The Joint Corp. (NASDAQ:JYNT) Q1 2023 Earnings Call Transcript

The Joint Corp. (NASDAQ:JYNT) Q1 2023 Earnings Call Transcript May 7, 2023

Operator: Good day, and welcome to The Joint Corp. First Quarter 2023 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to David Barnard of LHA Investor Relations. Please go ahead.

David Barnard: Thank you, Dave. Good afternoon, everyone. This is David Barnard of LHA Investor Relations. On the call today, President and CEO, Peter Holt, will review our first quarter 2023 performance metrics and provide an update on the business. CFO, Jake Singleton, will detail our financial results and guidance. Then Peter will close with a summary and open the call for questions. Please note, we are using a slide presentation that can be found at https://ir.thejoint.com/events. Today, after the close of the market, The Joint Corp. issued its financial results for the quarter ended March 31, 2023. If you not already have a copy of this press release, it can be found in the Investor Relations section of the company’s website.

As provided on Slide 2, please be advised today’s discussion includes forward-looking statements including statements concerning our strategy, future operations, future financial position and plans and objectives of management. Throughout today’s discussion, we will present some important factors relating to our business that could affect these forward-looking statements. The forward-looking statements are made based on our current predictions, expectations, estimates and assumptions and are also subject to risks and uncertainties that may cause actual results to differ materially from the statements we make today. Factors that could contribute to these differences include, but are not limited to, our inability to identify and recruit enough qualified chiropractors and other personal to staff our clinics, due in part to the nation-wide labor shortages and an increase in operating expenses due to measures we may need to take to address such shortage; inflation, exacerbated by COVID-19 and the current war in Ukraine, which has increased our cost and which could otherwise negatively impact our business, the potential for future disruption to our operations and the unpredictable impact on our business of the COVID-19 outbreak and outbreaks of other contagious diseases, our failure to develop or acquire company-owned or managed clinics as rapidly as we intend.

Our failure to profitably operate company-owned or managed clinics for its own strategies and negative opinions posted on the Internet, which could, which could drive down the market price for our common stock and result in class action lawsuits, our failure to remediate future material weaknesses in our internal control over financial reporting, which could negatively impact our ability to accurately report our financial results, prevent fraud or maintain investor confidence and other factors described in our filings with the SEC, including the section entitled Risk Factors in our annual report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 10, 2023 and subsequently filed current and quarterly reports. As a result, we caution you against placing undue reliance on these forward-looking statements and encourage you to review our filings with the SEC for a discussion of these factors and other risks that may affect our future results or the market price of our stock.

Finally, we are not obligating ourselves to revise our results or publicly release any updates to these forward-looking statements in light of new information or future events. Management uses EBITDA and adjusted EBITDA, which are non-GAAP financial measures. These are presented because they are important measures used by management to assess financial performance. Management believes they provide a more transparent view of the company’s underlying operating performance and operating trends than GAAP measures alone. Reconciliation of net income to EBITDA and adjusted EBITDA is presented in the press release. The company defines EBITDA as net income or loss before net interest, tax expense, depreciation and amortization expenses. The company defines adjusted EBITDA as EBITDA before acquisition-related expenses, stock-based compensation expenses, bargain purchase gain, net gain or loss on disposition, or impairment and other income related to the employer retention credits.

Management also includes commonly discussed performance metrics. System-wide sales include revenues at all clinics, whether operated by the company or by franchisees. While franchise sales are not recorded as revenues by the company, management believes the information is important in understanding the company’s financial performance because these sales are the basis on which the company calculates and records royalty fees and are indicative of the financial health of the franchisee base. Comp sales includes the revenues from both company-owned or managed clinics and franchise clinics that in each case have been open at least 13 full months and exclude any clinics that have closed. Turning to Slide 3; it is now my pleasure to turn the call over to Peter Holt.

Peter Holt: Thank you, David, and I welcome everybody to the call. As we noted in March we enter 2023 with a 45 foundation to support our clinics as well as our longterm clinic expansion and financial growth. Today, I’m pleased to report on Q1, 2023 we performed well during the continued economic uncertainty and expect our robust underlying clinic model and unit economics to thrive as markets improved. For those investors who are new to the company, the Joint is revolutionising access to chiropractic care by providing an affordable cost share style membership based services and convenient retail setting. Turning to slide 4 let’s review our financial metrics for the first quarter 2023 compared to first quarter 2022. System wide sales grew 17%.

Comp sales for clinics have been open for at least 13 full months increased 8%. Revenue grew 27%. Adjusted EBITDA improved to $2 million. And on March 31, 2023, our unrestricted cash was $14.8 million compared to $9.7 million on December 31, 2022. Turning to slide 5, I’ll discuss our clinic metrics. During Q1, 2023 we opened 33 clinics 29, franchised and 4 Greenfield. This compares to 31 clinics 27 franchising and 4 Greenfield in Q1, 2022. Our greenfield strategy look like clinic sites where there will be a capture where they’ll capture pent up demand in new markets where they can rapidly build a solid presence. This quarter we augmented existing clinic clusters in California, Georgia, Missouri and North Carolina. As previously stated in 2023, we are focusing on supporting our existing greenfield clinic portfolio as it matures and moderating our pace of new greenfield openings.

In the first quarter of 2023, we closed one franchise clinic which will be relocated. That compares to closing one franchise clinic in the first quarter of 2022. Once again, our closure rate is one of the lowest in franchise community at less than 1%. In summary, on March 31, 2023 we had 170 clinics in operation, consisting of 740 franchise clinics, and 130 company owned or managed clinics. The portfolio mix remained 85% franchise clinics and 15% company owned or managed clinics. At quarter end we had 218 franchise licenses and active development, which is a solid pipeline for a future franchise clinic opening. Subsequent to quarter end in April, we opened one greenfield clinic at Fort Dix, New Jersey. This is our fourth location opened in conjunction with the Army and Air Force exchange service.

Turning to slide 6. In Q1, 2023, we sold 17 franchise licenses, which is the same number as Q4, 2022, and compare it to 22 licenses sold in Q1, 2022. This past quarter, the existing franchisees bought approximately 59% of our new licenses. This means that even in uncertain environments, those that are intimately involved in our network are reinvesting in the brand. This is a powerful indicator of the strength of our business model, demonstrating the health and viability of a franchise system. On March 31, our [indiscernible] count with our aggregate tenure minimum development schedule for the new RD territories established as 2017 at 626 clinics. Turning to slide 7, let’s review our marketing efforts. New patient acquisition continues to be a focus.

For Q1 of 2023 the average number of new patients per clinic was done approximately 7% from the same quarter a year ago. To further improve new patient leads and conversions our marketing team has invested in pay channel maximization and new paid digital tactics, as well as prioritizing non digital approaches such as guerilla marketing. We’ve created multiple learning modules to effectively walk our franchisees through best practices in digital marketing, guerrilla marketing, traditional awareness, marketing, and referrals. In February, we held our annual love the joints and social media campaign and giveaway were 12 lucky winners received a gift of one year of free chiropractic care. During this promotion, we saw significant increases in our overall engagement in the Joint National Instagram account where we gained almost 15,000 entries and comments and more than 20,000 likes, and attracted over 13,000 new followers.

In March we held our new patient contest. This event incentivized clinic team to promote the joints $29 new patient offer the assignments referral cards and local business partnerships and community event. For March the network increased new patients over 19% compared to the prior three months average. In terms of our digital efforts in March, we also launched a test to capture leads to a chat technology, as well as leverage enhance doctor of chiropractic profiles on an online medical sites as a new source for new patient leads. For the quarter, organic traffic to the site increased 14% year-over-year. As a part of our PR effort, we continue to focus on the education and benefits of chiropractic care and generate brand awareness about the Joint.

Our PR strategies are reaching new highs and in Q1 alone, we surpassed 1 billion in earned editorial impressions. And with that, Jake, I’ll turn it over to you.

Jake Singleton: Thank you, Peter. Turning to slide 8, I’ll review the financial results for Q1, 2023 compared to Q1, 2022. System wide sales for all clinics open for any amount of time increased to $115.4 million up 17%. System wide comp sales for all clinics open 13 months or more increased 8%. System wide comp sales for mature clinics open 48 months or more increased 1%. Revenue was 28.5 million dollars up $6 million or 27%. Company owned or managed clinic revenue increased 36% contributing $17.1 million. Revenue from franchise operations increased 15% contributing $11.3 million. The increases represent continued growth in both the corporate portfolio and franchise base. Cost of revenues was $2.6 million, up 13% over the same period last year, reflecting the associated higher regional developer royalties and commission.

Selling and marketing expenses were $4.2 million up 27% over the same period last year driven by an increase in advertising fund expenditures from a larger franchise base and increase in local marketing expenditures by the company owned or managed clinics and the timing of our national marketing funds spend. Depreciation and amortization expenses increased $713,000 up 44% compared to the prior year period, primarily due to the increase in the number of greenfield clinics developed and franchise clinics acquired. G&A expenses were $19.9 million compared to $15.4 million up 30%. Reflecting the cost of support the increased clinic count revenue growth and higher payroll to remain competitive in the tight labor market. Operating loss was $678,000 compared to a loss of $176,000 in Q1, 2022, mostly driven by the previously mentioned higher depreciation and amortization expensive.

Other income was $3.8 million, reflecting the receipt of employee retention credits, compared to other expensive $16,000 in Q1 of 2022. Income tax expense, including the impact of the employee retention credits was $842,000 compared to $13,000 in Q1 of 2022. Net income was $2.3 million, or $0.16 per diluted share, compared to a net loss of $206,000 or $0.01 per diluted share in Q1 of 2022. Adjusted EBITDA was $2 million, compared to $1.8 million in the same period last year. Franchise clinic adjusted EBITDA increased 6% to $4.8 million. Company owned or managed clinic adjusted EBITDA increased 68% to $1.6 million reflecting the maturation of our clinics in the corporate greenfield portfolio, as well as our concentrated effort to optimize labor.

Corporate expense is a component of adjusted EBITDA was $4.4 million, up $671,000 or 15% higher than Q1, 2022. Onto a review of our balance sheet and cash flow at March 31, 2023 our unrestricted cash was $14.8 million compared to $9.7 million at December 31, 2022. This reflects $6 million in cash flow from operations which included the receipt of the employee retention credits of 3.9 million. These were net of $1.2 million in investment in opening greenfield clinics and upgrading existing clinics. Also, we continue to have access to additional cash through a line of credit with JP Morgan Chase. To-date, we’ve drawn 2 million and have an additional $18 million available. On slide 9, we are reiterating our guidance for 2023. We continue to expect to grow revenue to between $123 million and $128 million compared to $101.9 million in 2022.

We continue to expect adjusted EBITDA to be between $12.5 million and $14 million compare to $11.5 million in 2022. We continue to expect franchise clinic openings to be between 100 and 120 compared to 121 in 2022. Please note historically, guidance for company owned or managed clinic opening included a combination of both greenfield and acquisition. While we continue to acquire previously franchised clinics, these transactions are opportunistic and are no longer included in our guidance. For greenfield clinic openings, we continue to expect to open between 8 and 12 compared to 16 in 2022. And with that, I’ll turn the call back over to you, Peter.

Peter Holt: Thanks, Jake. Turn slide 10. While managing today’s uncertain economic conditions including inflation and wage pressure, we remain focused on what we can control and continue to execute programs to improve performance and drive long term growth. We continue to methodically implement our multiyear corporate initiative to ford the chiropractic dream. Over the past several years, we’ve been increasing our educational outreach efforts with associations and schools of chiropractic to drive awareness and support recruitment. As our relationships with these institutions continue to improve these endeavors are being felt across the network nationwide. In fact, we have more interest than ever from doctors in these recent graduating classes and we’re attracting new doctors of chiropractic to the Joint.

To harness the power of our data, we’ve launched our business intelligence and analytical reporting tool, and we’re surely launching an automated marketing program. This will reach existing lapsed and potential patients to ensure that we send the right message to the right patient at the right time. To accelerate the pace of our clinic growth, we remain focused on our franchise sales in addition to opening greenfield clinics. As reported this quarter, we continue to increase the number of our clinics opened year-over-year. Our network is well-positioned for expansion as the economy improves, frankly, with only 16% of Americans using chiropractic care in the last 12 months and spending $19.5 billion on it annually the chiropractic patient in need is growing, and our market opportunity is considerable.

Based on our current patient demographics, we are approaching our near term target of 1000 clinic and are well positioned for a longer term goal of 2000 clinics. We expand our network and potential base by developing rural, urban and possibly international clinic models, we will broaden our long term market potential. We are committed to capturing a greater share and growing the overall market. With that day, Dave I’m ready to begin the Q&A.

Q&A Session

Operator: We will now begin the question and answer session. [Operator Instructions] Our first question comes from Jeremy Hamblin with Craig-Hallum Capital Group. Please go ahead.

Operator: Next question comes from Jeff Van Sinderen with B. Riley. Please go ahead.

Operator: Our next question comes from George Kelly with ROTH Capital Partners. Please go ahead.

Operator: Our next question comes from Anthony Vendetti with Maxim Group. Please go ahead.

Operator: This concludes our question and answer session. I would like to turn the conference over to Peter Holt for any closing remarks.

Peter Holt: Thank you. Before I close, I want to note that we will hold our annual meeting of stockholders on May 25 here in Scottsdale, Arizona, and we will also present and conduct meetings at the B. Railey Securities investor conference on May 24th in Los Angeles, and the virtual Oppenheimer consumer growth and e-commerce conference on June 13. Finally, as we’re constantly receiving patient testimonials, and this spring, an athlete and parent managing several elements caught our attention. So Miriam from California wrote us and said, I can’t say enough about these healers. I have significant and severe chronic spine injuries including degenerative disc disease, bone spurs, osteoarthritis, and bulging herniated discs. I’m an athlete and live a very healthy life that demands a high level of activity and energy output daily.

The Joint doctors have been treating me for over a year now along with my son who’s five. These magical masters helped me bring my body back in alignment. So it’s not an agonizing pain and limiting my demanding life. They’re always immensely kind and playful with my little one and never mind me bringing him in or rushed me. I’m very picky about my care team and I promise you won’t be sorry coming in for relief from these gems. With my new breast cancer diagnosis I’m even more vigilant about self care. And these angels are my supportive network for good. Thank you and stay well [indiscernible].

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.