Q2 2020 Joint Corp Earnings Call

[music].

At this time all participants are no listen only mode. After the speakers presentation. There will be in question and answer session to ask a question. During the session you need to press Star then one on your telephone keypad.

As a reminder, this conference call is being recorded if you require any further assistance. Please press star in zero at this time I would like to turn the conference over to Miss Mariah Shelton. Thank you ma'am. Please begin.

Thank you operator, good afternoon, everyone. This is nice Shelton of L.A.J. Investor Relations.

On the call today, President and CEO, Peter Halt will review, our second quarter and provide an update of the business.

CFO take Singleton well detailed financial this out.

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 our dot the joint Dot com forward slash event.

Today after the close of the market the joint Corp. issued its financial results for the quarter ended June Thirtyth 2020.

If you do not already have a copy of this press release it can be found in the Investor Relations section of the company's website.

I provide on slide two please be advised today's discussion includes forward looking statement.

Including statements concerning our strategy future operations future financial position and plans and objectives of management.

Throughout today's discussion 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 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 the continuing impacted the cobot 19 outbreak on the economy in our operations.

Including temporary clinic closures shortened business hours and reduced patient demand.

Our failure to developed or acquired company owned or managed clinics as rapidly as we intend.

Our failure to profitably operate company owned or managed clinics.

And the other factors described in risk factors and our annual report on form 10-K as filed with the FCC for the year ended December 31st 2019.

Updated for any material changes described in any subsequently filed quarterly reports on form 10-Q.

They may be revised your updated and our subsequent filings, including the one we anticipate filing on August seven.

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 for the market price of our stock.

Finally, we are not obligated ourselves to revise our results are 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 the net interest pack expense depreciation and amortization expenses.

The company defines adjusted EBITDA as EBITDA before acquisition related expenses.

Bargain purchase gain net gain or loss on disposition or impairment.

Stock based compensation expenses.

Turning to slide three and it's my pleasure to turn the call over to Peter help.

Thank you, Brian and I welcome everybody to call I'd like to start by thanking all of our doctors and staff when the middle of this pandemic are providing essential health care services to our patients who truly see carbide to care is essential to their healthcare needs.

And by utilizing carpet to care to help reduce their pain, we're able to alleviate some of the pressures on our country's overtaxed emergency rooms and hospitals.

It's hard to imagine it's only five months ago that our lives are overturned by coal with 19.

As I reflect on the performance of the joint I'm humbled and gratified by the resiliency of our business model.

As we witnessed so many other retail concepts urgently reinventing themselves to survive the strategic vision and the operating model to join continues to perform as illustrated by the fact that 99% of our clinics are open the strength of our overall financial performance. Our continued growth in both franchising Greenfield clinic openings as well as our own.

Going franchise license sales.

And well known can predict a course of corporate 19 with certainty we remain confident in our ability to adapt to serve and to grow in this unique environment.

Well American spend over $15 billion, a year on carpet to care. The joint continues to revolutionize access with convenient retail settings Codeshare style membership based services attractive pricing in hours without the need for insurance or appointments.

Our growth strategy is to open new clinics, which builds or brand growth familiarity with carpet to care and attract new patients.

Already we're the largest and most recognizable provider carpet to care in the country.

We utilize a franchise model as well as company owned or managed clinics to expand and a capital like fashion.

As noted on our last call at the onset of the pandemic, we undertook measures to enhance the cleanliness and the sanitization procedures to protect and support our patients our doctors and our staff.

As we learn more we continue to evaluate improve upon the procedures and protocols. For example, we now require the use of masked by all of our doctors in staff in all of our clinics across the country.

We've also reduced the number of pizza reception areas and in some clinics removed adjustment table from the open Bay area to ensure our ability to maintain social separation.

In the process, we've demonstrated that we can serve the same number of patients even though we're reducing the number of people at any one time in our clinic.

As for them as the need a pain relief and as a need for pain relief grows.

Our patients continue to validate the carpet to care is essential to their health care.

Franchisees increasingly understand the strength of our value proposition.

That is why in the middle of this pandemic, we're able to fill licenses and open clinics.

Our business model remains unchanged in the fund, which is the foundation for our long term growth.

We continue to March toward our goal of reaching a thousand clinic by the end of 2023.

In addition to enhance safety procedures that provide assurance to our patients we've implemented new marketing promotions with two areas of focus.

First a welcome existing patients back from membership freezes and second to buy new patients to try our services for the first time.

The whole month of June we offered a free initial visit to all new patients, resulting in when one of the highest average new patient counts per clinic for any single month in the history of our company.

I'll go into more detail on the promotion, but I'd first like to review our quarterly metrics.

Later, Jack will discuss our financial results in greater detail after which I'll open the call for questions.

Turning to slide four well coated 19 negatively impacted the second quarter 2020, compared to the second quarter 2019, the resiliency of our business model as reflected in our results.

System wide sales increased 2% inspite of the impact of our promotions, including the first three visits in June.

Comp filled for clinics have been open for at least 13 full month decreased by 6%.

Revenue increased 13%.

Adjusted EBITDA was flat at $1.1 million.

Unrestricted cash was 14.6 million at June 32020, compared to 10.7 million on March 31 2020.

Turning to slide five let's review our portfolio.

At June 32020, we had 539 clinics, which 99% were open.

The credit composition at quarter end with 477 franchises and 62 company owned or managed.

The mix remained 88% franchise and 12% corporate.

During the first full quarter the pandemic, our clinic count increased by nine including one new Greenfield and 12, new franchise clinics net of the four franchise clinics the closed.

The closures consisted of one clinic in the process of being relocated that will reopen.

One non traditional clinic, located and relax the back store and two of our lowest performing clinic.

We're now returning to new credit growth as of June 30, we opened 30 clinics in 2021 more compared to the same period last year.

Our new clinics are performing well in fact, a new clinic in Texas, which opened in June which aggregated sales of over $75000 in its first two months of operation, creating another company record.

Turning to slide six for any franchise system to be selling licensees licenses. In this current climate is remarkable making our franchise sales result, all the more impressive.

During the second quarter, we sold 11, new franchise licenses, bringing the total to 35 year to date.

We believe that to achieve this level sales into the current environment is indicative of the positive long term outlook of our business.

I applaud our sales team, including R 22 regional developers for this performance.

Our R&D is continue to fuel our growth in a responsible for 80% of a franchise sales in Q2 2020.

This group has risen to the occasion to serve our community and continue to accelerate the growth of our system.

Our momentum continues.

For example in July we're back to double digit system wide comp. So for all clinics opened 13 months or more at 10%.

We sold 14 licenses in July.

And we opened six franchise clinics.

We continue to expand Corporately in Los Angeles area opening in our third Greenfield clinic for this year.

Through the end of July our total franchise and corporate clinic count increased to 546.

We know that meeting our goal of 1000 clinics, but ended 2023 requires more than concentrating solely on franchise growth.

We're also focused on corporate expansion with more greenfield.

Well, our greenfields are performing well it's important to note the greenfield suppressed total earnings in the short term until they reach their breakeven point.

We believe this short term impact in the bottom line is well worth the long term benefit of revenue growth greater scale and increase national recognition.

Turning to slide seven.

One of our earlier to most decisive actions and initial days of Cowen 19 was to support the positioning of chiropractic care as an essential health care service.

This became a critical point of differentiation versus other retail service concept.

It also served as a rallying cry for our doctors in our staff helped to guide or approach to the pandemic the now more than ever we need to be open to treat or patients.

Being an essential health care services also reflected in our marketing communications through video block video on blogs emails and texts clinics tonnage and PR, we increased the frequency of our messaging not only to reassure patients that we remained open but there were taking the necessary precautions to ensure their safety.

Additionally.

Our current our content focused on heavily on best practices for maintaining healthy lifestyle, including the benefit of routine carpet to care.

With so many consumer facing anxiety related to health and finances, we recognize that assessable affordable carpet to care is more important than ever.

So in March and April we made it easier for our members to freeze their accounts and in May and June we launched two important promotions to provide patients with more opportunity to obtain the care they need.

Turning to slide eight our direct marketing promotion launched in May encourage members the unfreeze their accounts in exchange for the incentive for the first month they came back.

We moved over 22% of our frozen members to active status during this month long promotion.

Our national marketing promotion launch for the month of June offered every new patient the United States the opportunity to get moving with car Pratik at no charge of their initial visit.

During the month, we gave way over $1.7 million incur higher project care.

What's more we converted those patients to packages a membership a record levels, which underscores a considerable demand for carpet to carry during this pandemic.

As a result by the end of the promotion our average number of members per clinic, which is one of the most important clinic performance metrics surpassed all time record, including any pre code number pre cobot number.

More importantly, we are grateful to do our part to help so many patients access car bread to care the joint.

During this difficult time.

Turning to slide nine we recently updated or patient demographics based on those who visited the joint in 2019.

From the data we continue to see a nearly even gender split with 49% of our patients being female.

Additionally, we found our patients median age moved from 39 years old to 37.

The percentage of millennials, who visits increased from 39% to 44% with another 11% from Gen Zee.

This data reaffirms our concept is resonating with increasingly younger audience, who values convenient affordable carpeted care at the joint.

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

Thank you Peter turning to slide 10.

As we review the performance of 2020 compared to 2019 keep in mind that the coated 19 impacts included the effects of reduced new patient traffic in the early part of the quarter.

Rosen memberships and discounts associated with the marketing promotions that Peter review.

Notably our performance improved throughout the quarter and the trend continues.

Comparing the second quarter 2020 to the second quarter 2019.

Even taking into account the discounts related to our two promotions system wide sales for all clinics opened for any amount of time increased 2% to $53.5 million.

System wide comp sales for all clinics opened 13 months or more decreased 6%.

You might comp sales for mature clinics opened 48 months or more decreased 10%.

Revenue was $12.6 million up $1.4 million or 13%.

Company owned or managed clinics contributed revenue of $6.9 million, increasing 19% from the same period a year ago.

Franchised operations contributed 5.7 million up 6% compared to the same period last year.

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

Offset by the impacts of code 90.

Cost of revenues was $1.4 million up 5% over the same period last year.

The increase was in line with total increase in franchise sales and reflective of higher regional developer royalties and commission.

Selling and marketing expenses were $1.8 million for both periods, reflecting the timing of our advertising fund spend.

General and administrative expenses were $8.5 million compared to $7.2 million, primarily due to an increase in payroll and related expenses to support revenue growth and increased clinic count.

We continue to operate or corporate clinics and head headquarters without any furloughs or layoffs, while working to increase sanitary measures to ensure patient and employee safety.

Also as previously discussed increases in corporate clinics will require additional resources to ensure high operational standards.

We continue to believe that the increase in our corporate portfolio and particularly our greenfield clinics will provide long term bottom line growth. Despite compressing operating margins and earnings in the near term. This is important to remember as we returned to growth and increased the pace of development.

For the quarter, we posted net income of $116000 or one cents per diluted share.

Compared to $462000 or six cents per diluted share for the same period last year.

Total adjusted EBITDA was $1.1 million, increasing 5% compared to the same period last year.

Franchise clinic, adjusted EBITDA decreased 4% to $2.5 million, reflecting the impact of Copel 19.

Company owned or managed clinic, adjusted EBITDA was $1.1 million up 25% compared to last year, even with the expenses associated with the new clinics.

Corporate expense as a component of adjusted EBITDA was $2.5 million in both periods, reflecting our cost control measures.

As of June Thirtyth, 2020, we had $14.6 million, an unrestricted cash compared to 8.5 million at December 30, Onest 2019.

During the six months cash flows from operations was $3 million. In addition, as previously discussed we took measures to fortify our position and increase our financial flexibility.

In March we drew $2 million on our revolving line of credit.

In April meaning that cares act PPP loan requirements, we applied for assistance and received $2.7 million through JP Morgan Chase.

The goal the program is to maintain jobs in the small business sector and we used to PPP loan proceeds to ensure we could retain our employees and fund payroll.

The joint operates 62 clinics and as a Franchisors supports 477 franchise small businesses and 33 states with our support the vast majority of our franchisees also received PPP loans.

In March we review our financial in clinic opening guidance and due to the continued uncertainty around the impacts of Coca 19, we will not reiterate guidance at this time.

Turning to slide 11.

For the six months ended June Thirtyth, 2020 revenue was $26.2 million, increasing 20% compared to the $21.8 million in the same period of 2019.

Reflecting a greater number of clinics and increased gross sales of both franchise and company owned or managed clinics. During the first quarter, which was partially offset by the negative impact of the pandemic during the second quarter.

Net income was $931000 or six cents per diluted share compared to $1.4 million or 10 cents per diluted share in the first six months of 2019.

Adjusted EBITDA was $2.8 million compared to $2.6 million in the first six months of 2019.

And with that I will turn the call back over to you view.

Thanks Jake.

Turning to slide 12 as noted our resilient model is driving growth in our long term opportunities continue to expand.

As a nation, we're looking for more natural holistic ways to get out of pain. The us Kirkpatrick markets already $15 billion and 50% of American still don't even know what the word carpeted means or how can help them.

As we increase awareness, our new patient base continues to grow.

Now with many working from home slots on their college or using non ergonomic chairs more people than ever experiencing pain.

The joint will be there to help them out and with our newest tagline says we truly have got your back baby.

In closing I'd like to one again once again express my deepest gratitude to all of the joint Kirkpatrick teams, who continued to Selflessly served during this pandemic their dedication to our mission is aspiring to our franchise community. Our R&D is our corporate team from and joint colleagues around the country. I think you you are truly making a difference in all the lives that you.

Touch Howard I'm ready to begin acuity.

Ladies and gentlemen, if you have a question or comment at this time. Please press Star then one on your telephone keypad. If your question has been answered or you wish to remove yourself from the Q simply press the pound cake.

Again, if you every question or comment at this time. Please press Star then one on your telephone keypad.

Our first question or comment comes from the line of Jeff Van Sinderen from B. Riley Your line is open.

Hello. This is Richard Magnuson in for Jeff Van Sinderen.

First congratulations on performing so well in spite of accumulated back.

Can you give us some insight into what your current expectations in Threeq revenue, our compared to your pre covert expectations.

And Richard Thanks for the kind words, we appreciate it and Jake.

Yeah as you know from the remarks, we're not reiterating or providing any forward looking guidance in the release in in the comments, we did refer to the momentum that we're seeing in July.

Back to double digit comps of 10%.

License sales and openings picking back up so.

I think we'll refer to those comments in terms of any forward looking projections.

Okay.

Can you communicated with the patient or based frequently during the early stages of coded and it seems to have a paid off can you provide us any metric or feedback from patients on how successful. These efforts were making patients feel safe and how I mean, if strengthen your relationship or their relationship with joint and then also how how much higher was a conversion rate of new patients during the campaign in June but.

For the free initial visits to the new client.

Sure and that Theres No question is as a pandemic broke out.

And we're all wondering what to do how to respond what does this mean to our patient base. What does this mean to our franchisees on every level, we leaned into a greater level of communication with our franchisees. We had all kinds of different calls that we set up downhill calls webinars, helping them get their PPP loans and we have the same.

Reach out to our patients and our patients were reaching out to US there were going online. They were expressing their concerns there were asking about what is our product protocols are procedures and so that we did impact.

Both through tax through email to our patient basis expressed to them with some of the changes that were doing making sure. They understood that we remained open theres. So many businesses that were closing its always not clear whether you were open or not and at one point as we talked about in this call is about 10% of our network wasn't back close for a period today, 99% is is is.

He is open.

And then in terms of the conversion rate is our historical conversion rate has been running within a laser 40 as the system.

And that sense succumb co bid is that aside from just the promotion we have seen consistently a higher conversion rate well over 50% on average across the network.

In light of this cobot environment and when we looked at it for the promotion itself. It was even a little bit higher than that 50% Mark. So we were bringing more people into the clinic and then converting them at a rate that we have not seen before historically the company.

Wow, that's pretty strong.

And then my follow up question, considering where we are in this prolonged pandemic environment and considering what does work for you recently can you provide any more details or directionally on your marketing message new patients and existing patients going forward.

Well the main message to our patients going forward is that where there were up to open we're there to serve you.

That will continue to to make sure they understand the increasingly important protocols of cleanliness and standardization.

We've obviously as I outlined in my conversation there that Theres a number of changes we made in the way in which that we treat our patients and where the how much how many will allow in the clinic in any given time the number of season those reception area.

Moving or we limiting the number of people in the open Bay and so we'll continue to to share that message with our patient base. The other thing is that we believe this is a real opportunity for chiropractic, 60% of American people right now, our teleworking and they're not in their ergonomically selling shares there slouch over the cats that couch their spines on.

Yes.

Hello.

We believe that were in that space that we can bring them in and give them show them the benefit of chiropractic care affordable and accessible and it's convenient at a time when there's so many things are going crazy in this environment that we believe that that's a really important message will continue to share as we go forward through the rest of the year.

Hi, Greg Thank you.

Thank you very much Richard.

Thank you. Our next question or comment comes from a lot of Frank Pecanins' from Lake Street Capital. Your line is open.

Hey, guys. Congrats on all the strong progress and continued resiliency of.

Demand in the quarter got a couple of for you today.

First the kind of want to focusing more on the conversion rate because previously speaking about.

What else do you think was behind that 50% conversion rate.

Aside from the promotional activity is there something occurring in the competitive environment, where maybe some of your less funded mom and pop shops weren't able to stay open and you're seeing conversions from some of those people or what else is driving that high conversion rate in the quarter.

Frank Thanks for the crime words and that such a great question and what I really truly believe is one of the reasons weve through this pandemic experience such a high conversion rate and not just because of the promotion in fact actually to be very Frank there was a concern that if we were offering free visits in the month of June historically, you bring in those patients.

More of a tire kicker not really serious hoping to get their free adjustment of but are they really going to stay with us as the patient is a worthwhile to for our doctors to be busy with these patients that ultimately won't stay on as a member and what we found is obviously the opposite so we were converting at a rate that we really were surprised by it and I really believe that more than anything else that's been.

Because of those patients who are going out into chiropractic care today are in helping more paying a more serious about it because of the pandemic because you may be concerned about going to get your coffee are going to a fast food restaurant or some of the other places bar, which is I think one of the worst places you can go with Cotwo in light of coal that.

But if you're going to Carpathia care clinic for the first time. It because you are in pretty significant pain, and so I think that in some way that was self selecting in those patients who really ventured out in came into our clinics for the first without really knowing what to expect.

We are the ones that really media and Thats reflected in the conversion rate that we saw throughout this pandemic in particular the promotion.

Got it that's very helpful.

On the.

Second question and I was hoping we can talk about the comp sales a little bit it was encouraging to see that jump back into the double digits as quickly as it did in July how are you speaking about competitor or comp sales for the rest of the year and do you feel that we may have.

A linear.

Outlook from the low is that would probably experienced in April may timeframe.

Yes, Frank Great question.

You think trajectory as we mentioned obviously, we had the the deepest impacts in the early part of the quarter and we've seen those trends improve.

I think same reason, we're not reiterating guidance I think theres still uncertainty that remains out there.

But really as we look at the momentum that we picked up in the in the latter half of the second quarter and into July.

We're optimistic that those trends will continue but I think uncertainty remains which is why we're not providing that longer term guidance at this time, but one thing I'd add to that though Frank is that.

If you look at our network is up and we go back into the early part of this pandemic is that the parts of the country that were most impacted where northern California, where the New York Corridor and places, where we had the least amount of clinics.

And as we come into this new.

Hot spots are surges or whatever you want to call it.

And you're looking at clinics in Southern California, Arizona, Texas, Florida, all of them, which areas, where we obviously have a significant portion of our back probably about half of our clinics in those four states alone.

And as we are analyzing we gave a number for July and we typically never breakdown included in your comp sales by region, but when we looked at the July numbers and the overall rate for any clinical for more than 13 months as we said was over 10% and we analyze just those four states and it was I think 9.4% for those four states that were.

In the heart of this impact.

And so while we're still not clear because no one can really give us a certain to the course of this pandemics. We're heartened by the trends that we've seen as we as we move through the pandemic.

Got it all right I'll hop back in queue. Thanks, so much for taking my questions.

Thanks, Laura.

Thank you. Our next question or comment comes from the line of Brian family from Roth Capital. Your line is open.

Hi, This is the Bryant and they work with date vein, we were hoping if you could discuss it cobot has accelerated any plan to accelerate the diversification of your mix of greenfields or acquisitions from a geographic standpoint also as we hopefully exit cobot. Your business has proven extremely resilient, adding to overall confidence in our view.

Does that change your calculus to be even more aggressive with greenfield or acquisitions as we think about next year or is the 2021 plan pretty much the same as pre go but thank you.

Yes, Brian Thanks, those are great questions.

I'll start with the second one first in that.

I think overall the trends in the resiliency of the model have given us confidence we mentioned a couple of times in the comments that we are returning to growth on another thing that Peter mentioned is that as we look at the model on our strategic direction is that we really didnt have to pivot off of that so our growth strategy in terms of the franchise.

And corporate mix is still the same as it was.

The the underlying model in the economics makes sense for us to continue to grow our corporate portfolio and balance that against the continued franchise growth. So I think through the pandemic. We've just seen the resiliency, which provides us more confidence to get back into that growth and increase our development. We reiterated the goal to reach a thousand.

By the end of 2023.

And with the slight pause here in the second quarter, the slowdown we're going to have to get back on that.

To reach that goal, but it's very much attainable for us so.

I think the resiliency has provided us continued confidence to move forward.

As it relates to the geographies. The core concept is still the same right. We would always look to cluster, where we have existing corporate clinics. So we can leverage that overhead.

But the model is sound you know as we look at our regions as Peter mentioned or.

Different states throughout the country the model that the consumers wanting chiropractic care.

Is proving to be something that that we see viable across the entire country. So.

We will continue to deploy the regional developer model and complement that with our corporate clinic development.

Great. Thank you.

Thank you. Our next question or comment comes from the line of Anthony Vendetti from Max I Am Group. Your line is open.

Thanks.

Good afternoon are good evening I thought.

I missed part of the the call, but I heard part on it.

Right.

About half your clinic here or are in Florida, Texas, Arizona, California.

Those are both politically.

Did you say.

Patient visits or patient volume was up 9.4%.

It was that for the quarter.

That's correct percentage or is that for the month of July.

Yes, yes, what I was saying is those were comp sales for those four states.

And that and I guess what.

Jay Acquisitive correcting me that our system wide comp sales for any clinical from for 13 months in the month of July. We said is 10% is actually 10.2%.

And that in our analysis and this is just looking at comps visits which is comp sales and our analysis. We took four states, California, Arizona, Texas, and Florida, which represents roughly 50% of our network, where weve seen as a country. Some of the biggest impact in these ins resurgence or hot spots of cobot and we looked at the comp rates in July and for those four states separate.

And what what I said the number was 9.4 of objectives corrected me in said the actually the number was 10.1.

Wow, so it's even even with the.

Surge or outbreak right. It is close to what you're seeing.

For all your other clinics.

Correct, there's a 10.1 versus the 10.2 across the whole country.

Right Okay.

Okay.

Okay. Good Anthony I didn't matter I think thats really reflective of kind of a whole message, though we are one of the messages that we've been talking about today is the resiliency of the model the healthcare the carpet Medicare is essential to healthcare, but not just because I said because their patient needed our patients are coming in the patients.

Coming in from the promotions are coming off freezes every day. They truly see this is essential for them and of course that gives us comfort with this model going forward.

Sure.

Hi, Thanks, I didn't know if this was mentioned before but just on in terms of of Copel 19 for whether it's your franchise owners.

Corporate owned clinics for the chiropractors that you employ.

What has been.

The.

Level.

Positivity or what's been the level of.

Positive.

How many how many of your employees and then how many of the franchise.

Owners employees, particularly at the chiropractic level have contracted covert my team.

Great question as a straightforward number I don't have that I can certainly know how many have got it within our corporate office and within our with our own core were network.

What I would say is that we definitely have seen it we've seen a few cases in our corporate office. Our corporate office is relatively close were in phase one we call. It. So there's only normally would have 50 people in the office here and that we are only allowing 10% 10 people in the office any given time and May have a series of procedures that we put in place to protect.

The staff on our corporate level again, not not a significant number but yes that we have had doctors and wellness coordinators, who tested positive we've had patients who called in and said listen I just got types of positive.

We followed all the local health procedure or the local health.

Authorities in how you how you proceed when you have these these these positive.

Cases.

And so it's it's happening out there, but not too and any measurable degrees eyewear would say that and I think on the franchise side I have a little less.

Visibility into that since these obviously our independently owned and operated businesses, but I think that their experience has been reflected similar to the corporate.

Okay. So so even though there there's been some cases.

What you're saying is bad it hasn't had a material impact on your business.

That's correct no I mean that that's a very fair statement I mean with with the number of employees our staff or doctors are franchisees, who been positive took over 19 is not material in anyway impacted the business.

Okay, great. Thanks, I'll hop back in the Q.

Thanks Anthony.

Thank you again, ladies and gentlemen, if you have a question or comment at this time. Please press Star then one I get telephone keypad. Our next question or comment comes from the line of Ryan Kimbro from Craig Hallum. Your line is open.

Hey, guys congrats on the quarter.

I understand the environment is wildly different right now, but can you talk about 13 clinics you open the quarter and how the current ramp rates of those needham clinics compared to your more typical ramp rates.

Sure Ryan Thanks for the question.

I'll point to the the comment that we made within Peter section.

With kind of the post Cobot example, we opened a clinic in Texas that opened in June.

And in June and July the cumulative sales were 75000, which is an all time system record for us.

So while that is obviously the record in.

The outlier.

The clinics are starting strong.

So again the resiliency in the model I think is the is the message that.

Patients still need this chiropractic care in the affordable and convenient way that we're providing it is resonating. So we are seeing kind of this post cobot environment with with strong starts.

Okay, Great and then maybe if you guys could provide some color on the success of the free trial program in June and then.

As the second part I guess, you know, we're seeing sort of second wave of sorts of sorts across the country in terms of coal. The cases I guess, if you could provide some color on what you're hearing from customers and sort of the differences between you know customer behavior. During the initial onset of cobot in March and compared to sort of what you're seeing.

Today would be great.

Sure to I'm going to start with your second question kind of the customer behavior as it started in March and how it is today.

And what we talked a little bit office on the earlier call. The earlier quarter call is that what was interesting is that our attrition rate and that's the rate in which our members drop remained steady or dropped during the call Budd.

The initial part of the code pandemic through through two today and so we've seen a consistency in that attrition rate I would have expected quite frankly that we would Athena increase.

We did see an increase in freezes, but it was not translated into.

Attrition or drops on people canceling their membership and that while we may see a little bit more of that as we go forward, but the messages Ben is that they we have not in fact seen an increase in attrition to date.

We have also as I've already talked in the costing during this period in particular during the June month promotion, an increase in the conversion rate and again I think thats reflective of those patients who are actually opening the door for the first time.

Really in need of our services in that they're converting into rate historically that we have not seen before which is again very positive. The one area that we had seen a particularly drop in one of the key metrics that we measure, especially if we go back to Q1.

Was in fact, our new patient count.

Which also makes sense to me because if you're a new patient you've never been to the car Procter has never been to the joint and the here in the middle of pandemic and you really well how much pain to out to be in before I'll open the door and try out this the service to our existing patients who knew what to expect they're getting the emails and the tax in terms of our increase.

Got a physician.

Procedures, there, they're coming in and being comforted, but if you're new to it you don't know what to expect and so the I can see the reluctance of not coming in and so that was really the purpose of both those two promotions. We won the freezes, which we talked about 22% of our our patients that froze came out of freezing from that promotion by giving a disk.

On the first month membership.

And then quite frankly, the June promotion was.

Exceeded our expectation that if we look at we measure our new patients compromise on average across the board and as I said in my remarks is that if when we looked at the June new patient count on average across our system. It was nearly it would help mode. The best month, we've ever had a new patients there is one month.

Earlier in 2019 that actually beat it by like half a patient on average across the network. So that the impact of the new promotion was was quite solid and then what was interesting not only where they're coming in but they were converting that the higher rate, which makes the members. Okay. Yes, we gave way to $1.7 million in the initial patient visit.

But what we're seeing is that connection as they join as a member and then stay with is going forward.

So I would say that both promotions were achieved is where exactly where we're hoping them to do is to help on freeze our patience and maybe a little earlier than they would it and to bring new patients in the door that hadn't been there before and as we've talked about is that you got all these new people coming in are working at home in pain. All these challenges, they're facing and it's making them I believe me.

More open to that conversation to try and carpet to care than we've ever seen before.

Great. Thanks for taking the questions and congrats again.

Thank you.

Thank you I'm showing no additional acute questions in the queue at this time I'd like to turn the conference back over to Mr. hope for any final comments.

Thank you Howard and thank you all for your time today. Please note that we plan to participate virtually in the Lake Street Best back Best ideas growth Conference and LD 500 later on this quarter.

Typically I like to end the call with the patient story and today, the patients from Portland, and I'm quoting.

Right before covert I flew a lot for work and it triggered an old back injury.

When children placed our and I was working from home I was in a lot of pain. However, I was worried that where could go to get treatment. My friend recommended a joint with their sanitary protocols in mass I felt comfortable getting adjustments. Our continued treatment in my pain has significantly improved.

With my pay nearly gone I've been able to work at home and my work in my home office exercising garden and quote.

So thank you as they will adjusted.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day Stacey.

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Good day, ladies and gentlemen, thank you for standing by welcome to the Joint Corporation second quarter 2020 financial results Conference call at this time, all parts of listen only mode.

Makers presentation, there will be in question and answer session to ask a question. During this session you read the press Star then one on your telephone keypad <unk>.

As a reminder, this conference call is being recorded if you require any further assistance. Please press star answer at this time I would like to turn the conference over to much more Shelton. Thank you ma'am. Please begin.

Thank you operator, good afternoon, everyone. This is Mirage Hilton of L.A.J. industrial.

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Good day, ladies and gentlemen.

Standing by welcome to the Joint Corporation second quarter 2020 financial results Conference call. At this time, all participants on the listen only mode. After the speakers presentation. There will be in question and answer session to ask a question. During this session you would need to press Star then one on your telephone keypad as a reminder, this conference call is being recorded.

If you require any further assistance. Please press star answer at this time I would like to turn the conference <unk> Mirage Hilton. Thank you ma'am. Please begin.

Thank you operator, good afternoon, everyone. This is Mirage <unk> of L.A.J. Investor Relations.

On the call today, President and CEO, Peter Ho will review, our second quarter and provide an update the business.

CFO take Singleton will detail our financial results.

Then Peter will close with a summary, and open the call for questions.

Please note we are using a slide presentation, but can be found at our dot the joint Dot com forward Slas that.

But after the close of the market the joint Corp. issued its financial results for the quarter ended June Thirtyth 2020.

If you did not already have a copy of this actually it can be found in the Investor Relations section of the company's website.

I provided on slide two please be advised today's discussion includes forward looking statements.

Including statements concerning our strategy future operations get your financial position and plans and objectives and management.

Throughout today's discussion will present, some important factors relating toward the.

That could affect these forward looking statements.

The forward looking statements are made based on our current predictions expectations estimates and assumptions.

And also subject to risks and uncertainties that may cause actual results to differ materially in the statements we make today.

Factors that could contribute to these differences include but are not limited to the continuing impacted the cobot 19 outbreak on the economy in operation.

Including temporary clinic closures shortens business hours and reduced patient demand.

Our failure to developed or acquired company owned or managed clinics as rapidly as we intend.

A failure to possibly operate company owned or managed clinics.

The factors described in risk factors and our annual report on form 10-K as filed with the FCC. The year ended December 31st 2019.

It's updated for any material changes described in any subsequently filed quarterly reports on form 10-Q.

If they need be revise or update it in our subsequent filings, including the one we anticipate filing on August seven.

As a result, we caution you against placing undue reliance on these forward looking statements.

And encourage you to review our filings with the FCC for a discussion of these factors.

Another risks that may affect our future results, but the market price of our stock.

Finally, we are not obligated ourselves to revise our results are publicly released 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.

Yes, I presented because they are important metric used by management to a tough financial performance.

Management believes they provide a more transparent view of the company's underlying operating performance and operating trends then GAAP measures along.

Reconciliation of net income to EBITDA and adjusted EBITDA, It's presented in the press release.

The company to finds EBITDA as net income or loss before the net interest pack expense depreciation and amortization expenses.

The company defines adjusted EBITDA and EBITDA before acquisition related expenses.

I can purchase gain net gain or loss on disposition or impairment and stock based compensation expenses.

Turning to slide three and it's my pleasure to turn the call over computer help.

Thank you, Brian and I welcome everybody to call I'd like to start my thinking all of our doctors and stuff when the middle of the endemic are providing essential health care services to our patients were truly see carbide to carry is essential to their health care needs.

And by utilizing caught by the care to help reduce their pain, we're able to alleviate some of the pressures on our country's overtaxed emergency rooms in hospital.

Hard to imagine it's only five months ago that our lives are overturned by cobot 19.

As I reflect on the performance of the joint I'm humbled and gratified by the resiliency of our business model.

As we witnessed so many other retail concepts urgently reinventing themselves to survive the strategic vision and the operating model. The joint continues to perform as illustrated by the fact that 99% of our clinics are open the strength of our overall financial performance. Our continued growth in both franchising Greenfield clinic openings as well as our ongoing.

In franchise license sales.

And well known can predict a course of corporate 19 with certainty, we remain confident and our ability to adapt to serve and to grow in this unique environment.

Well Americans bend over $15 billion, a year on carpet to care. The joint continues to revolutionize access with convenient regional studies Codeshare style membership based services attractive pricing in hours without the need for insurance or appointment.

Our growth strategy is to open new clinics, which builds or brand growth familiarity with car pride to care and attract new patients.

Already we're the largest the most recognizable provider of carpet to care in the country.

Well utilize a franchise model as well as company owned or managed clinics to expand in a couple like fashion.

As noted on our last call at the onset of the pandemic, we undertook measures to enhance the cleanliness and the sanitization procedures to protect and support to our patients our doctors and our staff.

As we learn more we continue to evaluate improve upon the procedures and protocols. For example, we now require the use of math, but all of our doctors and stuff and all of her clinics across the country.

We've also reduced the number of feet the reception areas and then some clinics removed adjustment table from the open Bay area to ensure our ability to maintain social separation.

In the process, we've demonstrated that we can serve the same number Haitian even though we're reducing the number of people at any one time in our clinic.

As for them as they need a pain relief as a need for pain relief grows.

Our patients continue to validate the carpet to care is essential to their health care.

Franchisees increasingly understand the strength of our value proposition.

That's why in the middle of this pandemic, we're able to sell licenses and open clinics.

Our business model remains unchanged and the fund, which is the foundation for our long term growth.

We continue to March toward our goal of reaching a thousand clinic by the end of 2023.

In addition to enhance safety procedures and provide assurance to our patients we've implemented new marketing promotions were two areas of focus.

First a welcome existing patients back from membership freezes and second to invite new patients to try our services for the first time.

The whole month of June we offered a free initial visit to all new patients, resulting when one of the highest average new patient count per clinic for any single month in the history of our company.

Well go into more detail on the promotion, but I'd first like to review our quarterly metrics.

Later, Jack will discuss our financial results in greater detail after which I'll open the call for questions.

Turning to slide four well Cobra 19 negatively impacted the second quarter 2020, compared to the second quarter 2019, the resiliency of our business model is reflected in our results.

System wide sales increased 2% inspite of the impact of our promotions, including the first three visits in June.

Console for clinics have been opened for at least 13 full month decreased by 6%.

Revenue increased 13%.

Adjusted EBITDA was flat at $1.1 million.

Unrestricted cash was 14.6 million at June 32020, compared to 10.7 million on March 31 2020.

Turning to slide five let's review our portfolio.

At June 30, 2020, we had 539 clinics, which 99% were open.

The credit composition at quarter end with 477 franchises and 62 company owned or managed.

The mix remained 88% franchise and 12% corporate.

During the first full quarter the pandemic arc when account increased by nine including one new Greenfield and 12, new franchise clinics net of the four franchise clinics the closed.

The closures consisted of one clinic in the process of being relocated that will reopen one non traditional clinic located in relax the back door and two of our lowest performing clinic.

We're now returning to new clinic growth.

As of June 30, we opened 30 clinics in 2021 more compared to the same period last year.

Our new credits are performing well in fact, a new clinic in Texas, which opened in June which aggregated sales of over $75000 in its first two months of operation create another company record.

Turning to slide six for any franchise system to be selling licensees licenses in its current climate is remarkable make our franchise sales result, all the more impressive.

During the second quarter, we sold 11, new franchise licenses, bringing the total to 35 year to date.

We believe that to achieve this level sales under the current environment is indicative of the positive long term outlook of our business.

I applaud our sales team, including R 22 regional developers for this performance.

Our R&D is continue to fuel our growth in a responsible for 80% of our franchise sales in Q2 2020.

This group has risen to the occasion to serve our community and continue to accelerate the growth of our system.

Our momentum continues.

For example in July we're back to double digit system wide comps. So for all clinics opened 13 months or more at 10%.

We sold 14 licenses in July.

And we opened six franchise.

We continue to expand Corporately in Los Angeles area opening our third Greenfield clinics for this year.

Through the end of July our total franchise in corporate clinic count increased to 546.

We know that meeting our goal of 1000 clinics, but then or 2023 requires more than concentrating solely on franchise growth.

We're also focused on corporate expansion with more greenfield.

Well, our greenfields are performing well it's important to note the greenfield suppressed total earnings in the short term until they reach their breakeven point.

We believe this short term impact in the bottom line is well worth the long term benefit of revenue growth greater scale and increased national recognition.

Turning to slide seven.

One of our early with the most decisive actions and initial days of Cowen 19 was to support the positioning of chiropractic care as an essential health care service.

This became a critical point of differentiation versus other retail service concept.

It also served as a rallying cry for our doctors and our style helped to guide or approach to the pandemic. The now more than ever we need to be open to treat or patients.

Being an essential health care services also reflected in our marketing communications through video block video on blogs emails and texts clinics carnage in PR, we increased the frequency of our messaging not only to reassure patients that we remained open but there were taking the necessary precautions to ensure their safety.

Additionally.

Our current art, our content focused on heavily on best practices for maintaining healthy lifestyle, including the benefit of routine carpet to care.

With so many consumer facing anxiety related to help them finances, we recognize that assessable affordable carpet to care is more important than ever.

So in March and April we made it easier for our members to freeze their accounts and it may and June we launched two important promotions to provide patients with more opportunity to obtain the care they need.

Turning to slide eight our direct marketing promotion launched in May encourage members to Unpreserved counts in exchange for the incentive for the first month they came back.

We moved over 22% of our frozen members to active status during this month long promotion.

Our national marketing promotion launch for the month of June offered every new patient and I'd say the opportunity to get moving with car Pratik at no charge of their initial visit.

During the month, we gave way over $1.7 million inc. higher product to care.

What's more we converted those patients to packages a membership a record levels, which underscores a considerable demand for carpenter carried during this pandemic.

As a result by the end of the promotion our average number of members per clinic, which is one of the most important clinic performance metrics surpassed all time record, including any pre code number pre cobot number.

More importantly, we are grateful to do our part to help so many patients access carpenter care the joint.

During this difficult time.

Turning to slide nine we recently updated or patient demographics based on those who visited the joint in 2019.

From the data we continue to see a nearly even gender split with 49% of our patients being female.

Additionally, we signed our patient the median age moved from 39 years old to 37.

The percentage of millennials, who visited increased from 39% to 44% with another 11% from Gen Zee.

This data reaffirms our concept is resonating with increasingly younger audience to values convenient affordable carpet to care at the joint.

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

Thank you Peter turning to slide 10.

As we review the performance of 2020 compared to 2019 keep in mind that the cobot 19 impacts included the effects of reduced new patient traffic in the early part of the quarter frozen memberships and discounts associated with the marketing promotions that Peter review.

Notably our performance improved throughout the quarter and the trend continues.

Comparing the second quarter 2020 to the second quarter 2019.

Even taking into account the discounts related to our two promotions system wide sales for all clinics opened for any amount of time increased 2% to $53.5 million.

System wide comp sales for all clinics opened 13 months or more decreased 6%.

System wide comp sales for mature clinics opened 48 months or more decreased 10%.

Revenue was $12.6 million up $1.4 million or 13%.

Company owned or managed clinics contributed revenue of $6.9 million, increasing 19% from the same period a year ago.

Franchised operations contributed 5.7 million up 6% compared to the same period last year.

Increased revenue for both categories is due to the greater number of clinics and continued organic growth offset by the impacts of code 90.

Cost of revenues was $1.4 million up 5% over the same period last year.

The increase was in line with total increase in franchise sales and reflective of higher regional developer royalties and commission.

Selling and marketing expenses were $1.8 million for both periods, reflecting the timing of our advertising fund spend.

General and administrative expenses were $8.5 million compared to $7.2 million, primarily due to an increase in payroll and related expenses to support revenue growth and increased clinic count.

We continue to operate or corporate clinics in head headquarters without any furloughs or layoffs, while working to increase sanitary measures to ensure a patient and fully safety.

Also as previously discussed increases in corporate clinics will require additional resources to ensure a high operational standards.

We continue to believe that the increase in our corporate portfolio and particularly our greenfield clinics will provide long term bottom line growth. Despite compressing operating margins and earnings in the near term. This is important to remember as we returned to growth and increased the pace of development.

For the quarter, we posted net income of $116000 or one cents per diluted share.

Compared to $462000 or six cents per diluted share for the same period last year.

Total adjusted EBITDA was $1.1 million, increasing 5% compared to the same period last year.

Franchise clinic, adjusted EBITDA decreased 4% to $2.5 million, reflecting the impact of Copel 90.

Company owned or managed clinic, adjusted EBITDA was $1.1 million up 25% compared to last year, even with the expenses associated with the new clinics.

<unk> expense as a component of adjusted EBITDA was $2.5 million in both periods, reflecting our cost control measures.

As of June Thirtyth, 2020, we had $14.6 million, an unrestricted cash compared to 8.5 million at December 30, Onest 2019.

During the six months cash flows from operations was $3 million. In addition, as previously discussed we took measures to fortify our position and increase our financial flexibility.

In March we drew $2 million on our revolving line of credit.

In April meaning that cares act PPP loan requirements, we applied for assistance and receive $2.7 million through JP Morgan Chase.

The goal the program is to maintain jobs in the small business sector and we use the PPP loan proceeds to ensure we could retain our employees and fun payroll.

The joint operates 62 clinics and as a franchise. There supports 477 franchise small businesses and 33 states with our support the vast majority of our franchisees also received PPP loans.

In March we would you our financial in clinic opening guidance due to the continued uncertainty around the impact of Coca 19, we will not reiterate guidance at this time.

Turning to slide 11.

For the six months ended June Thirtyth, 2020 revenue was $26.2 million, increasing 20% compared to the $21.8 million in the same period of 2019.

Reflecting a greater number of clinics and increased gross sales of both franchise and company owned or managed clinics. During the first quarter, which was partially offset by the negative impact of the pandemic during the second quarter.

Net income was $931000 or six cents per diluted share compared to $1.4 million or 10 cents per diluted share in the first six months of 2019.

Adjusted EBITDA was $2.8 million compared to $2.6 million in the first six months at 2019.

And with that I will turn the call back over to you.

Thanks Jay.

Turning to slide 12 as noted our resilient model is driving growth in our long term opportunities continue to expand.

As a nation, we're looking for more natural holistic way to get out of pain. The U.S. Kirkpatrick markets already $15 billion and 50% of American still don't even know what the word kirkpatrick means or how can help them.

As we increase awareness, our new patient base continues to grow.

Now with many working from home slouch on their college or using non ergonomic chairs more people than ever experiencing pay.

The joint will be there to help them out and with our newest tagline says we truly have got your back baby.

In closing I'd like to want to get once again express my deepest gratitude to all the joint Kirkpatrick teams, who continued to Selflessly served during this pandemic their dedication to our mission is off borrowing to our franchise community, our R&D or corporate team joint colleagues around the country I. Thank you you are truly making a difference in all the lives that.

Touch Howard I'm ready to begin the QNX.

Ladies and gentlemen, if you have a question or comment at this time. Please press Star then one on your telephone keypad. If your question has been answered or you wish to remove yourself from the Q simply press the pound cake.

Again, if you have a question or comment at this time. Please press Star then one on your telephone keypad.

Our first question or comment comes from the line of Jeff Van Sinderen from B. Riley Your line is open.

Well this is Richard Magnuson in for Jeff Van Sinderen.

Congratulations on performing so well in spite of their correlated back.

Can you give us some insight into what your current expectations of Threeq revenue, our compared to your pre covert expectations.

And Richard Thanks for the kind words, we appreciate it and Jake.

Yeah as you know from the remarks, we're not reiterating or providing any forward looking guidance in the release and in the comments, we did referred to the momentum that we're seeing in July.

Back to double digit comps of 10%.

License sales and openings picking back up so.

I think we'll refer to those comments in terms of any forward looking projections.

Okay.

Can you communicated with the patient based frequently during the early stages of coded and it seems to have a paid off can you provide just any metric or feedback from patients on how successful. These efforts were making patients feel safe and how I may have strengthened your relationship or their relationship with joint and then also how how much higher was a conversion rate of new patients during the campaign in June but.

For the free initial visits to the new client.

Sure and that Theres No question is a pandemic broke out.

And we're all wondering what to do how to respond why does it mean to our patient base. What does this mean to our franchisees on every level, we leaned into a greater level of communication with our franchisees. We had all kinds of different calls that we've had uptown l. calls webinars, helping them get their PPP loans and we have the same.

Reach out to our patient and our patients were reaching out to us they were going online. They were expressing their concerns there were asking about what is our product protocols are procedures and so that we did impact.

Both through text email to our patient basis expressed to them with some of the changes that were doing making sure. They understood that we remained open. There's so many businesses that were closing it's always not clear whether you were open or not and at one point as we talked about in earlier calls about 10% of our network wasn't back close for a period today, 99% is is.

Is open.

And that in terms of the conversion rate is our historical conversion rates has been running within a laser 40 as a system.

And that sense AECOM cobot is that aside from just the promotion we have seen consistently a higher conversion rate well over 50% on average across the network.

In light of this corporate environment and when we looked at it for the promotion itself. It was even a little bit higher than that 50% Mark. So we were bringing more people into the clinic and then converting them at a rate that we have not seen before historically the company.

Wow, that's pretty strong.

And then my follow up question, considering where we are in this prolonged pandemic environment and considering what does work for you recently can you provide any more details or directionally on your marketing message new patients and existing patients going forward.

Well the main message to our patients going forward is that where there were up to open we're there to serve you.

That will continue to to make sure they understand the increasingly important protocols of cleanliness and sanitization.

You know, we've obviously as I outlined in my conversation there that theres a number of changes we've made and the way in which that we treat our patients and where the how much how many will allow in the clinic in any given time the number of season those reception area.

Moving or we limiting the number of people in the open Bay and so we'll continue to to share that message with our patient base. The other thing is that we believe this is a real opportunity for chiropractic, 60% of American people right now our teleworking and they're not in their ergonomically selling shares there slouch over the cat <unk> college their spines or.

Yes.

So that we believe that willing to space that we can bring them in and give them show them the benefit of chiropractic care affordable as assessable, it's convenient time when there's so many things are going crazy in this environment that we believe that Thats, a really important message will continue to share as we go forward through the rest of the year.

All right. Thank you. Thank you.

Thank you very much Richard.

Thank you. Our next question or comment comes from a lot of Frank Tackiness from Lake Street Capital. Your line is open.

Hey, guys. Congrats on all the strong progress and continued resiliency of.

Demand in the quarter got a couple of for you today.

First the kind of want to focusing more on the conversion rate because previously speaking about.

What else do you think was behind that 50% conversion rate.

Side from a promotional activity is there something occurring in the competitive environment, where maybe some of your less funded mom and pop shops weren't able to stay open and you're seeing conversions from some of those people or what else is driving that high conversion rate in the quarter.

Great. Thanks for the kind words and that such a great question and what I really truly believe is that one of the reasons weve through this pandemic experience such a high conversion rate and not just because of the promotion in fact actually to be very Frank there was a concern that if we were offering free visits in the month of June historically, you bring in those patients it's more.

I have a tire kicker not really serious okay. They get their free adjustment, but they really going to stay with us as the patient is a worthwhile to for our doctors to should be busy with these patients that ultimately won't stay on at the member and what we found is obviously the opposite so we were converting at a rate that we really were surprised by it and I really believe that more than anything else that's because.

Those patients who are going out into car packet care today are holding more paying a more serious about it because of the pandemic because you may be concerned about going to get your coffee are going to a fast food restaurant or some of the other places the bar, which is I think one of the worst places you can go with Cowen though in light of coal that.

But if you're going to chiropractic care clinic for the first time, it because you're pretty significant pain and so I think that in some way that we self selecting in those patients who really ventured out and came into our clinics for the first time without really knowing what to expect.

Where are the ones that really needed.

And then thats reflected in the conversion rate that we saw throughout this pandemic in particular the promotion.

Got it it's very helpful.

On the.

Second question I was hoping we could talk about the comp sales a little bit it was encouraging to see that jump back into the double digits as quickly as it did in July.

Speaking about competitive or comp sales for the rest of the year and do you feel that we may have a.

Linear.

Outlook from the low is that would probably experienced in April may timeframe.

Yes, Frank Great question.

You think trajectory as we mentioned.

Obviously, we had the the deepest impacts in the early part of the quarter and we've seen those trends improve.

I think same reason, we're not reiterating guidance I think theres still uncertainty that remains out there.

But really as we look at the momentum that we picked up in the in the latter half the second quarter and into July.

We're optimistic that those trends will continue but I think uncertainty remains which is why we're not providing that longer term guidance at this time, but one thing I'd add to that though Frank is that.

If you look at our network is up and we go back into the early part of this pandemic is that the parts of the country that were most impacted where northern California, where the New York Corridor and places, where we had the least amount of clinics.

And as we've come into the new hot spots are surges or whatever you want to call. It.

You're looking at clinics in Southern California, Arizona, Texas, Florida, all of them, which areas, where we obviously have a significant portion of our clinical effect, probably about half of our clinics and those four states alone.

And as we are analyzing we gave a number for July and we typically never break down credit your comp sales by region, but when we looked at the July numbers and the overall rate for any clinical for more than 13 months as we said was over 10% and we analyze just those four states and it was I think 9.4% for those four states that were.

In the heart of this impact.

And so while we're still not clear because no one can really give us a certain to the course of this pandemic. We're heartened by the trends that we've seen as we as we move through this pandemic.

Got it all right I'll hop back in queue. Thanks, so much for taking my questions.

Thanks, Laura.

Thank you our next question or comment comes from the liner Brian family from Roth Capital. Your line is open.

Yes.

Hi, This is the right and they work with day pain, we were hoping if you can discuss it cobot has accelerated any plan to accelerate the diversification of your mix of greenfield or acquisitions from a geographic standpoint also as we hopefully exit code that your business has proven extremely resilient, adding to overall confidence in our view does that change your calculus to.

To be even more aggressive with greenfield or acquisitions as we think about next year or is the 2021 plan pretty much the same as prequel that thank you.

Yes, Brian Thanks, those are great questions.

I'll start with the second one first in that.

I think overall the trends in the resiliency of the model have given us confidence we mentioned a couple of times in the comments that we are returning to growth.

The thing that Peter mentioned is that as we look at the model on our strategic direction is that we really didnt have to pay that off of that so our growth strategy in terms of the franchise in corporate mix is still the same as it was.

The the underlying model in the economics makes sense for us to continue to grow our corporate portfolio and balance that against the continued franchise growth. So I think through the pandemic. We've just seen the resiliency, which provides us more confidence to get back into that growth and increase our development. We reiterated the the goal to reach a thousand.

By the end of 2023.

And with the slight pause here in the second quarter, the slowdown we're going to have to get back on that.

To reach that goal, but it's very much attainable for us so.

I think the resiliency as provided us continued confidence to move forward.

As it relates to the geography is the core concept is still the same right. We would always look to cluster, where we have existing corporate clinics. So we can leverage that overhead.

But the model is sound you know as we look at our regions as Peter mentioned or.

Different states throughout the country.

The model that the consumers wanting chiropractic care.

Is proving to be something that that we see viable across the entire countries. So.

We will continue to deploy the regional developer model and complement that with our corporate clinic development.

Great. Thank you.

Thank you. Our next question or comment comes from the line of Anthony Vendetti from Max I Am Group. Your line is open.

Thanks.

Good afternoon are good evening.

I missed part of the call, but I heard apart.

I have to pricing.

Got it half your clinic senior or are in Florida, Texas, Arizona, California.

Okay, well, although its clinic.

Did you say.

Patient visits or patient volume was up 9.4%.

It was that for the quarter.

That's correct percentage or is that for the month of July.

Yes, yes, what I would say those were comp sales for those four states.

And that and I guess what.

Jack was that correct me that our system wide comp sales for any clinical from for 13 months in the month of July. We said is 10% is actually 10.2%.

And that in our analysis and this is just looking at comps visits, but just comp sales and our analysis, we took four states, California, Arizona, Texas, and Florida, which represents roughly 50% of our network, where weve seen as a country. Some of the biggest impact in these ins resurgence or hot spots of cobot and we looked at the comp rates in July and for those four states separate.

And well what I said the number was 9.4 of objectives corrective mean said to actually the number was 10.1.

Wow, so it's even even with the.

Surge or outbreak right exactly what you're seeing.

For all your other clinics.

Correct, the 10.1 versus the 10.2 cross the all country.

Right Okay.

Okay.

Well then open I guess, Anthony I know I think thats really reflective of kind of a whole message, though we my one of the messages that we've been talking about today is the resiliency of the model that healthcare the carpet to care is essential to healthcare, but not just because I said because their patients needed our patients are coming in the patients.

Coming in from the promotions are coming off freezes that they truly see this is essential for them.

And of course that gives us comfort with this model going forward.

Sure.

Hi, Thanks, Hey, I didn't know if this was mentioned before but just on in terms of Copel 19 for whether it's your franchise owners.

Separate owned clinics for the chiropractors that you employ.

What has been.

The.

Level of.

Positivity or what's been the level of.

Positive.

How many how many of your employees and then how many of the franchise.

Owners employees, particularly at the chiropractic level have contracted covert 19.

Great question as a straightforward number I don't have that I can certainly know how many have got it within our corporate office and within our with our own core were network.

What I would say is that we definitely have seen it we've seen a few cases in our corporate office. Our corporate office is relatively close were in phase one we call. It. So there's only normally would have 50 people in the office here and that we are only allowing 10% 10 people in the office any given time and May have a series of procedures that we put in place to protect.

The stuff on our corporate level again, not not a significant number but yes, we have ER doctors and wellness coordinators, who tested positive we've had patients who called in into this and I just got types of positive.

We followed all the local health procedure or the local health.

Authorities and how you how you proceed when you have these these these positive.

Cases.

And so it's it's happening out there, but not too and any measurable degrees eyewear would say that and I think on the franchise side I have a little less.

Visibility into that since these obviously our independently owned and operated businesses, but I think that their experience has been reflected similar to the corporate.

Okay. So so even though there theres been some paces.

What you're saying is that it hasn't had a material impact on your business.

No I mean that that's a very fair statement today with a with a number of employees or stuff or doctors are franchisees, who.

Positive took over 19 is not material in anyway from impacted the business.

Okay, great. Thanks, I'll hop back in the Q.

Thanks Anthony.

Thank you again, ladies and gentlemen, if you have a question or comment at this time. Please press Star then one I get telephone keypad. Our next question or comment comes from the line of Ryan Kimbro from Craig Hallum. Your line is open.

Hey, guys congrats on the quarter.

I understand the environment is wildly different right now, but can you talk about you know the 13 clinics you open the quarter and how the current ramp rates of those Needham clinics compare to your March it will ramp rates.

Sure Ryan Thanks for the question.

I'll point today, the comment that we made within Peters section.

With 10 of the post Cobot example, we opened a clinic in Texas that opened in June.

And in June and July the cumulative sales were 75000, which is an all time system record for us.

So while that is obviously the record in.

The outlier.

Clinics are starting strong.

So again the resiliency in the model I think as the is the message that.

Patients still need this chiropractic care any affordable and convenient way that were providing it is resonating. So we are seeing kind of this postcode environment with with strong starts.

Okay, Great and then maybe if you guys could provide some color on the success of the free trial program in June and then.

As the second part I guess, we're seeing a second wave of sorts of sorts across the country in terms of called the cases I guess, if you could provide some color on what you're hearing from customers and sort of the differences between you know customer behavior. During the initial onset of cobot in March and compared to sort of what you're seeing.

Today that'd be great.

Sure to I'm going to start with your second question kind of the customer behavior as it started in March and how it is today.

And what we talked a little bit office on the earlier call. The earlier quarter call is that what was interesting is that our attrition rate and that's a rating which are members drop remained steady or dropped during the cold but.

The initial particle pandemic through through two today and so we've seen a consistency in that attrition rate I would've expected quite frankly that we would Athena increase.

We did see an increase in freezes, but it was not translated into.

Attrition or drops I think people canceling their membership.

And that while we may see a little bit more of that as we go forward, but the message has been is that they we have not in fact seen an increase in attrition today.

We have also as I've already talked in the costing during this period in particular during the June month promotion.

The increase in the conversion rate.

And again, I think thats reflective of those patients who are actually opening the door for the first time.

Really in need of our services and that they're converting underwrite historically, the we have not seen before which is again very positive. The one area that we had seen a particularly drop and then one of the key metrics that we measure, especially if we go back to Q1.

Was in fact, our new patient count.

Which also makes sense to me because if you're a new patient you've never been to the car Proctor you've never been to the joint and that you're in the middle of pandemic and you really well how much pain to out to be in before I'll open the door and try out this the service to our existing patients who knew what to expect they're getting the emails and the tax in terms of our increase.

Got it position.

Procedures, there, they're coming in and being comforted, but if you're new to it you don't know what to expect and so the I can see the reluctance of not coming in and so that was really the purpose of both those two promotions within one or the previous which we talked about 22% of our our patients that throws came out of freezing from that promotion by giving a disk.

On the first month membership.

And then quite frankly, the June promotion was.

Exceeded our expectation that if we look at it we measure our new patients compromise on average across the board and as I said in my remarks is that if when we looked at the June new patient count on average across our system. It was nearly it would help mode. The best month, we've ever had a new patients there is one month.

Earlier in 2019 that actually beat it by like half a patient on average across the network. So that the impact of that new promotion was was quite solid and then what was interesting not only where they're coming in but they were converting that the higher rate, which makes a members. Okay. Yes, we gave way to $1.7 million in the initial patient visit.

But what we're seeing is that that connection as they join as a member and then stay with us going forward.

So I would say that both promotions were achieved.

Well, we're helping them to do this dolphin threes are patients and maybe a little earlier than they would it and to bring new patients in the door that hadn't been there before and as we talked about is that you got all these new people coming in are working at home in pain. All these challenges are facing and that's making them I believe more open to that conversation to try and car part to care.

Our than we've ever seen before.

Great. Thanks for taking the questions and congrats again.

Thank you.

Thank you I'm showing no additional acute questions in the queue at this time I'd like to turn the conference back over to Mr. hope for any final comments.

Thank you Howard and thank you all for your time today. Please note that we plan to participate virtually in the Lake Street Best back Best ideas growth Conference and LD 500 later on this quarter.

Typically I'd like to end the call with the patient story and today, the patients from Portland, and I'm quoting.

Right before covert I flew a lot for work and it triggered an old back injury.

When shelter in place started and I was working from home I was in a lot of pain. However, I was worried that where can I go to get treatment my friend recommended a joint with their sanitary protocols in mass I felt comfortable given adjustments I continue treatment in my opinion significantly improved.

With my pen nearly gone I've been able to work at home.

Working my home office exercising garden and quote.

So thank you as they well adjusted.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day Stacey.