Q3 2021 Joint Corp Earnings Call
Business.
CFO, Jake Singleton will detail, our financial results and guidance and Peter will close with a summary, and open the call for questions. Please note. We're using a slide presentation that can be found at H T. T. P. S. IR dot the joint Dot Com backslash events today after the close of market the joint Corp.
Issued its financial results for the quarter ended September 30th 2021, 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.
As provided on slide two please be advised today's discussion includes forward looking statements, including statements concerning our strategy future operations future financial position and plans and objectives of management.
Throughout today's discussion we will present, some important factors relating to our business that could affect these forward looking statements. They are forward looking statements are made based on our current predictions expectations estimates and assumptions and are also subject to risks and uncertainties that may cause actual results to differ materially from the statements we make today.
That could contribute to these differences include but are not limited to the continuing impact of the COVID-19 outbreak on the economy, and our operations, including temporary clinic closures shortened business hours and reduced patient demand our failure to develop or acquire company owned or managed clinics as rapidly.
As we intend our failure to profitably operate company owned or managed clinics, our inability to identify and recruit enough qualified chiropractors and other personnel to staff our clinics due in part to nationwide labor shortage.
Trading performance and operating trends than GAAP measures alone reconciliation of net income to EBITDA and adjusted EBITDA is presented in the press release. The company defines EBITDA as net income or loss before net interest tax expense depreciation and amortization expenses.
Company defines adjusted EBITDA as EBITDA before acquisition related expenses bargain purchase purchase gain net gain or loss on disposition or impairment and stock based compensation expenses turning to slide three it is my pleasure to turn the call over to Peter Holt.
Thank you, David and I welcome everybody to the call.
During the third quarter, we continued to execute our long standing strategy to build the <unk> brand by opening franchise and corporate UN corporate owned or managed clinics and retail settings.
Additionally, we look to opportunistically acquire accretive franchise clinics and build new greenfield clinics that complement our corporate portfolio.
As a result, we've advanced our revenue growth momentum, we continue to be on track with our goal of a 1000 clinics in operation by the end of 2023, and while positioning our position our business for longer term expansion well into the future.
Recently, we received a great deal of interest from new investors I would like to welcome them and summarize our investments rationale.
The joint is revolutionizing access to car Practic care.
Located in convenient retail settings are clinics provide concierge style membership based services.
Patients benefit from attractive pricing and convenient hours without the need of insurance or appointments.
Our growth strategy is to build their brand increased awareness of the efficacy of car Practic care deliver an exceptional patient experience and open more clinics.
We're already the largest and most recognizable provider of chiropractic care in the country and yet we only account for approximately 2% of this highly fragmented nearly $18 billion car practic care market.
As such we have a significant opportunity to continue increasing our market share as we further refine and expand the market itself.
Turning to slide four I'll review, a few highlights of our third quarter 2021 results later, Jake will discuss our financial results in detail.
Q3, we opened five greenfield's that extend our reach in Virginia, Southern California, and Arizona.
Virginia also increases are footholds in the neutral average corporate clinic presence in the southeast region.
That said it is important to remember that when greenfield. The first open they are expected to compress margins as corporate clinic that contribute 100% of the top and bottom lines and therefore, one to ensure they have a greater financial economic benefit compared to franchise clinics for the company.
We continue to have exceptionally low clinic closure rates of less than 1% annually.
This quarter once again, we did not have any clinics clothes compared to only one closure in Q3 2020.
In summary on September 30th 2021, we had 666 clinics in operation consisting of 583 clinics franchise and 83 company owner manage clinics.
Our portfolio mix remained at 12% corporate clinics and 88% franchise.
At quarter, and we also had 295 franchise licenses enacted development, reflecting the increased interest in the franchise system Disfigure continues to grow and compares to 282 at the end of June 32021.
After the quarter close in October we opened an additional greenfield in Arizona, bringing our total greenfield count to 12 for the year.
On November 1st required for previously franchise and strong performing clinics in northern North Carolina.
Bringing our total corporate portfolio to 88 as of today.
The acquisition was immediately accretive to the strength of our corporate presence in the southwest region.
The ability to create a formidable cluster to a new territory reinforces our decision to repurchase original developer territory at the beginning of the year.
Turning to slide six in Q3 2021, we sold 44 franchise licenses compared to 30 in Q3 2020. This.
This brings are nine months sales total to 132 compared to 65 franchise license sales in the same period in 2020.
Our franchise concept continues to attract sophisticated well capitalised franchisees.
One such investment group in which a board member holds a minority interest owns three clinics, which is less than 1% of our total clinic count.
Turning back to school season.
Our efforts relied heavily on our PR and social media content to reach parents of school age children with our message.
Were pleased to secure over 230 million media impressions from that campaign.
In Q4, our focus will be on our holiday promotion, starting with our November Black Friday package sale, and then moving to our December year end membership promotion.
These direct marketing campaigns for our patients with limited time opportunity to save on their chiropractic care.
Finally, I'd like to congratulate Jason Greenwood, when we just promoted to Chief marketing Officer, Jason.
Jason joined US almost four years ago and has been instrumental driver of growth during his tenure.
As a talented strategist he has leveraged our unique market position and scale to build successful marketing programs and elevate our performance.
Jason's efforts continue to enhance branding bill culture attract key talent generate leads and increased our new patient conversion.
Look forward to his ongoing contribution as we begin to unleash the power of this new it platform, particularly from a marketing perspective.
Thinking of which I'll turn to slide eight to review our initiative to improve our technology infrastructure.
Access one point, though the first iteration of our new IP platform was formally launched in July.
Our goal is to migrate from our homegrown legacy system to a licensed scalable platform, which we accomplished successfully without major disruptions.
Like any implementation of a system of this complexity and magnitude. We're currently addressing bugs and process improvements as we plan for the next phases of our technology roadmap.
I want to pause and thank our franchisees and our clinic users for their enormous effort to help us through this transition and their patients through this process. We look forward to introducing new innovations that will build on this platform and create increased value for our business.
And with that Jake I'll turn it over to you.
Thank you Peter I'll review Q3, 2021 compared to Q3 2020. Please remember while the second quarter of 2020 was impacted by the pandemic. Our Swift actions enabled the joined to rebound in the third and fourth quarters of 2020.
As a result full year 2020 delivered our strongest financial performance for any year to date, we're very pleased that 2021 continues our growth momentum.
For Q3, 2021, compared to Q3 2020 system wide sales for all clinics opened for any amount of time increased to $93 4 million up 37%.
System wide comp sales for all clinics opened 13 months or more or 27%.
System wide comp sales for mature clinics opened 48 months or more or 21%.
Revenue was $21 million up $5 6 million or 36%.
Company owned or managed clinic revenue increased 38% contributing $11 6 million.
Franchise operations increased 34% contributing $9 4 million.
And the aforementioned depreciation and amortization from reacquired development rights clinic acquisitions or Greenfield development.
This compares to $1.7 million in 2020.
Income tax benefit was $614000 compared to an expensive $76000 in Q3 2020.
The income tax benefit was primarily driven by the excess tactic tax benefits from the exercise of stock options.
Net income was $1.9 million or 13 cents per diluted share compared to $1.6 million or 11 cents per diluted share in Q3 2020.
Adjusted EBITDA was $3.3 million, increasing 25% compared to the same period last year.
Franchise clinic, adjusted EBITDA increased 27% to $4.3 million company.
Company owned or managed clinic, adjusted EBITDA increased 43% to $2.8 billion.
Corporate expense as a component of adjusted EBITDA loss increased 40% to $3.8 million on.
On the slide 10 for a review of our financial results for the nine months ended September 30th 2021 compared to the same period in 2020.
Revenue was 58 $8 million up 41% compared to $41.6 million.
Operating income was $5.3 million up 97% compared to $2.7 million net.
<unk> net income was six $9 million up 174% compared to $2.5 million and adjusted EBITDA was $10.5 million up 95% compared to $5.4 million in the same period of 2020.
Onto our balance sheet and cash will review.
At September 30th 2021 are unrestricted cash was $19.5 million compared to $18.5 million at June 30th 2021, and $26 million at December 31, 2020.
During the first nine months of 2021 cash flow activities included $12.5 million provided by operating activities, which was offset by $11.2 million of investing activities consisting of acquisitions Greenfield developments in it capital expenditures as.
Clinic expansion, we've already increased or 2021 clinic opening guidance twice this year and we're on pace to meet the higher target as well as our 2023 year Angola to open 1000, the clinics, which is just a stepping stone to future development.
Using only the demographics of our existing patient base in a current MSA data we've identified a minimum of 1800 targeted clinic site.
The keyboard to remember as minimum as we have significant opportunity to exceed and beyond these projections.
One example of our expansion is in the Army and Air Force Exchange service.
Just last quarter, we announced our partnership with exchange to bring carpet to care onbase to better serve members of the military community.
Our initial plan included three clinics on Air Force bases in Arizona, Florida, and New Jersey texture.
And your first question comes from the line of Jeff Ben Center rent from B Riley. Your line is now open.
Hi, everyone.
First let me say terrific results.
I guess, one thing that I wanted to just see if you would touch on.
I know that you're still sort of in debugging mode or maybe the end of debugging mode on the new software platform, but maybe you can speak a little bit more about kind of the next steps functionality components and timeframe to layer on some of the capabilities that you're planning on that new platform.
Form.
Absolutely Jeff Thanks for the kind words always a pleasure and it's absolutely. The right question, we truly believe that.
The increased technology is really the foundation for our future everything is being more and more influenced by the technology that drives our business and how we make consumer choices.
That right now as you've heard US talk a lot as this is a lift and shift we're just trying to get the buzzword that we're trying to move from our homegrown platform to this new.
Program themselves. They have increased some of the tools that we're using to market the program.
We have dedicated additional dollars that from a from a media site to support these two initiatives and so where we're going in with an expectation that we will see accelerated performance of these <unk>.
Promotions compared to what we did last year.
Excellent. Thanks for taking my questions and continued success.
Thank you.
And your next question comes from the line of Brooks O'neil from Lake Street Capital. Your line is now open.
Hi, guys. This is trials spangler filling in for Brooks and thanks for taking my question.
One question I have is are you seeing any issues with opening new clinics like any supply chain issues are staffing shortages or anything of that nature.
Yes, as it relates to supply chain as you know the clinics are relatively simple build out so we haven't experienced anything as it relates to the supply side as.
As we look at the real estate side, we continue to target.
Very high.
Traffic areas those retail leases that we target.
Still in demand and so we're working through that so outside of those two things as Peter mentioned in our remarks, it's a tight labor market for everybody out there. So that's why we're dedicating such amount of time and resources to the recruitment and retention of our doctors.
But outside of that we haven't seen too much disruption.
Thank you and one follow up I have is you spoke about expansion plans to military bases in the promising responses you've been getting what can we expect for the rest of the year and next year in regards to expansion.
What we've originally when we announced this.
Last quarter that we signed an agreement with Army and Air Force exchange to put three clinics on base.
They have 3500 bases around the world.
And the traction we continue to have one of the strongest years, we've seen as it relates to attracting those new patients are on top of that we're seeing strength in our conversion metric, meaning that we're converting them on to the subscription or wellness package side. So those are two really strong indicators as we look at patient interest in our model.
I think we continue to be incredibly well positioned as it relates to being in the health and wellness space, attracting the interest from millennials, which is our highest demographic base.
So we're seeing great strength, there I don't know Peter if you'd add anything else.
Ryan listen you look at the comps that are the greatest exercise to look at what impact you are having in terms of what.
Growth in <unk>.
Posting 27% comps, okay, no compare that to 53% in Q2, 'twenty 'twenty and feels like Oh, my gosh going on but I mean, any retail concept, but it's consistently posting.
20% or more comps suggest to you that you've got a lot of happy customers and so what we have is our existing patient base who's coming in and using us more often and as Jack was saying we are seeing more and more new patients open that door for the very first time.
Okay, and then and then if I can touch on what you just commented on Peter you guys lapped a 15% comp fairly easily in Q1 and the same could be said from 12%.
Here in Q3 can you tell us how you're thinking of Q4 and maybe the first half of next year as you thought that far ahead.
Well, we don't guide on comp so I don't have an exact number to give you what I would say is really kind of a conversation. We've been having is that we really have seen momentum pick up we were impacted by the pandemic. If you kind of look at it in 2020, obviously, we did have the 15% in Q1 and that really was two and a half.
A month of our almost 25% comps per quarter that was really puncture by that two weeks of COVID-19 than when we went to Q2 that was our worst quarter I think with the rest of the world that was the nature of the pandemic when no one knew what to expect and that our comps for the first time negative 6%. Then we saw them come back up to 12% in Q3, 16% in Q4.
Q1 comps were 21% now Q2 2021 was of course impacted by the low level of last year, but still 53% comp says to you that the momentum is back and then okay. We're settling down a little bit to that 27% comps for this quarter could I project that going forward quarter after quarter I think.
That's probably high.
But I would say that we're continuing to see the momentum that's driving the growth of this organization.
Alright. Thank you congrats again guys.
Thanks, a lot.
What we know is that based on the unit economics.
It makes sense for us to continue to develop these units alongside of our franchisees. So we will continue to stay true to our our dual model, where we're going to continue to increase our corporate portfolio. We're getting continue to expand through the franchise model. So we'll see where that goes in the future but.
<unk> <unk>.
Continued strategies for us.
Excellent. Thank you I'll hop back in the queue.
Thank you again to ask a question. Please press star one on your telephone keypad.
Okay.
And there are no question at this time percent Harris. Please go ahead.
Thank you.
Thank you all for your time today.
Honor to be recognized last week by Fortune 100 fastest growing companies ranking is number three.
And through the end of the year, we will present, a Craig helm virtual Alpha select conference the da Davidson virtual annual holiday beauty and wellness bus tour and the rock Deer Valley Conference.
Given how much we talked about our doctors the car practic today I want to share story relate related to me by a D. C who has recently joined the ranks.
And I'll paraphrase, what he said.
I have been a doctor of chiropractic for 10 years I found my independent clinic in Pennsylvania dedicated myself to my patients to my business.
Seven years to build my practice to a comfortable level and I was very proud of what I built but it is a hard work and took a lot of time, which knocked my work balance out of alignment pun intended.
Recently, my wife was offered a great opportunity to Atlanta, and we decided to move.
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