – 00:14:15]. Your line’s open. Please go ahead.
SECOND ANALYST
Yes. The first question is just basically how would you suggest we think about these sold but unopened franchises yet. From a timing perspective, if there’s 250 or roughly, how many per year do you think we’ll see open over the next three or four years out of that pool?
John Richards
Well, I think in general, we expect to open the franchises essentially on the pace we have up to this point. They continue to open at a fairly healthy clip in the range of about 75 per year. We expect that to continue as we in effect deplete down that pipeline that we currently have. So in round figures, I think 75 is a pretty good number for franchise openings in general as we move forward. David, do you have any stand on that?
David Orwasher
No, I think that’s about right, John. We’re going to try to keep taking that pipeline open and moving it forward. But I think those numbers are solid.
SECONDANALYST
As a quick follow on to that,is it possible that you could buy back some sold but not opened franchises? Is that part of the possible expansion strategy for corporate stores?
John Richards
Yes, it is a potential. It’s dependent on the overall portfolio mix and the players involved. But we are looking at this from an organized strategy of staged opening in remarks that we talked about earlier, in the question that we responded. And we will be consistent within that strategy to try to get those units opened in accordance with those schedules.
SECONDANALYST
And then from a simplistic perspective, if you open your first units in the first quarter and you open some more obviously second, third, throughout the year, at what point do you think you kind of get a lot more confidence on the model at a corporate level just really starting to execute? Can you tell that after a couple of quarters? Do you have to see it a year?
John Richards
I think that it takes about a year to see the unit begin to mature and to pay back its initial investment. Something in that range as we mentioned earlier in the comments and I think that our feeling based on a substantial sort of proven efforts ofour existing franchise base where we have really quite a large sort of database, if you will, of experience out there. We have a pretty good sense of what happens when units are properly located and put in the ground on the right bases. That experience has been pretty consistent. So we don’t have any reason to believe that our corporate units won’t perform at least as well if not better.
SECONDANALYST
This will be my final question then. So obviously, the offeringwas a little bit smaller than the original intent. And I think expectations will dive back a little bit. Between seeing the results of your first few stores open and then also looking at the ongoing performance of thefranchises, at what point do you start to think about maybe getting a bank line as a second source of funding. Is that something that can happen in late 2015? Is that something that we can anticipate maybe looking at in 2016?
John Richards
Good question. First, let me say that – and I mentioned this in the initial remarks – the money we’ve raised is really sufficient for us to execute or we consider to be a substantial proof of concept with a lot of corporate units. But it’s also a model that’s very profitable and that allows us to generate subsequent income to execute additional units. Having said that, this is a model that lends itself to rapid expansion. It’s a very efficient use of capital and I think that after we kind of get our sea legs under us and get a routine of expansion going, that toward the end of 2016, we’ll begin to think of kind of subsequent strategies with respect to potentially accelerating the national rollout and that might include various financial scenarios that we might kind of play.
Operator
Thank you. (Operator instructions.) We shall have no further questions at this time. I would like to turn the conference over back to Mr. John Richards.
John Richards
I just want to, once again, thank everybody for their support and interest in the Joint Corporation. We look forward to visiting with you on a quarterly basis moving forward. Please accept our best wishes for the holidays. Merry Christmas. Happy New Year to everyone from us and we will be seeing you soon.
Operator
Ladies and gentlemen, this concludes today’s conference. Thank you for your participation. Have a wonderful day. You may all disconnect.
