The Joint Corp. Q1 2023 Earnings Call

May 4, 2023

Good day and welcome to the <unk>.

First that the joint Corp, first quarter 2023 financial results Conference call. All participants will be in listen only mode should you need assistance. Please signal 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 you.

Jim You May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to David Bernard.

L. A J Investor Relations. Please go ahead.

Thank you Dave good.

Good afternoon, everyone. This is David Barnard of L. E K Investor Relations call today, President and CEO , Peter Holt will review, our first quarter 2023 performance metrics and provide an update on the business CFO , Jake Singleton will detail, our financial results and guidance and Peter will close with a summary, and open the call for questions. Please note we're using <unk>.

Slide presentation that can be found at https. IR dot com backslash events today after the close of the market the.

The Joint Corporation issued its financial results for the quarter ended March 31st 2023, if you had not already have a copy of this press release. It can be found in the Investor Relations section of the company's website as provided on slide two please be advised today's discussion. These forward looking statements, including statements concerning our strategy future operations.

<unk> financial position and plans and objectives of management throughout today's discussion we will present, some important factors relating to our business that could affect these forward looking statements. They are forward looking statements are made based on our current predictions expectations estimates and assumptions.

And are also subject to risks and uncertainties that may cause actual results to differ materially from the statements we make today.

Factors that could contribute to these differences in food, but are not limited to our inability to identify and recruit enough qualified chiropractors and other personnel to staff our clinics due in part to the nationwide labor shortage and an increase in operating expenses due to measures we may need to take to address that shortage inflation exasperated by COVID-19, and the current war in Ukraine.

Which has increased our cost and which otherwise could negatively impact your business the potential for further disruption to our operations and the unpredictable impact on our business of the COVID-19 outbreak outbreaks of other contagious diseases or failure to develop or acquire company owned or managed clinics as rapidly as we intend our failure.

To profitably operate company owned or managed clinics short selling strategies and negative opinions posted on the internet, which could drive down the market price of our common stock and resulting class action lawsuits or failure mediate future material weaknesses in our internal control over financial reporting, which could negatively impact our ability to accurately report our financial results.

Event fraud or maintain a conference confidence is and other factors described in our filings with the SEC, including the section entitled Risk factors in our annual report on Form 10-K for the year ended December 31, 2020 to file with the SEC on March 10th 2023, and subsequently filed current and quarterly reports as a rig.

We caution you against placing undue reliance on these forward looking statements and encourage you to review our filings with the SEC for a discussion of these factors and other risks that may affect our future results or the market price of our stock finally, we're not obligating ourselves to revise our results or publicly release any updates to these forward looking statements in light of new information or future events.

<unk> 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 you.

And adjusted.

EBITDA is presented in the press release the company defines EBITDA as net income or loss before net interest tax expense depreciation and amortization expenses.

<unk> defines adjusted EBITDA as EBITDA before acquisition related expenses stock based compensation expense bargain purchase gain net gain or loss on disposition or impairment and other income related to the employee retention credit management. Also includes commonly discussed performance metrics system wide sales include revenues at <unk>.

All clinics, whether operated by the company whereby franchisees while franchise sales are not recorded as revenues by the company 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 franchisee base.

Comp sales include revenues from both company owned or managed clinics and franchise clinics that in each case have been opened at least 13 full months and excludes any clinics that have closed turning to slide three so now my pleasure to turn the call over to Peter Holt.

Thank you, David and I welcome everybody to the call as we noted in March we entered 2023 with a fortified foundation to support our clinics as well as our long term clinic expansion and financial growth.

I am pleased to report on Q1 2023, we performed well during the continued economic uncertainty and expect a robust underlying clinic model and unit economics to thrive as markets improve.

For those investors, who are new to the company. The joint is revolutionizing access to chiropractic care by providing affordable concierge style membership based services and convenient retail study.

Turning to slide four let's review our financial metrics for the first quarter 2023 compared to the first quarter 2022.

System wide sales grew 17%.

Comp sales for clinics have been opened for at least 13 full months increased 8%.

Revenue grew 27%.

Adjusted EBITDA improved to $2 million.

At March 31, 2023, our unrestricted cash was 18 or $14 8 million compared.

Compared to $9 7 million on December 31, 2022.

Turning to slide five I'll discuss our clinic metrics.

During Q1 2023, we opened 33 clinics 29 franchised and for Greenfield.

This compares to 31 clinics 27 franchise and for Greenfield and Q1 2022.

Our greenfield strategy, its locate clinics sites, where there'll be captured where they'll capture pent up demand in new markets where they.

Can rapidly build a solid presence.

This quarter, we augmented existing clinic clusters in California, Georgia, Missouri, and North Carolina.

As previously stated in 2023, we are focusing on supporting our existing Greenfield clinic portfolio as it matures.

In moderating our pace of new Greenfield openings.

In the first quarter of 2023, we closed one franchise clinic, which was which will be relocated.

That compares to closing one franchise clinic in the first quarter of 2022.

Once again, our closure rates as one of the lowest in franchise community less than 1%.

In summary, our market March 31, 2023, we had 870 clinics in operation consisting of 740 franchise clinics and 130 company owned or managed clinics.

The portfolio mix remained at 85% franchise clinics, and 15% company owned or managed clinics.

At quarter end, we had 218 franchise licenses in active development, which has a solid pipeline for future franchise clinic openings.

Subsequent to quarter end in April we opened one Greenfield clinic at Fort Dix in New Jersey.

This is our fourth location opened in conjunction with the Army and Air Force Exchange service.

Turning to slide six in Q1 2023, we sold 17 franchise licenses, which is the same number as Q4 of 2022 and compared to 22 licenses sold in Q1 2022.

This past quarter existing franchisees, but approximately 59% of our new licenses.

This means that even in an uncertain environment. Those that are intimately involved in our network of reinvesting in the brand. This is a powerful indicator of the strength of our business model, demonstrating the health and viability of our franchise system.

On March 31, our Rd Count remained 18 with our aggregate 10 year minimum development schedule for the New Rd territories established since 2017 at 626 clinics.

Turning to slide seven let's review our marketing efforts.

New patient acquisition continues to be a focus.

For Q1 of 2023, the average number of new patients per clinic was down approximately 7% from the same quarter a year ago.

To further improve new patient leads and conversions our marketing team is invested in pay channel maximization, and new paid digital tactics as well as prioritizing non digital approaches such as guerilla marketing.

We've created multiple learning modules to effectively work our franchisees through best practices in digital marketing guerrilla marketing traditional awareness marketing and referrals.

In February we held our annual loved the joint Social media campaign, and giveaway, where 12 Lucky winners received a gift a one year free car Practic care during this.

Motion, we saw significant increases in our overall engagement in the joints National Instagram account, where we gained almost 15000 entries and comments and more than 20000 legs and attracted over 13000 new followers.

In March we held our new patient contest. This event Incentivised clinic teams to promote the joined $29 new patient offer the signage referral cards and local business partnerships and community events.

For March the network increased new patients over 19% compared to the prior three month average.

In terms of our digital efforts in March we also launched a test to capture leads through a chart technology as well as leverage enhanced Dr. Kerr project profiles on an online medical device as a new source for new patient leads.

For the quarter organic traffic to the site increased 14% year over year.

As a part of our PR effort, we continue to focus on the education and benefits of car Practic care and generate brand awareness about the joint.

Our PR strategies are reaching new highs in Q1 alone we surpassed 1 billion earned editorial impressions.

And with that Jay I'll turn it over to you. Thank you Peter.

Turning to slide eight I'll review the financial results for Q1, 2023 compared to Q1 2022.

System wide sales for all clinics opened for any amount of time increased to $115 $4 million up 17%.

System wide comp sales for all clinics opened 13 months or more increased 8%.

System wide comp sales for mature clinics opened 48 months or more increased 1%.

Revenue was $28 $5 million up $6 million or 27%.

Company owned or managed clinic revenue increased 36% contributing $17 1 million.

Revenue from franchise operations increased 15% contributing $11 $3 million the.

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

Cost of revenues was $2 $6 million up 13% over the same period last year, reflecting the associated higher regional developer royalties and commissions.

Selling and marketing expenses were $4 2 million up 27% over the same period last year.

Driven by an increase in advertising fund expenditures from a larger franchise base and increase in local marketing expenditures by the company owned or managed clinics and the timing of our national marketing fund spend.

Depreciation and amortization expenses increased $713000 up 44% compared to the prior year period, primarily due to the increase in the number of Greenfield clinics developed and franchise clinics acquired.

G&A expenses were $19 $9 million.

Compared to $15 4 million up 30%.

Reflecting the cost to support the increased clinic count revenue growth and higher payroll to remain competitive in the tight labor market.

Operating loss was $678000 compared to a loss of $176000 in Q1 2022.

Mostly driven by the previously mentioned higher depreciation and amortization expenses.

Other income was $3 8 million, reflecting the receipt of employee retention credits compared to other expense of $16000 in Q1 of 2022.

Income tax expense, including the impact of the employee retention credits was $842000 compared to $13000 in Q1 of 2022.

Net income was $2 3 million or <unk> 16 per diluted share compared to a net loss of $206000 or <unk> <unk> per diluted share in Q1 of 2022.

Adjusted EBITDA was $2 million compared to $1 8 million in the same period last year.

Franchise clinic, adjusted EBITDA increased 6% to $4 8 million.

Company owned or managed clinic, adjusted EBITDA increased 68% to $1 6 million.

Reflecting the maturation of our clinics and the corporate Greenfield portfolio as well as our concentrated efforts to optimize labor.

Corporate expense is a component of adjusted EBITDA was $4 4 million.

$671000 or 15% higher than Q1 2022.

Onto a review of our balance sheet and cash flow at March 31, 2023, our unrestricted cash was $14 8 million.

Compared to $9 7 million at December 31, 2022.

This reflects $6 million in cash flow from operations, which included the receipt of the employee retention credits of $3 9 million.

These were net of $1 2 million.

<unk> and opening greenfield clinics and upgrading existing clinics.

Also we continue to have access to additional cash through our line of credit with JP Morgan Chase to date, we've drawn $2 million and have an additional $18 million available.

On slide nine.

We are reiterating our guidance our guidance for 2023, we continue to expect to grow revenue to between 123 and $128 million.

Compared to $101 9 million in 2022.

We continue to expect adjusted EBITDA to be between 12, five and $14 million compared.

Compared to $11 5 million in 2022.

We continue to expect franchise clinic openings to be between 101 hundred 20, compared to 121 and 2022.

Please note historically guidance for company owned or managed clinic openings included a combination of both greenfields and acquisitions.

We continue to acquire previously franchise clinics. These transactions are opportunistic and are no longer included in our guidance.

For Greenfield clinic openings, we continue to expect to open between eight and 12 compared to <unk> 16 in 2022.

And with that I'll turn the call back over to you Peter.

Thanks Jake.

Turning to slide 10.

While managing today's uncertain economic conditions, including inflation and wage pressure, we remain focused on what we can control and continue to execute execute programs to improve performance and drive long term growth.

We continue to methodically implement our multiyear corporate initiatives towards the car Practic dream over the past several years, we've been increasing our educational outreach efforts with the association of schools of car Practic to drive awareness and support recruitment.

Our relationships with these institutions continue to improve these endeavors are being felt across the network nationwide. In fact, we have more interest than ever from doctors in these recent graduating classes and we're attracting new doctors to the Kerr project to the joined.

To harness the power of our data, we've launched our business intelligence and analytical reporting tool and we're surely launching in our automated marketing program.

This will reach existing lapsed and potential patients to ensure that we send the right message to the right patient at the right time.

To accelerate the pace of our clinic growth, we remain focused on our franchise sales. In addition to opening Greenfield clinics as reported this quarter. We continued to increase the number of our clinics opened year over year.

Our network is well positioned for expansion as the economy improves frankly with only 16% of Americans using chiropractic care in the last 12 months and spending $19 $5 billion on an annually. The Kerr project patient need is growing and our market opportunity is considerable.

Based on our current patient demographics, we are approaching our near term target of a 1000 clinic and are well positioned for a longer term goal of 2000 clinics.

We will expand our network and potential.

<unk> base by developing rural urban and possibly International Clinic model, we will broaden our long term market potential we.

We are committed to capturing a greater share and growing the overall market.

And with that Dave I'm ready to begin the Q&A.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys.

If at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.

Our first question comes from Jeremy Hamblin with Craig Hallum Capital Group. Please go ahead.

Thanks, so much for taking the questions.

Wanted to start by asking about.

Sales and marketing.

You know it was up about $900000 sequentially from Q4 and about that same amount on a year over year basis.

There was a change in the timing of the national marketing.

Funds spend wanted to see if you could provide a little bit more detail on how.

On what that was and how it may impact the rest of the year, if theres any other kind of timing differences that we should expect looking forward.

Yes, Jamie Great question, and I would say the majority of that is just the increase.

Of the collections from the increased clinic count.

There is a chunk of that that is really just timing quarter to quarter right. So it depends on the.

The timing of certain campaigns are when we're pushing collateral out to the clinics and so I would categorize that as just a slight frontloading in Q1, but we expect.

To normalize as we continue on so there's really no kind of one time.

Item to call out there I think it's just a slight quarter over quarter timing variance.

Got it Okay. And then also wanted to just get a little bit more color on the.

The net employee retention credits, which I believe was like $3 $9 million.

I think.

I don't know if thats related back to like FICA credits from Covid still.

To what we've seen in the past.

With other businesses, but wanted to just see if you could provide a little bit of color on that as well.

Sure Yeah, and it is related to some of the jobs Act credits that were made available our qualification period was for periods in the first two quarters of 2021.

And so really the timing of both the application and then the processing through the IRS. So we just happened to receive the funds in the first quarter of 'twenty, three which kind of triggered our particular recognition.

Got it and if we back that out that's about the EPS on a normalized basis would be like a like a four cent per share loss or so.

That's about right yes.

It's really that net $3 nine we recorded that in other income.

<unk> adjusted EBITDA neutral, but it does have that boost to net income.

Got it and then.

Last question I had wanted to before I hop out of the queue I wanted to just get an understanding in terms of what you're seeing.

For clinic performance.

Corporate.

Versus franchise. It looked like you saw a nice little step forward here on the company operated clinics.

If we're thinking about it.

Let's call it revenue per average clinic basis.

Whereas you saw maybe a little bit of a step down overall, maybe in the franchisee.

Performance.

Or at least certainly in the royalties earned.

From that basis I, just wanted to get a sense in terms of what you're seeing.

Company operated versus franchise.

Performance.

Yes, I think in both cases, it's reflecting some of the use within our system. So our corporate portfolio with the number of clinic conditions. We've made over the last two years I think we're going to have a natural leg up on the overall system average just based on our younger Greenfield connects continuing their maturation.

<unk>.

Again, when Youre talking about overall growth we added another 29 franchise units in the quarter and so again, if youre using that end of quarter number as your final denominator there.

That's going to kind of decrease the revenue on a per clinic basis. So we still posted same store sales of 8% as a system and again not a huge disparity there between corporate and franchise performance. So we're still pleased with the organic growth of the units, but as you look at the denominators in the number of new clinics, we have come.

Into the system I think you could get some fluctuation there on a on a revenue per clinic basis.

What I'd add to that Jeremy is that historically the wood.

It's been interesting and unusual for our franchise system is that our corporate portfolio has.

Operator.

Parallel are equal to or slightly better than our franchise segment and we saw that changed a little bit and as we're coming into the end of 'twenty, one and that we made some corrections and so if you look at kind of the overall performance of 22.

Particularly by the end of the year and 'twenty, two we got our corporate portfolio operating equal or better to our franchise portfolio. So we have seen kind of a dip that we went through and made some changes in those operations and were now seeing that come back and so when you look at some of the key metrics, whether we're talking about conversion or attrition is that the corporate portfolio.

Continues to do equal or better than our franchise community.

One area, where I think that the franchisees continue to do better than corporate which we're still focused on new patient counts and that we're seeing our franchisees have a higher new patient per clinic per month than the corporate portfolio at the moment.

Got it that's great color just one more.

If I could sneak in here.

In terms of thinking about.

You know kind of the mature store.

Comps.

Yeah, Youre seeing just like a little bit of degradation, there and I wanted to get a sense.

In terms of that price increase that you took last March what percentage of your patients are are on our legacy.

Pricing plan at this point in time.

Yes, we can we continue to see about a 5% shift per quarter of our active members moving onto that that new price point I think as I look at the legacy mix now I think we're trending.

About 35% of our system is still on some legacy price point, the majority of those being on the pricing one tier ago, but because we have an existing current policy to grandfather in.

Active members at their their sign up rate, we do have some that are below that last year.

But the majority are are one tier ago or now on the higher price point and we've talked about that before.

Group, it's been there for a long time, it's probably around 15%.

We don't see that moving much overtime.

Got it thanks, so much for taking the questions and best wishes.

Thank you very much.

Next question comes from Jeff Van <unk> with B Riley. Please go ahead.

Hi, everyone and congratulations great to hear the 8% comp.

Multipart question here, if you can bear with me, but wanted to ask a little bit more on the patient retention and attrition new patient add metrics I guess any more color you can share around that and then what.

What do you think will drive the new patient adds back.

And then maybe also how are you thinking in terms of the global search and location elements.

I know there were some changes there.

Then.

Any change Youre seeing in <unk>.

Or is it influencing new patient adds given the macro backdrop and then what it makes sense to promote more on price to get new patient adds.

But I know a lot there I apologize.

[laughter] I'm going to try to remember all of those components.

What youre really saying is really focus on <unk>, new patient counts, we saw weak and they were right.

And if you look at the in terms of where do our new patient counts come from there are really three sources as we've talked about before number one referral.

It's existing patients who refer their friends and family to come in and use the services of our clinic and Thats.

All medical professionals, that's probably the number one source of.

New patient counts.

For us, that's probably averaging right around 35% on a network basis.

Coming into the clinics, because they've been referred by a friend or family.

It's interesting to watch over time is how increasingly the digital marketing campaign is essentially.

Part of our new patient counts. So right now we can track today that approximately 63% of our new patients have touched us digitally.

And which where we can measure in patient contribution is always a little tricky because if you go online because you saw that had or use the TV or whatever it was at a coupon, but that's increasingly more important to us and thats. When we really saw that change in the algorithm with Google within the vicinity became a higher rating or a higher metric to to.

Push you up on our CEO search and that we did make a series of changes to address some of them, we cant because its vicinity is vicinity and so if you've got three clinics in front of me wherever that patients who is doing that searches that's going to change that surge order, but what we can do as.

Is it really focused on optimizing our <unk>.

Macro sites and making sure that we've got back links we've got videos and updated photographs, which again helps very much in the in your ranking and we've been working very closely with our franchisees to make sure. They are doing that really critical effort that we're also one of the changes was that in the old days before the algorithmic changes that a lot of.

Lot of.

Wait was given to your overall publishing on the Internet and we continue to this day are the largest publisher.

Online on car Practic, but it was more what we call short form activity and that's been changing and so now what we're doing is seeing that youre getting greater.

Recognition of greater waiting for what's called long for them and so we're changing the way in which we're publishing online to make sure that we're able to grab that attention when youre getting the search and being on the top of that list.

We're also looking at different methodologies that we haven't used before so we've got a campaign now where tictoc is we have a program.

Actually launched on March.

First.

So we will see the results of that.

Also launching at the end of this month, our automated marketing campaigns. So what we're doing now is that those patients that are touching R. R.

Our website or the existing patients relapsed patients, we can automatically direct to them specific messaging. So that again, we're getting the right message to the right person at the right time in their patient journey and so more to come on the results of that program, but we're really excited to see that launch at the end of this month.

And so these are some of the key.

Fact, our key activities that we're doing to ensure that we're increasing that patient count and then the other that last bucket of new patients for US is what I'll call that guerrilla marketing science or it's the coupon drop it to outreach to the gym or to the hospital or to the back to the apartment building to make sure that you are educating potential customers.

<unk>, who lives and works in travels in that 5% to 15 minute radius around that clinic that they are aware that you are there when they need that relief from pain. So those are just.

Hope I kind of caught most of your questions as it relates to the new patient count, but thats what were doing to make sure. We're addressing this critical issue for the organization.

Okay, that's really helpful.

Then any.

Any color you can give us if there are any changes youre seeing an underlying trend so far in Q2.

Maybe that youre seeing versus Q1 or Q2 last year, just any other color here since the quarter ended.

Well.

Typically we obviously don't comment on upcoming quarters, because we will you will get to them in about three months.

But what.

But I would say for all of US is that we're in a time of economic uncertainty.

I don't know, where I know, we're not in a recession, but theres a lot of concern about it we've got the bank failures of Spooking everybody in that and so we did.

I think for all of US were trying to figure out what what comes next in the second quarter of the third quarter, the fourth quarter and so what we're really focused on Jeff is all the things that we can control.

So all of the activities associated with new patient count, making sure there is.

Effective as possible in one of our key metrics, which is conversion conversion new patients to our membership and so over the last year to 84% of our sales were new membership.

So we're really happy we're seeing for example for the quarter as our new pace. Our conversion rate is running over 50%, which is a very very high number for us. So we're really excited about that the other metric that we really pay attention to is the attrition rates. So how long do they stay with us when do they drop off.

So we've seen that.

That attrition rate continue to stay very lower to improve and so those are the things that we can really focus on as we all try to figure out what's going to happen in Q2 and beyond.

Mhm Mhm, what is your strategy I mean, just as a follow up to that Peter why don't you think that.

Let's just say, we do go into recession, maybe high probability that we do.

People still are not going to want to live with and even in a recession, where do you think that prioritize getting that can't handle.

Absolutely and then again, we havent really as a system ever gone through a full recession.

I follow that logic, Jeff is that as <unk>.

People are tightening their belts and making decisions.

Feels like Theyre going to be more willing to give up about cup of coffee or theyre frozen yogurt than pain relief.

I think another thing too that we think about as we go through whatever this economic uncertainty is going to be is that right now.

Our ideal family income is between 50 and 105000.

And so that's that.

That is not.

High end person, who as is our typical.

Customer patient and so what that means is very often when we go into those markets, where you have a really high income per capita is that were quite frankly too inexpensive for them. It's like no no. No. My son is going to have $125 adjustment not a $29 adjustment, but I think as economic concern filters through a greater part of the.

Economy and more people are in fact changing.

Those decisions are trying to be more thoughtful in their spend.

You are going to see the top of that funnel open up a little bit and say well you know how bad can that $29 adjustment be.

So we'll see that.

Do think that there is a real opportunity for the upper end of that funnel open up a little bit as the bottom of that funnel as it relates to income per capita tightens up.

Makes sense, okay. Thanks for taking my questions I'll take the rest offline.

Thank you very much.

Our next question comes from George Kelly with Roth Capital Partners. Please go ahead.

Hey, everybody. Thanks for taking for taking my question. So.

Maybe to start with a couple on the owned segment.

Just curious on that.

The profitability there how much visibility do you have it seems like the whole.

Plan is the maturation of these new stores and everything.

The margin improvement has been kind of spotty.

Another quarter of I would call kind of mix. It looks like there was negative operating income in that in that segment again. So I guess two part question is what is the visibility like here for the rest of the year and aside from the maturation of these new clinics what else can you do to drive margin in that business.

Yes, good question storage.

We have clear visibility down to the individual clinic level and we're going through a lot of effort with a key focus on on.

On trying to maintain and drive sequential improvement in that profitability and so thats really the expectation we're still in a period, where we have a lot of young units in that portfolio and they are still working through their growth curves and so with that youre still going to have the margin suppression, but as we look throughout the remainder of the year.

Going to be looking for sequential improvement in that segment, we mentioned it in the transcript we're off.

So kind of looking at our labor optimization and trying to make sure that we have the correct staffing levels given our volumes to make sure that we're that we're optimized as it relates to that inside the four wall labor component.

And so those are when you have labor.

<unk>, 50% or more of your unit level cost depending on age that's a critical component that we're staying focused on because thats a real way that we can.

Control of the profitability within each of the units themselves. So it is a critical focus of ours, we're going to continue to work with our with our operators and <unk>.

Continuing to drive that.

But again as the clinics mature, we're looking for that sequential improvement quarter over quarter.

Yes.

Okay, and then second.

Second question same kind of topic, but.

The if we stripped out the new clinics and just you talked about your legacy owned.

Is this four wall margin on that store base has that stabilized or is that still seeing labor pressure and it still is compressing a bit.

Okay.

We are starting to see some stabilization there as I look at four wall margin numbers for my mature base and I'll call that.

Greater than four years, we're still doing that mid 20% four wall margin, which again.

Factors in the labor pressures that we've seen over the last two years and I've seen it kind of settle in there we.

Just released our franchise disclosure document for 2023, and I think as you look at the P&L that were submitted by our franchisees I think they put up a four wall margin in the high 20% as I look at the 350, a P&L as we collected as part of that item 19 item 19 exercise.

We're still seeing.

Overall holding power for.

For our units even at maturity and still putting up that strong four wall margin potential that we've always talked about so the good news is I think we are starting to see some of the labor pressures start to plateau, a little bit and so I'm encouraged by that.

We just have to continue to focus on driving the same topline growth to those clinics.

Okay. That's helpful.

And then last one.

Back to the new patient discussion I'm still a little unclear exactly sort of what the.

Issue is there and I guess just to be specific more specific are there any kind of competitive issues that you see.

That have arisen people become more challenging that youre facing in certain markets or anything or anything else you can isolate just.

That's impacting new new new patients.

Sure George and I'll take that I'm going to answer. Your second question first is that are we seeing an impact of the competitive markets on.

On a performance or a new patient counts.

What I would say is that I have never worked for franchise system that has a higher or greater first mover advantage in this one and yes, we are seeing.

Recently, some competitor there is still a very small and very localized and so on.

If I look at it as an overall basis I would answer no I don't think thats been a factor influencing the performance of the clinics. If we look at a specific market, where let's say a chain has.

And then the Chicago market or in a specific Atlanta market and ensure there because there is definitely going to be some competitors. There and we are seeing them grow so I'm not seeing that aren't there, but I'm surprised on.

How slow they are growing and yes over time I would expect them to have impact on the on the <unk>.

Overall market, but I think theres, so much potential for the market itself.

I think that's our biggest opportunity is to grow the market.

To answer your question on <unk>.

Kind of a new patient and kind of what's driving that is that.

There is there is no question that as digital marketing campaign becomes more and more important in our new patient drive.

We really did see that impact with Google when they change that algorithm because.

The majority of our online patients were driven by the CEO search now we have both paid and organic search our paid search continues to perform well we're seeing a close rate of that thats been continue to stay strong. So that's working for us, but thats been a smaller portion of those leads that are coming online towards us.

Organic search.

What was the greater portion of those new patients and so we are seeing recovery from the changes that Google made this wasn't the first time that Google made changes in their algorithm and it won't be the last and so that we're just continually focusing on making those changes so that we can maximize the opportunity specifically in that digital realm, which is only becoming more and more critical for us.

In terms of that new patient drive.

Thank you.

Our next question comes from Anthony Vendetti with Maxim Group. Please go ahead.

Yes. Thanks.

So first I guess on the on the patient volumes.

You mentioned Peter that.

I think you've mentioned this in past calls as well.

Patients are more likely to forego the cup of coffee or or something else then there.

<unk> treatment.

Do you still feel that's the case because they may have to forego the.

A couple of coffee and a joint treatment with inflation higher interest rates right.

Just wondering is your data.

Is your data up to date with what's.

What's been transpiring over the last.

A couple of months has any of that changed and if so how.

Well.

Question Anthony in the challenges as I don't have a lot of data in a sense that this company was formed in 2010, we've never gone through a recession other than a quick dip in the Covid period, which I'm not sure.

Be relevant to the conversation so we have yet to really go through a traditional recession.

As an organization so that I could give you data on what the impact it had on our overall sales.

And what I would say as well as I know we are in this time of economic uncertainty and Theres a lot of people out there that believe a recession is imminent, but at least in terms of the traditional measurement of that.

And one of them being a high unemployment rate, we're not there yet.

And so when we look at Okay, what impact that's had if we could.

Talk about the full year for last 2022, we had a.

We had an overall, 9% increase in comps and that was kind of a year of uncertainty because that gives us a sense of what's going on in the clinic level. If we look at Q1 2023, we had an 8% comp rate, which again is an indication that.

There is still.

Coming into the clinic using our services in this environment of whatever is influencing the decisions, they're making as consumers.

And Youre right and it's more anecdotal than data driven when we think about what people choices that they're going to make with their discretionary income.

And it really is a belief.

Pain relief is going to take a greater weight than in some of these other more more more optional choices that we make as people start tightening their belt pains, a huge issue and it's not going away and that's I think again one of the drivers of the success of this concept of just how effective it is in helping people.

Manage that pain and stay out of pain.

Yes, no fair point.

Last last question on the digital marketing initiatives.

I know you mentioned things very closely.

Can you talk about.

For.

Do you have this measurement where.

As you're as you're spending dollars on digital marketing.

Rich.

Platforms.

Sites Whats working better have you.

Transition from one to another.

And do you feel like in this environment you have to spend more to get the same type of.

Patient interaction and eventual conversion.

Yes.

Really a great question and there is no.

The short answer is yes, our whole digital marketing strategy is evolving by the day.

Just thinking a few years ago took talk wasn't even a word that would be talking about and now it's over 1 billion users in all kinds of issues around it but it seems to be effective way of marketing for us and so that's where we're putting more dollars than before I would say in terms of the overall spend and you see that in the P&L is not so much that we are.

<unk> the overall marketing spend but what we're doing is reallocating that into those sources, where we see having a greater impact. So one of the trends that we're seeing is our spend on meta.

Which at one point was kind of being pulled back and Thats really where we don't think our customers where we've been doing some more work with that we've been increasing some of the allocating more of the spend towards meta and that we are quite frankly, seeing some really positive results of that and so going forward in the next quarter or two we're going to continue to see an increase on that meta spend and maybe less on the youth.

<unk> spend which we do a lot and so we're constantly evaluating where those leads coming from that's the power of marketing today when I first got into my career.

And I've never been in the marketing discipline, but you do this spend and you have no idea what impact that would have and I'll tell you I'll do my radio that I do my TV and hopefully get a 2% return on whatever well in this day and age everything is measurable and Thats, where the automated marketing I think can be so essential in terms of making sure we're getting the.

Right message to the right patient at the right time, and then measuring its impact we can change that message on the fly almost and say okay. This message more effective in that message do that AB tests in a very short period of time and continually be refining the effectiveness of that.

That project.

Is that.

Platform or whatever using.

Overarching what I would say to you.

These activities are only more and more important as it relates to our digital marketing campaigns, because look at who's our customer and we've talked about this before our customer is not the older person who is looking to get out of hand and using their insurance. The median age of our $1 6 million patient acquisition was 37 six years old.

We're almost equally between male and female 45% of millennials, 15% of Gen Z and growing and so when they're looking for their alternatives from pain and trying to figure out where do I go to address their online theyre doing that search they're putting in <unk> near me close to home.

Pain relief and so that's why I think this will continually be only more and more important because that's actually where all of our patients are.

Okay, great. Thanks, Peter I really appreciate that I'll hop back in the queue.

Thank you very much I appreciate the support.

This concludes our question and answer session I would like to turn the conference over to Peter Holt for any closing remarks.

Thank you.

Sure I close I want to note that we will hold our annual meeting of stockholders on May 25 here in Scottsdale, Arizona.

We're also presenting conduct meetings at the B Riley Securities Investor Conference on May 24th in Los Angeles, and the virtual Oppenheimer consumer growth and E Commerce Conference on June 13th.

Finally, as we're constantly receiving patient testimonials and this spring and athlete and parents managing several elements our attention. So Miriam from California, rotors, and said I can't say enough about these healers I have significant and severe chronic spine injuries, including degenerative disc disease bone Spurs.

<unk> arthritis and bullets in her needed.

I'm an athlete delivered very healthy life that demand a high level of activity and energy output daily the joint doctors have been treating me for over a year now along with my son Who's five.

These magical Masters help me bring my body back in alignment so it's not an agonizing pain and limiting my demanding life there.

Theyre always immensely kind of playful with my little one and never mind to be bringing them in a rush me.

I'm very picky about my care team and I promise you won't be sorry coming in for really from these gem with my new breast cancer diagnosis I'm, even more vigilant about self care and these angels are my supportive network for good.

Thank you and stay well adjusted.

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

[music].

Good day and welcome to the.

Question You May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to David Barnard of.

Oh H eight Investor Relations. Please go ahead.

Thank you Dave.

F O Jake Singleton will detail, our financial results and guidance and Peter will close with a summary, and open the call for questions. Please note. We're using a slide presentation that can be found at H T. T. P. S. IR dot com backslash events today after the close of the market.

As provided on slide two please be advised today's discussion. These forward looking statements, including statements concerning our strategy future operations future financial position and plans and objectives of management throughout today's discussion I will present, some important factors relating to our business that could affect these forward looking statements. They are forward looking statements are made based.

On our current predictions expectations estimates and assumptions.

And are also subject to risks and uncertainties that may cause actual results to differ materially from the statements we make today.

Or is it could contribute to these differences in food, but are not limited to our inability to identify and recruit enough qualified Cairo Packers and other personnel to staff our clinics due in part to the nationwide labor shortage and an increase in operating expenses due to measures we may need to take to address that shortage inflation exacerbated by COVID-19, and the current war in Ukraine.

Which has increased our costs and which otherwise could negatively impact your business the potential for further disruption to our operations and the unpredictable impact on our business of the COVID-19 outbreak outbreaks of other contagious diseases or failure to develop or acquire company owned or managed clinics as rapidly as we intend our failure.

To profitably operate company owned or managed clinics 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 or failure immediate future material weaknesses in our internal control over financial reporting, which could negatively impact our ability to accurately report our financial results.

That fraud or maintain a conference confidence is and other factors described in our filings with the SEC, including the section entitled Risk factors in our annual report on Form 10-K for the year ended December 31, 2020 to file with the SEC on March 10th 2023, and subsequently filed current and quarterly reports as a REIT.

As you might use as 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 <unk>.

And adjusted EBITDA is presented in the press release the company defines EBITDA as net income or loss before net interest tax expense depreciation and amortization expenses. The company defines adjusted EBITDA as EBITDA before acquisition related expenses stock based compensation expense bargain purchase gain.

Net gain or loss on disposition or impairment and other income related to the employee retention credit management. Also includes commonly discussed performance metrics systemwide sales include revenues at all clinics, whether operated by the company whereby franchisees while franchise sales are not recorded as revenues probably the company couldn't believe.

This information is important in understanding the company's financial performance. Because these sales are the basis on which the company calculates and record royalty fees and are indicative of the financial health of the franchisee base comp sales include revenues from both company owned or managed clinics and franchise clinics that in each case have been opened at least.

13, four months and exclude any clinics that have closed turning to slide three it's now my pleasure to turn the call over to Peter Holt.

Today I am pleased to report on Q1 2023, we performed well during the continued economic uncertainty and expect a robust underlying clinic model and economics to thrive as markets improve.

For those investors that are new to the company. The joint is revolutionizing access to chiropractic care by providing affordable concierge style membership based services and convenient retail study.

Turning to slide four let's review our financial metrics for the first quarter 2023 compared to first quarter 2022.