Q1 2020 Earnings Call

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Excuse me. This is the operator your conference is scheduled to begin momentarily until this time you're line will again be placed on music called Thank you for your patience.

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Yeah.

Ladies and gentlemen, thank you for standing by.

Welcome to the first quarter 2020 financial results Conference call.

This time, all participants are and they listen only mode. After the speakers presentation there'll be a question and answer session.

To ask a question during the session you will need to press star and the number one on your telephone keypad.

If you require any further assistance. Please press start end zero I would not like to turn the conference over to your speaker for today.

Julie <unk>.

You may begin your conference.

Thank you operator.

An afternoon every one this is Julie to me now have L.H.A. Investor Relations.

On the calls a day presidents and C.E.O. Peter hold well there you are first quarter and the impact of coded 19 on the business.

The S.R., Jake Singleton, well detail, our financial results and Peter look close with a summary and opened the calls her questions. Please note. We are using a slide presentations that can be found on the industry relational section of the company's website.

Do they look at the market close the joint Corp. You should it's the natural results for the quarter ended March 31st 2020.

If you do not already have a copy of this country. They can be done argue investor relations section of the company website.

That's provided on flight to please be advised today's discussion includes forward looking statements, including statements concerning our strategy future operations future financial position implanted objectives for management.

Throughout today's discussion we will present, some important factors relating to our business that could affect these forward looking statements.

Forward looking statements are made based on our current predictions.

Expectations estimates and assumptions are also subjects to risk and uncertainties that may cause actual results to differ much really from the state, which we met today.

Factors that could contribute to this difference differences include but are not limited to.

The continuing impact of because it 19 outbreak on the economy had our operations, including temporary credit closures shorten business hours and reduce patient demand.

Our failure to don't <unk> or acquire company owned or vanished clinics as rapidly as we intend.

Our failure to profitably operate a company owner managed clinics and the other factors described in risk factors in our annual report form 10, K. as filed with the L.P.C. pretty your ended December 31st 2019.

'cause updated for any material changes described in any sense subsequently quarterly reports on form tend to.

And later revised are updated in our subsequent filings, including the one we had two separate files on my eight.

As a result, we cautioned you against placing I do reliance on these forward looking statements encourage you to review our filings with the S.D.C. for our discussion of these factors and other risks that may affect our teacher results or the market price of our stock.

Finally, we are not obligating ourselves to revise our results are public release any updates to these forward looking statements from light up you know approbation orchestra events.

Management uses either dot and adjusted either huh.

Which are non get financial measures. These are presented because they're important measures usually management to assess the potential performance.

Management believes they provide them more transparent view of the company's underlying operating performance.

Operating trends and got measures alarm.

Reconciliation net income to eat a dog and adjusted either it's presented to the press release the company to five <unk> <unk> that interest Cox expense depreciation and amortization expenses.

Accompany defines adjusted EBITDA as either the huh before acquisition related expenses.

Purchase game net gain or loss on disposition or impairment and stock based compensation expenses.

Dislike tree is my closer to turn the call over to Peter Hope. He just go ahead Sir.

Thank you Joy I welcome everybody towards you want earnings called like it again by thinking extraordinary helped her workers across this nation because they battled cold is 19.

Nothing can be more important than for each of us do whatever we can to combat depend on that can minimize the 10 Bucks.

See all the joint car bracket I want to reiterate that our primary concern, which guides all over action is the health and wellbeing of our patients and those who serve operations.

How did we do last month, the George's relying on garden from National and local Kirkpatrick associations and healthcare organizations to director conduct.

<unk> as an essential helped her service that can be used by patients with a wide array of health conditions.

Therefore, we been committed to remain open wherever and whenever possible.

Additionally, we've implemented increase hygiene routine monitoring an operation protocols, which we have detailed in our company website.

As we were whether that's unfolding crisis I'm, so grateful for the <unk> doctors and support team. We're also on the front line continued to provide carpet cared to our patients.

By staying open we're able to remove some of the burden from the traditional medical resources, allowing our health care system to focus on treating those afflicted by covert 19.

Jennifer that so many of our patients continue to visit our critics is a powerful testimony to view of the our services are indeed central to their health care.

Today today I'll briefly review, our first quarter metrics and discuss how we'd been managing our response to the <unk> Corona virus pandemic to support resources, we offer French I.D.'s.

Our plans for the remainder of the year.

J could discuss our financial results in greater detail.

After which all open the call for question.

The joint continues to revolutionize access to car particular with convenient to retail setting concerto style and members should be services attractive pricing and hours without insurance or appointments.

Or hybrid model of company owned or manage clinics as well as their franchise quicktime fueled our ability to expand in the capital like fashion.

Already we're the largest most recognizable provider carpet to care in the country, which in 2019 was estimated to be $15 billion an expanded.

Rating or opportunity for continued growth.

After four years of the World <unk> robust integral in a focus on improving operations in marketing. We entered this crisis better prepared to manage these unprecedented circumstances.

Strong momentum continued for the first two and a half months or the quarter and approximately 95% of our clinics remained open through March 31st.

However, since then we're seeing a significant impact from corporate 19, which we discussed in greater detail later in the call.

First quarter of 2020 compared to the first quarter 2019, we continue to deliver solid growth.

<unk>, 24% and Caulfield for critics had been open for at least 13 full month were 50 per cent.

Immersed 30, 2020, we had 10.7 million and unrestricted cash up from 8.5 million, reflecting the 2.2 million drawn from our recently established line of credit.

Turning to slide for let's review review our portfolio.

At March 31, 2020, we had 530 clinics in operation from 513 or December 31 2019.

A quarter in the credit mix remains 88% franchise and 12% corporate.

In February we expanded Los Angeles regional costs cluster with a new Greenfield Quinn, bringing the total company owner managed clinics to 61.

During the quarter Reopens 16 franchise clinics, bringing the total to 469.

Three but clinics opened in the queue 120, 20, including one Greenfield earned the goalie status by cheating at least 400, a new patients and $30000 themselves within the first two months of operation.

Notably five of the six corporate greed go that we've opened in 2019 and 20 have achieved the goalies data with one of our corporate Greenfield, having the best Grand opening performance in any kind of can the history of the company.

Measured by the first two months of growth.

Oh.

[noise] turn into slide by during the first quarter, we sold 24, new license franchise licenses compared to 30 licenses sold in 212019.

Traditionally are French hotels are higher from the second quarter as or annual franchise disclosure document is updated.

Update at the end of April and our French I.D.'s, often prefer to find the all agreement.

And April 2019, we sold 30 franchise licenses compared to six and April 2020.

Albeit is a significant decrease we believe selling any licenses in this current climate is remarkable and indicative of the positive long-term outlook of our business.

Original developers are are D.'s continued to fewer growth and we're responsible for 92% of the franchise cells into 120 25 or six sales in April.

To further underscore the appeal of our concept and late March with this year, we sold to the new R.D. rights for Nebraska, Iowa in South Dakota, increasing are already platform to 22.

This new R.D. has an extensive multi unit franchise background and currently owns over 30 grid clips loans.

This territory carries a minimum tenure development scheduled 18 units.

Turn into slide six let's review how covert 19 is impacting a joint what actions, we've taken and how we're prepared for managing the uncertainty caused by the pandemic.

To assist us in our decision, making more carefully falling guidelines from trusted authorities such as the centers for disease control and the World Health organization and local and state health authorities.

Since the onset of the pandemic the joint has been working tirelessly to prepare the company to meet the challenges in this dynamic situation.

Some of these actions include the we've increased the frequency of our communication to a franchise using credit team, including weekly all network town halls to help them navigate the rapidly changing environment and special edition Webinars the dive deep into important topics such as marketing and this time of uncertainty navigating economic reason.

Leap options.

Managing H.R. issues, improving the patient experience and self forecasting in light of the corporate 19 environment.

We instituted an internal hotline to our rapid response team and an epic to website connecting franchisees with all our published information and documentation related to cope with 19.

We're addressing patient safety concerns for educating them about the enhancements in our policies and procedures utilize that are quick to line with the latest facts and best practices related to hygiene and sanitation patient screening clinic operations and other critical protocols.

We're adopting her content marketing plan to provide patients with additional safety support during the pandemic, including what to expect during the visit to the joined as well as numerous tips and maintain their health and wellness during this pandemic.

Restricting the supply chain of P.P.E. and cleaning supplies to her clinics, including a new partnership we recently announced with Amazon business.

Apply products approved by the C.D.C.

To further support our franchisees during this crisis, we've extended several temporary concessions to them.

Clued waving the minimum royalty requirement for all franchisees for the remainder of 2020.

The minimum local that's been requirement through the end of two two.

And the monthly check fee for quite as close 16 days or more in that month.

Will continue to explore opportunities to bring additional relief and support wherever we can't wherever it makes sense for the short and long term health of our franchisees.

To assess effectiveness of our communication with some friends with our franchisees in mid April we conducted a quick post survey that was executed by franchise business review.

The feedback was very positive.

The highlights 88% of the franchisees stated that they were either very positive are mostly positive about their association with the joint.

90% stated that they were either extremely competent or somewhat competent about the long term future the business.

The survey results validates our effort to date and provided helpful insights that we're using to further improve our support of our friends as community.

In consideration of the impact of covert 19, Let's review our current corporate strategies for technology marketing an overall operations.

Regarding technology, we are spending a launch or a new T.R.M. system access.

Successfully Roanoke picture foundational platform for our business requires the entire networks full engagement.

Given this did not make sense for us to proceed with such a critical project in the middle depend demick.

Continue to view, we continue to view this as one of the most important projects of our future.

And we look forward to picking up at the development.

Now we estimate the robot would most likely be 2021 event.

Regarding marketing, we've shifted our messages to emphasize car part to care as an essential health care service.

To provide content to give their patients information for maintaining their health and wellness during the pandemic.

We've encouraged her franchisee to sustain their advertising efforts into continue nurturing their patient relationships in their communities.

Most of our large market just continue their broadcast media buys on television and radio.

And we believe a strong efforts to maintain our marketing outreach drinkable 19 will benefit our friend.

We're taking actions to preserve cash.

Negotiating with landlords in different capital expenditures.

Developing new Greenfield in acquiring quick.

Most significant use of cash.

Previously we had targeted opening between 16 and 20 corporate clinics in 2020.

However, due to covert 19.

For the remainder of this year, we've chosen to slow down the pace of our corporate clinic expansion.

Yeah.

No review the state of our business as of today.

Unlike many retail systems that have been forced to close most or all of their operations. We've been fortunate, but the vast majority of our network remains open for treating a patient.

At the end of April approximately 90 per cent ever clinics for open <unk>, 38% had modify their hours of operation.

And those patients who had been unable to visit a clinic either because the clinic was closed or because they're in self quarantine. We've institute the policy that allows them to temporarily freezer memberships, rather than cancel and no cost to them.

In April and it's called the 19 environment, where the majority of the states have some form of shelter in place directive, we maintained approximately 60% of our expected patient visits.

This reflects the importance of chiropractic territory cared to our patients invalidates, our point of view that they see s. isn't essential health care service.

April gross sales were down over 30% compared to our <unk> expectations.

Member attrition has been fairly stable.

Patient conversion is up compared to previous previous periods, we have experienced it significant drop in our new patient counts.

The core of our patient base remains engaged and appreciative that were open.

Going forward our focus is on the development of a marketing plan that will be launched once we emerged from the pandemic.

That our existing patient base as well as new patient growth.

And with that Jake I'll turn it over to you.

[noise] yeah.

[noise] turning to slide seven I will compare first quarter 2020 to first quarter 2019.

System wide sales for all clinics open for any amount of time grew 24% to $60.6 million.

System wide comps sales fraud clinics open 13 months or more increased 15%.

System wide calm sales for mature clinics open 48 months or more increase 10%.

Please note. These comps sales included clinics that were closed for a portion of March.

Buoyed by the strong first two and a half months of the quarter growth rates are still remarkable however, going forward, we anticipate system like calm sales will fall as we manage the impact of cup at 19.

Revenue with $13.6 million.

$2.9 million or 28%.

Company owned or manage clinics contributed revenue $7.3 million, increasing 29% from the same period a year ago.

Franchise operations contributed 6.4 million up 26% compared to the same period last year.

Increased revenue for both categories is due to the greater number of clinics and continued organic growth.

Cost of revenues was $1.5 million, increasing 23% over the same period last year.

Due to higher regional developer royalties and commissions, which reflects the success of the already strategy.

Selling in marketing expenses were $2.1 million compared to $1.5 million general and administrative expenses were $8.7 million compared to $6.6 million as previously discussed.

<unk>, increasing corporate clinics opened over the course of the year requires additional resources to ensure our high operating standards.

Posted net income of $815000 or six cents per diluted share.

Paired to $953000 or seven cents per doing the chair.

Total adjusted eat adopt for the first quarter of 2020 was $1.7 million compared to $1.6 million in the same quarter last year.

Are strong efforts to maintain our marketing outreach during coping 19 will benefit our brand.

Oh, sorry about that.

Franchise clinic, adjusted EBITDA increase 19%.

To $2.8 million company owned or manage clinic adjusted either <unk> was 1.4 million up 8% compared to last year, even with the expenses associated with the new clinics.

Corporate expense adjusted either loss increase from 2.1 million to $2.6 million due to accounting and legal fees.

Peter noted, where conserving cash by differing capital expenditures, including slowly slowing the pace of our corporate clinic expansion negotiating with landlords for rent <unk> and analyzing other opportunities to reduce costs.

During and after the quarter, we took measures to fortify our position and increase our financial flexibility in February we entered into a nondilutive line of credit with J.P. Morgan Chase Bank.

The senior secured credit facility of $7.5 million included a 5.5 million dollar developmental line of credit and the 2 million dollar revolving credit line.

To prepare for the uncertainty related to coded 19 in March we drew the full $2 million from the revolving credit line and at March 31st 2020 are unrestricted cash total 10.7 million, including the 2 million dollar draw.

Here to $8.5 million at December 31st 2019.

The 5.5 million dollar developmental line of credit can only be accessed for development not for general corporate purposes are working capital needs.

<unk> the accordion feature related to the revolving facility is uncommitted and therefore, we are unable to utilize it at this time.

By March 31st 2020, the company fully utilize the debt financing available to it.

In April meeting the cares Act P.P.P. loan requirements, we applied for assistance and received $2.7 million to J.P. Morgan Chase.

There's two your loan has an interest rate of 0.98 per cent per annum with initial principal and interest payments deferred for six months.

The goal of the program is to maintain jobs in the small business sector and we're using the P.P.P. long proceeds to ensure we can retain our employees and fun payroll.

The joint operate 61 clinics and as a franchise or support 469 franchise small businesses across 34 states in this country.

Because of these P.P.P. resources, we have been able to keep all of our corporate owned or manage clinics open.

To date, we have not furloughed or laid off any of our 150 fulltime employees or nearly 250 part time employees.

It's in our current interpretation of the regulations of the program and the ongoing uncertainty of the impact on our business due to cover the 19, we believe we continue to meet the eligibility requirements of the P.P.P. loan.

As announced in our press release disclosing alone as of April 14th 2020, after giving effect to both lungs, we had an unaudited unrestricted cash balance of $13.6 million.

In March.

You are financial in clinic opening guidance.

Until we have a better understanding of the impact of covered 19, we will not reiterate gods and that'll turn to call back over here.

Thanks Jake.

Turn into slide eight.

Well no one can accurately predict how ultimately this will unfold. We do know that people will continue to seek more none of these of holistic ways in which to manage their pain and we'll be ready to treat them. We're competent in a long term viability and the value proposition of our business model.

In clothing, I would like to once again to express my deepest gratitude to all of the joint Carpenter teams who've continued to serve in this unprecedented pandemic.

Their dedication to our mission is inspiring.

Per franchise community are d.'s corporate team and the joint colleagues across the country. I think you were in uncharted waters, and you're truly making a difference in all the lives that we touch.

Julia I'm ready to open up the <unk>.

As a reminder to ask a question you any to press Star then the number one on your telephone keypad.

Please limit your questions to one question and one follow up question.

We will pause for just a moment to compiled the q. and a roster.

[laughter].

[laughter].

Yeah first question comes from the line of Oliver Chin.

Hi, Thank you regarding your your remarks, and new patient counts what are your thoughts about what's ahead and what's your monitoring a as a catalyst for that improving and and things that you may may be able to control versus ones that you cannot and would also love your take on member attrition, which looks like it's been fairly state.

<unk> and your thoughts on managing that as well.

Oh, Thank you I think it'd be good to hear your voice. Thank you for those questions that.

We've talked about in a call is that there's no question that the the metric that we've had the greatest and negative impact is our new patients, which makes sense to me you know that we have a court patient basic continue to come in to see us.

If you're questioning you know whether you want to try chiropractic care for the first time. It makes sense to me that into the pandemic you made the day before you do that and so that we are monitoring very closely you know that the impact that is having on our overall business and that we are preparing for a program to.

Re re launch once we get further passes pandemic to re educate those consumers that that they should be able to come in we think actually with chiropractic care in the in my this pandemic with our doctors standing up and serving patients they're willing to space more than ever before to truly they'd be able to educate the consumer about the.

<unk> advocacy chiropractic care.

On the attrition rate <unk>, what level of members that drop again I would be <unk> I was little surprise on on how unaffected. It was it's almost at the little maybe a few points are point higher than our traditional attrition rate.

So again I think that reflects dope those patients who are already part of our system and using our services.

We need to do so and they see this is a part of the essential healthcare so that they aren't that coming in as we continue to be open to serve them.

And so that that would come in with a little surprises are very gratifying to see that in a in our system.

Thank you and and my follow up once you've done a a really proactive job managing liquidity what were some of the trade off she made and deferring the cat backs and also as we think about your S.G.N.A. are there are there fixed versus variable costs have you been managing difficult choices. Thanks.

Absolutely thinks Oliver.

You're right Yeah, we were in a pretty rapid period of growth. So we first looked at those capital expenditures and the Greenfield development or acquisition of franchise units. We had a lot of dollars earmarked for that that we're able to slow the pace and watch how this unfolds we've gone down.

Line by line through the piano.

And the rest of those variable expenses as we mentioned because of some of the liquidity choices that we've made we've been fortunate to not have to make some difficult decisions yet all of the options that we've taken so far are geared towards preserving liquidity at the moment.

Watch and see how this unfolds, but there's such a great deal of uncertainty there were being very mindful and going through kind of line by line on that on that front.

Thank you and best regards.

Your next question comes from the line of David Blaine.

Great. Thank you and I hope, you and your family or well.

Yep.

Peter I understand the the ramp down and cap x. in the current environment, but looking longer term, how does what's happening what's covered change or a strategic mindset or opportunity for additional a creative buybacks I'm sure. There's several opportunities that have emerged rents I think you mentioned rentals are probably.

Also lower prime locations I mean, just giving your cash position given <unk> can you give us a broad based view on kind of the corporate on strategy going forward at what point visibility is there in your mind to take advantage, what what I think many of US think is a very proven business model.

[noise] David Thank you very much in a great question and and that to answer the question in the broadest terms, what do I seen covert impact would have on our overall strategic vision or strategy and I would say not.

Would say that that found it to this business concept is you just mentioned is still there that our strategy of of having both a a combination of corporate units with our franchise unit is sound and I was and I, absolutely believe that we will continue down that direction.

The challenge we face right now is that for anybody to predict what's going to happen between now and whenever the end of the pandemic is or whatever we can call to enter the pandemic is uncertain.

And that we all can look at different predictions, you'll ever going to get the big V. So we've gone through this plunge and now we're going to go up on the other side and everything will be better or is it going to be a w. or they're going to be just horrible squiggly mark that last for 18 months I don't know and and so as Jake just said is that one of the biggest leverage that we have to preserve cash is in fact.

Our <unk>, our our Greenfield development and acquisition.

Now that we do have the the 5.5 million dollar line of credit from J.P. Morgan that is specifically for development and that yes, there could be certain opportunities that would make sense.

As we look forward and and and continue to to manage or to respond to the impact of Kobe. The virus that could mean that we do you know a couple of acquisitions here you didn't hear essay that we will stop and Greenfield we listen we we if you you you all know that if we're going to open between 15 and 20 Greenfeld's in 20.

20, which is what we announced pretty cold it what that means is that that as a lot of work that we have been doing for the last year in preparation for that.

And that that work is still out there. So that we are working with all these you know nearly opened clinics nearly signed Lisa existing leases that we're trying to build out until we're being very very thoughtful about where we push those resources to move those deals forward in light of where we are and and each day looking at where we are.

Or is it a pandemic impacts our business.

Right, Okay perfect and.

Yes, I get one way that I, you know I think the suspension of 2020 guidance I'd I'm trying to choose 2020 guidance is obviously prudent and I I think we all appreciate you did it right away no I I don't believe you suspended.

Counter 23 metric guidance of a thousand units.

Based on your commentary just now can I assume that that at this point at least is still intact.

Yes. It is that we we absolutely we did we have not backed away the the idea of getting to a thousand needed by 2023.

I I can reiterate we believe in this down into this business model, we even in the midst of this pandemic you can see the numbers that we're posting that we we we believe that well we may have a little to catch up because of what happened in this year is that we're still at this point.

You know, believing that we can reach the 20.

Goal by the end of 2023.

Thanks, Peter Thanks check.

Thanksgiving.

[noise]. Your next question comes from the line of Clark Murphy.

Hey, I, thanks for taking my question.

I know you guys mentioned <unk> the slowing of corporate store gross from 16 to 20 range that you initially guided I'm just looking to see it they're going to be a similar decrease in franchise unit gross.

Yeah, I think that's a that's a logical leap of faith Clark and it's good to talk to you.

You know what we do have is you know based on our previous guidance. You know there was a lot of clinics that are in the work. So we do have a pretty robust pipeline right. Now I think the question is really you know as every once in a waiting to see how this unfolds. So I think we'll have some pent up demand that there's no doubt that I think our overall numbers wellbeing.

<unk>.

Okay. Thank you and then if you could just provide any additional color I know you mentioned that all of your corporate own clinics are still open do you have any visibility into how many franchise clinics are still opening and kind of what what the impact that patient visit that those clinics has been like.

Absolutely yeah in that you know, though the overall system was affected by about 90%. So if you take that 10%. That's you know between 50 and 60 franchise units that were affected and again, we've had quite a few others that if modify their hours to try to accommodate during this time.

So that's the.

All kinds of impacted population.

Was there a second factor that Clark.

Yeah, just like <unk>, if you could talk about you know, but what percentage of patient visits are still occurring.

Oh.

Yeah, I I mentioned that yeah, when I went and and and when I was talking about April specific cause.

Full month, we've had with the the full impacted or cobot 19.

And what what I mentioned is that overall, both concluding corporate franchise clinics. The overall expectation on the business that we would've been expecting was 60% was there. So obviously that was a 40% drop and that really was across the the network. We had specific markets that had a unique impact. So for example, the only.

Stayed where that because of the directors from the government.

That we close down fully for at least a month or Colorado, where we had 28 clinics, Colorado. The the director there's been amended and those those clinics are opening up but when we talk about that 60% is an overall average of all corporate franchise clinics and one of these days when we look at all the different metrics, we've been mentioning when whether we're talking about.

Patient growth or attrition is or or even you know the the conversion of those patients who are coming in is that they've been pretty consistent across the board in terms of both the corporate in the franchise performance.

Okay. Thanks, guys.

Yeah.

Do your next question comes from the line up Frank taking it.

Hey, guys thing sticking my question I'm in a follow up on Clark's a little bit here on the 60 per cent figure. You were you were speaking too I thought that was pretty impressive that you were even able to hold on to 60% of your bayes net so I was hoping you could talk a little bit more about some of the trends you saw across April maybe.

Impairing the first half half of April versus the second half of April and maybe even potentially the first week of made to see if you're starting to see any early signs of maybe a potential trough in some geography.

Hey, Frank another great question in that what I would say is that that that's just also understand.

60% is visit.

That because 80% of the average clinic members subscription is that that doesn't necessarily even reflect what we pay is what the gross sales impact was and I think I mention it might kinda cause the Grossfeld you know against what we would have expected in April this year compared to April last year, well with down about 30%.

So you can see that there's still a lot of our patients even though they may not be busy doing as much but they haven't necessarily you know drop their membership.

And so you have that that overall impact and I've been talking to a lot of other franchise doors and you know that both of them you know partially opened or doing just delivery and whatever their systems are and I would say uniformly across the board is that we all have been feeling kind of a uptick I would say in the last part of April and into May and so that.

There there is definitely as we're measuring these metrics on a daily basis, we're seeing kind of feels like at least one try [laughter], we're moving into the other side up now you know what that trend means over a 10 day period or two week period or a few more days in may.

Is anybody's guess, the it's very heartening to see.

And as we are preparing for years I'd mentioned, the marketing campaign, but we want to go out and and we and come back to those patients who frozen or cancelled and ensure that they come back to us and then do a further reach out to our new patients who we believe that can come under the the the folder chiropractic care in a new way.

Watching that very very carefully to see just how sustainable this is and what that means going forward.

Got it and then.

Following up on in that same area of thought I was wondering if you're also seeing any differences oh patient sticky notes when you're thinking about Oh, you're clinic that have been open for maybe 48 plus months versus your 13 to 48 and nine your new it's less than 12, just trying to.

Gauge per sticking s. across your different more established clinics for some of your more new clinics.

Yeah, I think you know the more established the clinic the more establish their active member basis right. So when you think about the phenomenon that were most deeply impacted by our new patients. The clinics that have a robust active member base to have those core customers you know as their attrition levels can.

Menu you know, they're active member base will decline, but the overall you know remaining patient basis still strong write data bigger base to start from as you start to think about some of the younger clinics you know, they're still building not active member base. So when you think about the impact to their new patients, it's going to create a longer ran for the younger.

Clinics and that's why it's so critical for us to try to develop these marketing programs. You know one of the things that were being really mindful of is that we want to make sure that we have the resources to get back out there and target those those opportunities when we have a little bit more clarity, where this is going so I would say as clinics are building those new patient bases.

They're probably going to have a little bit longer runway that'd be a little more vulnerable absolutely.

Yeah, I mean, if I get to squeeze one last one and I appreciate taken on my question just given the fragment in nature of the overall market could you talk to maybe the thought process around your guys is financial strength as a as a larger network. When you do come out of this and maybe.

Let into how you're thinking about your your marketing spend and the potential case that you could start to take some share from some of the less financially strong competitors and describe matter market.

Yeah now that that's a great question and obviously I know all of US have been on all kinds of different webinars on topics related to cold good and the impact is having on retail and I think one of the uniform take away from this Kobe impact is that the the mom and pops of your industry, whether it's chiropractic or hair salons or you are frozen desserts you know.

Are going to be the ones that suffer the most have the least resources and our most vulnerable to bankruptcy and so I've heard over and again is that in these these change these franchise systems that have that the the the ability to do these webinars in collectively work together and pool resources. So that you can maintain a marketing presence in a local market.

Are the ones they are absolutely going to be the ones that that survive and thrive and I think that we are in fact going to see quite a number of bankruptcy specifically in those smaller mom and pop operations that just don't have the resources to tap into to weather the storm.

And I think that is absolutely reflective of chiropractic.

Interesting way that does for US is one of our our critical issues is to make sure that we had the highest quality doctors to feel or to fill our clinics and serve our patients and as the the challenges impact the the the carpet to community I don't know that it changes our competitor landscapes. So much cause that we really don't.

Don't have any major competitor at the moment, but I think what it does do is is give the opportunity for those doctors, who are independent or finding more and more of a challenge to maintain their.

To be able to take a second to look at the joint in C.S. is potentially a.

Place to work and still stay in the car pride the community.

Got it all makes sense they can take on my questions and keep all the good work while they're in the storm. Thanks. Thanks.

Thank you so much.

Your next question comes from the line up <unk>.

<unk>.

Get afternoon, I guess my first question just thinking about this in a lotta people have been the far right.

You know going out anywhere in some of them differing getting chiropractic worked on and I'm just wondering how you're thinking about the potential for pent up demand for those that have been suffering with pain during coven.

Yeah, It's it's certainly a possibility Jeff it's good to talk to you.

You know we right now we are an essential business, we're out there providing that cared and we will be there when when those patients are ready to come in and received their treatment I think that's why it's important for us to to be mindful of that marketing spend right. So that we are our presence is still out there.

Trying to preserve the resources to that our our name is out there that they know that were available to them, but we certainly have the clinics that are open and available and you're right I think there could be a pent up demand, but again the uncertainty you know, it's just hard too hard to say.

Of the things, we're doing from a a giving a lot of advice to our franchise community corporate clinics is that this is a time to.

Fully engaged in the relationship with your patience.

But whether you're close whether you have you know you know more limited operating hours, whether you're open the normal hours is the now more than ever is that whether the patient feels uncomfortable to come in or whether they're coming out on a regular basis is that you want to be fully engaged in that relationship is ever before and we feel that that's going to help us as we come out of this and and and.

Go back out there and reach out to our frozen patients or argue patients that cancel because it they were uncertain that gives us that that space to be able to come back and and and let them know that were there for them and that this is the time to come back.

Okay, and then you mention Webinars just wondering if maybe you can touch on a little bit more of how the process of regional directors, adding new franchisees is evolving if at all during the coping paradigm and then maybe how we should think about the piece of adding new franchisees.

This year.

Sure. There's no question as Jake I said earlier that whether we're talking about French I feel their franchise opening is that we definitely will have an impact on both those count you know our previous guidance when we talked about new <unk> new franchise.

Kleenex in 2020 Weird. That's you know we had guided between 80 and 90 and of course, we pulled out back and his Jake said is that even with our own clinics is that there's a movie and listen. This this pandemic is what two months old.

And the average time to build at a clinic would say somewhere between six and nine months. So obviously, there's a lot of sign leases there and businesses are being built in that and an interest in buying new franchises, we talked about our d. sold at the end of March when when belt like all the wheels are falling off on the U.S. economy that we sold six franchises in.

All alone.

And so that there is I think a group of investors and supporters of the joint from the franchisee perspective, or an R.D. perspective, who can see beyond the pandemic and truly see this is a viable business model that we'll be able to transcend the challenges that we're facing today, we do expect that there will be an overall negative impact on our French I sell.

Yeah, we're seeing it we just told do we have April cells words, six compared to 30 and last year I would have expected to equal or exceed that number if we were in a normal environment.

That we know that.

Unfold that in some cases, you can get better deals with your landlord <unk> locations that wouldn't have been available but on the other hand trying to get a a municipality. That's in you know that's everybody's working from home or is closing getting your permits and then we would definitely see a negative impact on the time to get a clinic open just because the the fact that so many.

The the whether it's your construction teams or whether it's your permitting process are being impacted by the timing to be able to move forward in those areas.

Okay, if I could just squeeze in one more just wondering with the reopening of the U.S. Upon US how are you thinking about getting all all cloning, so up and and and ramping hours at some of those that have cut back and getting to the rate of pay she visits up.

Well, it's it's it's a great question and answer really is exactly as the patchwork of responses across this country is out there is that you know years. You know every governor has had their version of you know shelter in place and has their determination about how much you're going to open and what parts of the they're going to open. So I don't think that we'll have.

Like a national moment, where okay. We're all open what we're doing is working region by region based on the you know the directives and regulations that if they were operating in 10 sure that that were taken yeah. There were able to either increase our hours it would reduce or like in the case of Colorado actually we open the clinic.

I'd mentioned, Colorado was the only stay where we were literally in order to comply with the their directives from the governor.

All 20 clinics were shut down those those directors were change or were modified you know you're seeing across the country and they're basing those modifications, while we've had to make some significant changes in the way we operate the clinics in Colorado in order to be compliant with those new directive is that the majority of those clinics now and in Denver are in fact operating.

And we're working with them to try to Reengage like as I said with our patients to bring them back into a clinic. So we're seeing that and looking closely that's our safety and support team that we put out there working with their franchise Easters bond market by market, it's those conditions.

Range.

No <unk> at some point I think we'll get to a point when we feel there's enough of the country that is open that we can look at something on a more national basis in terms of really reaching out and and educating the net on a national basis consumers you know the effectiveness of <unk>.

Okay. Thanks for taking my questions and best of luck.

Thank you very much.

Your next question comes from the line of <unk>.

[noise], Hi, How're you.

Good Linda have you been good good. So can you just remind us if you have franchisee groups that kind of have multiple units or are they more individualized type situations and can you also give us some feel for how.

You are viewing the financial strength of the franchisee groups is there any way of saying a percentage that you think is leverage versus a percentage that might have higher financial flexibility can you just give us a little color for that.

Sure Linda.

The first part of your question.

I guess I'll start with the back into the question first is you know of the the forerunner in 69 franchise clinics. You know all of them are supported by our team of regional developers are franchise is this consult.

And they have a very intimate knowledge of each of the franchisees in their market. We can certainly look at they keep T.I.'s through our systems and monitor you know how their sales and visits and all their standard K.P. eyes or tracking.

You know because we have our regional developer model integrate team a franchise business consultants. They have a great Paul on the health of the franchisees. So one we have a pretty internet touch point.

No of the the composition of the franchise group that 469, we've got to operators that operate about 50 clinics.

So you know pretty significant operators in that right and then the balance there's about 160, something additional franchise groups that make up the balance of those units.

<unk>, believing this is something that's really important to us as well as the you know the the financial health of our franchisees is that the majority of our franchisees did in fact also apply for P.P.D. loans.

Small businesses and that well that in the first round, maybe I think what about 25, 30% of the of our network because we could understand it were able to to obtain those loans.

Thinking that second round, we've seen the move up right. So that we're we're pleased to see that those franchisees have been able to tap into that program precisely for what it's meant to four is to protect our employees and you know keep them off unemployment.

So that we're doing everything that we can.

Sure the financial security of our of our franchise community.

Okay and then.

Can I just ask you yeah, I I realize when you talk about it's not going to be like a one moment reopening it's going to be a gradual process, but can you give us like like what kind of metric are you looking at to determine what might trigger your.

Desire to open corporate clinics again, so is it going to be looking at the the new member the new patient numbers metrics or is it going to be looking at that percentage of appointments kept like what's what's the metric that you're going to be looking at to say, okay. It's time to kind of get back to it.

Yeah, It's a grand question Linda.

As a as a concierge kinda appointment free model will follow the K.T.I.'s in the markets right I think that they're tricky part of that question is when is the right time to you know open those clinics again and again, there's so much uncertainty out there has to win win that right time is you know what we've always said is that.

Clinics that start strong stay strong so we want to be really mindful that we're trying to time that right and then a period, where there's so much uncertainty or shelters in place or whatever their directives are you know we're trying to make sure that that were staying of course in line with the public safety regulations, but also.

So standing ready so that you know when the patients are ready to come see us. We're we're ready to open those doors. So we're monitoring the K.T.I.'s very closely in the surrounding areas to see what the traffic patterns there'll be like but I don't think we can be too soon in that process, because we want them to have.

Yes.

Best foot forward.

That would say Jake is as we look at this is of course no cash is a question that we have a number of clinics that are in the process. We have some ability to kind of you know speed. It up her slowed down some of those some of those issues are outside of our in fact, we haven't said that we won't do any were just saying that we're slowing it down and by slowing it down what's that does is it preserves.

The you know the the ability to make sure that we are in fact, you know preserving cash as we go through this this impact and we see you know when those metrics you know recover M.C. gross sales and who you know improve and we see a new patient comes come in.

I think that we have those metrics to help us understand them.

Having on the overall network also allows us to say, how how comfortable do we feel to recommit those resources to me still make sure that we have the liquidity on hand to keep this business going forward.

Okay. Thank you very much.

Thank you.

Your next question comes from the line of Anthony Vendetti.

Hey, good afternoon, Peter Kay How're you doing.

Very good Anthony how are you staying safe I hope.

Unsafe trying to stay safe and healthy.

Just.

Yesterday, I mean, it missed the beginning of the causes it multiple calls going on today like.

In terms of the.

You have for your corporate on clinics a process in place.

So that.

The proper physical distance, saying.

Yeah the proper.

He is being utilized to.

The staff and the contractors in terms of the the franchise easy.

Are they are they following the corporate guidelines or is it left up to each each franchise owner to to decide how to that.

All of those those type of.

Guidelines and and to ensure that.

The patients that are coming in feel.

Safe and secure with the procedures you have in place.

And then it's such a good question and then there's <unk>. There is no question that the franchise either being held to the exact same standards is our corporate units in terms of making sure that were complying with all the enhance procedures in client cleanliness in social separation and making sure that the patients aren't bad feeling safe and now you also are governed by.

Local entities. So some of the rules and regulations for example in Colorado is that with these new directors to open its requiring that the patients.

Themselves have a message requiring that the staffing the clinic haven't masses, requiring the use of glove you know that as you go to change between.

Each of the patience is requiring actually the making of an appointment which is we're not appointment based concepts aware. So we're adapting to very specific rules and regulations of every each entity that we're operating in but then we also have this national standard that into that unfortunately, the social separation, that's pulling all the non essential things out of our wedding.

So there's less opportunity for virus to be sitting in it.

Limiting the number of patience or go back into the open Bay that we're utilizing hands procedures to to sanitize the tables between adjustments and as a whole series of other programs and protocols are putting in place.

And that the end that are being enforced uniformly across the network and it's something that it's not it's not like we have franchisees, who don't want to do it I think that there was such a level of awareness across this country about this issue is I think that there there's a a very high adherence in our system to ensure that we are using the highest standards to protect our patients.

Stuff.

Okay, great. Thanks pure appreciated.

As a reminder, anything you would like to ask a question for a start and the number one on your telephone keypad.

Mm.

You have no questions at this time.

Okay. Thank you Julia.

I want to think obviously times a day. Please note we plan to participate in a Craig how in virtual conference scheduled at the end of May.

And as I stated when I started this color primary concern is the health and wellbeing of our patience and those who serve our patients. Therefore, we're committed to remain open whenever and wherever possible.

Typically I end the call with the patient story, you know as a social media is Ben had such an effective tool and engaging in our with our patients in this pandemic.

I like to close with the collages impatient post recently on our website.

<unk> Hey, right I was so happy you were opened in there for me My weekly visits are what keep me straight.

Not post thanks for being open I open up a a grocery I work at a grocery store am I kinda 'cause kept me going during this difficult and crazy time.

David K. right. Thanks for staying open in helping me to stay physical.

And finally, Catherine F. post thanks for being open and so respectful of the social distancing process. We're all in this together Dr. After you got me back in order I think our patients I've kind of a sense of humor.

This is a smattering of the thousands of messages that we receive that include gratitude of being open and being treated by doctors.

Stay well adjusted.

<unk> Today's conference you may now disconnect.

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