Q1 2022 Joint Corp Earnings Call
[music].
Okay.
Ladies and gentlemen, thank you for standing by and welcome to the Joint Corp, Q1, 2020 financial results Conference call.
This time, all participants are in a listen only mode.
Later, we will conduct a question and answer session and if he would like to ask a question during that time simply press star one on your telephone keypad.
And once you declared assistance during the conference Please press Star Zero.
Please be advised that today's conference is being recorded.
Lots of hand, the conference over to your first speaker today, David Barnard L. H E Investor Relations. Please go ahead Sir.
Thank you Alexander and good afternoon, everyone. This is David Barnard with Elly Chen Investor Relations on the call today, President and CEO , Peter Holt will review, our first quarter 2022 performance metrics and provide an update on the business CFO , Jake Singleton will detail our financial results and guidance and then Peter will close with a summary and in <unk>.
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 dotcom events.
Today after the close of market. The joint Corp issued its financial results for the quarter ended March 31, 2022.
If you've 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. 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 the statements. We make today fact.
Factors 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 inflation exacerbated by COVID-19, and the current war in Ukraine, our failure to develop.
Or acquire company owned or managed clinics as rapidly as we intend our failure of 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 the nationwide labor shortage short selling strategies and negative opinions posted on the internet, which.
Could drive down the market price of our common stock and resulting class action lawsuits or failure to remediate the current or future material weaknesses in our internal controls over financial reporting which could negatively impact our ability to accurately report our financial results to prevent fraud or maintain investor confidence and other factors described in our filings with the SEC.
Included in this section under risk factors in our annual report on Form 10-K for the year ended December 31st 2021 filed with the SEC on March 14th 2022, 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 a 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 in GAAP measures alone reconciliation of net income to EBITDA and adjusted EBITDA.
As 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 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 first quarter of 2022, we continue to drive growth of our retail based car Practic clinic concept, we opened new franchise and company owned or managed clinics, bringing the total to 736 at the end of March 31, 2022, with our corporate portfolio, reaching 100 clinical milestone and.
In addition year to date, we've acquired two regional developer territories, which support our corporate clinic growth strategy.
Throughout the year to advance our growth, we intend to execute on three enterprise initiatives.
Forging the car Practic dream by offering the best career paths for car Park and the doctors are car Practic harnessing the power of our data by leveraging our new CRM platform and accelerating the pace of clinic growth through continuous improvement of our comprehensive franchise sales and clinical opening strategy.
Guided by the strategic plan of action, we believe that we're well positioned 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 into greater detail I would 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 clinics provide country or style membership based services.
Patients benefit from attractive pricing and can be hours without the need for insurance or appointments.
Our growth strategy is to build their brand increased awareness of the efficacy of car practic care delivering exceptional patient experience and open more clinics, we're already the largest most recognizable provider of car practic care in this country.
And yes, we account for approximately 2% of this highly fragmented nearly $18 billion car practic market.
As such we have a significant opportunity to continue to increase our market share as we further refine and expand the market itself.
Turning to slide four I'll review, our financial highlights later, Jake will discuss the results in detail.
For first quarter 2022, compared to first quarter 2021 system wide sales grew $98 $8 million increasing 27%.
Our comp sales for clinics that have been opened for at least 13 full months grew 15%.
Revenue increased 28% adjust.
Adjusted EBITDA was $1 $8 million, reflecting macroeconomic conditions as well as expected margin compression from the recent corporate Greenfield openings.
At March 31, 2022, our unrestricted cash was $18 3 million compared.
Compared to $19 $5 million at December 31, 2021.
Turning to slide five let's review our portfolio.
Regarding the clinic expansion during Q1 2022, we opened 31 clinics up from 13 clinics in Q1 2021.
Of the 31 opened this quarter four were greenfield clinics, and 27 were franchised clinics, which is the highest number of franchise clinics opened in any given first quarter.
Also during Q1, one franchise closed compared to none last year same period.
The joint continues to have exceptionally low closure rate of less than 1% annually.
Three of our Greenfield clinic openings in Arizona, California, New Mexico reinforced our strategy for enlarging our presence in corporate clusters.
Our fourth Greenfield clinic opened in Macdill Air Force base in Tampa, Florida, which is the second clinic opened as a part of our agreement with the Army and Air Force Exchange services to install our clinics on the military bases and provide car practic care to our members of the military and their families.
In summary in March 31, 2022, we had 736 clinics in operation consisting of 636 franchise clinics and 100 company owned or managed clinics and maintain the same portfolio mix compared to December 31, with 14% corporate clinics and 86% franchise clinics.
At the end of the quarter. We also had 278 licenses in active development similar to the $2 83 at December 31 2021.
This metric continues to demonstrate the strong pipeline for franchise clinic openings and reflects both the accelerated number of franchise openings as well as the ongoing increased interest in our franchise system.
Turning to slide six we will review our regional developer strategy and our franchise license sales.
In Q1 'twenty two.
We sold 22 franchise licenses of which Rd sold 77% this.
This compares to 26 franchise license sales in Q1, 'twenty, one of which card these were responsible for 81% of themselves.
We continue to attract sophisticated well capitalized franchisees and our overall performance proves that our R&D system accelerates growth.
We employ these regions developers to identify that and help manage franchisees, which leverage their knowledge and lowers our direct costs.
Are these are responsible for our responsibilities are extensive including oversight and assistance with franchise sales site selection clinic buildup landlord relations training marketing plan implementation and caught formation.
That said in certain circumstances will acquire mature Rd territories to benefit from related economics and to other occasions will acquire Rd territories for those who choose to leave the system for financial or personal reasons.
Year to date, we acquired two Rd territory rights in March were $250000 required the northern New Jersey region.
There's newer territory represents the right to manage for existing franchise clinics as well as the opportunity to expand our recently established cluster and open additional franchise and corporate clinics in the area.
In April for $2 $4 million, we purchased the Rd rights for northern California, or demographic modeling indicates that we have potential for 75 clinics in the area.
Already we have 20 franchises in operation in 36 licenses that have been sold or an inactive development, which leaves room for another 19 sites for future corporate or franchise clinic development.
As of April one we had 19, our DS to support 66% of our clinics in their territories cover 55% the metropolitan statistical areas or Msas.
Our aggregate 10 year minimum development schedule for the New Rd territories established since 2017 is 642 clinics as of April one.
Keeping in mind that a portion of these clinic count has already opened but the remaining unopened clinic still provide a large foundation to fuel our continued clinic expansion and sales growth.
Turning to slide seven let's review our marketing efforts.
In Q1, we further increased our investment in higher level brand advertising fueled by our growing national marketing fund as well as our regional co ops.
Our growing buying power has increased access to more sophisticated marketing programs to reach our target audience and individual trade areas.
We continue to innovate by testing new tactics and video market in social media and our public relations efforts are driving hundreds of millions of earned media impressions every month.
All of these efforts are building, our brand and increasing our name recognition in the mass market.
We rely increasingly on our digital marketing efforts to reach prospects and drive new patients to our clinics.
In fact, according to our most recent attribution in Q1 over 63% of our new patients were influenced by our online marketing activities at some point in their journey to the joint.
We know that younger consumers lean heavily on Dr. Google and other web sites with their health care education and validation.
And while traditional car practic patients skew female female and older our patient base.
One of our it platform to the sugar CRM solution designed with security and mitigation capabilities.
We continue to improve upon our initial CRM implementation focusing on process efficiency and enhancing the patient experience.
We've completed the work for a conceptual design of the patient portal and to harness the power of our data we've engaged an outside partner and then began to work on the design of our enterprise data warehouse.
These critical initiatives will continue to significantly impact the way that we use our data and run our business.
And with that Jake I'll turn it over to you.
Thank you Peter and turning to slide nine before I review, the quarterly financials I'd like to close the discussion on 2021 and review the impact of the changing market conditions in 2022.
Regarding the 2021 material weaknesses related to our internal controls we have begun the process of remediation.
Internal controls have been designed and implemented they will be tested for operational effectiveness over the next couple of quarters and we expect the process to be concluded by the end of 2022.
We like the rest of the country have been impacted by the larger macroeconomic issues, such as inflation rising interest rates and the tight labor market.
These dynamics have contributed to higher turnover and rising labor costs.
While we cannot control all of these issues, we have taken steps to be an employer of choice.
As discussed in Q4, we raised the starting an average salary of our doctors of chiropractic our Dcs.
Regarding our wellness coordinators over the past year, we have increased the complexity of their job responsibilities, which has led to increased turnover in.
In addition to the DC and WC, we had significant turnover in our field support at.
As such in Q1, we redefined the roles and started adjusting their compensation accordingly.
During Q1, our new clinic opening ramps continue to outpace historical averages. However, based on external macro factors, both build out and operating costs have increased.
In addition, the speed and magnitude of the accelerated greenfield openings and acquisitions warranted additional resources to manage this increased activity.
As well as continued labor pressures contributed to the corporate clinic performance in Q1 2021.
Even with this near term effect, we're confident that these changes will allow us to appropriately manage the portfolio back to the same longterm profitability of this sound business model.
Now I'll review the financial results for Q1, 2022 compared to Q1 2021.
System wide sales for all clinics open for any amount of time increased to $98.8 million up 27%.
System wide comp sales for all clinics opened 13 months or more where 15%.
System wide comp sales for mature clinics open 48 months or more where 11%.
Revenue was $22.4 million up $4.9 million or 28%.
Company owned or managed clinic revenue increased 33 per cent contributing $12.6 million.
Franchised operations increased 22% contributing $9.8 million.
Please note that while we implemented a new price schedule for new patients existing patient subscriptions were grandfathered at their original price.
Therefore, the impact of price increase to our revenue will be gradual and incremental with the addition of new patients.
Cost of revenues was $2.3 million up 31% over the same period last year, reflecting the increase in Greenfield enfranchise clinics, the associated higher regional developer royalties in commissions and higher website hosting costs related to the new I T platform.
Selling and marketing expenses were $3.3 million up 32% over the same period last year. This.
This reflects the grand opening expenses for new Greenfields, the larger number of franchising company owned or managed clinics and the timing of the national marketing funds spend as well as the new brand campaign.
Depreciation and amortization expenses increased compared to the prior year period, primarily due to the depreciation expenses associated with our new I T platform amortization of previously acquired intangible assets and continued Greenfield development.
G&A expenses were $15.4 million compared to $10.1 million up 52%, reflecting the cost of support total clinic in revenue growth higher payroll to remain competitive in the tight labor market Greater I T expenses, and 600001 time increased audit and professional service fees.
<unk> to the incremental services rendered in connection with the F Y 21 audit conducted during the quarter.
As noted last quarter or rapid pace of Greenfield openings will increase G N a as a percentage of revenue over the next several quarters.
As a result, we reported an operating loss of $176000, which reflects the compressed margins from accelerated Greenfield development, the aforementioned higher depreciation and amortization expenses and the higher G&A expenses.
This compares to $2.2 million in Q1 2021.
Income tax expense was $13000 compared to a benefit of $364000 in Q1 2021.
Net loss was $206000 or one cents per diluted share compared to net income of $2.3 million or 16 cents per diluted share in Q1 2021.
Adjusted EBITDA was $1.8 million decreasing 48% compared to the same period last year.
Franchise clinic, adjusted EBITDA increased 19% to $4.6 million company owned or managed clinics adjusted EBITDA was $1 million a decrease of $1.6 million, reflecting the increase in payroll required to remain competitive in the tight labor market compounded by the margin compression related to the Greenfield development.
Corporate expense as a component of adjusted EBITDA loss was $3.7 million, increasing $842000 compared to Q1, 2021, reflecting one time, overages and audit and legal and other professional service fees related to the year end on it.
Onto our balance sheet and cash flow revealed at March 31st 2022 are unrestricted cash was $18.3 million compared to $19.5 million at December 31st 2021.
During the quarter the company entered into an amendment to its credit facilities, but J P. Morgan under the 20 twenty-two credit facility. The revolving line of credit was increased to $20 million up from $2 million.
The revolver will be used for working capital needs general corporate purposes, and for acquisitions development and capital improvement uses.
During Q1 2022 are investing activities of $1.5 million, consisting of the acquisition of Rd territory rights and Greenfield developments were partially offset by $448000 provided by operating activities.
Onto slide 10 for a review of our guidance for 2022.
To reflect the impact of the macroeconomic environment and the impact of increased expenses as outlined we're adjusting our 20 twenty-two revenue and adjusted EBITDA guidance, we reaffirmed our guidance for franchise clinic openings and company owned or managed clinics.
We now expect revenue to be between 98 and $102 million down from between 102 and $106 million in our prior 2022 guidance.
This reflects an increase from the $80.9 million in 2021 with the midpoint equal to 24% increase over the prior year.
We now expect adjusted EBITDA to be between 12, and $14 million down from $15 million to $17 million in our prior 2022 guidance. This compares to 12.6 million in 2021.
We continue to expect franchise clinic openings to be between 110, and 130 as compared to 110 and 2021.
We continue to expect to increase our company owned or managed clinics by between 30 and 40 through a combination of greenfield openings and franchise clinic purchases as compared to 32 and 2021.
With that I'll turn the call back over to you Peter.
Thanks Jake.
Turning to slide 11, our growth strategy is to enlarge our presence to accelerating the opening the franchise clinics will also continue to open corporate clinics in an existing critic customers by strategically opening greenfield and Opportunistically acquiring previously franchise clinics.
2022 to support this effort, we're focusing on three enterprise initiatives during.
During the first quarter, we've made progress regarding forging the car Practic dream, we've regret revamped our recruitment marketing materials enhancer messaging to better connect with candidates to become D. C.
With the easing of Covid restrictions, we were able to participate in five like live car Practic industry and University D. C recruitment events and we remain focused on the developing new programs aimed a car practic students who are the future of the profession, along with the continuing education opportunities that appealed to established work in D. C.
Regarding harnessing the data harnessing the power of our data while remaining critically focused on improving and enhancing our access platform. We're excited to launch our enterprise data warehouse initiative to enable more real time self serve reporting capabilities for corporate office in the field, making our data more accessible and actionable by all decision maker.
<unk>.
And regarding the accelerating pace of our clinic growth, we've discussed real estate optimization of development team innovation and factories shortened our development timeline with new tools and training and they're adding staff to a real estate and construction team that will enable us to move faster.
Q1 reopened or second credit card, a military base as well as advanced our strategy for targeting non traditional sites, such as micro or urban markets.
Additionally, with the strong patient base from Canada within the U S operations, we're exploring the feasibility of expanding to Canada.
We have our near term goals set to open a thousand Craig's by the end of 2023 and this is just a tipping point already or analysis, comparing our actual patient demographics to msas across the U S indicates that we have a potential for almost 2000 clinics and this does not include the opportunities that we can create by expanding our business model to rural urban micro.
Military and even international locations I'm.
I'm confident in our ability to drive longterm growth and stakeholder value.
Alexander I'm ready to begin the Q&A.
Thank you at this time I would like to remind everyone in order to ask a question breakfast star one on your telephone keypad again that is star one to ask a question.
We have your first question from Jeremy Hamblin with Great column Kedo is your lines open.
Thanks I.
Wanted to just get into the understanding of the cadence of the call.
Obviously, you've seen a pretty significant change in the trends.
Traffic, which sounds like some of it might be you know struggles with having.
Dark, but it it probably is more than that.
So I wanted to get you know first you know how to January versus February versus March versus April look.
And then you know in terms of whether or not the slowdown in trends is more attributable to.
Let's say an overall slowdown in retail traffic you know, giving your leverage to power centers and retail centers.
Is it.
How much of an impact from the price increases that was taken on March 1st.
Wanted to just get a better understanding of what you think is maybe transpired here.
Well, Jeremy you've got about 15 questions packed into [laughter].
That question and there's a couple of things there and you're right as we reflect on Q1 performance.
That we did talk about the challenges in the labor market, but quite frankly that was more related to R. W. Is an infield training I think that the increase that we had on the D. C. Last fall has really helped us to retain the doctors that we have to if I look at our turnover rate.
For the last three months, Okay in Q1 and compare that to the turnover rate of Q1 21.
50% better. So this quarter was like 26% turnover for a doctor's compared to over 52% in Q1 21. So I think the changes we made last fall and the doctors is really helping now listen our whole concept rests on doctors and so we know that we constantly have to be focused on recruiting and retaining the best Dr.
And that's why that's one of our enterprise initiatives, but I think of when I look at Q Q1 performance.
We saw.
Very significant turnover in our WCS and then in that field that supports those now 100 clinics.
Think that's closer to the impact of this kind of general resignation that very tight labor market people moving on because if they can get better wages. We're I think we're all in the retail sector, specifically facing that kind of pressure and we have not been immune to that.
So I think those are the.
From that from at least from the the the labor issues that we saw in 21 and that that turnover that WC in those Philippines field.
Support.
Did I think impact our overall performance of the portfolio.
That we did see a little bit of a softening of our new patient count which of course is a few other business and as we talked about it on Ah cause I think that was directly related to the algorithmic changes the Google me.
We have an incredibly sophisticated digital marketing campaign and as I said in my comments is that with would kind of try to understand the attribution of those new patients.
Some point in the process, 63% of them are touched by our digital marketing campaign. So when you have some of the significant changes that were made to those algorithms that we're drawing people into the clinic that had some impact for us in Q1, now we're making some big changes in trying to address.
The way, which we are managing R. R. F. Your strategy that we believe will again offset those changes that Google made an algorithm.
Formula.
That I think you're right like so many service sector concepts.
And the market today is that this this macro environment has in fact impacted us as well and it's.
It's hard to kind of measure exactly what that is.
But I think that there is a concern about the war in Ukraine.
Inflation is higher than it's been in 40 years that kind of consumer confidence and I think it does give all of us a pause I think ultimately that we've shown ourselves in that short period. During the pandemic that we are a very resilient concept and we expect that to continue to be true.
But it but it's also factors that we're all in this in this retail environment trying to understand and adapt to.
I Dunno Jacobs, you have anything more to add to that.
No I think you covered a lot of the points.
Well I think my first question was actually pretty simple as what you want with the cadence of like the the 15% system wide comps that you you posted in the quarter I wanted to see if you could shed a little more light on the cadence of that because my senses that you you know things probably really slowed in February and March.
And I wanted to get a sense of how that's compared to you know April as well, but any color you could share their would be greatly appreciated.
Yeah, it kind of depends on the K P is that we're looking at is I look at new patient interest.
The waiting months for Us we're actually January .
In March and I think those can be diff.
Different factors potentially we had a large spike.
Of the Omnicom variant in January which could have impacted that and then in March I think we we're starting to see some of the real impacts.
Of the search engine changes February it was relatively on par.
Year over year, so as we look at that as I look at comps I think.
We started the year with a headwind Mark January of results were a little bit lighter and with.
Slowly made up some ground.
In the overall system or corporate clinics kind.
Did the opposite in terms of experiencing some of the headwinds. So I think there was different factors that contributed in terms of cadence, depending on which metric you look at.
Okay and.
Last one for me cause I'm I'm, not quite sure where we're getting at the root of it but in terms of your your guidance for the year, the lowered guidance $4 million top line at the mid point.
Is that it looks like that's basically assuming the performance that you had in Q1 kind of translate through the rest of the year without.
A whole lot of improvement nor a whole lot of decline is that a pretty fair assumption.
Yeah, we have a lot of consistency.
In terms of you know.
The increasing performance throughout the year right, we continue to post strong.
Organic comps, 15% for the year.
So far quarter to date and you know as we look at some of the uncertainties out there we certainly factored in those those elements as we look at forward guidance for the full year.
And so we reaffirmed our clinic opening guidance, which is a slight acceleration in terms of pace.
But there are those macro uncertainties that I think we have to acknowledge so all of those have been factored in to the full year 2022 estimates.
Alright, Thanks, guys all how about you.
We have your next question from Brooke's O'neill, we'd like Street capital your lines open.
Good afternoon, guys I'm going to try to keep it as simple as I can.
What are your feelings about the slowdown in in in the performance of the corporate stores and what do you. What do you think the key getting those back on track.
Brooke excellent question, and it's really kind of the things that we've been talking about I think that there are a couple of factors that slowed the impact of the slowdown in particular, the corporate clinic performance.
And probably the most significant one was the higher turnover and expected with Iwc's in that field support.
Is that when you have that turnover and those are the people who are really driving that line performance and that the WC is essential in a clinic. There's only two people in that clinic typically so yoga W. C. In the D C and so they play a significant role and while we had been really focus on making sure. We were taking care of our doctors I don't think we paid enough attention to the these other two levels.
<unk>.
That's why we've added additional resources, we've changed the Onboarding process, we're doing a whole mentoring program and I do I, absolutely believe that with those changes we can pull that performance of our corporate portfolio backup to the high standards that attack I think that now at a at a 100 corporate units in operation.
That's a lot [laughter] and that and there is probably a little growing pain, there as well in that we're learning from that we're making those adult adoptions are adoptions. So that we make sure that we we we absolutely continue that trajectory of improved performance. So I I think quite frankly those are the key issues that I would discuss.
Yep.
And then just ask one more how do you feel about available capital and do you see any scenario in which you would need to access.
Accents additional capital beyond what what do you feel you have access to your account.
Yeah, we ended the quarter with 18 million of unrestricted cash we also.
Re up the revolver with J P, Morgan and which really expanded that line.
Up to 20 million of rich right now, we've only pulled down.
$2 million, so as I look at overall liquidity I'm confident that we still have the operational cash flow.
And the additional resources on hand, so I don't envision us having to go that route.
Great. Thanks for taking my questions.
Thank you.
We have your next question from <unk> Barclays sewer lines open.
Hi, Yes, I, everyone. Just wanted to follow up James did you say that the I think you mentioned quarter to date performance did you say it was continuing comps at up 15% I wasn't clear on that.
Yeah, I was just mentioning our comps for the first quarter, where where 15%.
Oh, Okay, I thought you were saying quarter to date for a cute too.
No no no no no.
For the first three months are cops were 15% right right. Okay.
And alright.
Alright fair enough on that and I'm, assuming you probably don't want to give any color on comps for April are any guide on where comps might be.
Four Q2.
No not at this time.
Okay.
And then maybe we can just turn to the Greenfield clinics that have been recently opened what you're seeing there. How you are seeing those come on on board.
Any color you can give us on those.
Sure Yeah, we've done for in the first quarter three of which were within existing clusters and then we had the the air force location.
As we mentioned the topline ramps look good or continue our clinics continue to start strong we have a very strong grand opening.
Program that's in place so we're continuing to see the attraction on the top line I think where the headwinds are now from an overall time to break even or just the operating costs are increasing.
So while they're still ramping on the top line well you know I've got additional payroll costs and payroll and our models such a significant piece of that you know when you've got significantly wage pressures.
That's gonna increase your time to breakeven, but on the top line clinics continue to outperform historical averages and and are on pace with some of our previous cohort. So the top line looks good. It's just our cost structure is increasing.
Okay, and then as a follow up to that sorry go ahead.
No no I was just going to add it you know it was one of the offering things we've talked about as well, which is in Harvard which is why we did the price increase.
Was to use that price increases to offset some of the increasing cost of operating business now both for corporate Enfranchises.
Again, that's gonna be incremental and coming on your an impact the only effects new patients.
But we think that that's another tool that we have there that will help us.
Overcome some of the challenges with is increasing costs of the model.
Uh-huh uh-huh, well and that that's another point I wanted to ask you about just.
I guess, how are you approaching price increases at this point what are you see is there a pushback at all from new patients I guess, maybe that's maybe it's early.
Really have engage on that I guess, just trying to understand how that those are being received in and plans going forward I'm price increases while you haven't implemented them. What are you might or just how you're thinking about that with a consumer backdrop of inflation et cetera.
Sure Yeah, I mean with the with the price increase going into effect March 1st.
I think the answer as of now is it's probably still a little early to tell obviously were carefully monitoring kpis.
Our conversion in the first quarter was down at tick.
But I don't know that we can attribute that fully to the price increase again when you have so much turnover at your wellness coordinator level. You know there are a key component to that process in that cell cycle and when you have turnover at those ranks you would expect an impact there to that core K P I as far as.
As far as the three by or anything we're seeing and continuing kpis, we're not seeing a ton of softness there. So I think so far everything we're seeing is pretty similar to our previous price increases, but I think it's a little early to tell the full effects.
But promising okay.
No just one month of that price increase that we can see.
Is that not as Jake saying nothing outstanding nothing sentencing wait a minute <unk>.
Consumer is is pushing back on the price I think that the.
For consumers experiencing price increases about just anything that they touch these days.
Yeah Yeah.
Yeah exactly.
Okay, and then I wanted to just broached one other subject and then I'll turn it over to somebody else, but I'm just wondering as you're thinking about you know franchisees I know you mentioned and most of them are well capitalized.
Any thoughts around.
10, chili, bringing on a third party financial partner to support financing of franchising, new clinics, just any thoughts on that out of the question or just any thoughts there.
Sure and Jeff listen the whole franchise model is based upon.
<unk> is based upon financing and so anytime that you can improve the financing access to your franchisees, it's only going to benefit the system and the franchisee and so while we do not provide any direct franchising excuse me an indirect financing to a franchisee we're continually working with third party providers out there and.
Working with them, so that we get kind of pre approved as a concept.
And just given the strong unique anomic that we have is that the lending institutions really like the joint is somebody to to.
And then too and in fact that of Brian de that just came out with every year. They have a reward that they give too.
Fram fund and that we were awarded now two years in a war row, just given the strong financial is that we have that provides the opportunity for lending and compared to all the other franchise words that are out there. So we have strong economics. There are attracted to the lenders. We are continually looking at ways to make sure that that that the capital is avail.
Both to our franchisees for further investment and.
We've talked about in the past that.
If you look at.
In general it let's say from 2018 today is that 52% of our our of ourselves we're to new franchisees new to the joint but 48% of them were to existing franchisees and.
And so it goes as existing franchisees, who believe in a system that I understand the business model that you absolutely want to make sure that they're they're able to have access to capital to further expand.
To their desire.
Okay do you think of that.
Go ahead sorry.
The thing I would add to that is.
A pool of funds that we're looking at is.
Here's what we're calling are fun too.
Really helped the doctors of chiropractic.
Secure financing and so giving them a path to ownership within this model and looking for institutional partners to partner with us really to help them.
So you know again, just looking at ways to continue to career progression for our chiropractors.
Okay, and if I could just squeeze in one more just on that as you're thinking about higher rates out there I mean for anybody who was borrowing to talk for more franchises.
Are you thinking that there may be a slowdown in new franchises open because of the higher interest rates in association with opening franchises.
You know, Jeff, it's certainly possible I mean cause okay I I've been at this franchise business for 35 years [laughter]. So that means that I have I I wasn't your 40 years ago. When we were doing with this massive inflation and how that impacted franchise sales, but I think that your your senses.
Right as as as as the cost of borrowing goes up.
Whether you're trying to borrow for a house or borrow for a business it becomes more expensive.
That window closes a little bit on those were able to be in that market and I think that that certainly I would imagine we'll be having an impact on franchise sales across the board as well our franchise, yeah Princess doesn't borrowing the.
The only thing I would add to that is I think a mitigating factor for us as just the overall cost to build right when you're looking at a buildup cost in our model of call at 200000.
Compared to other concepts, that's relatively lesser so as I think about the overall impacts to interest rates on lending and and what they might need to acquire to invest within our concept the simplicity and the size of our build outs I think would be a potential mitigating factor to them absolutely uh-huh. Okay.
Thanks for taking my questions and best of luck.
Again, if you would like to ask a question furniture star one on your telephone keypad again that is star one to ask a question.
We have your next question from Anthony the Dirty with Maxine your lines open.
Hi, This is a mad on for Anthony Vendetti. Thanks for taking my questions. I was I was hoping you could comment on any trends you may be noticing in terms of patient not renewing memberships are cancelling memberships are you getting the general sense that budgets are tightening and then I think you you mentioned that you were exploring the feasibility of expanding into Canada. If you could just comment a little bit further on that in terms of.
What that would look like and the timing. Thanks sure talk with you Anthony and if we look at the key metrics of of the business. They really are a new patient counts that conversion rates and then attrition.
And what I can tell you in the first three months of our business. What we saw as we've talked about on the call is that we did see a drop in our new patient counts.
Vito said, we attribute that to the.
The changes in the algorithm.
Our logarithms or algorithms of of Google and that's a huge piece to our new patient development I mean, we still good there's other sources for new patients one of them's referral and so if you just get a good service is very often you can tell friends and family and that's a significant portion of our new patients, but the digital marketing campaign is increasingly more.
Important and.
And so that was the first matrix. That's been you know again, we still have some strong patient count, but no not as strong as we saw in saving to 120 21.
The second matrix that we're looking at is their conversion rate and again as Jake had mentioned that we're seeing a little drop in that.
And so that's just more people not they may come in and they tried to have service and they're just not buying that membership.
The one metric that we're seeing improve as that's our attrition and I think what we've seen in two one is that our attrition rate has improved massively, but it's definitely been a reasonable improvement in saying that our patients are staying with us longer.
So those are the three metrics that we we've watching the impact we've seen it go through Q1.
Your question about Canada is that it does we believe Canada can be potentially a really good market for us.
What we know as we think about international expansion is that we wouldn't even consider a country that doesn't already have a strong chiropractic tradition.
Just because obviously just think about the resources required to educate a consumer has no expertise or experience or knowledge of our car practic and we're coming in there and saying Hey, Here's a revolution of access but when you look at the Canadian market. It does have a very strong tradition for car practic usage interestingly enough a national healthcare system there does not.
Cover carpet take care and we look at our base of members in this country and quite frankly, the largest portion of those from outside the United States are from Canada, and not that quite surprising, but it just again gives us a confidence that there's an opportunity to open up in the Canadian market. So we've done some additional research where you're looking at just some of the.
Issues around patient privacy about managing a system of providing services and a medical environment and so we're just doing that due diligence to make sure that our model is functional and that mark and those are the market. So we can consider that also have a strong kirkpatrick tradition, like Mexico, but but obviously, Canada is the most like.
The market for us to really explore seriously.
Understood. Thanks for the caller.
I'll hop back into <unk>.
Thank you.
Again, if you would like to ask a question furniture star one on your telephone keypad again that is star one to ask a question.
We have your next question from J P woman with Rod capital markets your lines Okay.
Hi, Thanks for taking my question guys I think most of mine had been answered already but one of them wanted to just touch on quickly would be the corporate manage clinics on the guidance of about 30 to 40 I'm wondering if you guys have any thoughts sort of on mixed between greenfield and buy back.
And.
Regardless of whether or not you're willing to kind of share any thoughts on that I'd just be curious to know if you've seen any further opportunities from the challenges with labor over the last year and you know it's kind of made you reconsider that mix. It all thanks guys.
Yeah. Good question as I look at the overall kind of pro forma ramp for Greenfield clinic, we have seen those labor costs increase that I mentioned, but I think when you factor in the long term impacts of the price increase.
I think the top line <unk>.
Increased potential what address some of those so as I look at the.
Return on capital for Greenfield unit today, it's still a great use of capital for US. So that's there's nothing there that would indicate we're gonna change our strategy, we had no acquisitions in the first quarter, but as we've mentioned that's always an opportunity opportunistic piece of our strategy and we evaluate those deals as they come through or we do hold the right.
First refusal for any deals that are proposed across our system. So those are things that we look at it certainly a lever that we have to potentially gain some some top line revenues are accretive earnings it's such a large component of our GAAP revenues now those are all things that will continue to evaluate.
Great. Thank you guys.
I'm showing no further questions at this time I think I would like to turn the conference back to Mister Peter <unk>, President and C O or any closing remarks.
Thank Alexander and thank you all for your time today next week, we're hosting our National franchise conference and we're so excited to be in person for the first time in three years.
The event includes general sessions workshops in a tradeshow all focusing on the improvement about running of our businesses and as we acknowledge and celebrate the remarkable performance of our franchise community.
We're inviting you all to our offices in Scottsdale and May 26th for annual General meeting of shareholders and we plan to presented to be Riley, Craig Hallum Oppenheimer and stifle conferences in May and June of this year.
And today I'm in a close with comments from a fairly new patient Tracy a 53 year old flight attendant, who describes herself as a short person.
Says lifting bags into the overhead compartment strains her upper back and shoulders Tracy finds the joint dropped inconvenience very valuable, especially with their frequently changing schedule more importantly, she thinks our car projects are the best She's seen Tracey notes a visit to the joint not only just my spine, but it also just my attitude I feel better I feel like I'm a <unk>.
Mind. It helps me make healthy choices for the rest of the day. It's just the time I spend on myself I love that place.
Thank you and say well adjusted.
Ladies and gentlemen. This concludes today's conference call. Thank you for your <unk> you may now disconnect.
[music].