Q2 2022 Joint Corp Earnings Call

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Welcome to the JCCORP second quarter 2022 financial results conference call. All participants will be in a listen-only mode.

Should you need any assistance please sign a conference specialist by trust list our key followed by you role. After today's presentation there will be an opportunity to ask questions. for them.

I ask a question, if you ask this card and monitor telephone keep it. So we draw your question, please press this card and chill. Please note this event is being recorded. I now like to turn the conference over to the department, Barnard with LHA Investor Relations. Please go ahead.

Thank you, Victoria. Good afternoon, everyone. This is Richard Barnard of LHA Investor Relations. On the call today, President and CEO Peter Holt will review his second quarter 2022 performance metrics and provide an update on the business.

TFO Jake Singleton will detail our financial results guidance. And we'll close with the summary, open the call for questions. Please note, we are in a slide presentation that can be found at httsIR.dejoin.com and events. TFO Jake Singleton will be in a slide presentation that can be found atored.

Today after the closes of the market, the joint operation issued its financial results for the quarter and the June 30th 2022. If you not already have a copy of this press release, it can found in the investor-relations section of the company's web-a.

As provided on slide two, please be advised today's discussion includes four looking statements, including statements concern strategy, feature operations, future financial-present plans and objectives of management.

Throughout today's discussion, we will present some important factors relating to our business that 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 results to different materials from the statements we make.

Factors that could contribute to these differences include, but are not limited to, the continuing impact COVID-19 outbreak economy and our operations, including for-erite clinic closures, shortened business hours and reduced patient demand. Inflation, exacerbated COVID-19 and the current war in Ukraine, our failure to develop, require a company owned or managed clinics as rapidly as we intend, our failure to profitably operate in the county owned or managed clinic.

Our inability to identify and recruit qualified private factors and other personnel to staff or clinics, due in part to the nationwide labor shortage, short selling strategies, and negative opinion posted on the internet, could drive down the market price of our common stock and result in class action lawsuits, our failure to remediate the important work future of material weaknesses in our internal trolls over financial reporting, which could negatively impact our ability to accurately report our financial results, prevent fraud, or maintain investor confidence and factors.

described their filings with the SEC, including in the section entitled Risk Factors in our annual report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 14, 2022, and subsequently filed current and quarterly reports.

As a result, we caution you against placing undue reliance for the Stamins and encourage review or filings with SEC for discussion and factors and other risks that may affect our future results or the market price or the stock.

Finally, we are not obligated to revise the results or publicly release any updates to these written statements in light of new information or future events.

Management uses EBITDA and adjusted EBITDA, which are non-GAAP financial measures. These are implemented 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 is presented in the press readers.

The company.

defines eva.com or loss to be net interest taxis meant to appreciate and memorization expenses.

The company defines adjusted EBITDA before acquisition of expenses, bargain purchase or net gain or loss on disposition or impairment and stock based compensation expenses.

Management also includes clearly discussed performance tricks. System-wide sales include revenues at all clinics, whether operated by the company or by franchisees. While sales are not recorded revenues by the company, it believes the information is important in understanding the company's financial performance because these sales are the basis on which the company calculate and records royalty fee and are indicative of the financials of the franchise base.

Comp sales include the revenues from both company-owned managed clinics and franchise clinics that in each case open at least 13 months and exclude any clinics that have closed.

Turning to slide three, it is now my pleasure to turn the call over to Peter Holt.

Thank you, David, and I welcome everybody to the...

During the second quarter of 2022, our growth momentum continued.

Before I go into greater detail, I'd like to welcome our new investors in addition to our existing shareholders.

As you know, the joint is revolutionizing access to car park to care by providing affordable volunteer style membership service and convenient no setting.

We've had a huge market in both sides and opportunity. First, the joint accounts for only 2% of nearly 18 bills spent annually in the United States on chiropractic care. Next, the system provides the most robust environment for chiropractic clinics to excel financially, demonstrated by our research and average collections of independent practices, and the sales of our clinics network.

In addition to our strong unit economics, our hybrid business will continue to position a long-term growth. Our corporate clinics will drive long-term bottom line improvement. Our franchisees will continue to fuel our expansion in a capitalized fashion.

Increase our scale in prison bringing us closer to our goal of the thousand clinic our national brand of where it also increases

adding further momentum to our expansion.

That is, it's important to rate our commitment to respawn growth, which means highest priority, remaining in our high standards and providing quality patient care.

To that end, we close under clinic performance. As discussed, the Q1 2020 tournines call with the influx of Greenfield openings in late 21, coupled now with our managing ablyob over 100 units, we experienced a tear negative impact on our clinic portfolio, took shifts.

performance. As discussed during Q1 2020 tuning call with a influx of Greenfield openings in late 2021 coupled with our managing portfolio of over 100 units, we experienced a negative impact on our clinical clinical portfolio took shift swift action.

We've sharpened our focus on supporting our doctors and chiropractors and our wellness coordinators and we've strengthened our oversight of our corporate unit. As a result, we delivered improved Q2 2022 clinic performance compared to Q1 2022.

Turning to slide 4, I'd like to review of the highlights for Q2 2022, metrics compared to Q2 2021. The J-Cols discussed everything greater detail in a moment.

System wide scooter $106, increasing 21%.

Our comp sales for clinics that have been open for at least 18 full months grew to 8.

Revenry is 24%.

Adjusted to $2.6 million.

And at the end of June 30, 2022, our unrestricted cash was $9.4 million compared to $5 million on December 31, 2020.

reflecting our strategy of investing in our corporate clinic portfolio, as well as our position of regional developed right.

Turning to slide five, again Q2 performed proved compared to Q1 2022. It also compared well to Q221, especially when to consideration that that are delivered record performance due to exceptional rebound from COVID and capture a pent-up demand in both clinic opening to themselves.

Regarding clinic inc. during Q222 we open third clinics, POP from 31 clinics in Q1, 2022.

A 34 opening tube, three were greened on it.

three were greenfield nicks and 30 were franchise clinics.

Also, during Q2, one franchise clinic closed, compared to none in Q2 2021. The joint continues very low clinic so all rates is less than one end annually. The joint is very low, so all rates is less than one end annually.

In Q2, consistent with our growth chat, we opened the three gold clinics in Arizona and New Mexico to increase our presence in this corporate cluster. to increase our presence in this corporate cluster.

Year today in 2022, we open 65 clinics, 58 physicians and seven girls.

This comes to 54 opening first six months of 2020 that consisted of 48 franchises and six green fields

Also in May, we acquired more previously fan and chest clinic.

unit franchisee with Arizona and California wanted to consolidate their clinic ownership to California, thus creating the opportunity for other high performing mature in Arizona. This expanded our head region cluster to 24. Easily incorporated into the portfolio, this improved our corporate clinic margin and immediately accreted to our buying.

The price of $5.8 million reflected the strength of these clinics and was in line with pre-evacuation of the

At June 30, 2002, we had 769 clinics in operation, consisting of 662 fratis clinics, and a 7-company-owned or manatex, maintaining a folial mix of 10% corporate clinics to 86% franchise clinics.

The end of the quarter, so had 207 exercise licenses and development. 23 on December 31, 2021.

This metric can use to demonstrate the stride for franchise clinical needs and reflects both accelerated number of franchise needs as well as ongoing increased interest in our franchise system.

Subsequent to quartering, we have completed several more transactions that built upon our clustered location strategy.

We acquired three previously framed clinics in North Carolina and one clinic in Scott, Arizona.

We also opened up one Green Clinic in California, and our first two Greenfields Clinic in the city, which is a new for us, where we expect to at least five clinics in a short period.

This increased our portfolio to 114 clinics as of August 4, 2022.

to slide 6 due to 2022 with 24 franchise licenses up from 22 licenses in Q1 2022 compared to 63 in Q2 2021. Here to date 2020 46 licensed sold 67% by regional developers.

This compares to 80 licenses sold in the first instance of 2021.

At June 30, we had 19 of our supporting 67 percent of our franchise clinics. Their territories covered 55 percent of metropolitan statistical or MSAs. The aggregate 10 minimum development schedule through our new territories established since 2017 with 240 clinics as of June 30.

Keep in mind that first of this clinic count is end, but the remaining clinic still provide a large foundation of fuel our continued clinic extension and sales growth.

A program continues to do accelerated expansion. However, undersurder of consensus and when territories mature will acquire any territories.

In April , we purchased the right of Northern California for $4 million. Our model indicates the region has a potential for 75 clinics. Already 20 franchise clinic operation and 30 old licenses are enacted on it. This leaves for another 19th size future corporate or franchise clinic development.

In May, posted our National Franciscents with a theme alone too. It's well attended event, aligned our strategies and our tactics, celebrated our successes and culture, a shared early research, lit inspiring Indian business visionaries, and continued developing the leaders of our growing car-practic movement.

the multiple note takeaways and I'll share some compelling research we reviewed during that event.

Turning to slide seven, according to FRAN data, which analyzes the franchise landscape, approximately 3,500 franchise businesses in the United States today, 4.9 percent have them 500 units. That is because there is not much time to look at because there are so many other things

Even more notably, only 94 brands approximately took 7% and to over a thousand years benefit from the significant awareness that that creates.

According to the 2022 essential guide of pricing business in French, the joint is the franchise system. Based on analysis of the franchise's sales price, the clinic's gardener higher valuations than the majority of franchise concepts. Furthering the tractiveness of the franchise offering.

This is slide A. We also evaluated data from the annual Chiropractic Economics Compensation Survey, comparing two alternatives to chiropractors. Independent practice, joining the franchise in our franchise concept.

According to the survey, the average independent practitioner collected about $200 to $4,000 per clock in 2021. By comparing in 2021, the average gross sales per clinic of the joint was 2.3 times greater at almost $600.

Further, the study that from 2007 to 2022 independent clinics billions decreased 14% and it has decreased 11%. While the average cost for joint clinic grew 76.

Turning to slide 9, during our national conference, we were also being awards to our harmony clinics. We were of 2021, Bunts, Silver, Gold, and Diamond honorees grew markedly over 2020. You can Latinize and the

In 2021, 108 clinics in Chisels greater than $520,000 or up 82% from the 169 clinics of 2020. In 2021, 108 clinics in Chisels greater than $520,000 and up 82% from the 169 clinics of 2020. In 2020.

That included 41 clinics with over a million themselves, more than time higher than the none into platinum clinics in 2020. Lat enough Bravo.

Finally in 2021, we build our Diamond Category, second clinic achieved in our Mobile Stony with over $1.5 million dollars for the year.

This volume, this unit volume increase...

Success continues to attract more sophisticated disease as this cycle repeats itself.

It also makes it our clinics have more room to expand their patient base creating additional clinic value as the overall enterprise value.

Turning to slide 10, LUN Marketing Efforts.

In Q2, we continue to leverage our growing scale in resources by investing in branding and lead generation at your regional levels. Tier2PORT approach provides clinics with a degree of margin support and sophistication that are unprecedented in beauty. Tier2PORT approach provides a degree of margin support and sophistication by investing in branding and leading generation at your regional level. Tier2PORT approach provides a degree of margin support and sophistication

It enables us to test tactics before they're added to the tool for individual clinics.

Nationally, we're consistent advertisers and multi-digiting platforms. Recently, we made many co-ops invest in broad media and sports facet, such as our June announcements with the North-Earth Tide and Minor League Baseball team. And locally, our nurture prospects with their own head areas by using our proven local tactics. The North-Earth Tide area is by using our proven local tactics.

This support, combined with the power of our day for millions of patient sessions, provides a significant scientific advantage in the triak commission. This support, combined with the power of our day for millions of patient sessions, and the triak commission.

Another facet in the development and management of our online marketing strategy, which is essential for regional and Gen Z consumers seeking solution annually.

One challenge we navigate, adapting to Google's frequent changes in their search algorithm, which an impactor online believed.

The study occurred in late 2021 and continued to negatively impact organic search traffic in two. While our new patient acquisition remains exceptionally high when compared to historic levels, we've been implementing changes to our search engine optimization activities across the network. As a result, our July online traffic improved, which indicates our new patient acquisition pipeline is increasing.

In June , we executed our annual cell direct marketing promotion where we target labs patients with a limited time offer to restart their membership with a joint.

We achieved the highest number of conversions and our highest conversion rate with a five-year history.

The success of the Somersale once again demonstrates the potential growth in marketing data base and the progression of our digital clean tactics, with respect to further leverage with the harness of the power of our data enterprise initiative.

And with that, Jake, turn it over to you. Thank you, Peter, and to slide 11. I'll review the financials for Q2 2022, compared to Q2 2021, which is Peter mentioned with a breaking quarter bending from demand built up early part of the pandemic.

System widows for all clinics open for any amount of time increased to $106 million up to 1%.

System-wide comp sales, clinics opened 13 manure, were 8%.

system-wide comp sales for mature clinics, open 48 months or more, 3%.

It's worth noting that franchise and corporate cohorts come to the table and we look forward to growth.

as the impact of our price increase continues to come into effect.

Revenue was $5.1 million dollars, up $4.8 million dollars, or 24%.

Company owned or managed clinic revenue increased 27% contributing $14.1 million.

Franchise operation increased 20%, contributing $10.6 million.

The increase, the increase represent growth in both and portfolio and niche-ized base. On March 1st, we implemented a price increase in the majority of our clinics. However, existing patient members are currently grandfathered original price.

Therefore, the revenue impact from the price adjustment was gradual and incremental.

Cost of revenues was $2.4 million, up 19 out over the same period last year, reflecting the increase in franchise clinic, the associated higher regional developer royalties and commissions, and higher website hosting costs related to the IT platform.

Selen marketing expenses worth $8 million, up 23% over the same period last year, driven by an increase in advertising fund spenders from a larger franchise base.

and an increase in local marketing expenditures by the company-owned or managed clinics.

Depreciation and amortization expenses increase compared to the prior year period, primarily due to the depreciation expenses associated with our new IT platform and continued greenfield development.

GNA expenses were $16.5 million compared to $11.6 million, 32%. Reflecting the cost to support total clinic and revenue growth, greater IT expenses, higher parole, including increase in salaries for C's, which began in the latter half of 2021, and for wellness coordinators, which continued through the second quarter of 2022.

all these to remain competitive in the tight labor market. As noted previously, our pace of greenfield openings will increase GNA as a percentage of revenue over the next several quarters and will also compress earnings.

At result, we reported an operating income of $473,000, which reflects the compressed margins from accelerated Greenfield development that aforementioned higher depreciation in higher DNA expenses.

This compares to $2 million in Q2 2021.

Income tax expense was $109,000 compared to a benefit of $666,000 in Q2 2021.

Net income was $345,000 or $2 cents per diluted share.

compared to net income of $2.7 million or 18 cents per diluted share in Q2 of 2021.

Adjusted EBITDA was $2.6 million compared to $3.8 million for the same period last year.

Franchise clinic adjusted EBIDA increased 13% to $4.4 million.

Company owned or managed clinic adjusted EBITDA was $1.8 million.

While the Q2 2022 margin for corporate clinics has improved over the Q1 2022,

Compared to Q2 of last year, it decreased $1.2 million, reflecting the margin compression related to the Greenfield development in higher payroll expenses.

Corporate expenses, a component of adjusted EBITDA loss, was $3.6 million, increasing $433,000 compared to Q2 2021.

On to our balance sheet and cash flow review at June 30th, 2022, our unrestricted cash was $9.4 million compared to $19.5 million at December 31st, 2021.

During the first half of the year, our investing activities of $11.4 million consisted of the acquisition of RD territory rights, branchized clinic acquisitions, and continued greenfield developments, which were partially offset by $1.5 million provided by operating activities.

On to slide 12.

I'll review our results for this first six months of 2022 compared to the same period in 2021.

Revenue increased 26% to $47.5 million, and adjusted EBITDA was $4.4 million, compared to $7.2 million in the prior year period, reflecting the compression of earnings by the influx of new corporate greenfields clinics and higher payroll expenses associated with the tight labor market.

On to slide 13.

We are reaffirming all elements of our guidance for 2022. We continue to expect revenue to be between $98 and $102 million. The midpoint is up 24% compared to the $80.9 million in 2021.

We continue to expect adjusted EBITDA to be between $12 and $14 million compared to $12.6 million in 2021.

We continue to expect franchise clinic openings to be between 110 and 130, compared to 110 in 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. This compares to 32 in 2021.

And with that, I'll turn the call back over to you, Peter. Thanks, Jake. Turning to slide 14, as noted, our hybrid business model has supported our long-term growth through various market cycles and our momentum continues as demonstrated by our performance.

Even though we're all experiencing macroeconomic issues outside of our control, we continue to focus on what we can manage. And for 2022, our three enterprise initiatives are to forge the chiropractic dream, harness the power of our data, and accelerate the pace of our clinic growth.

With an eye for long-term benefits, we are implementing these independent programs simultaneously.

First, we want to become the career path of choice for DCs, while we're improving our team members' experience by enhancing their culture and providing training and benefits and increase compensation. We want to improve our team members' experience and increase compensation. We want to improve our team members' experience and increase compensation.

Forging the chiropractic dream will help us differentiate ourselves as an employer in a very tight labor market.

We're distributing new recruitment materials in evangelizing our system.

Our team is also deepening our relationships with chiropractic universities and associations to educate current and future DCs.

To date, we are excited about our reception and inroads we are making in this crucial area.

Next, we want to make sure our information is more accessible and actionable by decision makers by harnessing the power of our days.

This includes development of a data warehouse to enable more real-time, self-serve reporting of capabilities at the corporate office and in the field. This also includes advancements in marketing automation and development of our mobile app for direct patient engagement.

And finally, we want to increase our long-term return on investment for franchisees, employees, and shareholders by accelerating the pace of our clinic growth.

As emphasized in my earlier comments, we are committed to responsible growth and can work in a system to ensure we uphold a clean performance standard.

Yet, our clinic development timeline, yet we can implement tactics to support this expansion by shortening our clinic development timeline, enhancing regional support, evaluating nontraditional site options including rural, urban, micro, military, and even international locations, and increasing national brand awareness.

Turn side 15, I'm confident in our ability to drive long-term growth and stakeholder value.

D'Artordia, I'm ready to turn it over for Q&A.

Thank you. We will now begin the question and answer session. To ask a question, you may press the star then 1 on your telephone keypad.

If you are using a speakerphone, please pick up your handset before pressing the keys.

To withdraw your question, press the button 2. At this time, we will pause momentarily to assemble our roster.

Next question comes from Jeremy Humbly with Brie Capital. Please go ahead. After the HIV outbreak, 10 states Allah has served.

Thanks for taking the questions. I wanted to start with a comment you made about kind of

Google search, traffic, data, and improvement on your algorithms and your work with the changes in their service. I think you noted that you saw an improvement in your journey.

I found traffic into your website over the last several months.

How would your characterize that? Would you say maybe March was the low point in that? You've seen continuous improvement or are you seeing something more specific to, let's say the last 30 to 45 days.

Well, we look at the, Jeremy, thank you for the question. And we all know how important our digital marketing campaign is to our new patient count. And as we talked about on the last quarter, is that we can identify that at least 63% of our new patients at some point touch our digital marketing campaign. So it's obviously really critical for us as we go forward. And we did as we talked about in Q1, is with the algorithmic change, we saw a drop, particularly in our organic search of new patients.

And so that we have made adjustments to how we are managing that process literally on the line level so that we're upgrading our micro sites, we are improving, we're enhancing the bios of our doctors, we're putting back with some of those sites, all these different strategies that you utilize to increase your standing when the one that patient or potential patient is doing their search. And so what we saw was...

That particularly in the month of July , because we were probably down compared to last year around 20% with this impact. And when we look at July , it's what we really saw that significantly increasing. We haven't hit where we were last year, but we're believing that the changes that we're making working through our franchise system, that we aren't vaccine and increase now in that digital lead of our patients.

Okay, great. That's helpful. Okay, great.

Understanding the margins here, right?

You know, G&A costs that are higher, sales and marketing costs that are higher.

Good luck.

Let's go.

some of the acquisitions that you've made over the last four or five months. One of the, I think you noted or how you characterized it on the call was that it would be several quarters in which you would see margin headwind and G&AD leverage. You know with you know the benefit now of being more than halfway through 2022 do you have a better sense of when you think that you

you know, inflection or that headwind might, you know, kind of bottom out and you start to see margins or in particular G&A start to inflect positively and gain some leverage.

Yeah, another good question, Jeremy. I think it's really dependent on the cadence of our greenfield development. When you put in 13, 14 clinics in the last 100 days of 2021, you're going to have a very significant suppression in the quarters where they're still in their working capital loss period. So I think it's somewhat dependent on the pace of our greenfield development. I think you've seen in the first couple quarters that that pace has softened from what we saw at the back half of 2021.

And in turn, you're seeing the clinics continue to mature, and you're seeing those margins expand, which is exactly kind of what we would expect as they go on to mature and reach those breakeven points. As we mentioned in previous calls and continue to see, the clinics are still starting strong, and they're performing to what we would expect from a pro forma ramp perspective. So I think part of that, in terms of when the potential nadir would be, is really dependent on the pace of development. We're gonna continue to invest in green fields, but to do that many in a short period of time.

But getting to your 12 to 14 million of adjusted EBITDA guidance for the year would imply that you're going to generate at least 7 and a half million, you know, and up to nearly 10 million in a just leave it got in the back half of the year, which would require kind of a margin improvement in the back half of the year. So...

You know, in terms of just giving us a little bit of confidence around that, presumably you would see some sort of inflection here in the back half of the year, is that there?

This function.

Yes, some tailwinds that you'll see in the second half of the year are the continued benefits of our price increase. The more new patients that roll on to that higher price point will certainly have an advantage for us. And then also the fourth quarter are two of our heaviest promotions, which really help boost from a franchise margin perspective, which is just a natural kind of reoccurring phenomenon for us just in our promotional calendar. So I think those two things with...

our continued dual strategy. We're gonna continue to invest in green fields and we're gonna continue to target accretive acquisitions, the same that we always have. So I think all those we're taking into account when reaffirming that guidance for the year.

Last one for me. Looking at it further.

If you did 32, company operated last year, you're looking for 30 to 40 this year, is that probably a fair number to think about as you look towards 2023? Or is there something where there's going to be a meaningful change either up or down to that range that you've been in now for the last couple of years?

As of right now, we see nothing that changes our strategy. We'll continue to invest in the unit growth, and we're still seeing the clinics ramp strong and contribute strong as they go on to mature. So while we don't give any forward guidance for 2023 to this point, we're not seeing anything that would cause us to deviate from our strategy.

Got it. Thanks so much for answering the questions. That's wishes.

Thanks so much for answering the questions. Best wishes. Thanks, Jeremy. Thanks.

Next question comes from Jeff van Sinderin with Be Rightly. Please go ahead.

Hi everyone. You know, I guess one thing I want to start with, is there any more color you can give us on sort of the underlying KPIs or my new customers, retention, average size of packages purchased?

And then I guess plans to further improve those metrics in second half, obviously Q4, you do run a big problem out. And then I guess overall impact around your thinking. And then I guess overall impact around your thinking.

or overall impact from a slower consumer discretionary environment in general.

I'll start, Jeff and Peter, you can layer on. As I think about three of our core metrics, new patients, conversion, and attrition, as we look at the kind of phenomenon through the second quarter, again, we mentioned it in the script, new patients continue to be strong, although they're lower than we saw during Q2 2021. So I think we've got a little bit of a headwind as it relates to the new patients. And while they're still healthy, it's down.

year over year. As I look at the other two metrics, we're seeing favorable conversion, and we're seeing favorable attrition. And so those two are trending well for us in the second quarter. And those really are core items that we monitor in terms of the unit health and how we're continuing to grow our active member bases. So those are looking strong. We had the price increase that came into effect. March 1st, we've now got a number of months under our belt to see what that is looking like. And so we've got a number of months. And so we've got a number of months and so we've got a number of months. And so we've got a number of months. And so we've got a number of months.

And again, you know, similar to our previous increases, those KPIs are holding up for us. And so, you know, we mentioned the Google changes that we continue to work on. We're seeing those SEO and organic search numbers continue to rebound, which I think will help our new patient traffic into the third quarter and beyond. And we're looking for our clinic teams to continue to execute and keep those conversion and attrition metrics strong.

No, I think that's absolutely right. And I think to answer your question about the impact of slowing consumer confidence or recession or whatever we're talking about is that obviously, I don't know if we're there or not, but you can see in our continued performance of the quarter is that you would say that it certainly doesn't feel like it's impacting us in any measurable degree. As I think about going forward and if we truly go into a recession and you have that consumer who's tightening their belt and really making choices about what you're going to do with that discretionary impact.

that our patients saw their healthcare through getting their chiropractic care was essential to their health.

So when I think about some pending recession or what that's going to impact, we know that affordability is essential to this brand.

And we talk about our ideal family income somewhere between 50 and 105,000. And I think if we look at the bottom of that funnel, as people are tightening up their belt, would we expect to see some fall out there? I think so. But I think this also opens us up on the higher end of that funnel because historically for that higher income family that is paying that 75 or $150 for an adjustment and as they're tightening their belt, I could imagine them asking themselves, well how bad could be that $29 adjustment at the joint?

the level of improvement that you're seeing in the corporate owned clinics, the performance metrics there versus maybe franchise performance. I'm just wondering if we've gotten back to where the corporate clinics are performing above the franchise clinics. And I guess along those lines, what other initiatives do you have planned to improve corporate on performance to get that metric, I guess at the highest level you possibly can?

Sure. And what I would say, Jeff, is that absolutely, is that we want the whole system to perform well, but we compare ourselves to each other. When I look at those three metrics that Jake mentioned, our new patient counts, our conversion and our attrition, and I compare the improvements made by the franchise clinics compared to the corporate units, in all three instances, we were higher in our performance in the corporate portfolio than the franchise. Now, where we are still seeing a difference is our corporate portfolio is underperforming compared to the franchise when we look at comps.

improved performance on the clinic level. And I would expect that to continue to perform as we go through the rest of the year.

Okay, if I could just squeeze in one more and you may not want to answer this question, but as you're looking forward and kind of looking at your model and the number of corporate clinics you'll have new greenfield openings.

Any thoughts on when you anticipate year over year inflection in EBITDA for the whole company?

I'm not sure I understand the inflection in EBITDA for the consolidated company.

Yeah, correct. Yeah, I'm just trying to get a sense of when you think, we'll see obviously there's pressure on expenses with more corporate, you have, you know, you're opening more greenfield. Don't you think we sort of get back to a trend of running a, let's call it adjusted EBITDA, sort of positive year over year, I don't know, I don't know how to go on basis.

Sure, yeah, and again a lot of that is dependent on the continued greenfield development. That's going to be a consistent phenomenon in this model and I just can't stress it enough. The clinics take time to ramp. So if we're continuing to invest in those and certainly investing in new markets, there's an amount of infrastructure that goes with that. We just announced that we opened up the Kansas City market and we'll continue to invest in our infill markets and new markets. And with that it takes time to scale.

And so, you know, as we've developed the model and as we look at the pace, you know, there will be a near-term suppression as we continue to work through those, you know, greenfield development and those early working capital losses. You know, where you get the inflection points is at any time, we have the ability to slow the pace of that development and just let those clinics continue to mature and, you know, looking at the pro-former ramps and how they're starting. You know, we still expect those same four-while-margin potentials that we've seen.

And as you build out and develop out your clusters, you get the leverage from your field overhead and all the infrastructure investments that you've made. And that's always a lever that we have at our disposal. But really, when is that inflection point until we signal that we're slowing the pace of that development, you're gonna continue to see the phenomenon. It's really just dependent on how quickly we go and how much of that is dedicated to Greenfield pace.

Okay, fair enough. Thanks for taking my questions and best of luck to the rest of the quarter.

Thanks, Jeff. Thank you very much. The next question comes from Brookstone, Neil with Lake Street Capital. Please go ahead.

Thank you, good afternoon. You guys always provide such comprehensive information.

Well, we really appreciate it out here, but I guess one piece that I'm not sure I heard or I probably missed in your conversation is kind of the time to break even that you're seeing with these no corporate stores. That you're seeing with these no corporate stores.

I personally think that's one of the most notable positive things about your performance.

How's it going out there now?

Yeah, great, great question, Brooks. We continue to see similar performance that we talked about in the first quarter. The top line is performing to expectation. We have a great grand opening, marketing plan in place. Our operational execution in the early months is really strong. We continue to learn things from our great franchise operators. So our top line performance is there, and we're attracting a lot of interest in the early months of these clinics. Same thing that we said in the first quarter is we continue to see the wage pressure. The DCs and the WC wages.

around today.

Yeah, that's great. I'm glad to hear that. I'm sure you're really pleased to see it as well. But let me ask one more. Obviously, for a number of years that I've followed, you guys, Orman, you've delivered just unbelievable comp-store sales growth.

Obviously in the last couple quarters the numbers.

are still tremendous relative to the rest of the world, but they're...

than they have been historically. Why don't you just talk a little bit about

you know what's going on there and maybe if you would, what do you think we should expect to see over the next few quarters of the next year for whatever time, Grim, you'd like to talk about.

Sure, and as you know, we don't guide on our comps and you're absolutely right. If we look at Q2 with the 8%, if I was any other company but us, they'd be wildly happy about it. And for us, it's like, wow, only 8%. Right.

But I also think you have to put it into a context, is that we had a record breaking Q2 2021. And if you do like a two year stack comp, it's almost 60%. So what we're doing in all of these numbers is we're measuring performance of Q2 2022 compared to Q2 2021 is that we are overcoming one of the strongest quarters in the history of this company. And even in that case, you're seeing growth virtually in every one of those numbers, which gives us confidence of our moment.

continuing to support those comps as we go forward. We see continued interest in the business, attracting those new patients, which continues to help build the business of all of our clinics, so that we are, you know...

Strong, and I believe in the momentum that will continue to fuel the growth of this business.

Great. Thank you very much for taking my questions.

Thank you.

The next question comes from George Kelly with Rose Capital Partners. Please go ahead.

This question comes from George Kelly with Rose Capital Partners. Please go ahead. Thank you.

Have everybody, thanks for taking my questions.

So first, I wanted to just revisit one of the last questions that you just answered about the ramp. Could you quantify just how many months is it at this point as you're looking at these recent openings, going back over the last few quarters?

What win is the break even? Is it still around six months? Is it still around six months?

And what is the amount if you could quantify that just that's invested in that until break even? Sure, yeah, and it really depends on how quickly they ramp in terms of a quantified total impact in terms of time to break even on a gross dollars basis. You're right, historically we were seeing around that six month timeframe. I think with the additional cost, you're probably looking at seven to eight month timeframe. So that's that one to two month slide.

that I was talking about. We used to see break evens on a monthly basis around 25,000 a month maybe. That's probably 27,000, 30,000 a month now. Again, you're not talking about a half a year later it's taking. It's really just a couple months to get to that break even point. I think it's probably around seven, eight months at this point.

Okay, and so maybe all in and somewhere in the neighborhood of 100 and 110, 120 grand that it takes to get to that break even.

Yeah, it really just depends on a 12 month basis. You're probably looking at 75,000. So that's them incurring. You've kind of the swath of losses in the earliest months. And that dwindles as you reach that break even point. And then you get some offset. And the second portion of that year, as you've turned the corner from a break even perspective. But again, it really just depends on how quickly clinics are ramping in terms of how much accumulated losses they're seeing. But on an annualized basis, it's probably somewhere around that $75,000, $80,000.

Okay, great. And then I wanted to follow up on pricing. It seems like it, but just sort of make sure that I, or confirm that I heard you right on it. You're really not seeing much of a negative impact from the pricing increase as far as on transactions or volume. I mean, why should I not read into the commentary about new patients being a little weaker than expected and think that there's been pressure from pricing? Is there a way for you to kind of isolate pricing when you were testing?

Yes, sir, and we've looked at it and we've looked at it in the past when we've done the last time we did a full national price increase was 2016 and then we did those market adjustments in 2019 and when we're looking at the metrics that that new patient count the conversion the tuition Overall, we saw that the price increases were either neutral or positive to the business and that in the analysis We've done so far since the price increase since in March 1st we're finding the same thing our tuition is actually improving our conversion is actually improving

And when we talk about the new patient count being down a little bit, I think we associate far more with the organic search of algorithm, or the algorithmic change with Google Made impacting our organic search.

than a patient not taking a membership because of the higher price increase.

So that's what our data would show us.

Yeah, and another layer to that, George, is not every clinic in our system moved. We had some that had benefited from a market adjustment fairly recently, so not all of our clinics moved. So we actually had a static control group where we could look at their KPIs as well and kind of give us a basis to how clinics that changed are performing versus clinics that did not have a price change, and we're seeing very similar results. So to me that indicates that there's some more macro issues or search issues versus...

through representation from price increases. Okay, and then last question for me is on your

the wellness coordinators and other employees, the chiropractors and regional managers. Do you, I know that there's been a lot of discussion for the last few quarters just about turnover and you know, retaining employees and challenges there and changing pay. Is it feeling more stable or is it still kind of something you're having to adjust to, you know, all the time? It's still tough.

It's a tough market. We have to start with that. I've never been in a market that is so employee-positive. If you're looking for a job, but there's no question that we have seen improvement. We talked about that with the DCs in terms of making the pricing, are their compensation changes in August of last year. We have seen a drop in that turnover rate and we're continuing to see a stabilization in that area. So we're not done, but we're feeling positive about that.

We are a little slower to work with the WCs. We've made those changes earlier this year. And again, while we want to continue to see that turnover rate come down, is that we have significantly improved compared to where we were, let's say, in Q421. So...

We are laser-like focus on this issue. You know, it's very essential for us as we continue to make our performance or clinics, but we are definitely seeing improvements to the perspective of our camera.

Okay, thank you.

Next question comes from Anthony with maximum growth. Please go ahead.

Thank you. So it's just, you know, So it's just, you know.

in this current environment, you know, whether we're

inter recession or we might not do one. You know through Covid.

You didn't have any any issues at all. It seemed like

you know, certainly throughput through your clinics didn't decline at all. If we were to go into a recession, have you done any studies or you have any data to show what the impact would be to your centers, or what do you anticipate the impact to be if you go into a recession?

Well, I mean, sure, the answer is that this company's never actually gone through a recession, so I don't have any data or experience to say, okay, this is what we would, you know, what we experienced when we saw this level of recession, and so that we could extrapolate to expect that. In this one, this, and you're absolutely right. I don't know for an recession. We've had two quarters of the negative growth, but very minor. And most recessions in my career are also associated with a high unemployment in your note, same two quarters. That was 3.6 out of...

we come with that we face with the recession and how deep it is and how long it is. I feel that the

The nature of our service, being so essential to helping people get out of, to relieve their pain, feels like it will take a precedent over all other discretionary choices that they're going to be making....

And so I think that...

We would expect to see, like in the pandemic, we would be less impacted by a recession than certainly other kind of retail concepts that we track. And certainly other kind of retail concepts that we track.

That's kind of what I thought, Peter, but just if it were to happen and you did see some pullback, as you're going through your planning, because there's obviously a planning stage and there's a build out of some of these corporate own centers, how much flexibility do you have to pull back on the green fields would it take months to do that, because it's months in the planning session.

Just give us a little bit of color and look at that.

Sure, so if we're going into recession, we're in an environment or in a space where we really want to preserve cash, and we think, okay, what are the things that we do to manage our cash or utilize our cash, one of the first things is acquisition. And that's 100% discretionary, and that you can turn it off with a dime. And boom, so that's easy. You're right, the green fields do have a longer tail, because you're going through that site selection, you're getting up to lease negotiation, you're going to find the LOI, once you have that, you're going to find the LOI, once you have that, you're going to find the LOI, once

losses until we get to break even. And if you look at 2020, that's exactly what we did. What, not none of us assuming that the pandemic was going to hit, in March 20, we had, or let's say January 20, we had plans of opening a fair number of greenfields that the pandemic hit. We said, you know what, we need to preserve cash. And you saw that we did, you know, so that we, we drew down on a line of credit. We slowed down our greenfield. I think we opened up one greenfield in 2020. And then we picked it back up in 2021 when we saw, okay, you know, what we can get through it. We're not some lovers there to protect.

shade over 90% is that is that is that a good base to go off or is it going to fluctuate in the in the very high 80s to this 90% or so.

Now I think it's fairly representative. Most of our clinic level costs are down in G&A. And so really the components of cost revenue for us on the consolidated basis are relatively predictable. We are seeing continued web hosting costs, which we put into that line, just as our platform scales and the amount of data that we have. But I think as a percentage of sales, I think it's pretty representative.

Excellent, thanks. I'll jump back into you. Thank you. Thank you. This concludes our question and answer session. I would like to turn the conference over back to Peter Hold for any clothing remarks.

I want to thank everybody for their time today. Before I close, I'll share a few comments from an expanding franchisee who was named our Joint Rookie of the Year Award in 2021. He owns multiple businesses, including several franchise concepts and a real estate brokerage. After he and his wife visited the first joint, he decided immediately to buy a franchise. He stated, the joint is in line with my vision of health and wellness. It is a straightforward business model and the management was easily available to address all of my questions, making the process very quick.

He set to open his first clinic in March of 21 and the middle of the pandemic. He encountered external setbacks. And however, the franchise decided that the proactive support from the joint team led him to push ahead. He also noted that the joint concept is highly scalable and easy to set up due to the support system. Now he's preparing to open up his second clinic in the fall of 22 and is third in 2023. The next clinic is in the fall of 22 and is third in 2023.

open his first clinic in March of 21 and the middle of the pandemic he encountered external step-backs and however the franchise decided that the proactive support from the joint team led him to push ahead. You also noted that the joint concept is highly scalable and easy to set up due to the support system. Now he's preparing to open up his second clinic in the fall of 22 and is third in 2023. Thank you so well Justin.

Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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Welcome to the Joint Corps, 2nd quarter, 2022 financial results conference call. Our participants will be in a recent lonely mode.

Should you need any assistance, please sign up a conference specialist by pressing the star key followed by zero.

After today's presentation, there will be an opportunity to ask questions.

To ask a question, you may press the pardon one on your telephone keypad. To withdraw your question, please press the pardon two. Please note this event is being recorded. I would now like to turn the conference over to David Barnard with LHA Investor Relations. Please go ahead. Thank you, Victoria. Good afternoon, everyone. This is David Barnard of LHA Investor Relations.

On the call today, President and CEO Peter Holt will review our 2nd Quarter 2022 Performance Metrics and provide an update on the business.

CFO Jake Singleton will detail our financial results and guidance.

Then Peter will close with the summary and open the call for questions. Please note we are using a slide presentation that can be found at TTSIR.TheJoint.com under events.

Today, after the close of the market, the joint corporation issued its financial results for the quarter end of June 30, 2022. If you do not already have a copy of this press release, it can be found in the investor relations section of the company's website.

As provided on slide 2, 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 four 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 different materially from the statements we make today.

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, short and business hours and reduced patient demand. Inflation, exacerbated by COVID-19 and the current war in Ukraine, our failure to develop or require a company-owned or managed clinics as rapidly as we intend, our failure to profitably operate company-owned or manage 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 result in class action lawsuits, our 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, prevent fraud, and reduce our risk of fraud. Thank you for watching.

or maintain investor confidence and other factors described in our filings with the SEC, including in the section entitled Risk Factors in our annual report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 14, 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 discussion of these factors and other risks that may affect our future results or the market price of our stock.

Finally, we are not obligating ourselves to revise the results or publicly release any updates to these four-licking statements in light of new information or future events.

Management uses EBITDA and adjusted EBITDA, which are non-GAAP financial measures. These are presented because they are important measures used by management to assess financial performance. Management believes they provide a more transparent view of the company's underlying operating performance and operating trends than GAAP measures alone. Reconciliation of net income to EBITDA and adjusted EBITDA is presented in the press release.

and adjusted EBITDA, which are non-GAAP financial measures. These are presented because they are important measures used by management to assess financial performance. Management believes they provide a more transparent view of the company's underlying operating performance and operating trends than GAAP measures alone. Reconciliation and net income to EBITDA and adjusted EBITDA is presented in the press release. Reconciliation and net income to EBITDA and adjusted EBITDA and adjusted EBITDA and adjusted EBITDA. Reconciliation and net income to EBITDA and adjusted EBITDA and adjusted EBITDA and adjusted EBITDA.

The company defines EBITDA as net income or loss before net interest, tax expense, appreciation and amortization expenses. The company defines adjusted EBITDA as EBITDA before acquisition related expenses, bargain purchase gain or net gain or loss on disposition or impairment and stock based compensation expenses. Management also includes commonly discussed performance metrics. System wide sales include revenues at all clinics whether operated by the company or by franchisees. While franchise sales are not recorded as revenues by the company.

Management believes the information is important in understanding the company's financial performance because these sales are the basis on which the company calculates and records royalty fees and are indicative of the financial health of the franchise base.

Comp sales include the revenues from both company owned or managed clinics and franchise clinics that in each case have been open at least 13 full months and exclude any clinics that have been closed.

Turning to slide three, it is now my pleasure to turn the call over to Peter Holt.

Thank you, David, and I welcome everybody to the call.

During the second quarter of 2022, our growth momentum continued. Before I go into greater detail, I'd like to welcome our new and returning investors, in addition to our existing shareholders. As you know, the joint is revolutionizing access to chiropractic care by providing affordable, concierge-style membership-based service in convenient retail settings.

We've had a huge addressable market in both side and opportunity. First, the joint accounts for only 2% of nearly $18 billion spent annually in the United States on carpet to care. Next, our system provides the most robust environment for carpet to clinics to excel financially, demonstrated by our research comparing average collections of independent practices to average sales of our clinics in our network.

In addition to our strong unit economics, our hybrid business model continues to position us for long-term growth.

Our corporate clinics will drive long-term bottom line improvement. Our franchisees will continue to fuel our expansion in a capitalized fashion. As we increase our scale in presence, bringing us closer to our interim goal of the 1000 clinics, our national brand awareness also increases.

adding further momentum to our expansion.

That said, it's important to reiterate our commitment to responsible growth, which means our highest priority remains maintaining our high standards and providing quality patient care.

To that end, we closely monitor clinic performance. As discussed during our Q1 2022 earnings call, with a large influx of greenfield openings in late 2021, coupled now with our managing a portfolio of over 100 units, we experienced a temporary negative impact on our corporate clinic portfolio and we took shifts.

Swift action. We've sharpened our focus on supporting our doctors of chiropractic and our wellness coordinators, and we've strengthened our oversight of our corporate units. As a result, we delivered improved Q2 2022 clinic performance compared to Q1 2022.

Turning to slide four, I'd like to review our financial highlights for Q2 2022 metrics compared to Q2 2021. I'd like to review our financial highlights for Q2 2021.

Jain Colts discuss the results in greater detail in a moment. System Y sales grew to $106 million, increasing 21%.

Our comp sales for clinics that have been open for at least 13 full months grew to 8%.

Revenue increased 24%. The majority of the dollar was $2.6 million.

And at the end of June 30, 2022, our unrestricted cash was $9.4 million compared to $19.5 million on December 31, 2021.

reflecting our strategy of investing in our corporate clinic portfolio, as well as our acquisition of regional developer territory rights.

Turning to slide five, again, Q2 performance improved compared to Q1 2022. It also compared well to Q2 2021, especially when taken into consideration that that quarter delivered record breaking performance due to our an exceptional rebound from COVID and capture a pent up demand in both clinic openings and franchise license self.

Regarding clinic expansion during Q2 2022, we open 34 clinics, POP from 31 clinics in Q1 2022. At the 34 opening Q2, three were green felt clinics.

and 31 were franchise clinics. Also, during Q2, one franchise clinic closed, compared to none in Q2 2021.

The joint continues to have very low clinic closure rates as less than 1% annually.

In Q2, consistent with our growth strategy, we open the three green-filled clinics in Arizona, Virginia, and New Mexico, which have increased our presence in existing corporate clusters. Year-to-date in 2022, we open 65 clinics, 58 franchises, and 7 green-filled.

This compares to 54 openings in the first six months of 2021 that consisted of 48 franchises and six screen fields.

Also in May, we acquired four previously-franded child clinics. A multi-unifrended ID with clinics in both Arizona and California wanted to consolidate their clinic ownership to California and thus creating the opportunity for us to buy their high performing mature clinic in Arizona.

This expanded our headquartered region cluster to 24. Easily incorporated into the portfolio, these clinics improved our corporate clinic operating margin and were immediately accretive to our bottom line.

The purchase price of $5.8 million reflected the strength of these clinics and was in line with previous acquisition valuations.

In summary, at June 30th, 2022, we had 769 clinics in operation, consisting of 662 franchise clinics and 107 company-owneder managed clinics, maintaining a portfolio mix of 14% corporate clinics to 86% franchise clinics.

At the end of the quarter, we also had 270 franchise licenses in active development, compared to 283 on 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 ongoing increased interest in our franchise system.

Subsequent to quarter end, we have completed several more transactions that built upon our Clustered Location Strategy. We acquired three previously franchise clinics in North Carolina and one clinic in Scottsdale, Arizona.

We also opened up one Greenfield clinic in California and our first two Greenfield clinics in Kansas City, which is a new market for us where we expect to expand to at least five clinics in a relatively short period.

This increase our corporate portfolio to 114 clinics as of August 4th, 2022. Turning to slide six in Q2 2022, we sold 24 franchise licenses up from 22 licenses in Q1 2022, compared to 63 in Q2 2021. Year to date, 2022, 46 licenses were sold, and 67% by redone developers.

This compares to 89 licenses sold in the first six months of 2021. As of June 30, we had 19 RDS supporting 67% of our franchise clinics. Their territories covered 55% to the metropolitan statistical areas or MSAs. The

The aggregate 10-year minimum development schedule for our new RD territories established since 2017 with 640 clinics as of June 30.

Keep in mind that a portion of this clinic count is already opened, but the remaining unopened clinic still provide a large foundation to fuel our continued clinic expansion and sales growth. Our R.D. program continues to deliver accelerated expansion.

However, under certain circumstances and when territories mature, we'll acquire our new territories.

In April , we purchased the rights for the Northern California for $2.4 million.

Our model indicates that the region has a potential for 75 clinics. Already 20 franchise clinics are in operation and 36 sold licenses are in active development. This leads room for another 19 sites for future corporate or franchise clinic development. In May, we hosted our National Francis Conference with the theme Align 22.

During this well-attended event, we aligned our strategies and our tactics, celebrated our successes and culture, a shared our latest research, listened to inspiring industry and business visionaries, and continued developing future leaders of our growing, carpractic movement. The future leaders of our growing, carpractic movement.

There were multiple noteworthy takeaways and I'll share some of the compelling research that we reviewed during that event. Turning to slide seven according to FranData, which analyzes the franchise landscape of approximately 3,500 franchise businesses in the United States today, only 4.9% have more than 500 units. Even more notably, only 94 brands, approximately 2.7% have grown to over a thousand units and benefit from the significant brand awareness that that creates.

According to the 2022 essential guide of pricing business in French AZ, the joint is an elite French A system and based on analysis of the French AZ sales price, our clinics garner higher valuations than the majority of French A's concepts, further enhancing the attractiveness of our French A's offering. Turning to slide 8, we also evaluated data from the annual CarPractic Economist Compensation Survey comparing two alternatives available to car pressures, becoming an independent practice or joining the franchise of joining our franchise content.

According to the survey, the average independent practitioner collected about $264,000 in per clinic in 2021.

By comparison, in 2021, the average gross sales per clinic of the joint was 2.3 times greater at almost $600,000.

Further, the studying the data from 2017 to 2022, independent clinics billions decreased 14%, and collections decreased 11%. While the average growth sales per joint clinic grew 76%. Turning to slide nine, during our national conference, we were also presenting awards to our high performing clinics. The number of 2021 bronze, silver, gold, platinum, and diamond honorees grew markedly over 2020. In 2021, 308 clinics achieved sales greater than $550,000. In 2021, 308 clinics achieved sales greater than $550,000.

and the positive cycle repeats itself.

It also illustrates that our clinics have more room to expand their patient base, creating additional clinic value as well as overall enterprise value.

Turning to slide 10, let's review our marketing efforts. In Q2, we continue to leverage our growing scale and resources by investing in brand building and lead generation at the national, regional, and local levels. This tiered approach provides clinics with a degree of marketing support and sophistication that is unprecedented in car practice.

It also enables us to test tactics before they're added to the toolkit for individual clinics. Nationally, we're consistent advertisers and multiple digital marketing platforms.

Regionally, many of our co-ops invest in broadcast media and sports sponsorships, such as our June announcements with the North Fork Tide and minor league baseball team.

Locally, our clinics nurture prospects within their own trade areas by utilizing our proven local marketing tactics.

This support, combined with the power of our data from millions of patient transactions, provides clinics with a significant competitive advantage in attracting new patients.

Another facet in the development and management of our online marketing strategy, which is essential for reaching millennial and Gen Z consumers seeking solutions for pain relief.

One challenge we navigate is adapting to Google's frequent changes in their search algorithms, which can impact our online visibility.

Such a change occurred in late 2021 and continued to negatively impact organic search traffic into Q2. While our new patient acquisition remains exceptionally high when compared to historic levels, we've been implementing changes to our search engine optimization activities across the network. As a result, our July online traffic improved, which indicates our new patient acquisition pipeline is increasing.

In June , we executed our annual Summer Cell Direct Marketing Promotion, where we targeted LAPS patients with a limited time offer to restart their membership with the joint.

We achieve the highest number of conversions per clinic and the highest ever conversion rate is the promotion with a five year history. The first time we have a conversion rate is the promotion with a five year history.

The success of the summer sale once again demonstrates the potential growth in marketing to our own database as well as the progression of our digital marketing tactics which we expect to further leverage with the harness of the power of our data enterprise initiative.

And with that, Jake, I'll turn it over to you. Thank you, Peter, and turning to Slide 11. I'll review the financial results for Q2 2022 compared to Q2 2021, which as Peter mentioned was a record-breaking quarter benefiting from demand built up during the early part of the pandemic.

System-wide sales for all clinics open for any amount of time increased to $106 million, up 21%.

System-wide comp sales for all clinics open 13 months or more were 8%.

System-wide comp sales for mature clinics open 48 months or more, or 3%.

It's worth noting that both the franchise and corporate clinic cohorts comped positively, and we look forward to growth.

as the impact of our price increase continues to come into effect.

Revenue was $25.1 million, up $4.8 million or 24%. Company owned or managed clinic revenue increased 27%, contributing $14.5 million. They have lowered $10.3 million.

Franchise operations increase 20%, contributing 10.6 million dollars.

The increases represent growth in both the corporate portfolio and the franchise base.

On March 1st, we implemented a price increase in the majority of our clinics. However, existing patient memberships are currently grandfathered at their original price.

Therefore, the revenue impact from the price adjustment will be gradual and incremental.

Cost of revenues was $2.4 million, up 19% over the same period last year, reflecting 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 $3.8 million, up 23% over the same period last year, driven by an increase in advertising fund expenditures from a larger franchise base, and an increase in local marketing expenditures by the company undermanage clinic.

Depreciation and amortization expenses increase compared to the prior year period, primarily due to the depreciation expenses associated with our new IT platform and continued Greenfield development.

G&A expenses were $16.5 million compared to $11.6 million, up 42%, reflecting the cost to support total clinic and revenue growth, greater IT expenses, higher payroll, including the increase in salaries for DCs, which began in the latter half of 2021, and for wellness coordinators, which continued through the second quarter of 2022.

all these to remain competitive in the tight labor market. As noted previously, our pace of greenfield openings will increase GNA as a percentage of revenue over the next several quarters, and we'll also compress earnings.

As a result, we reported an operating income of $473,000, which reflects the compressed margins from accelerated greenfield development, the aforementioned higher depreciation, and higher G&A expenses. This compares to $2 million in Q2 2021.

Income tax expense was $109,000 compared to a benefit of $666,000 in Q2 2021. Net income was $345,000 or $2 cents per diluted share. Compared to net income of $2.7 million or $18 cents per diluted share in Q2 2021.

Adjusted EBITDA was $2.6 million, compared to $3.8 million for the same period last year.

Franchise clinic-adjusted EBITDA increased 13% to $4.4 million. Company-owned or managed clinic-adjusted EBITDA was $1.8 million. While the Q2 2022 margin for corporate clinics has improved over the Q1 2022, compared to Q2 of last year, it decreased $1.2 million, reflecting the margin compression related to the greenfield development and higher payroll expenses.

Corporate expenses, a component of adjusted EBITDA loss, was $3.6 million, increasing $433,000 compared to Q2 2021. The increase in $433,000 compared to Q2 2021.

On to our balance sheet and cash flow review. At June 30, 2022, our unrestricted cash was $9.4 million, compared to $19.5 million at December 31, 2021.

During the first half of the year, our investing activities of $11.4 million consisted of the acquisition of RD territory rights, branchized clinic acquisitions, and continued green field developments, which were partially offset by $1.5 million provided by operating activities.

our investing activities of $11.4 million consisted of the acquisition of RD territory rights, franchise clinic acquisitions, and continued greenfield developments, which were partially offset by $1.5 million provided by operating activities. On to slide 12.

I'll review our results for this first six months of 2022 compared to the same period in 2021.

Revenue increased 26% to $47.5 million, and adjusted EBITDA was $4.4 million, compared to $7.2 million in the prior year period, reflecting the compression of earnings by the influx of new corporate greenfields clinics and higher payroll expenses associated with the tight labor market. On to slide 13.

We are reaffirming all elements of our guidance for 2022. We continue to expect revenue to be between $98 and $102 million. The midpoint is up 24%, compared to the $80.9 million in 2021. The midpoint is up 24%, compared to the $80.9 million in 2021.

We continue to expect adjusted EBITDA to be between $12 and $14 million compared to $12.6 million in 2021. We continue to expect franchise clinic openings to be between 110 and 130 compared to 110 in 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. This compares to 32 in 2021.

And with that, I'll turn the call back over to you, Peter. Thanks, Jake. Turning to slide 14. As noted, our hybrid business model has supported our long-term growth through various market cycles, and our momentum continues as demonstrated by our performance.

Even though we're all experiencing macroeconomic issues outside of our control, we continue to focus on what we can manage. And for 2022, our three enterprise initiatives are to forge the carpatic dream, harness the power of our data, and accelerate the pace of our clinic growth. With an eye for long-term benefits, we are implementing these independent programs simultaneously. First, we want to become the career path of choice for DCs, while we're improving our team members' experience by enhancing their culture and providing training and benefits and increased compensation. Our ?? you

Forging the car-packed dream will help us differentiate ourselves as an employer in a very tight labor market. We're distributing new recruitment materials and evangelizing our system.

Our team is also deepening our relationships with chiropractic universities and associations to educate current and future DCs. Today, we are excited about a reception inroads we're making in this crucial area.

Next, we want to make sure our information is more accessible and actionable by decision-makers by harnessing the power of our days.

This includes development of a data warehouse and enable more real-time self-service reporting of capabilities at the corporate office and in the field. This also includes advancement in marking automation and development of our mobile app with direct patient engagement.

And finally, we want to increase our long-term return on investment for franchisees, employees, and shareholders by accelerating the pace of our clinic growth. As emphasized in my earlier comments, we are committed to responsible growth and can mock and closely monitoring the system to ensure we uphold a clinic performance standard.

Yet, our clinic development timeline, yet we can implement tactics to support this expansion by shortening our clinic development timeline, enhancing regional support, evaluating nontraditional site options including rural, urban, micro, military, and even international locations, and increasing national brand awareness. Turning to slide 15, I'm confident in our ability to drive long-term growth in stakeholder value. Victoria, I'm ready to turn it over for Q&A.

Thank you. We will now begin the question and answer session. So I have a question, email press this card, and then one on your telephone keypad. I will now begin one on your telephone keypad. I will now begin one on your telephone keypad.

If you are using a sticker phone, please pick up your hand pad before pressing the keys.

So we've to draw your question, press the card and choose. At this time, we will pause momentarily to assemble our roster. Thank you.

The first question comes from Jeremy Humbly with BRIEEC capital. Please go ahead.

Thanks for taking the questions. So I wanted to start with a comment you made about Google search, traffic, data, and improvement on your algorithms and your working with the changes in their service. I think you noted that you saw an improvement in your

I found traffic into your website over the last several months.

How would you characterize that? Would you say maybe March was kind of a low point in that? You've seen continuous improvement, or are you seeing something more specific to, let's say the last 30 to 45 days? Well, when we look at this, Jeremy, thank you for the question. And we all know how important our digital marketing campaign is to our new patient count. As we talked about on the last quarter, is that we can identify at least 63% of our new patients at some point touch.

And so what we saw was...

particularly in the month of July , because we were probably down compared to last year around 20% with this impact. And when we look at July , we really saw that significantly increasing. We haven't hit where we were last year, but we're believing that the changes that we're making working through our franchise system, that we are in fact seeing an increase now in that digital lead of patients.

the month of July , because we were probably down compared to last year, around 20%, with this impact. When we look at July , we really saw that significantly increasing. We haven't hit where we were last year, but we're believing that the changes that we're making, working through our franchise system, that we are in fact seeing an increase now in that digital lead of patients. Okay, great. That's helpful.

Understanding the margins here, right? And you're going to continue to see, you know, G&A costs that are higher, sales and marketing costs that are higher, you know.

Some of the acquisitions that you've made over the last four or five months. I think you noted how you characterize it on the call was that it would be several quarters in which you would see margin, headwind and GNAD leverage. You know, with the benefit now of being more than halfway through 2022, do you have a better sense of when you think that, you know, inflection or that headwind might.

you know, kind of bottom out and you start to see margins or in particular GMA start to reflect positively and gain some leverage. Yeah, another good question, Jeremy. I think it's really dependent on the cadence of our Greenfield development. You know, when you put in 13, 14 clinics in the last 100 days of 2021, you're gonna have a very significant suppression, you know, in the quarters where they're, you know, still in their working capital loss period. So, you know, you know, you know,

I think it's somewhat dependent on the pace of our greenfield development. I think you've seen in the first couple quarters that that pace has softened from what we saw at the back half of 2021. And in turn, you're seeing the clinics continue to mature and you're seeing those margins expand, which is exactly kind of what we would expect as they go on to mature and reach those break-even points. As we mentioned in previous calls and continue to see, the clinics are still starting strong and they're performing to what we would expect from a pro forma ramp perspective. So I think part of that in terms of when the potential nadir would be is really dependent on-

and expansion start to come back.

So, but getting to your 12 to 14 million of adjusted EVITDA guidance for the year, you know, would imply that you're going to generate at least seven and a half million, you know, and up to, you know, nearly 10 million in adjusted EVITDA in the back half of the year, which would require, you know, kind of a margin improvement in the back half of the year. So...

You know, in terms of just giving us a little bit of confidence around that, presumably you would see some sort of inflection here in the back half of the year, is that fair?

Yes, some tailwinds that you'll see in the second half of the year are the continued benefits of our price increase, the more new patients that roll onto that higher price point will certainly have an advantage for us. And then also the fourth quarter are two of our heaviest promotions, which really help boost from a franchise margin perspective, which is just a natural kind of reoccurring phenomenon for us just in our promotional calendar. So I think those two things with...

you know our continued dual strategy we're going to continue to invest in greenfields and we're going to continue to target you know a creative acquisition the same that we always have so I think all those you know we're taking into account when when reaffirming that guidance for the year. Okay last one for me then you just looking at even a little bit further than you know if you're on you did 32 company operated last year you're you're discussing you're looking for 30 to 40 this year you know is that probably a fair

You know, number to think about as you look towards 2023, or is there something where there's gonna be a meaningful change either up or down to that range that you've been in now for the last couple of years? Yeah, as of right now, you know, we see nothing that changes our strategy. We'll continue to invest in the unit growth. And, you know, we're still seeing the clinics ramp strong and contribute strong as they go on to mature. So while we don't give any forward guidance for 2023, to this point,

We're not seeing anything that would cause us to deviate from our strategy. Got it. Thanks so much for answering the questions. Best wishes. Thanks, Jeremy. Next question comes from Jeff van Sinderin with Beat Riley. Please go ahead. Hi, everyone. I guess one thing I wanted to start with, is there any more color you can give us on the underlying?

I'll start, Jeff and Peter, you can layer on. As I think about three of our core metrics, new patients, conversion, and attrition, as we look at the kind of phenomenon through the second quarter, again, we mentioned it in the script, new patients continue to be strong, although they're lower than we saw during Q2 2021. So I think we've got a little bit of a headwind as it relates to the new patients. And while they're still healthy, it's down year over year. As I look at the other two metrics, we're seeing favorable conversion and we're seeing favor—

continue to work on. We're seeing those SEO and organic search numbers continue to rebound, which I think will help our new patient traffic into the third quarter and beyond. And we're looking for our clinic teams to continue to execute and keep those conversion and attrition metrics strong. No, I think that's absolutely right. And I think to answer your question about the impact of slowing consumer confidence or recession or whatever we're talking about is that obviously I don't know if we're there or not, but you can see in our continued performance of the quarter is that you would say that it certainly doesn't feel like it's impacting us.

in my life, there's the pandemic. And what we saw is that there's a remarkable resilience of this concept in that period. And that was truly driven by the fact that our patients saw their healthcare as a sense of healthcare through getting your car practic care was essential to their health. And so when I think about some pending recession or what that's gonna impact, we know that affordability is essential to this brand.

And we talk about our ideal family income somewhere between 50 and 105,000. And I think if we look at the bottom of that funnel, as people are tying up their belt, would we expect to see some fall out there? I think so. But I think it's also open on the higher end of that funnel because historically, for that higher income family, what that is paying at $75 or $150 for an adjustment, and as they're tying their belt, I could imagine the matching themselves, or how bad could be that 29-dollar adjustment at the joint?

the level of improvement that you're seeing in the corporate owned clinics, the performance metrics there versus maybe franchise performance. I'm just wondering if we've gotten back to where the corporate clinics are performing above the franchise clinics. And I guess along those lines, what other initiatives do you have planned to improve corporate on performance to get that metric, I guess at the highest level you possibly can?

And what I would say, Jeff, is that absolutely is that we want the whole system to perform well that we compare ourselves to each other. I look at the three metrics that Jake mentioned, our new patient count, our conversion and our attrition, and I compare the improvements made by the franchise clinics before compared to the corporate units, and all three instances, we were hiring our performance in the corporate portfolio than the franchise. Now where we are still seeing a difference is our corporate portfolio is underperforming compared to the franchise when we look at COMP.

Part of that is just the age of our overall portfolio compared to the age of the overall franchise system. There's also kind of a trailing component to comps as it relates to our membership. So we expected that to improve going forward. What gives me confidence is I think the changes that we made in these last six months and improving our onboarding, our training, our compensation, creating more of a connection to our employees and what we're doing on the field is that we are seeing improved performance on a clinic level.

And I would expect that to continue to perform as we go through the rest of the year. Okay. If I could just squeeze in one more, and you may not want to answer this question, but as you're looking forward and kind of looking at your model and the number of corporate clinics you'll have, new Greenfield openings, any thoughts on when you anticipate year over year inflection in EBITDA for the whole company?

I'm not sure I understand the inflection in EBITDA for the consolidated company.

Yeah, correct. Yeah, I'm just trying to get a sense of when you think we'll see. Obviously, there's pressure on expenses with more corporate, you're opening more greenfield. When do you think we sort of get back to a trend of running a, let's call it adjusted EBITDA, sort of positive year over year on an ongoing basis?

Sure, yeah, and again, a lot of that is dependent on, you know, the continued greenfield development. You know, that's going to be a consistent phenomenon model and I just can't stress it enough. You know, the clinics take time to ramp. So you know, if we're continuing to invest in those, and certainly investing in new markets, there's an amount of infrastructure that goes with that. We just announced that we opened up the Kansas City market, and we'll continue to invest in our infill markets and new markets. And with that, it takes time to scale.

And so, you know, as we've developed the model and as we look at the pace, you know, there will be a near-term suppression as we continue to work through those, you know, greenfield development and those early working capital losses. You know, where you get the inflection points is at any time, we have the ability to slow the pace of that development and just let those clinics continue to mature and, you know, looking at the proformer ramps and how they're starting. You know, we still expect those same four-while margin potentials that we've seen. And as you build out and develop out your clusters, you know, you know, you know, you know,

you get the leverage from your field overhead and all the infrastructure investments that you've made. And that's always a lever that we have at our disposal. But really, when is that inflection point until we signal that we're slowing the pace of that development, you're gonna continue to see the phenomenon, it's really just dependent on how quickly we go and how much of that dedicated to greenfield pace.

Okay, fair enough. Thanks for taking my questions and best of luck for the rest of the quarter. Thanks, Jeff. Thank you very much. The next question comes from Brookson Hill with Lake Street Capital. Please go ahead.

Thank you, good afternoon. You guys always provide such comprehensive information. Thank you.

Well, we really appreciate it out here. But I guess one piece that I'm not sure I heard or I probably missed in your conversation is kind of the time to break even that you're seeing with these no corporate stores. I personally think that's one of the most notable and positive things about your performance. How's it going out there now? Yeah, great, great question, Brooks. We continue to see similar performance that we talked about in the first quarter. The top line is performing.

If your top line is still performing strongly, again, we've got additional favorability that's coming from the price increase. The clinics that are opening now are all on the higher price points, which will continue to help that. So my pro forma model still looks very similar in the long run in terms of margin potential, and then certainly we're encouraged by all the starts and performing to top line ramp to date. Yeah, that's great. I'm glad to hear that. I'm sure you're really pleased to see it as well. But let me ask one more. Obviously...

For a number of years that I followed you guys orman you've delivered just unbelievable comp store sales growth

Obviously in the last couple quarters, the numbers are still tremendous relative to the rest of the world, but they're...

lower than they have been historically. Why don't you just talk a little bit about, you know, what's going on there and maybe if you would, what do you think we should expect to see over the next few quarters or the next year or whatever time frame you'd like to talk about?

Sure, and as you know we don't guide on our comps and you're absolutely right. If we look at Q2 with an 8%, if I was any other company but us, they'd be wildly happy about it and for us it's like wow.

But I also think you have to put into a context, is that we had a record breaking Q2 2021. And if you do like a two year stack comp, it's almost 60%. So what we're doing in all of these numbers is we're measuring performance of Q2 2022 compared to Q2 2021 is that we are overcoming one of the strongest quarters in the history of this company. And even in that case, you're seeing growth virtually in every one of those numbers, which gives us confidence of our momentum continuing to build. As we look at the performance of our portfolio, we believe again with it.

to fuel the growth of this business.

of this business. Great. Thank you very much for taking my questions.

Thank you. Next question comes from George Kelly with Roles Capital Partners. Please go ahead.

Hi everybody, thanks for taking my questions. So first I wanted to just revisit one of the last questions that you just answered about the ramp. Could you quantify just how many months is it at this point as you're looking at these recent openings, going back over the last few quarters?

When is the break even? Is it still around six months? And what is the amount, if you could quantify that, just that it's invested in that until break even?

Sure, yeah, and it really depends on how quickly they ramp in terms of a quantified total impact in terms of time to break even on a gross dollars basis. You're right, historically we were seeing around that six month time frame, I think with the additional cost, you're probably looking at seven to eight month time frame. So that's that one to two month slide that I was talking about. We used to see break evens on a monthly basis around 25,000 a month maybe. Probably 27, 30,000 a month now. So again, you're not talking about...

you know, a half a year later it's taking, it's really just a couple months to get to that break even point. So I'd say it's probably around, you know, seven, eight months at this point. Okay, and so maybe all that, and somewhere in the neighborhood of 110, 120 grand, and somewhere in the neighborhood of 110, 120 grand,

a year later it's taking, it's really just a couple months to get to that break even point. So I'd say it's probably around, you know, seven, eight months at this point. Okay, and so maybe all that is somewhere in the neighborhood of 110, 120 grand that it takes to get to that break even.

Yeah, it really just depends on a 12 month basis. You're probably looking at 75,000. So that's them incurring. You've kind of the swath of losses in the earliest months. And that dwindles as you reach that break even point. And then you get some offset in the second portion of that year as you've turned the corner from a break even perspective. But again, it really just depends on how quickly clinics are ramping in terms of how much accumulated losses they're seeing. But on an annualized basis, it's probably somewhere around at $75,000, $80,000.

Okay, great. And then I wanted to follow up on pricing. It seems like it, but just sort of make sure that I confirm that I've heard you write on it. You're really not seeing much of a negative impact from the pricing increases as far as on transactions or volume. I mean, why should I not read into the commentary about new patients being a little weaker than expected and think that there's been pressure from pricing? Is there a way for you to kind of isolate pricing when you were testing?

Yes, there is. And we've looked at it and we've looked at it in the past when we've done. The last time we did a full national price increase was 2016 and then we did those market adjustments in 2019. And when we're looking at the metrics, that new patient count, the conversion, the attrition, overall we saw that the price increases were either neutral or positive to the business. And that in the analysis we've done so far since the price increase since March 1st, we're finding the same thing. Our attrition is actually improving. Our conversion is actually improving.

And when we talk about the new patient count being down a little bit, I think we associate far more with the organic search of algorithm, or the algorithmic change with Google Made impacting our organic search.

than a patient not taking a membership because of the higher price increase.

So that's what our data would choice. Yeah, and another layer to that, George, is not every clinic in our system moved. We had some that had benefited from a market adjustment fairly recently. So not all of our clinics moved. So we actually had a static control group where we could look at their KPIs as well and kind of give us a basis to how clinics that changed are performing versus clinics that did not have a price change. And we're seeing very similar results. So to me that indicates that there's some more macro issues or search issues versus true representation from price increases.

Okay, and then last question for me is on your, the wellness coordinators and other employees, the chiropractors and regional managers. Do you, I know that there's been a lot of discussion for the last few quarters just about turnover and, you know, retaining employees and challenges there and changing pay. Is it feeling more stable or is it still kind of something you're having to adjust to, you know, all the time? It's still tough. It's, listen, it's a tough market. We have to start with that.

this year, and again, while we want to continue to see that turnover rate come down, is that we have significantly improved it compared to where we were, let's say, in Q421. So...

We are laser-like focus on this issue. You know, it's very essential for us as we continue to make our performance of our clinics, but we are definitely seeing improvements compared to what we were.

We are laser-like focused on this issue. You know, it's very essential for us as we continue to make the performance of our clinics, but we are definitely seeing improvements compared to where we were. Okay, thank you.

You know, it's very essential for us as we continue to make our performance of our clinics, but we are definitely seeing improvements in very good work. Okay, thank you.

Next question comes from Anthony Bendetti with Maximum Grout. Please go ahead.

Thank you.

In this in this current environment, you know, whether we're in a recession or we might enter one You know through COVID

you didn't have any any issues at all. It seemed like, you know, certainly throughput through your clinics didn't decline at all. If we were to go into a recession, have you have you done any studies or you have any data to show what you what the impact would be to your centers or what do you anticipate the impact to be if you go into a recession?

Well, I mean, sure, it's always a pleasure. The answer is that this company's never actually gone through a recession, so I don't have any data or experience to say, okay, this is what we experienced when we saw this level of recession and so that we could extrapolate to expect that.

In this one, this, and you're absolutely right. I don't know if we're in a recession. We've had two quarters of negative growth, but very minor, and most recessions in my career are also associated with a high unemployment, and you have no same two quarters, that was 3.6 unemployment for both quarters. This is different. And so I don't, it's hard to imagine what to expect. And like I said earlier in the previous question, is that if we're trying to understand the impact of the recession, it feels like the pandemic is a good indicator of what takes.

that we would expect to see like in the pandemic, we would be less impacted by a recession and certainly other kind of retail concepts that we track.

That's kind of what I thought, Peter, but just if it were to happen and you did see some pullback as you're going through your planning, because there's obviously a planning stage and there's a build out of some of these corporate owned centers, how much flexibility do you have to pull back on the green fields? Would it take months to do that because it's months in the planning session? You know, what open, I'm like, after you're done, it's like, yeah, well that's fine.

Just give us a little bit of a full-arm hat. Look at that. Sure. So if we're going into recession, we're in an environment or in a space where we really want to preserve cash. And we think, OK, whatever the things that we do to manage our cash or utilize our cash when the first thing is acquisition. And that's 100% discretionary. And that you can turn it off with a dime. And boom. So that's easy. You're right. The greenfields do have a longer tail, because you're going through that side selection. You're getting up to the least.

until we get to break even. And if you look at 2020, that's exactly what we did. None of us, assuming that the pandemic was going to hit in March 20, we had, or let's say January 20, we had plans of opening a fair number of greenfields that the pandemic hit. We said, you know what, we need to preserve cash. And you saw that we did, so that we drew down on our line of credit. We slowed down our greenfield. I think we opened up one greenfield in 2020. And then we picked it back up in 2021 when we saw, okay, you know what, we can get through this. So we do have some levers there to protect.

protect our capital. We also are very capital-generative. We generated $1.5 million in operating capital this quarter. We generated $15 million in the full year 21. I feel like we have some strong support there to face whatever is going to happen in the next six months or so. Okay, great. Then just maybe one question for Jake. The first margin was a shade over 90%. Is that a good base to go off of or is it going to fluctuate in the next five years?

very high 80s to this 90% or so. Now I think it's fairly representative. You know, most of our clinic level costs are down in GNA. And so really the components of cost revenue for us on a consolidated basis are relatively predictable. You know, we are seeing continued web hosting costs, which we put into that line. Just as our platform scales and the amount of data that we have. But I think, you know, as a percentage of sales, I think it's pretty representative.

Excellent, thanks. I'll jump back into the queue. Thank you. Thank you. This concludes our question-and-answer session. I would like to turn the conference over back to Peter Holt for any closing remarks.

I want to thank everybody for their time today. Before I close, I would share a few comments from an expanding franchisee who was named our joint rookie of the year award in 2021. Neon's multiple businesses, including several franchise concepts in a real estate brokerage. And after he and his wife visited the first joint, he decided merely to buy a franchise. He stated that joint is in line with my vision of health and wellness. Is a straightforward business model and the management was easily available to address all of my questions making the process very quick.

He set to open his first clinic in March of 21 and the middle of the pandemic, he encountered external setbacks. And however, the franchise decided that the proactive support from the joint team led him to push ahead. He also noted that the joint concept is highly scalable and easy to set up due to the support system. Now he's preparing to open up his second clinic in the fall of 22 and his third in 2023. Thank you and stay well, Justin.

Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.