Q4 2021 Joint Corp Earnings Call
Good day, and thank you for standing by welcome to the joint Q4 2020.
One that has all the results conference call at this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone.
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I'd now like to hand, the conference over to your Speaker today, Kirsten Chapman <unk> Investor Relations. Please go ahead.
Thank you Laura good afternoon, everyone. This is Kirsten Chapman of <unk> Investor Relations on the call today, President and CEO , Peter Holt will review, our preliminary fourth quarter and annual 2021 performance metrics metrics and provide an update on the business CFO , Jake Singleton will detail, our preliminary financial results and guidance.
Then Peter will close with a summary, and open the call for questions. Please note. We are using a slide presentation that can be found at IR dot the joint Dot com slash events.
Today after the close of market the joint issued its preliminary unaudited financial results for the quarter and year ended December 31, 2021, if you do not already have a copy of this press release. It can be found in the Investor Relations section of the Companys Web site.
<unk> fourth quarter and full year 2021 results are preliminary unaudited and subject to adjustments.
As a result of the foregoing.
Certain information provided herein is subject to change.
As provided on slide two please be advised that today's discussion includes forward looking statements, including statements concerning our strategy future operations future financial position and plans and objectives of management.
Throughout today's discussion we will present, some important factors relating to our business that could affect these forward looking statements.
The forward looking statements are made based on our current predictions expectations estimates and assumptions and are also subject to risks and uncertainties that may cause actual results to differ materially from statements we make today.
Factors that could contribute to these differences include but are not limited to the continuing impact of 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.
Owned or managed clinics are an ability to identify and recruit and have qualified chiropractors and other personnel to staff our clinics.
Due in part to the nationwide labor shortage.
Short selling strategies and negative opinions posted to the internet, which could drive down the market price of our common stock and result in class action suits.
Our failure to remediate the current or future material weaknesses in our internal control over financial reporting, which could negatively impact our ability to accurately report our financial results prevent fraud or maintain investor confidence and other risks described in our filings with the SEC, including the section and.
<unk> risk factors in our annual report on Form 10-K for the year ended December 31, 2021 to be filed with the SEC and subsequently filed current and quarterly reports.
As a result, we caution you against placing undue reliance on these forward looking statements and encourage you to review our filings with the SEC for the discussion of these factors and other risks that may affect our future results or the market price of our stock.
Finally, we're not obligating ourselves to revise our results or publicly release any updates to these forward looking statements in light of new information or future events.
Management uses EBITDA and adjusted EBITDA, which are non-GAAP financial measures. These are presented because they are important measures used by management to assess financial performance.
Management believes they provide a more transparent view of the company's underlying operating performance and operating trends than GAAP measures alone.
A reconciliation of net income to EBITDA and adjusted EBITDA is presented in the press release. The company defines EBITDA as net income or loss before net interest tax expense depreciation and amortization expenses.
The company defines adjusted EBITDA as EBITDA before acquisition related expenses bargain purchase gain.
Net gain or loss on disposition or impairment and stock based compensation expenses.
With that it's my pleasure to turn to Peter halt on slide three.
Thank you very much.
Thank you very much Chris and I welcome everybody to the call.
During the fourth quarter, our retail based car Practic clinic conquer demonstrated continued strength and resilience even as the pandemic evolved with the army from Varian.
Throughout 2021 we successfully executed our longstanding strategy to grow by opening new clinics, both franchises and greenfield corporate owned or managed clinics and retail setting.
We ended the year with 706 clinics well position to achieve our goal of a thousand clinics in operation by the end of 2023, creating the foundation for continued future growth.
Before I go in greater detail I'd like to welcome our new investors and summarize our investment rationale.
The joint is revolutionizing access to car Practic care.
Located in convenient retail settings are critics provide country style membership based services.
Patient benefit from our attractive pricing and convenient hours without the need of insurance your appointment.
Our growth strategy is to build our brand.
Awareness of the efficacy of car Practic care, delivering exceptional patient experience and open more clinics.
We're already the largest and most recognizable provider chiropractic care in the country and yet we only account for approximately 2% of this highly fragmented nearly 18 billion calculated market.
As such we have and have significant opportunity to continue increasing our market share as we further refine and expand the market itself.
As we turn our attention to 2022, we're focusing efforts on three key areas, we call them, our enterprise initiatives each are critical to advancing advancing our growth strategy.
Our first initiative is forging the car Practic dream by offering the best career path for car practice doctors.
The second initiative is harnessing the power of our data by leveraging our new CRM platform and finally, the third initiative is.
Bill rate the pace of our clinic growth through continuous improvement of our comprehensive franchise sales and clinic openings strategy.
I'll go into more detail on the 2022 enterprise initiatives in a moment.
Turning to slide four I will review our record breaking operating performance metrics in 2021.
The total number of adjustments performed during the year reached $10 9 million up from $8 3 million in 2020, and $7 7 million in 2019.
Total number of unique patients treated reached $1 4 million up from $1 1 million in 2020 and 998023 2019.
807000, new patients visited a joined up from 584 and 585000 patients in 2020 and 2019, respectively.
85% of the system grow sales came from our monthly memberships the same as 2020 and up from 80% in 2019.
We opened 110, new franchise clinics up from 70 71 in 2020 and 2019, respectively.
We significantly increased our corporate greenfield clinics to up to 20 <unk> up from three five in 2020 and 2019, respectively.
And we sold 136 franchise licenses up from 121, and 2020 and 126 in 2019.
This high level performance, even in the middle of the pandemic validates our business model and indicate a very positive long term outlook.
Turning to slide five I'll review, our 2021 financial highlights.
Jake will discuss our results in detail for.
For 2021 compared to 2020 systemwide sales grew to 3300 $61 million.
The increasing 39%.
Our comp sales for clinics that have been opened for at least 13 full months grew 29% revenue.
Revenue growth rose to 38% <unk>.
Adjusted EBITDA increased to $13 3 million up 46% compared to 2020 record of $9 1 million.
And on December 31, 2021, our unrestricted cash was $19 5 million compared to $20 6 million in December 31 2020.
Turning to slide six let's review our portfolio.
Regarding clinic expansion during Q4 2021, we opened 43 clinics.
34 franchise and nine Greenfield up from a total of 21 clinics opened in Q4 2020.
Our fourth quarter and full year 2021, we've closed three clinics.
This compares to two closed in Q4, 2020, and 7% for the full year 2020.
We continue to have exceptionally low closure rates of less than 1% annually.
During 2021, the total number of new clinics opened reached 130, consisting of a 110 franchise in 'twenty Greenfield clinic.
From 70 clinics and three Greenfield clinics opened in 2020.
In 'twenty, one 2021 we acquired 12 previously franchise clinic up from one acquired in 2020.
Our expansion focuses on strategically opening greenfield in new markets and enlarging our presence in existing corporate theory crushers and finally purchasing purchased previously franchised clinics that will be accretive to our P&L.
During 2021, we established corporate credit footholds in the southeast region.
Throughout the year, we extended our reach across our corporate portfolio in Virginia, Southern California, New Mexico and Arizona.
As we have repeatedly stated corporate clinics contributed 100% of their top and bottom line. Therefore, when greenfields mature that they can have a greater economic benefit compared to franchise clinics for the consolidated company financials.
However, we expect greenfield to compress margins when it first opened.
In the fourth quarter 2021, we opened nine of the 20 Greenfields in 2021.
Such the effect of the new corporate clinic margin pressure was greater in the fourth quarter.
In summary on December 31, 2021, we had 760 <unk> operations, consisting of 610 franchise clinics and 96 company owned or managed clinics.
Compared to September 30, our portfolio mix shifted approximately two percentage points to 14% corporate clinics and 86% franchise clinics.
At the quarter end, we had 283 franchise licenses in active development.
This figure demonstrates a strong pipeline for franchise clinic openings and compares to 295 at September 32021, and 253 at December 31 2020.
This reflects both the accelerated number of franchise openings as well as ongoing increased interest in the franchise system.
Turning to slide seven in Q4, 2021, we sold 24 franchise licenses compared to <unk> 56 in Q4, 2020, with a 2020 number reflecting excess pent up demand after the COVID-19 disruption.
Our total 2021 franchise license sales reached 156, increasing from 121 franchise license sales in 2020 and 126 in 2019.
Our franchise contract continues to attract sophisticated well capitalized franchisees and we're experiencing increasing interest in our multi unit licenses.
During 2021, 56% of the franchise licenses were to existing owners reinvesting in the brand, which is a very strong validation of the business.
In fact since 2018, the trend has been existing franchisees by more than half the new licenses in the year.
Also of note, 81% of our franchise licenses were sold by our regional developers during 2021. The Rd performance remained strong as we continue to accelerate our growth at.
At December 31, 2021, or 'twenty, one or D supported 71% of our clinics and their territories covered 59% of the metropolitan statistical areas or Msas.
Our aggregate 10 year minimum development schedule for the New Rd territories established in 2017 is 713 clinics keep.
Keep in mind that a portion of these clinic count has already opened with the remaining unopened clinics still provide a large foundation to fuel our continued clinic expansion and sales growth.
Turning to slide eight let's reviewed our marketing effort.
In Q4, we launched our annual holiday promotions are back Friday package sale and our year then membership promotion.
Significantly both promotions be prior year performance with back Friday, growing 27% and end of year growing 42%.
This demonstrates the continued growth potential of our limited time promotions as well as the engagement of our clinic team and the success of our marketing best practices.
On December one we launched our new National brand campaign targeting millennial consumers with a message touting the power of car Practic care and leaving their best lives as well as the joint convenient and affordable offerings.
As a part of the campaign, we produced two new TV spots updated print ads and promotional materials.
All featuring our new brand tagline.
Don't do pain do you the <unk>.
Work will be featured throughout 2022, reaching new prospects through our national streaming platform regional television bonds and other media channels.
Speaking of new prospects in 2021, we increased investment in awareness driving market tactics funded by our growing national marketing fund as well as our regional marketing co ops.
Tactics like these help build our brands reached a name recognition with the greater public.
This activity continues to record breaking new patient growth and boosted the proportion of our patients were new to chiropractic.
And our most recent annual independently conducted patient survey refi.
We found that 36% of patients who visited our clinic and the 2021 had no previous experience with car Practic care.
2013, the first year of this survey that number was just 16% in 2020 it was 27%.
This demonstrates our growing ability to attract a larger population of consumers who are initially unaware of the benefit of chiropractic care, which is fulfilling our vision of educating the consumer about the power and efficacy of car Practic.
Turning to slide nine I'd like to review our initiatives to improve our technology infrastructure.
As you May know last July we achieved our milestone of launching our new it platform, which we call axis.
Because our patients can visit any clinical network to receive their car Practic care. After extensive testing we will require to switch the entire system from our original platform to the access platform overnight instead of a time to regional rollout.
It was quite an undertaking of.
Of course migrating from our homegrown legacy system to a licensed scalable platform caused a few bumps, but we were pleased to accomplish this without major disruptions and.
And again I want to thank our franchisees and our clinic users for their patience throughout this process.
It is important to remember that this launch is only the first iteration of axis, primarily a lift and shift and functionality with updated accounting and reporting systems and greatly improved security.
Our 2022 23 roadmap has us layering in additional innovations that will unlock greater value.
These initiatives include improvements in our user experience enhanced promotional capability advanced analytics marketing automation, a native mobile app and elevated risk control measures.
I'm also excited to welcome our newest member of our leadership team Chief Technology Officer, Charles <unk>, who will help lead this mission.
Charles has more than 20 years of experience in healthcare and financial service industry.
He and his team will spearhead our technology development, leveraging new IP platform to sustain our position as a trailblazer and utilize our data to improve business performance we.
We look forward to his contribution as the joint pursue new growth opportunities to bring routine and convenient and affordable car practic care across the nation.
With that Jake I'll turn it over to you.
Thank you Peter and will turn to slide 10.
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.
As a result full year 2020, and delivered strong financial performance in spite of COVID-19.
The momentum we gained in 2020 continue to accelerate in 2021, delivering our strongest financial performance for any year to date.
First I'll review preliminary in Q4 2021 compared to Q4 2020.
System wide sales for all clinics opened for any amount of time increased to $102 1 million up 32%.
System wide comp sales for all clinics opened 13 months or more.
22%.
System wide comp sales for mature clinics opened 48 months or more were 15%.
Revenue was $22 4 million up $5 4 million or 32%.
Company owned or managed clinic revenue increased 33% contributing $12 2 million.
Franchise operations increased 30% contributing $10 $2 million.
Cost of revenues was $2 4 million up 24% over the same period last year.
Selecting the increase in franchise clinics, the associated higher regional developer royalties and commissions and higher website hosting costs related to the new it platform.
Selling and marketing expenses were $2 9 million up 38% over the same period last year.
This reflects the grand opening marketing expenses for nine new Greenfields, the larger number of franchised and company owned or managed clinics and the timing of the national marketing fund spend as well as the new brand campaign.
Depreciation and amortization expenses increased for the fourth quarter of 2021 as compared to the prior year period, primarily due to the amortization of development rights. We acquired in December 2020 in January 2021 the.
The amortization of intangibles related to the 2021 clinic acquisition.
And depreciation expenses associated with our new it platform and with our Greenfield development.
G&A expenses were $14 6 million compared to $9 5 million up 53%.
The increase was primarily driven by an increase in company owned or managed clinic expenses and an increase in payroll required to remain competitive in the tight labor market and professional fees and it expenses to support continued clinic count and revenue growth.
We opened nine greenfields during the fourth quarter and anticipate an increased pace of greenfield openings at.
Such we expect G&A as a percentage of revenue to increase over the next several quarters.
Operating income was $663000, which reflects the compressed margins from accelerated Greenfield development and the aforementioned depreciation and amortization from our required development rights in clinic acquisitions. This.
This compares to $2 8 million in 2020.
Income tax expense was $424000 compared to an income tax benefit of $7 $9 million in Q4, 2020, which included.
The reversal of a tax valuation allowance of $8 9 million.
Net income was $224000 or <unk> per diluted share compared to $10 6 million or <unk> 72 per diluted share in Q4 2020.
Adjusted EBITDA was $2 7 million decreasing 26% compared to the same period last year.
Franchise clinic, adjusted EBITDA increased 29% to $4 9 million.
Company owned or managed clinic, adjusted EBITDA decreased 21% to $2 million, reflecting the increase in payroll required to remain competitive in the tight labor market compounded by margin compression with 45% of our new greenfields for the year opening in Q4.
Corporate expenses as a component of adjusted EBITDA loss increased to $4 1 million <unk>.
Compared to $2 6 million in Q4, 2020, and $3 8 million in Q3 2021.
On slide 11 for a review of the preliminary financial results for the year ended December 31, 2021 compared to the same period in 2020.
Revenue was $81 2 million up 38% compared to $58 $7 million.
Operating income was $6 million up 9% compared to $5 5 million, reflecting the.
The increase in labor cost and expenses related to opening new corporate clinics.
Net income was $7 2 million down from $13 2 million in 2020, which included the tax benefit of $7 8 million.
And adjusted EBITDA was $13 3 million up 46% compared to $9 1 million in 2020.
Onto our balance sheet and cash flow review.
At December 31, 2021, our unrestricted cash was $19 $5 million.
Compared to $20 6 million at December 31, 2020.
During 2021 cash flow activities included $15 2 million provided by operating activities, which was offset by $14 $1 million of investing activities, consisting of acquisitions Greenfield developments and it capital expenditures.
As well as $2 million of net cash used in financing activities, primarily driven by the repayment of the paycheck protection program loan in March of 2021.
During the annual audit management, along with our audit team determined that our internal controls over financial reporting were not effective as of December 31, 2021, due to a material weakness we have undertaken remediation measures to address the material weakness, which we expect will be completed prior to the end of fiscal year 2022.
We expect our auditors to express an adverse opinion on the Companys internal controls about which we will provide details in our upcoming 10-K filing for the period ended December 31 2021.
On to slide 12 for a review of our guidance for 2022.
In 2021, the joint like so many retail concepts experienced rising labor costs, which will necessitate a price increase to maintain our status quo. However, one of our core tenants is affordability.
Therefore, we plan to implement a modest price increase effective March one 2022 every clinic in our system will raise the price of an individual visit which will be reflected in price increases on our memberships and packages are new patients special will remain unchanged at $29. While this was the first national price increase the joint has undertaken since 2016.
We did implement several market price adjustments in certain markets in 2018 in 2019.
As existing patient subscriptions will be grandfathered at our current price the impact to our revenue will be gradual and incremental with the addition of new patients and we do not expect significant incremental lift for approximately six to nine months.
Our 2022 guidance is based on our strong performance and market position.
We expect revenue to be between 102 and $106 million up from $81 2 million in 2021 with the midpoint equal to a 28% increase over the prior year.
We expect adjusted EBITDA to be between 15% and $17 million compared to $13 $3 million with the 2022 midpoint equal to a 20% increase from our 2021 adjusted EBITDA.
Once again, the increased number of Greenfields will increased margin compression until those clinics mature.
We expect franchise clinic openings to be between 110 and 130 up from 110 in 2021.
We expect to increase our company owned or managed clinics by between 30% and 40% through a combination of greenfield openings and franchise clinic purchases up from 32 in 2021.
And with that I will now turn the call back over to you Peter.
Thanks Jake.
During 2021, the joint demonstrated remarkable resilience to the pandemic pressures while managing this we still delivered record openings in patients with revenue and adjusted EBITDA as a car practic market expands we continue to continue to fuel our growth as illustrated by our growing number of patients franchisee clinics and franchise.
License sales.
While as a nation, we focus so much time and energy on the COVID-19 pandemic frankly, there are others more other serious epidemic. There. We're also facing such as pain obesity and diabetes.
Increasingly younger generations seek more holistic ways to treat these governments and frequently to car Practic care as a first line of defense.
The average age of our patient continues to trend younger in 2021, 61% of our patients who visited that year, where millennials or Gen Z with Gen Z being the biggest gainer.
This is up from 58% in 2020 and 55% in 2019.
As I stated earlier.
We've entered into 2022 with a focus on three enterprise initiatives.
Key to advancing our Ben Graham our brand's growth.
Our first initiative is to afford the car Practic dream like most employers we are navigating the challenging labor market. Some are calling the great resignation by leveraging our considerable advantages as market leader we are creating.
A must have employment experience by building a modern relevant employer brand in a connected community of doctors of chiropractic.
We offer unrivaled career paths that can provide financial success and will provide choices and opportunities that fit the needs of BP and their interest.
With exceptional professional development as well as high volume hands on experience.
Our second initiative is to harness the power of our data.
As discussed over the past several years, we have allocated considerable resources to technology now we have afforded fortify we fortified our foundation with improved accounting reporting and security and we're turning our attention towards the utilization of accumulated data to transform the patient experience drive business innovation and optimization and sustain our revenue growth.
We're excited to build upon our new CRM platform in 2022 and beyond and we look forward to updating you on our progress.
Our third initiative is to accelerate the pace of clinic growth, we're implementing new clinic growth strategy through the real estate optimization and strengthening of our development team will utilizing innovation to shorten our development timeline, enabling us to open faster reduce cost and provide quality direction for our franchisees.
And our expansion, we're evaluating additional location profiles that can maintain our brand in an affordable and accessible car practic care.
For example, we're looking at opening clinics and highly urbanized markets and in micro markets, where the franchisees typically owned by the Doctor of chiropractic and our military basis, leveraging our agreement to serve the Army and Air Force Exchange Service lab.
Last fall, we have already opened two clinics owned basis and are excited about the opportunity to open up more basis going forward.
In addition, we are working closely with our high performing franchisees, we're looking to further leverage their development <unk>.
Increasingly franchisees are doubling down and adding the second clinic within their existing trade areas, some even only a mile away.
These skilled operators are repeatedly proven that by increasing clinic density and lowering piece of wait time theyre going to uphold the joint tentative accessibility and drive sales growth in both the new and their existing clinic.
We're on pace to open up 1000 credits by the end of 2023 as previously discussed we see in the near term goal is a stepping stone for further development, both domestically and at the appropriate time internationally.
This year as part of our analysis, we reanalyzed, the patient demographic and psychographic profiles comparing them to all msas across the U S.
As a result, we broadened our derived potential clinic count now to a minimum of 1940 clinics, yes.
We realize this is a based upon actual car practic usage as of today with 36% of our new patients also new to car Practic care. This leave much room for additional expansion.
It was only 50% of the U S population nodes, where car Practic care is we have significant opportunities to grow our business as we educate more consumers about the efficacy of chiropractic care.
I am confident in our ability to drive long term growth and stakeholder value.
With that Lori I'm ready to begin the Q&A.
Thank you and as a reminder to ask a question you will need to press star one on your telephone again to ask a question. Please press <unk>.
One on your telephone you withdraw your question press the pound key.
Yes.
Anthony standby, while we compile the Q&A roster.
And our first question comes from the line of Linda Bolton Weiser of D. A Davidson your line is open.
Yeah.
Hi, how are you doing.
Good Linda how are you.
Good good.
Maybe you can comment just with this accelerated pace of Greenfield openings.
How are they performing are they ramping and performing in the early stages.
It would be historically or are they better or worse than historical level.
Yes, Linda Great question as I look at cohort ran.
Impairing the last several years.
From 2017, all the way through 2021, we've seen each of those annual cohorts continue to ramp quicker in 2021 was no exception.
So that just continues to give us further confidence in accelerating our greenfield development, because we are still seeing successful ramps.
Okay.
And then.
Can you just remind us.
Where in the income statement do we see the biggest impact of the.
The higher costs related to the greenfield visit in selling and marketing and G&A as well.
Where does that show up more.
Sure the majority of our clinic expenses, we're going to come through the G&A line.
You will see some additional flow through in sales and marketing.
Specifically when we have those greenfield openings, because we have a large chunk of grand opening marketing expenses that are kind of front loaded with that process. So in quarters, where we have a large number of greenfield openings like we did in the fourth quarter of this year Youll see that line tick up a little bit, but the majority of those clinic level cost all of our payroll.
Nick level expenses, mostly come through G&A for us.
Okay.
And then.
With that.
<unk>.
I guess I'm curious.
On the one hand, you had those expenses, but on the other hand you.
You can leverage some of those expenses as your revenue topline grows bigger so in 2022 do you think you can.
The higher G&A expense from opening with leverage such that the ratio actually goes down a bit or do you expect that G&A ratio to actually go up.
I think given the.
Not only the significant pace of development, we are projecting for 2022, but whats the 2021 development being a little bit backend weighted.
I think youre going to see that depression come through.
Yes.
And not necessarily have as much leverage opportunity in the early part of 2022.
When we talk about the maturity curve youre, reaching that breakeven point.
At that six months or last Mark. So when you have so many backend weighted greenfields in 2021, and an accelerated pace in 2022, it's going to be hard to get full that that full leverage cycle in that short term period.
But like I said, the ramps are still great.
A great use of capital you just kind of have this short term suppression that you have to work through.
Okay.
And then.
When you talk about the expectation for 30 to 40.
Corporate ambitions in 2022.
Obviously, you can't really anticipate the acquisition opportunities. So is it kind of like if there is no acquisitions it will be 30.
Or you actually are seeing that there is more than 30 that can actually be greenfield in.
Yes, I think you had it right. It's just hard to forecast the number of acquisition opportunities those will still be an opportunistic piece of our strategy.
We have a robust enough pipeline in terms of Greenfield developments.
That if we were to accelerate that or slow that we have the ability to control that with so much time left here in the 2022 period.
But just not having.
A great way to project.
Those opportunistic acquisition, we give ourselves some travel there.
Okay.
And.
Today's.
Planet Fitness is call I know there are different business, but they.
They are they have franchisees that are opening stores.
They talked about the pandemic like maybe slowing things down a little I can just take longer to get certain approvals and things in order to open up a new Jim are you experiencing that as well that things are just taking longer for your franchisees or or not.
I would say, yes, I think that it's.
It's always a matter of scale Linda until if you look at the planet fitness Buildout versus.
Our 200 square foot with the <unk> wall in a couple of adjustment tables.
Yes.
It's a smaller and easier buildout as you can imagine compared to what they're doing but we also all have to go to that same municipality to get the permits.
So we have to deal with our landlords, who I think in this inflationary period or are responding slower to the kind of that whole lease negotiation process.
So while we didn't call it out I think that as we look at 2022 and think about the impact that can have those macro issues on our on our development.
Yes, I think that we also will experience part of that but at a smaller scale because it's simpler buildup.
Okay, but I mean, it doesn't sound like it really affected you are.
Expectation for how much you could you could grow in 2022 with that is that fair to say.
Well I would say that we we took into account some of these macro issues that we don't really control as we've set our guidance.
And obviously, we set our guidance that we believe that we will open more clinics in 2022 than we did in 2021.
So I'm not saying that we didn't take it into account, but I do think that we are less impacted by it.
Some of these more complex buildout that are that are other concepts.
Okay.
And then just.
On the price increase.
Can you remind us how much of your revenue is.
Subscriptions versus the individual visit and then can you give a percentage price increase on average that youre expecting to make.
Sure Yes.
85% of all of our gross sales comes from our subscription so that is still the vast majority of our gross sales was coming through that offering.
And a lot of the markets, we will be moving our price tiers up by $10.
So where they were $59 $69 79, youll see at $69 79 to 89 mixed across the country.
Okay.
Sounds good thanks.
Hey, Thank you very much Linda.
Thank you and our next question comes from the line of Jeremy Hamblin.
Craig Hallum Capital Your line is open.
Mr. Hamblin. Your line is now open you may ask your question.
Congratulations on a really strong year and quarter.
I wanted to get into a little bit more of the details of the total EBITDA impact.
Company operated locations of 30 to 40 new.
This year I think based on your prior maturity curve.
And the expectation for an average loss of about $75000 in year one.
Can you give us a total lack of demand.
On opening 30 to 40.
New stores new units this year I guess part of it the carryover from the new openings at the end of last year as well, but if we look at at about.
Maybe a 2 million dollar drag.
On your FY 'twenty two EBITA.
Yes, I think you do have to factor in the carryover from 2021, just given the backend weighting of those.
So that has to be factored in there we didnt split out the 30 to 40 in terms of how many are greenfield, but you have it right in terms of around $75000 or kind of working capital loss that you have to work through.
In a year one type period now again those are going to be scale, depending on when they open. If you have a Q1 to opening it may reach breakeven and start to offset some of those the backend weighting all youre going to feel is is the strain of those until they get into that maturity curve.
No.
Hard to put it.
Quantified number on it without some of those variables, but I think you've got the pieces correct.
Okay. So it sounds like we are in the ballpark depending on.
Acquisitions.
Okay. And then also wanted to have a quick hitter here on expectations around tax I think you might have mentioned it I just.
Okay.
And when you look at a 27%.
Tax rate correct, yes.
Well Ray 'twenty, one and blended state rate.
Six plus percent range.
For us across our footprint. So I think thats, a pretty fair estimate we will come out of this year with some nols still to be utilized.
And we will see a lot of that kind of eaten up as we move through 2022.
Great and then in terms of.
Kind of a COVID-19 impact with this.
The last surge a lot of retail businesses had significant impact back half of November .
And throughout January and now started to see some recovery.
Can you give us a sense of what you saw in your traffic patterns.
Whether or not you have any impact.
<unk>.
Kind of where the trend Dan.
Today versus maybe where they were at the beginning of December .
Well, what I would say Jamie is that in terms of the impact it's had on us is probably.
Probably suppressed a little bit of our accelerated growth as I mentioned.
Our fourth quarter are the big two promotions, we have our back Friday.
Promotions in the back Friday was 27% higher than last year.
The year end promotion was 42% higher than compared to last year. So I suggest to you that we have.
Some pretty strong numbers I think they would have been stronger. If we also there was im not saying it wasn't some impact due to the pandemic or whether it was the omnicom or the delta before that.
If I reflect really from the beginning of the Covid to where we are to this point is that when it comes to the pandemic is that we remain incredibly resilient.
Our patient experience is essential to their health care.
And that while they may be reluctant to do other things in our marketplace.
Going in to the joined and as we've talked about in 2021.
What did we see we saw a record breaking new patient counts with not just our existing patients, but we had 807000 new patients come into the joint for the very first time now to me what was really the most exciting part of that is we just did a new survey and last year, we were seeing okay in 2020 or 27% of those new patients that.
Came in were new to chiropractic. The most recent <unk>. We just got back is 36%. So the model is working we're continuing to educate more and more consumers about the power and efficacy of car practic by putting the most retail setting.
So I think that when I reflect on the impact of the pandemic or kind of as we go through in 2022 are we going to be impacted by some of the macro issues, whether it were talking about with Linda in terms of municipalities that don't have their permitting people there or.
Addressing inflation issues or who knows what's going to go on with Ukraine.
Those macro issues are out there and they certainly could have impact on us but.
I would say as I think through the pandemic is that we have been pretty resilient.
Okay, Great last one for me.
So labor costs could you give us a sense for the run rates that you are having to pay up for your administrative staff and.
Your clinicians as well.
Yes.
We're seeing it on.
Sure, Yes, I think we're seeing it on both fronts.
Whether it be the doctor of chiropractic or wellness coordinators at the front desk.
And those retail positions are becoming highly competitive as well and then when you have any element of specialized labor you have to remain competitive and that was one of the driving factors.
Or to quantify given the footprint across the country again.
But as we look at it.
A roughly 10% increase potentially if we're going to do some sort of blended average in terms of either a base rate or a part time right for a chiropractor thats out there.
Or increasing the hourly wage for the the wellness coordinator position. So it's really both of our core roles and quite honestly. It's also our corporate staff I mean, it's a phenomenon that's affecting us on a couple of different fronts.
Got it thanks, so much for taking my questions best wishes.
Thank you very much.
Thank you and our next question comes from the line of George Kelly.
Capital Partners. Your line is open.
Hi, everybody. Thanks for taking my my question so.
To start another Greenfield question for you I was hoping that you could.
Just walk us through an average opening so.
I don't know if you want to.
Sure specified or quantify as much as you can but what is the pre opening marketing spend just on average and then what is the amount kind of invested until you hit breakeven after X months.
If you could give us that kind of timeline that would be helpful.
Sure, Yes, the Preopening marketing I would peg that around 15000, again theres different tactics by market.
That we can capitalize on but I think on a rounded number youre probably looking at 15 K per.
Your cost structure for your clinic I would say your breakeven point is.
Again, it varies by market and my rent in Virginia is going to be different than my rent in California, but I think youre looking at an average of 25% to 28000 a month.
As kind of a.
Our breakeven point and so it's really how quickly can you ramp your revenues to get above that breakeven point, which for US is it says six months or less.
And I would just add to that I think that our marketing department is increasingly.
A more sophisticated and effective grand opening strategy.
Particularly taking into account the pandemic in the early part of the pandemic our pre pandemic. We had this idea that youre going to have this big blow out a moment or 203 days do all these pre adjustment and then kind of tail off from there and what we recognize is that with the pandemic as we don't want everybody jammed up in the clinic for a three day until the spread that out over a period of a month.
And they've added a whole series of new programs specifically.
<unk>.
I think on the digital side, which we see increasingly improve the time to breakeven across the board. So I think we're getting better and our grand opening process and that we are.
We're more.
More effective in our clinic.
Okay, Great and then next question for me a modeling question.
Its something Thats in your Q I was wondering if for your K, but curious if you could just share with us on the call Center.
So the quarterly breakdown of G&A between unallocated corporate and everything else do you have that.
George I don't have it in front of me at the moment.
Okay fair enough.
And then last question for me is just back to pricing.
Yes.
What happened last year when was the last time, you took a broad based.
And across the board price.
Like Youre doing now and.
What happened.
There really any impact.
I guess, what gives you confidence with what <unk> seen in the past and with the pricing gap with some of your competitors like how are you thinking about.
Volume changes or anything else as we approached this pricing increase.
Yes, it's a great question the last wholesale price increase we did was back in 2016.
And then and really the 2019 ish timeframe, we did market adjustments just moving certain markets upper tier, but 2016 was the last time, we did an across the board increase similar to the one that we will be launching on March one.
What typically happens is in each of those scenarios, we always grandfather in existing rates. So if youre an existing member that will be your pricing on a go forward basis until such time that you cancel.
So we always offer that the phenomenon.
Results in is really there is kind of a rush to the window before that price increase for people to kind of lock in the rates. So you get a slight forward buy.
And then you get some nice kind of retention benefit as people kind of hang onto that pricing a little bit longer but really what that does is it kind of delays some of the the new sign ups under that higher rate.
When we looked at those factors and we monitor a lot of Kpis as we look at new patient interest as we look at conversions onto our subscription model or retention. So far we've seen very favorable metrics anytime that we've gone through that.
So it's something that we always do very carefully as we mentioned in the script a few different times affordability is a core tenet of what we do and we will always be so we have to be very mindful anytime that we touch price but.
In a time frame, where you are facing some of the labor pressures that we are.
We felt we needed to make that adjustment to remain competitive.
Understood. Thank you.
Okay.
Thank you and our next question comes from the line of Jeff Van <unk> of B Riley. Your line is now open.
Yes, hi, thanks, everyone. Just wanted to if we could circle back to the model.
Some of your assumptions.
Any further insight that you could give us around kind of how youre thinking about the quarterly progression or annual assumptions that you're baking in for.
Gross margin in selling marketing and G&A, just kind of considering the new.
Greenfield buybacks and kind of planned amidst a number a larger number of franchised clinics.
Youre expecting to open and I guess, if theres anything you can give us in terms of first half second half weighting of any of those elements.
Yeah lots of variables there theyre, Jeff to work through the one more predictable element that we can usually count on within our model is the topline performance right. We've been fortunate to have continued organic growth. So strong comps and then we expect accelerated unit opening so.
On the top line.
Good projects.
<unk> incremental build throughout the quarters.
Cost of revenue for us is largely tied to that so fairly predictable line.
You get down to sales and marketing and that is largely such a large driver of that is dependent on the timing of our national marketing fund spin.
Well I always go to my Chief marketing officer, and ask that he spend that perfectly ratably throughout the year.
It's harder to do that typically you see a.
A little bit of backend waiting to that.
National Marketing fund spend and then as we mentioned.
Some of that will be contingent on.
Clinic level activities when do we have those preopening marketing those grand opening marketing expenses.
As it stands right now.
I don't project too much variability between our greenfield openings.
But as we saw it went into 2021 with that same assumption and we ended up a little bit more backend weighted than I would like.
So still working through some of that but the G&A fluctuations are largely tied to the clinics as they build.
So.
It's probably the best I can do on a broad brush.
Okay understood.
And then just if we can touch on the new software system, I guess plans and timing to layer on.
Some of the newer applications, you're developing or working on this year. When do you expect some of those applications to begin to.
I guess to hit and then to begin to have an impact on the business, especially interested in when you can start to mine and leverage patient data.
Sure and I think it's a great question, Jonathan obviously, one we're really focused on and it really is incremental for us and that we're just so excited to have our new CTO Charles <unk> is really helping us refine that roadmap.
And so we really see this as a progression.
So we still have some cleanup issue quite frankly in terms of just making our existing through some more user friendly.
For the end users that we definitely see doing that patient portal and mobile check in and they'll probably be a little bit later that will be early in this year that we're working on the creation of a data warehouse. It really does start unleashing the power of that data, but thats going to take time to develop so I'm not sitting here and saying Oh My gosh, Okay. We've got to do a lift and shift.
And then you see this huge impact starting in Q1 2022, but what I'm expecting is that over time, we'll continually refine and improve and add more and more power to that as we build out that roadmap.
It doesn't give you a lot of detail around it but I think we are very specific projects that we're working on.
As they develop and rollout, we'll certainly be sharing them with you industry.
Okay, great. Thanks for taking my questions and best of luck.
Thank you very much always a pleasure.
Thank you and again to ask a question you will need to press star one on your telephone keypad.
And we have a question from Anthony Vendetti of Maxim Group. Your line is open.
Thanks, two questions one on.
The access IP platform and then one on the.
The material weakness.
So maybe maybe I'll start with the material weakness.
You announced preliminary results as the reason for that.
Because of the material weakness the auditors have to finish up and I guess when do you expect.
When do you expect to have audited numbers.
And then what exactly do you need to do to satisfy the auditors.
Sure.
It sounds like its financial controls right.
Yes, our internal controls.
A fair question Anthony and you are right we are still working through the final.
<unk> of our audit with our outside auditors. If you remember we changed auditors and Q1 of 2021. So this is the first year that we're working through their full financial audit as well as our first year of 404, B Sox compliance and subject to audit of our internal controls with them. So anytime.
You go through an audit the first time through.
Youre going to go through that not to mention it's our first time as an accelerated filer, but some of these accelerated deadlines. So we're going to come down to it we have our filing deadline.
First we will continue to work with our auditors.
And to that deadline to get that audited financials out there on file.
Okay, Great and then.
On the <unk> platform.
As that has rolled out how has the reception been among them.
Clinics.
The franchisees and.
Feedback any tweaks to it.
I was just curious.
What you've heard so far.
Sure Andy absolutely listen in a franchise system you are never short of feedback.
We have had very active and robust franchise community and they share all of their concerns with us and the positive things that are going on as well.
And so and I think like in any time that you were taking an existing system and asking everybody overnight to go to the new system of course is going to be disruptions and youre almost learning a new language and then you do all the testing upfront and making sure youre minimizing any of the things that youre going to have to face as you roll this out but as you know you can't really.
Get into it until you have thousands of users using the millions of patient records ensure where all these little bugs are and get those cleaned up.
So I would love to tell you that we rolled it out to franchisees just said because that was the best we've ever seen in our life and everybody's happy.
But I would say, it's a little more complex with that and that there are some changes in the new system.
And that gave a quite frankly, a little less flexibility on that line level that we're working through with their franchise community, but overall, what's been really important is that to make a significant change from just flipping overnight from our existing platform to the new platform.
The fact that it went through and with such will disruption.
I just could not tell you how excited and relieved.
That we were able to accomplish that.
And we're really excited to have it really started leasing that power and that was really one of the reasons that we upgrade that position we have a new CTO.
I think that he has been here for less than a month, but just watching and working with them is continuing to reach out to our franchise community to really get a real understanding of what we need to do in the or do we need to do it. So that we can continue to meet the needs of the system. So we're really.
We're excited about it.
Anytime you go through this level of a transition it's got its issues but.
I've never had to deal with fewer issues in an environment like this at least in my career. So I'm pleased with the work that was done to make this conversion.
Okay, great. Thank you very much appreciate it.
Thank you and there are no further questions at this time I will now turn the call back to Peter Ho.
His closing remarks.
Thank you Laurie.
Thank you all for your time today, our mission is improving quality of life through routine and affordable car Practic care and I am proud of inclusion and cooperative culture, We foster with all of the joint teams, our corporate staff, our Rds our franchisees our doctors are wilderness coordinators, who timing again delivered their best work to help our patients live their best lives.
We were recently honored in entrepreneur magazine franchise times and printer business review, all recognizing that joined for outstanding performance and growth financial strength stability and brand power.
We look forward to seeing you at the D. A Davidson consumer growth conference and the annual Roth Conference both in March.
I'd like to close with the Doctor franchisee story.
One of our doctors started that joined in 2018 versus a car Proctor and then there's a clinic director before becoming a franchisee owner operator, and he stated I became a franchisee because I understood. The joint Chiropractic model is nothing like anything else in the industry, providing a simple and easy operating model for delivering car Practic care. It allowed me to do what I love doing.
Without the hassles of insurance gain.
So thank you and stay well adjusted.
Thank you.
Concludes today's conference call. Thank you for participating you may now disconnect.
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