Q3 2023 The Joint Corp Earnings Call
Good day and welcome to the Joint Corp, third quarter 2023 financial results Conference call.
All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the stocky fully by theory. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is.
Being recorded.
I'd now like to turn the conference over to Kirsten Chapman of L. H, a investor Relations. Please go ahead.
Thank you harmony and thank you everyone for joining us. This afternoon. This is Kirsten Chapman <unk> Investor relations joining.
Joining us on the call today are president and CEO, Peter Ho and CFO Jake Singleton. Please note that we are using a slide presentation that can be found at <unk>.
I R dot the joint.
Dot com slash events today after the close of the market the joint issued its operating metrics and financial results for the quarter ended September 32023, if you do not have a copy of this press release. It can be found in the Investor Relations section section of the company's website.
As provided on slide two please be advised that today's discussion includes forward looking statements within the meaning of the safe Harbor provisions in the private Securities Litigation Reform Act of 1995.
All statements other than the statements of historical facts may be considered forward looking statements. Although the company believes the expectations and assumptions reflected in these forward looking statements are reasonable it can make no assurances that such expectations or assumptions will prove to have been correct. Actual results may differ materially from those expressed or implied in forward looking.
And as due to risks.
Various risks and uncertainties as a result, we caution you against placing any undue reliance on these forward looking statements for a discussion of these risks and uncertainties that could cause actual results to differ from those expressed or implied in the forward looking statements. Please review the risk factors detailed in the company's reports on the forms 10-K, and 10-Q as well as well as <unk>.
Other reports that the company files from time to time with the SEC.
Finally, any forward looking statements included in this conference call are made only as of the date of this call and we do not undertake any obligation to revise our results or publicly release any updates to these forward looking statements in light of new information or future results.
Management also includes commonly discussed performance metrics system wide sales includes revenue 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 he sales.
Are the basis of how much the company calculates and records royalty fees and are indicative of the financial health of the franchise base system wide comp sales used in revenues from both the company and company do manage it.
And franchise clinics are those.
In each case have been opened for at least 13 months and exclude.
Any clinics that had been closed.
The company also uses our adjusted EBITDA and provides a reconciliation to GAAP in its press release and presentation.
Turning to slide three its my pleasure to turn the call over to Peter Holt. Please go ahead Sir.
Thank you Kirsten and I welcome everybody to the call. During Q3 2023, we continue to execute our mission to improve quality of life through routine and affordable car Practic care. The strength of our franchise concept remained strong as we continue to revolutionize access to chiropractic care by providing affordable concierge style membership based services.
And convenient retail settings.
However, ongoing economic uncertainty and continued cost pressures have impacted our corporate clinic portfolio performance.
After evaluating options for improvement the board has authorized management to initiate a plan to re franchise our sale of the majority of our company owned or managed clinics.
Management intends to retain a portion of highly performing corporate clinics.
This refined strategy will leverage our greatest strength, our capacity to build the franchise to drive long term growth both for our franchisees and the joint as a public company.
We intend to use the clinic sales proceeds to support marketing and patient acquisition and to reinvest in our company through a possible acquisition of original developer territories and potential stock repurchases.
The reduction of corporate clinic portfolio will also facilitate our unallocated cost reduction efforts.
And I will elaborate more on these initiatives and our progress in a moment.
Turning to slide four I'll review, our operating financial highlights for the third quarter of 2023.
System wide sales grew up to $119 $3 million, increasing 8% compared to Q3 2022.
Comp sales for clinics that have been opened for at least 13 full months were flat at zero percent.
Revenue increased 11% compared to Q3 2022.
Adjusted EBITDA was $2 9 million for Q3 of 2023.
At September 32023, our unrestricted cash grew to $16 million compared to $9 7 million on December 31 2022.
Turning to slide five I'll discuss our clinic metrics.
During Q3 of 2023, we opened 26 clinics 24 franchised and two greenfields.
This compares to 38 clinics opened in Q3, 2022, 33 franchised and five Greenfield.
During both Q3 23 in Q3 'twenty two we closed two franchised clinics with today's foundation of over 900 clinics, our closure rate is less than 1% and remains one of the lowest in the franchise community.
At September 32023, we had 914 clinics in operation consisting of 778 franchise clinics and 136 corporate owned or managed clinics.
The portfolio mix remains 85% franchise clinics, and 15% company owned or managed clinics.
Regarding our corporate portfolio strategy in September we announced that we had earmarked about 10% of our underperforming clinics for cell relocation or closure. Our team is executing well already eight clinics are in various stages of sales negotiations to sold in October and in addition to corporate clinics or about to be sold.
As I mentioned at the beginning of the call. We've increased our goal to re franchise the majority of our corporate clinics.
We expect to sell the lion's shares of them to existing franchisees, but we will also consider qualified franchisees new to the joined.
It is important to note that we will be selling valuable assets and will not be in rush negotiations to accelerate the process.
We will retain some corporate clinics due to their maturity and their strong performance, which we believe will yield benefits. For example, they'll continue to be strong financial contributors, we can use them to test price adjustments new membership plans in various ancillary products and services that we are assessing for wider rollout of our network.
Regarding our remaining Greenfield pipeline, we have for Greenfields in the process of being opened and will open and we will uphold our various obligations related to the leases and buildup.
In some cases, we may complete the clintons Grand opening and sell the clinic offer paid after a patient base is established.
And others will transfer permits and contracts to a franchisee prior to the opening.
Our original developer strategy remains consistent we have demonstrated over the past several years that the natural progression of our territory development can lead to the re acquisition of certain Rd regions and will continue to execute as a criteria is met.
We do not plan to establish any additional Rd territories and as such overtime, we expect the Rd sure Brett franchise royalty fees to decrease as we reacquire Rd rights.
We ended Q3 with the Rd count of 17 and in aggregate 10 year minimum development schedule for Rd territories established since 2017 is 590 clinics.
Looking ahead and most importantly, we maintain unwavering dedication to our franchise community. We're focused on improving franchise clinic performance and unit economics, we continue to invest in tools to drive franchise growth and support our nationwide expansion at.
At the quarter end, we had a solid pipeline for future franchise clinic openings with 202 franchise licenses in active development.
Turning to slide six in Q3 2023, we sold 12 franchise licenses the same numbers, we sold in Q3 2022.
This reflects the continued impact of higher interest rates inflation and strong employment rates negatively influencing franchise sales.
That said existing franchisees who've enjoyed the advantages of the joint clinics continue to reinvest year to date, comprising 58% of franchise license sales this year.
Turning to slide seven we'll review our marketing efforts.
This quarter, we welcomed our new Chief marketing Officer, Lori Abou Habib. She is an expert in digital marketing and building customer loyalty with extensive franchise experience.
<unk> initial focus area has been to leverage the power of our data to understand our existing and prospective patients were using our patient journey research and the wealth of patient data to craft distinct journeys for patients who have never seen a car practic before.
<unk>, who are familiar with the carpet with the car Practic care and patients we have not seen recently.
This research and strategy will inform message optimization and the customer experience from that initial search for a car practice through becoming and remaining a patient.
In Q4, we will begin to apply these insights on our media buys and content on meta highlighting key themes that are most important to each of these patient segments.
Additionally, Laurie is focused on three main areas number one grow new leads and patients. We're working diligently to increase the flow of new patients to our clinics by introducing new functionality, improving current processes and mining our local trade areas for new patient growth.
We're working on projects to decrease friction for our new patients by improving the intake process, creating a sense of urgency by introducing first visit bookings and optimizing our local clinic marketing.
Number two increasing lifetime patient value.
In addition to getting new patients. We're also taking a more nuanced approach to generating more revenue from our existing patient base.
To enable this we are working on projects that created a year ago promotional calendar to drive same store sales increased content and leverage marketing automation to deliver the right message to the right audience at the right time.
And number three growing brand equity, we have a strong brand with a rich story by deepening the brand's unique essence and meaning of leveraging our footprint, we can become synonymous with chiropractic care in a way that our competitors cannot.
We're working on our brand architecture to evolve our brand positioning and defined brand essence to deepen our competitive advantage.
And before I turn the call over to Jake I'm delighted to welcome Jeff Graham who will join the board in January of 2024, He's a long term supportive we've enjoyed productive conversations with Jeff and look forward to his contribution and how to make this company more effective and.
And with that I'll turn it over to you Jack.
Thank you Peter turning to slide eight I'll review, our clinic comps for Q3 2023 compared to Q3 2022.
System wide sales for all clinics opened for any amount of time increased to $119 $3 million up 8%.
System wide comp sales for all clinics opened 13 months were flat at zero percent.
System wide comp sales for mature clinics opened 48 months or more decreased 5%. This comp reflects fewer than anticipated new patients at some of our more mature clinics.
Revenue was $29 $5 million up $3 million or 11%.
Revenue from franchise operations increased 9% contributing $11 6 million compass.
Company owned or managed clinic revenue increased 13% contributing $17 $9 million.
The increases represent continued year over year growth and brought the franchise base and the corporate portfolio.
Cost of revenues was $2 $6 million up 11% over the same period last year.
Reflecting the associated higher regional developer royalties and commissions.
Selling and marketing expenses were $4 $3 million up 22% over the same period last year, driven by an increase in advertising fund expenditures from a larger franchise and corporate 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 $569000 up 32% compared to the prior year period, primarily due to the increase in the number of Greenfield developments and acquired clinics.
G&A expenses were $20 $2 million compared to $17 $8 million. The change reflects the cost to support the increased clinic count. However, the year over year rate of increase slow. It was 14% for Q3 23 over Q3 22 down from 39% from Q3 22 compared to Q3 'twenty one.
Also we've continued certain cost control initiatives, such as hiring freezes travel reductions and the elimination of non core projects.
Loss on disposition or impairment was $90 $905000 compared to $264000 in the third quarter of 22 the.
The increase includes those corporate clinics that were announced to be held for sale in September of 2023.
Operating loss was $898000 compared to operating income of $732000 in the third quarter of 22, reflecting the previously mentioned impairment charges.
Income tax benefit was $188000 compared to the benefit of $24000 in the third quarter of 'twenty two.
Net loss was $716000 or five cents per share compared to net income of $731000 or five cents per diluted share in the third quarter of 'twenty two.
Adjusted EBITDA was $2 $9 million compared to $3 $1 million for the same period last year.
Franchise clinic, adjusted EBITDA was almost flat at $5 $3 million.
Company owned or managed clinic, adjusted EBITDA increased 20% to $2 million to $2 million.
Corporate expense is a component of adjusted EBITDA was $4 $5 million.
Ultimately zero point $5 million higher than Q3, 2022, reflecting accounting and professional service costs related to the restatement.
Onto slide nine.
For the nine months ended September 32023, compared to the same period in 2022 revenue was $87 $1 million up $13 $5 million or 18% net.
Net income, including net employee retention credits and loss on disposition or impairment was $1 3 million or <unk> <unk> per diluted share compared to a net loss of 137000 or a loss of one seven per share in the first nine months of 2022.
Adjusted EBITDA was $8 $2 million up $618000 or 8%.
Onto a review of our balance sheet and cash flow at September 30th 2023, our unrestricted cash was $16 $1 million compared to $9 $7 million at December 31, 2022.
This reflects $11 $3 million in cash flow from operations, including the receipt of the employee retention credits of $4 8 million and the net of $4 9 million of investment in clinic acquisition development of Greenfield clinics and improvements of existing clinics corporate assets.
Also we continue to have access to additional cash through our line of credit with JP Morgan Chase today, we've drawn 2 million to date, we've drawn $2 million and have an additional $18 million available.
Onto slide 10 for a review of our guidance.
We are reaffirming all elements of our 2023 guidance revenue is expected to be between 115 and $118 million compared to $101 $9 million in 2020 to adjust.
Adjusted EBITDA is expected to be between 11, and $12 $5 million compared to $11 $5 million in 2022.
We continue to expect to open between 100, and 120 franchise clinics compared to 121, and 2022 and between eight to 12 Greenfield clinics compared to 16 in 2022.
Looking ahead as discussed we will initiate our plan to re franchise. The majority of our corporate portfolio clinics and retain a portion of high performing clinics. We will implement this plan with the sense of priority and importance to improve the overall financial performance of the company with an emphasis of profitability.
Notably this is a quality group of clinics that represents assets of value, we will negotiate determined Lee and maintain the autonomy to sell at a suitable price as such predicting the timing of events will be difficult.
As we think about the financial impacts of the Refranchising efforts. Please note the following.
We continue to expect the gross sales for our entire system to grow however, GAAP revenue will decrease as the corporate portfolio shifts from being recognized as a 100% owned or managed to being recorded a 7% franchise royalty fees.
As our cost of sales is primarily related to a regional developer fees, we expect it to remain fairly static.
We expect our sales and marketing expenses to decrease as we reduce the scale of our corporate portfolio currently our corporate clinic spend approximately $3000 per month per clinic and local advertising.
Regarding general and in many administrative expenses, we expect to see significant reductions in our clinic level four wall operating expenses are.
Our outside the four wall expenses, and our unallocated corporate overhead.
These expenses will be reduced proportionately.
As we reduce the scale of our corporate portfolio.
As such the timing of these G&A reductions will be gradual and incremental.
Overall, while overall, while we reduced our topline revenue we expect a reduction.
And G&A to expand our operating margins and increased profitability in the long run.
Finally, it's important to note that some of our underperforming clinic valuations may result in noncash impairment charges. Conversely, the better our clinic performs it will create higher sales proceeds and the opportunity for gain on sale.
And with that I'll turn the call back over to you Peter.
Thanks, Jake we're excited to execute our new strategic focus by converting the majority of our corporate portfolio to franchise clinics, we're taking clear action to strengthen the health of our franchise network to increase our cash flow to reinvest in the business and to innovate additional products and services on the clinic level and to improve clinic level performance across the company we.
Believe these changes will enhance the value and performance of the company whether it from the perspective of a franchisee or a stockholder for the following reasons number one the market opportunity continues to be large according to EBA. If people in the U S spent $19 $5 billion a year on car Practic care and our franchise system barely scratched the surface capturing only two.
2% market to date.
Two the market is expanding the drivers for car Practic care pain opioid Bcf <unk> continued to persist according to Kelly inside the industry five year compounded annual growth rate is greater than 5% and the joint cross sells of consistently outperformed that delivering 12 year CAGR of 62%.
Three the.
The joint continues to expand the market for example in 2022 of the 845000 people who open the door to the joint for the very first time at year, 35% had never seen a car practice before.
Four we have a clear first to market advantage with over 900 clinics, we have a greater presence in all other franchise car Practic systems combined our national brand presence creates economies of scale with sets the flywheel emotion that drive even greater brand recognition.
Right.
Our digital footprint leads the internet today, the joint is the largest online publisher for information about car Practic care in the industry and we intend to leverage that even more to drive increased patient acquisition.
Finally.
Our concept lead franchises in car Practic care businesses, making the joined the top choice for entrepreneurs our success and our success is frequently recognized with accolades from franchise times franchise business review entrepreneur magazine friend data and more.
And with that I'd like to thank our community of doctors of chiropractic wellness coordinators franchisees regional developers employees for their passion and dedication to the join we could not be achieving the success that we are without their dedicated efforts.
And without harmony I'm ready to open up for Q&A.
Okay.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Using a speakerphone please pick up the 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 Kay.
At this time that will push amendment touching blah blah blah.
Thank you. Your first question comes from Jeff Van syndrome from B Riley FBR. Please go ahead.
Hello. This is Richard Magnuson in for Jeff Van syndrome. Thank you for taking our call just start off and you gave us some detail regarding <unk>.
Sort of about different cohorts in the.
The comps, but what further details can you give us about the trends among the different cohorts and specifically what are you seeing with the latest cohorts.
Might standout.
Yes, Richard I don't think we'll give any further.
Disaggregated information.
I think what we can say is you know obviously flat comps for the quarter is not where we want to be we've seen some positive momentum as we start as we start Q4, but the issues, especially as it's relating to our mature clinic portfolio continued to be sent around centered around our new patient headwinds in that.
It's why we've dedicated a lot of our efforts in support of Lori and the initiatives that Peter spoke about on the call.
Okay and then.
What metrics are you seeing in retention of new member adds.
Sure what we're seeing as you know of course, you know the key three metrics that we focus on is new patient counts attrition excuse me.
Conversion so they join as a member and then attrition.
And that we historically have been doing.
Great with our conversion numbers and so as we've talked about before pre Covid number our total conversion was running 44% to 45%.
So far this year, it's running over 50% system wide.
When we look at our attrition rate is again pre COVID-19 that was probably running around 11 are around 13% and today that some system wide running around 11% with a corporate portfolio, even less than that so the one metric that's really been hit is that new patient count and so if you look at that new patient count from our highs of 2021 to 2022 is down by.
14% and then if we look in 'twenty three year to date, we're probably another 4% down quarter to quarter, if we just compare quarter, 23% to quarter of 'twenty two.
So we are seeing it's kind of bottom out in Ontario and <unk>.
<unk> now we're moving to the other side of that new patient counts, but that's the key metric that we really want to focus on.
The other thing that I mentioned is that we definitely recognize that we can take a much more nuanced approach to our existing patient base to make sure they stay with us longer and when they do drive to be sure that we're getting and backend earlier, because we know that on average those patients who leave us 25% of them will come back within the next six months. So that's an important element that we're really going to focus on.
Okay and then my last question is that.
The new CMO focuses on leveraging patient data are you layering on new capabilities with your software system at the clinics and then aside from the new marketing demands on the software have you achieved most of what we believe you can or what the software can provide in its current form.
Well I'm going to answer that last question no I don't think that we are anywhere near touched on the real capacity of our new it platform to help drive clinic performance as.
As we've talked about it on some of the earlier calls that it's been slower than we anticipated getting some of these bugs cleaned out and the challenges that's created but I think that we've made enormous.
<unk> this year and we really are now starting to focus on what how do we leverage that resource or that asset and so that we're focusing on the creation of a patient portal and mobile check in.
All of the elements of being able to do that automated marketing to your to your patient base. So that you can make sure. They are receiving the right message at the right time and where they are in their patient journey. So I think we were really have a lot of room to grow to continue to really leverage that asset.
Of the of our it platform.
And our first question Glenn.
Alright.
I was the CMO that focuses on levering to patient data are you having to lay around new capabilities to the software.
To accommodate that demand the.
Short answer is yes.
Our programs that we're using are at or above that does our automated marketing and we've done that now with the email basis, we're moving it to.
Text.
She is we have actually done quite a bit of research on the patient journey. As you saw earlier this year that lorie is able to really leverage and use that as a model or guide as she refines, our new patient marketing strategy going forward.
Alright, well, thank you very much.
Thank you.
Okay.
Thank you. Your next question comes from J P. Whelan from rough MK Anne. Please go ahead.
Hi, Good afternoon, guys I appreciate you taking my questions.
If we could maybe just start in terms of.
Maybe really dialing in on on some of the problems we've had with the new member growth.
One is there anything you can point to that maybe says.
This is a problem for the industry rather than may be a problem related to new member acquisition at the joint.
Just something to make sure that we know it's not it's not losing customers to other Cairo brands, but rather.
Rather maybe something going on with with consumer health and then as part of that just anything to point out in terms of consumer spending and maybe trade down to four two times, a month and less membership or less less.
Yes, four plus kind of visiting customers anything to point out on spending in health. Thank you.
Sure. That's a great question and the way I would answer that is if you look at our ideal patient.
Patient is that the ideal family income or is running between 50 and 105000.
And so when we look at if you think about last year, what are we talking about it Oh my gosh, the pending recession. The recession of course, we know that we're not in a recession, but you still have 49% of the American people, who are saying that they are in a recession and so I think if you look at our patient base and you look at what's going on for them.
It relates to inflation as it relates to higher interest rates as it relates to higher mortgages of rent is that they and.
And they have in fact been impacted by some of these economic issues and I think that that is very much the core of our patient base. One of the key attributes of the joint is absolutely affordability and so I think that while we are not in a recession that would be very clear about that but I think there are patient base is more impacted because.
That growth that we've been experiencing an economy has not been evenly spread across the economy. So I think that's a part of it we're not really seeing any kind of indication that our new patient count is.
Is being drawn away by competitors.
Quite frankly, where I sit here with the 919 clinics opened I'm surprised by how little competition that we really have a yes. There are some very small direct competitors that would absolutely mimicking our modeling of our model but.
They're kind of localized in certain markets and so I don't think it's been a competitive issue that has impacted our new patient counts.
Okay.
Understood very helpful. And then maybe if we could just talk about the corporate owned portfolio for a minute.
Understand the.
Not wanting to kind of put a timeline or cadence on it but.
Is there anything you know just as we really start the process.
Any kind of number you have circled back in terms of size of the corporate portfolio you would hold on to.
Then just the other part of that is can you can you expand on how the sale.
<unk> are going is it existing franchisees that are looking to take on an additional unit or what kind of buyers are out there. Thank you.
Sure how to answer the first part of that question is that you know we made it very clear that we will be selling off the majority of our corporate portfolio.
End of the quarter, we had 136 clinics in September we started here. We made an announcement that we were going to look at kind of our bottom, 10% and that we would address either by closing those clinics refranchising those clinics or relocating and that were well in that process and so as we've said we've quoted we sold too.
We have two that are about to sell that we've closed two units.
And so what I would say is so far in terms of who the buyers have been of that that segment that we talked about in September has been existing franchisee.
And when we go forward and think about who would be the typical buyer of this majority of clinics that we are going to be selling again, we would absolutely expect it to be existing franchisees. We've already expressed interest to us that they are interested in expanding their their market area or into other markets is because they believe so much in the business.
That doesn't mean that we wouldn't also be open to selling to qualify new.
Franchisees new to the joint but again the key is you want to make sure that you are selling your franchise to quality business men and women, who really know and effectively can run clinics. So that's going to be the criteria for us.
As he said this is not a fire sale. This isn't okay. We have to have these off our booked by X date. These are valuable assets that we believe that given the market conditions that were in some of the challenges on the margins with increased patient increased.
Increased labor is that this is an effective strategy for this organization.
Got it thank you and best of luck moving forward.
Thank you.
Thank you. Your next question comes from Jeremy Hamblin from Craig Hallum Capital Group. Please go ahead.
Thanks for taking the questions.
So first just in terms of you know the multiples just sorry, if you've covered this already.
But in terms of the you know kind of the value that you are looking to achieve as either at a multiple of.
Of the four wall cash flow that's being generated.
Or is it a multiple of the revenue of the clinic how are you.
How are you determining what the appropriate valley.
Valuations are you know, especially given that you know financing is it's tougher to come by and more expensive for.
You know potential franchisees that might be looking to acquire.
Sure Jamie Great question.
We've really gone on a clinic by clinic basis across a range of valuation methodologies. So looking at the.
The performance on a clinic by clinic basis, you know running individual DCF models looking at a range of different valuation multiple techniques, whether it's sales earnings cash flow et cetera, and it has certainly given us an idea.
And some negotiating ranges on a per clinic basis, you know there is a.
Range of performance across the portfolio. So we do have high performing clinics that will command higher sales proceeds.
And in demand areas that might tick up from a multiples perspective, and then that ranges all the way to a small subset of Underperformers and then we've got young clinics that are still ramping so each of those has a unique way to view valuation and for competitive reasons, we probably won't.
[noise] out metrics on on what those multiple targets or anything of that nature, but we have done a very detailed analysis to give us.
<unk> for what they think they're worth and then we will continue those negotiations with with the related prospective buyers.
So in terms of of the perspective buyer.
Can you give us a sense for are you looking for like mid tier franchisee types are you looking for.
You know our clinicians maybe that already have you know maybe competing chiropractic clinics.
What type of you know kind of what's what's your type that youre looking for.
Hi, Jeremy its a great question and I would say that it's probably all of the above if you look at the network today is roughly 35% of our franchise communities. The Doctor of Chiropractic is in fact, the franchisee and then the majority of them. Obviously are business men and women, who are hiring the doctor and so I think that absolutely theres opportunities for doctors to be able to.
By a clinic or clinics and again.
Especially if they are in the business and understand the business and can be effective in running it that is very low.
These are all positive attributes that would help us in that process. We continue to make sure those clinics performed.
I think that is.
What I've learned over the years and franchising <unk>.
Better than your operators and so that youre looking for quality business people, who know how to run a business. Yes. This is the GA and it's always better if they come directly from the joint experience. Because then you have you don't have that same learning curve, but <unk> got some very successful franchisees and other concepts. They have also shown that they can run the joints very effectively so.
We're going to be looking very much.
The quality to be able to run our business as a criteria for this sale.
Got it and then just coming back to this process and you know it it can be challenging to go through a refranchising effort.
And really to be matching the lost revenue versus you know the.
In embedded corporate cost in particular.
You know can you give us a sense for.
Whats a reasonable timeframe. If you you know the majority.
You know in terms of the number of company operated clinics like at 136 at the end of the quarter.
Is it.
Is it feasible to do you know 25% of those in one year.
Or is that just too aggressive in terms of you know the timing is there a range you might be able to provide us with in terms of what you think can happen in year one year two.
Yeah I can appreciate the desire to want to hone that in.
I think it's important to reiterate that these are clinics of value right. This is not a fire sale, we're not going to be rushed through this process. So it's really hard to put a defined timeline on that Jeremy so we.
We probably won't.
State anything publicly as it relates to that.
You know, we've got until we get further into the product absolutely Jeremy.
Jeremy as we get further into this we'll be much more able to talk about kind of timelines and timeframes.
But at this stage is that you know, it's a little harder to give you. Okay, it's going to take X amount of time or.
X percentage will be sold by a certain time frame.
It's a priority.
According to us that this is absolutely a.
A adjustment in our strategic focus where we are absolutely we're focusing on the franchisees and sell enough as the majority of our corporate portfolio.
But it's but again. These are these are important assets that we are we will be putting in the hands of great franchisees, who can continue to run them effectively.
Great. Thanks for taking my questions best of best of luck.
Thank you.
Thank you.
Question comes from Erin <unk> from Lake Street Capital markets. Please go ahead.
Hey, Good afternoon, guys. This is Aaron on the lines of Brooks are you able to hear me okay.
Yes, no problem at all.
Cool so just recognizing that the majority of your revenue and earnings coming from the corporate side. You know how do you think move into a primarily franchise concepts concepts keeps me law.
Republican investors just in a general sense trying to I'm trying to get a bit more color on your thoughts there.
Sure I think that.
What I would say is that when we went down this path of in person went public to create a portfolio of corporate units.
We obviously saw accelerated that growth as we went into 'twenty, one and 'twenty two.
I think as I reflect on kind of where we are in some of the challenge we faced both externally in terms of.
Some of these market economic trends that have impacted our business and at the same time, we've seen some increase in the costs, particularly labor and so I think that environment has changed enough that it makes sense for us to rethink that strategy of the corporate portfolio, you're certainly franchise systems from time to time, you'll go back and forth on whether they want to have a lot of corporate units, where they went and pulled back on our corporate units.
And I think that we have tour this looking at that environment.
Correct on where we are in terms of the price of our stock is that I don't think that we're getting credit for the management of our corporate portfolio and so this is another reason to consider as we're going down this path.
And I think it's important to remember that you know we're selling the majority, but we are going to maintain a portion of the corporate portfolios and we will be targeting those those high performing clinics that are in <unk>.
<unk> kind of concentric geographic areas that will allow us to really scale back that corporate overhead so.
The strategy, we should be able to maintain a significant chunk.
The earnings potential from a smaller number of units and then allow us to continue that hybrid strategy.
Got you very helpful. And then just a quick follow up you mentioned a little bit in your prepared remarks, but.
Have you identified tangible and I guess practical ways to improve the new patient starts and its trade environment, just trying to get a better sense.
Of what that would look like in your thoughts there.
Yeah, No we have we've been doing a lot of work we have been.
Using different forums. So for example, we're doing a lot with meta these days.
I also would tictoc is what I meant to say we are increasing our spend on meta.
We're doing a whole audit of our marketing spend to understand the efficacy of that and where those resources are best spent that's one of the projects that Lloyds for us taking on.
From that we'll also do an RFP are really looking at that whole local store or that whole digital marketing spend.
If you look at our new patient count right now roughly 35% or 30% comes from referral. So that's just a patient having a great experience with the doctor and telling their friends.
We have been able to attract for example last year that 63% of our new patients touched us at some point digitally now it's always hard to them to answer on true patient attribution or new patient contribution.
But we know thats only increasingly important and so we know we need to be more and more effective on that spend and making sure that we're able to close that gap of generating those leads whether it's through paid or our organic search and then making sure that we are closing them and bring them into the clinic and so theres. Some new programs, we're putting in place a call Center for example that we're experimenting with it.
Program.
Our new patients is being offered an appointment.
To be able to create a sense of urgency or our willingness to crossover and into the clinic. So there's a number of activities more to come on that but we feel that we are definitely moving in the right direction too to address the new patient counts.
Okay.
Great I appreciate that color and congrats on the momentum I appreciate it. Thank you.
Thank you.
Once again to ask a question. Please press Star then one your next question comes from Anthony Vendetti from Maxim Group. Please go ahead.
Sure. Thank you.
Just looking at some of the trends can you point to.
There are some regions, where general kpis, you're seeing any any any positives.
Trends that Youre seeing and then.
Specifically on.
And.
The comps.
What would you attribute the relative flatness. There is that is there is that more macro or.
I'm, just trying to figure out what what youre seeing and what youre attributing some of the trends too.
Sure I think some of the positive trends, we absolutely continue to see and as I've mentioned on those three key metrics our conversion rate absolutely stays strong.
Like I said it was pre Covid is running around a total conversion between 44% to 45%.
It's over 50% during the Covid it was up to 60%, but I think that was reflective of kind of the time, we were in and if you are leaving your house.
To get an adjustment of your increased serious pain, and so I think that's reflective of a higher conversion rate.
Even post Covid, if we can talk about that we're seeing are really continuing strong conversion rate and that's very positive for the business now 84% of our sales comes from from our subscription from our wellness plan. So that's an important element of this business. We're also seeing that attrition improve again I talked about attrition was 13% pre COVID-19.
It's running closer to 11% our corporate portfolio is less than that.
So obviously our patients are staying longer.
Real patient.
J P. I, that's been impacted is that new patient count and I think theres a number of things that are that are impacting that that we've talked a little bit about theres no question that ties to our comps.
New patient.
New patient is.
Is down and that does impact our comps for the quarter or for the year.
And I think some of the reasons Thats down is as we've talked about as these macroeconomic issues based on who is our patient profile.
There is an element there and if you look at some of the younger generations in Europe, we have a very young patient base.
They have been more impacted by some of the economic uncertainty than let's say baby Boomers for example, and I think that there is and perhaps in a couple of our markets, where we're more mature is that new patient Cowen and we have a lot of things around that that new patient count has been absorbed by that greater number of clinics, what's getting spread between greater.
Clinics, which is also impacting the individual clinic new patient counts.
Okay, and then on the franchise side, and then I'll hop back in the queue.
Just the higher interest rates or some of the <unk>.
Current franchise owners that are looking to expand or new ones.
Are they a little bit more hesitant or the waiting for rates to come down or.
It's not really having much of an impact.
No I haven't.
The impact and it's not.
In talking with other franchise ores.
All agree is that there is no question Theres a lot of research out there as well is that it is impacting new franchise sales and part of that is absolutely increasing interest rates part of that is uncertainty about the economy part of that is inflation and so I do think that there is impact and it's reflected in our franchise cells. If you go back to 'twenty. One for example, we had 156 sales out here last year, we had our.
Last year, we had 75.
Year to date, we're here at 59, so were a little below where we were last year, but I think thats a direct relationship of direct impact on some of these macroeconomic issues that are influencing.
Whether somebody is going to make that leap to buy a franchise, where this is joint or anybody else as we've talked about if you look at the franchises sold in 2023 is that 58% of them were existing franchisees and it is a franchise system. There is no better validation than somebody who is already in the business, who understands it and says you know what even its conditions I want.
More.
If you're new to the joint maybe not new to franchising and you're not you don't have that same certainty of how this operates it makes sense to me to see because historically, we had been running around a 50 50 split 50% of our new patient or new franchises were new to the joint and the other 50 were existing franchisees and so it makes sense to me in this environment to see that.
The percentage of sales being driven by our existing franchisees given that uncertainty that's out there.
Makes sense. Okay. That's helpful. Thanks, very much I'll hop in queue.
Thank you very much.
Yeah.
Thank you.
Once again to ask a question. Please press Star then one we'll pull if any further questions to register.
Thank you that concludes our question and answer session I would now like to turn the conference back to Mr. Peter halt.
Thank you harmony before I close I'd like to note that we will be at the Roth Deer Valley Conference in December and.
Today about 30% of our franchisees are doctors of chiropractic and I'd like to tell tell you a story about one of our doctors and their systems when Dr. P move to Las Vegas. He was looking for a car practic practice that afford him the ability to maintain a few business ventures in his prior location.
The joint provided that flexibility no pun intended and Dr. P said and I quote I quickly fell in love with the brand and everything the joint represents two years later he realizes hometown in yet another state didn't have any create any joined clinics Dr.
Dr. <unk> reported I saw this as an ideal opportunity to embrace the challenge of marrying my passion for the brand my experience as a chiropractor and my entrepreneurial spirit.
It almost felt like it was an opportunity that was meant to be so we took the leap and he hasnt look back.
Thank you and stay well adjusted.
Yes.
Okay.
Thank you.
<unk> is now concluded. Thank you for attending today's presentation you may now disconnect.
[music].