Q3 2020 Joint Corp Earnings Call

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Ladies and gentlemen, thank you for standby and welcome to <unk> Q3, 2020, <unk> financial results Conference call. At this time all participants are in listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should do a core assistance during the conference. Please press Star then.

The report on form 10-K, that's filed with the SEC for the year ended December 31st 2019.

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

Is there any revised or updated and our subsequent filings, including the one we anticipate filing on November 6th.

For their confidence in the joint we've.

We've seen so many companies negatively impacted by the pandemic and forced to rethink their business models.

Here at the joint our core concept has remained unchanged outside of increased standardization and cleanliness procedures that we implemented to protect our patients and staff.

While we cannot predict the end of the pandemic. What we've experienced is our patients have continued to rely on their car Patrick care is essential to their help.

In 2020 compared to the 14.6 million at June 32020, driven primarily from the increase in cash flow from operations.

Turning to slide five let's review our portfolio.

80% of our franchise sales.

In August we welcomed our 20 Threerd regional developer who purchased the territorial rights of the state of Wisconsin, and a portion of Illinois.

This new R&D was a former wealth management executive and has been a successful multi unit franchisee of the joint since 2014.

Conversions per clinic and record number of total active members per clinic.

As we close out 2020 will continue to promote the benefit of routine carpet to care during the pandemic.

Last month, we asked our patients to send us their personal testimonials and how chiropractic us improve their health and received thousands of submissions over social media.

Some of these patients will be feet featured in our future campaigns as we continue to grow awareness of the efficacy of chiropractic care.

November December will hold our annual Black Friday sale, and a year and membership promotion over.

Over the years. These campaigns have delivered strong a significant value to our patients and driven strong incremental sales for our clinics.

Turning to slide eight let's review access our new platform.

Four 7% compared to 17% in the year ago quarter.

Revenue was $15 $4 million up to $7 million or 21%.

Company owned or managed clinics contributed revenue of eight 4 million.

Increasing 23% from the same period a year ago.

Franchise operations contributed $7 million up 19% compared to the same period last year.

Increasing 20% compared to $34.6 million in the same period of 2019.

That could offset the initial financial impact of Greenfield development.

On July onto Slide 11 to review guidance.

I will now turn the call back over to you Peter.

Thanks Jake.

Hello. This is a tragic opioid crisis continues to play this country and now the American Chiropractic Association studies show that patients who visit a chiropractor first have a 90% decreased odds of early or longterm opioid use.

Another is the consumer shift toward health and wellness.

Sure.

As depicted on slide 13, these efforts drive our expansion and illustrate why our system wide sales CAGR over the last nine years is 77%.

In closing I would like to once again express my deepest appreciation to all the joint Kirkpatrick teams, who continue to selflessly serve during the pandemic.

Their dedication to our mission is humbly.

To our franchise community to our R&D to our corporate team and to our joint colleagues across the country I. Thank you you.

You truly are making a difference and all the lives that we test.

Charlie I'm ready to begin the Q and a.

Thank you, Sir ladies and gentlemen, if you have a question at this time. Please press Star then the number one key on your Touchtone telephone. If your question has been answered or you wish to be loop yourself from the queue press. The pound key please limit your question to one question and one follow up again Thats Star one to ask a question.

Your first question comes from the line, David Bain with volatile capital your line sales.

Great. Thank you first congratulations on continued execution I'm very nicely done or just looking I I'd guide.

Square feet in mind anchored by the supermarket.

You were going to the best commercial center. So we're not going to places that's lost our anchor and their half empty and they'll give you. The site. So it's still a little bit competitive we think over time, we will see.

Those costs coming down a little bit.

But I think just overall it was relates to leases labor buildout is going to be pretty stable.

Okay. Okay, great. Thanks, so much thanks.

Thanks, Dave Thanks for the congrats.

Your next question comes from the line it can be handling with Craig Hallum. Your line can be.

Hey, guys. This is Ryan on for Jeremy Congratulations on the quarter. She foremost I just want to start you know as we spoke about last time.

You guys are pretty successful with the new patient trial in June and we're able to get a lot of some great exposure. If you will from now.

That promotion, but I'm wondering you know several months have passed what are you guys seeing in terms of retention and particularly as it relates to those new customers you had coming in during the summer months.

Yeah, you're right June was a great great promotion that was our free trial August was our summer sales promotion, where we are targeting the lapse patients, which as we mentioned was also the most successful of that promotion that we've done.

So we really are driving a high quality patient and we're seeing record conversions in the clinics.

The great thing and to answer. Your question is we're also seeing strength in our attrition numbers. So are the patients that were bringing on are staying on with us longer. So we are actually experiencing record numbers of active members per clinic across our system right now.

So we're getting high quality patient through the door and they're staying with us which is a great trend for us.

Great and then last for me can you talk a little bit about what you're seeing in terms of performance across geographies or.

Last time, I guess, you actually had some pretty good news to share about performance seen some of the geographies are hardest hit by coal, but I'm wondering you know as that stayed consistent or is it you know sort of fluctuated as time has gone by.

Yeah. Its actually improved this that we gave last quarter was we looked at it.

Arizona, California, Texas and Florida.

Which approximate about 50% of our system last quarter. Our total system was 10.2% and those four regions had comps of 10.1%.

When we did that same analysis.

The system. This time around we were at 11.7 and those four states represented comps of a little over 12%, so they've actually gotten better than the overall system average even in those kind of quote unquote hot spots.

So again overall, we're not seeing a large disparity across geographies and we're still seeing strength in in some of those hotspot type locations.

Great. That's it for me Congrats again guys.

Thanks, Brian.

Your next question comes from the line of Cats than 10 Dream. The B. Riley Your line is now.

Hi, everyone and let me add my congratulations.

Open.

Corporate Greenfield clinics next year.

Sure.

The first part is how how our clinics perform against the franchise system. Historically, if you look at age class comparative so we always look at their month and operation when we do kind of like for like comparative historically, the corporate stores have performed on par with the franchise network, what we've seen so far through the pandemic is that.

Our corporate stores are rebounding, a little bit quicker so right now.

On some some core metrics there.

They are kind of outpacing so we're seeing a little bit quicker rebound and the corporate performance and I think you see that reflected in the segment margins. This this quarter.

And the second part of the question.

Was what again Jeff.

Just wondering if there is any more you want to say at this point about planned stope and corporate Greenfield clinics next year.

Yes, I put a little bit of commentary in the back into my comments, we will significantly increase the pace of Greenfield development.

Because we really pulled back on that investing activity here in 2020, just to bolster our liquidity position I think we have the balance sheet now.

And we are ready to kind of get back into the a more rapid pace of growth.

Okay fair enough. Thanks for taking my questions and continued success.

Thanks, Jeff Thanks for the sport.

Your next question can spend the line and it's still Aneel with Lake Street Capital Your line Standalones.

Good afternoon, guys I confess I got on a little bit late so if I ask you about subject you commented on I apologize in advance.

Not a problem, but curious I guess I'm going to ask you three simple questions as opposed to treat complex questions now.

Number one would you describe traffic and back to normal.

Number two do you see any increase in franchise units for sales kind of as we move through the pandemic period and number three can you just comment on anything you're seeing about time to break even with some of the clinics you been opening regionally. Thank you very much.

Sure.

To answer your first question in terms of is our traffic back to normal I would say it depends on what you're calling normal because it's normal for us for the last four years has been comps and as you know and like almost 25% and if that's our normal than the answer is no. We're not a cost of 25% we reported comps for Q3.

He is a 12% but.

Compared to Q2, where comps were negative 6%, we feel like we've made some great inroads. There. So I think that if I compare our performance to last years same period, we've increased.

Okay, It's a 2019.

The correct Wow, that's fantastic that's incredible good for you keep it up thank you very much. Thanks, a lot broke I appreciate the support.

Your next question concerned the lineup Max with <unk> with Cohen and company your lines now open.

Hey, guys. Thanks, a lot for taking my question and again congrats on the quarter. So just first can you talk to the competitive environment, you're seeing out there.

Anything pointing to maybe accelerated competitive closures and given your.

<unk> cash liquidity position, just any thoughts on potential future M&A and then we have a follow up thank you.

Sure in terms of the competitive environment, obviously, the theme of dominates our industry as a 40000 independent practitioners and what I would see as what we've seen in this environment is that it's more anecdotal than any kind of.

Industry stats that I am calling from but we are seeing.

More of those clinics.

Clothes, and some of the doctors coming from those clinics coming to us to either work in a clinic for additional hours or.

Starting down their practice just because they are not competing in this market and you can just imagine because it is a tough market.

If you are not a part of a system that has all of those the support on how to get the P. P loan and how to market during the.

And uncertain time, and how to make sure that your marketing to your patience in this kind of environment. All these things that we do as a franchise system. If you are an independent practitioner and trying to come up with that on your own you can imagine the difficulties that they would face.

I would say that competitively where.

We're continuing to see specifically in our in our own chain increases in our numbers of new patients increases in the number of times, our patients are coming to users.

Increases in the number of clinics that were opening so I'd say I would say.

We're continuing to expand both in terms of organic growth in in terms of new clinics in the market.

That is driving ourselves.

Your second question in terms of acquisitions is that quite frankly, they're a handful of change that are starting out to have I don't know somewhere between five and 20 units in a given market that are somewhat related to our motto.

So we're seeing a little bit of that.

But nothing there that would be the sides are in a market that would justify an acquisition. So in terms of pure opportunities as it relates to the industry what mergers.

Acquisitions would be available to us through the reality of it is not a lot.

Got it understood and then his separately the new Green Greenfields when do you plan for those openings to be located.

They be concentrated in any regions, just any more color would be great.

Sure. Yeah next year will be really a mix, we're going to continue to target the infill, where we already have corporate clinics, so mostly southern California, Arizona and New Mexico. We've also got some territory now on the East coast in terms of that South Carolina, Georgia area. So there will be some infill sprinkled almost across.

Those regions.

But we do have planned to expand into some other true Greenfield territory as well so it'll be a mix of both.

Great. Thanks, a lot guys.

Thanks, a lot Max.

Once again, if you would like to ask a question. Please press star one on your policy on key pad. Your next question comes from the line at <unk> Maxine Griskin lines now open.

Thank you.

Most of my questions have been asked and answered, but I just kind of.

Follow up on.

On the promotions I know a couple of people were asking about those I know originally when you when you went into.

When we all we need to Covid situation, you were offering some treat promotions and you've offered some other promotions.

As you as you what gauge those I'm sure I know you're track everything very well.

Can you give us the percent of those customers that ended up becoming a.

A regular customer whenever you define as regular customer they sign up to come back to sign up for a package.

What percent of those.

Sign up for it and then it has your marketing changed.

In light of COVID-19, how you go about trying to.

Get out in front of the new customers or potential customers or is that strategy pretty much been the same in terms of market.

Well to answer your question about the impact of the promotions and.

How how does that affect what we call a conversion.

While we typically don't guide on that but we talked about the for example that summer promotion, where we're offering a free adjustment consultation examination for any new patient we've talked on the call that we had a 60% conversion rate for those new patients. So those are all the people came in the door for the first time and have that experienced 60% of them converted to a member or.

Package and that is for us the highest we've seen in the history of the company is a system and.

And when we measure conversion rates and a broader term during the pandemic, who I would say again, whether the impacts we've seen for the pandemic is there a conversion rate is higher than we've ever seen it across the board.

Our thoughts are part of what's driving that is that patient who is in fact coming in the door for the first time is what I would say, maybe a higher quality patient or a patient whose if you're concerned about pandemic I'm not sure whether you want to go to a chiropractor or you're not sure of experience. If you actually go outside your house and you do open that door, you're committed and so I.

Think we're seeing that level of conversion.

That is.

I said this record breaking forces assistant.

We have not seen in again, we're still a few months into this we haven't seen those same patients.

Dropping out or we'd call the attrition at any at at a higher rate in fact, Jake said earlier than the call is that our attrition rate is either flatter or improving as we've measured it through the pandemic.

So from those those overall promotions.

I would say that it's been effective in bringing the new patients in in is Jake said as we're having a record breaking numbers of members per clinic across the network, where highest numbers in the history of the company at this moment.

Your second question is that.

Okay.

Any changes plan changes in our marketing strategy and I would say, yes, they are happening.

For example that in.

In response to a lot of our members who froze instead of canceling we've been doing special promotions for those frozen members to try to bring him back out of freezing enjoying as a membership reinstate their membership.

Move the June promotion for providing a free consultation adjustment an examination.

On a national promotion, we have never done before on a national basis, and so there again with a very clear.

Change in our in our overall marketing strategy view.

Viewer talking to our VP of marketing if you are on the call. He would tell you as we are making these changes in our marketing strategy, it's really focusing so much on safety and support.

What we do know is that of all the metrics that faced our business is the one that has been most impacted is that new patient count and while we've seen it increase that from where it was in April it still isn't that those record numbers that we saw in 2019 and so we're really focused on the understanding number one what's keeping him out of our clinic. So we think it's just the safety of Covid.

And so a lot of the marketing both on our social media platforms is focusing on.

<unk> and the cleanliness of our clinics and the safety that you should be able to feel comfortable to come in.

Yeah, the only thing I would add their Anthony is that when you look at the summer sale that was in August and you look at what we have upcoming in our Black Friday.

And our wellness plan promotion at the end of the year those are bedrock promotions for us so the core promotional activity.

With anything post June has really been things that we've done have we changed our messaging, yes, but I think it's important.

Want to note that those core kind of bedrock promotions.

Are unchanged for the back half of this year.

Alright, Jacob Peter maybe on the conversion you said, it's the highest ever 50% for these promotions.

What was what was the conversion rate when you were doing promotions and 2019 for example.

Think across the board for new patient.

New new cause new patient conversion would be in the low for an upper forties and then our overall conversion would be in the lower 40.

And today, there are new patient diversion for that specific promotion as I said was 60%.

And that our overall promotion.

Inversion. So we're looking not just a new patients with existing patients who actually convert after they've been in for the first time is that right now ready over 50% is in network.

Okay, Great and then just lastly on the sanitation efforts I mean, one of the things that always impressed me when I went to my first joint clinic was the fact that yes. Indeed, you could treat a patient from when they walk in the door treat their check and treated now at the door and five minutes or so and.

With the sanitation efforts now that has to happen between patients.

How have you been able to implement that has that increased the time and if so by how much. It is an increase it by a minute or two or.

Can you talk a little bit about that sure and I don't I don't have the metrics.

Where we started is that okay is increased by 1.2 minutes, but I would say just generally yes is that now that we are.

Sanitizing tables between patients doctors are washing their hands between patients that were.

Having people jacket, and then typically they'll go to their car and then we will text or call them to come in when they're when it's time. So I would say there has there is definitely a would be a a.

A little bit more time, whether it's a minute or two minutes 30 seconds, but there would be more time, it's going to require to choose treat that patient.

As you know so many of our clinics are nowhere near capacity in fact, we don't even know what full capacity of our system is yet we've talked about that a number of times and so what I would say across the board we have not seen an impact on the.

The treatment of the number of patients.

Specifically because of Covid, even though we're taking a little bit more time between patients to ensure that we're doing all these these procedures I think in a busier clinic.

We've talked about it and some of those clinics that we may in fact have some new hired.

Lower level position that it really just focusing on.

Some sensation so the doctor the wellness coordinator can say focus on their primary role so more to come but I would say is overall that there's been enough capacity in our system to not have an immediate impact on the fact that we're using these additional procedures as we treat our patients.

Great. Thanks, a lot I appreciate it.

Thanks for the support.

Once again, if you would like to ask a question. Please press star one on a telephone keypad.

Again, you May ask a question my pressing start wanting a telephone keypad.

And I am showing a very good question at this time Percenters. Please continue.

Trying to thank you.

And I want to thank all of you for your time today. Please.

Please note we plan to participate virtually later this month on the Craig Hallum Alpha Select conference and the da Davidson annual holiday Beauty and wellness bus tour and finally, the wrath Deer Valley Conference in December.

Typically I would like to end the call with a patient story and today I'm Gonna paraphrase a lengthy two paid Single-space letter, we received from a patient who states for doctor to join not only changed your life, but saved it. She wrote that after years of pain and scar tissue built up for multiple accidents. She discovered the joint and found pain relief further after becoming increasingly more.

As medically to an like an adjustment derivatives dramatically reduce or wheezing and improved or healthy or wellbeing.

At one point she experienced strange symptoms that she was ignoring her doctor of chiropractic insisted that you see a primary care physician, who diagnosed diagnosed her with hypertension.

A year later the same car practice urge you to get a physical for a swollen lymph nodes and it turned out that she had a marathoner thyroid.

And then I'm in a quote from the letter quote overall my my Doctor Chiropractic is added so much value back to me my confidence in my health.

Personally recommended over 13 people to the joint and where you are swag out in public I will always take any and every opportunity to tell people about the amazing work done at the joint and cannot thank you and your team and.

And the quote.

Thank you and say well adjusted.

Please hang insulin. This concludes today's conference call. Thank you for participating in now disconnect.

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