Q4 2023 The Joint Corp Earnings Call

Operator: Good afternoon, everyone, and welcome to the Joint Corp fourth quarter and full year 2023 financial results conference call. All participants will be in a listen-only mode.

Good afternoon, everyone and welcome to the joint Corp, fourth quarter and full year 2023 financial results Conference call.

All participants will be in a listen only mode should you need assistance. Please signal our conference specialist by pressing the star key followed by zero.

Operator: 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 a question, you may press the star key and then one on your touch-tone telephone.

After todays presentation, there will be an opportunity to ask questions to ask a question you May press Star and then one on your Touchtone telephone.

Operator: Withdraw your questions; you may press star and two. Please also note that today's event is being recorded. At this time, I'd like to turn the floor over to Kirsten Chapman with LHA Investor Relations, Division of Alliance Advisors. Please go ahead.

Withdraw your question you May press Star two.

Please also note today's event is being recorded.

At this time I'd like to turn the floor over to Kirsten Chapman with <unk> Investor Relations Vision of Alliance Advisors. Please go ahead.

Kirsten F. Chapman: Thank you, Jamie. Good afternoon, everyone. This is Kirsten Chapman with LHA Investor Relations, a division of Alliances. Joining us on the call today are President and CEO Peter Holt and CFO Jake Singleton. Please note we're using a slide presentation that can be found at ir.thejoint.com. Today, after the market closed, the Joint issued its results for the quarter and year ended December 31, 2023. To find that press release on the investigative... As provided on slide two, please be advised that today's discussion includes forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact may be considered forward-looking statements. Although the company believes that the expectations and assumptions reflected in these forward-looking statements are reasonable, it can make no assurance that such expectations or assumptions will prove to have been correct.

Thank you Jamie Good afternoon, everyone. This is Kirsten Chapman of <unk> Investor Relations a division of Alliance advisors.

US on the call today are president and CEO, Peter Holt and CFO Jake Singleton. Please note we're using a slide presentation that can be found at IR <unk> got the joy Dotcom flash events.

Today after the market closed the joint issued its results for the quarter and year ended December 31st 2023, you can find that press release on the Investor Relations 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 of the private Securities Litigation Reform Act of 1995, all statements other than statements of historical fact may be considered forward looking statements. Although the company believes that the expectations and assumptions reflected in these forward looking.

That's a reasonable it can make no assurance 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 statements due to various risks and uncertainties. As a result, we caution you against placing undue reliance on the forward looking statements for a discussion of the <unk>.

Kirsten F. Chapman: Actual results may differ materially from those expressed or implied in this for. As a result, we caution you against placing undue reliance on the Ford, For a discussion of the 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 Forms 10-K and 10-Q, as well as other reports the company files from time to time. Finally, any forward-looking...

<unk> 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 forms 10-K, and 10-Q as well as other reports the company files from time to time with the SEC. Finally any forward looking statements included in this call are made only as of the date of this call.

Kirsten F. Chapman: The questions included in this 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 the forward-looking statements in light of any new information or future events. Management uses EBITDA and adjusted EBITDA, which are non-GAAP financial measures, 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 costs than Gap Measures alone. Reconciliation of the Net Income to EBITDA and Adjusted EBITDA is presented in the press. The company defines EBITDA as net income or loss before net interest, tax expense, depreciation, and amortization.

And we do not undertake any obligation to revise our results or publicly release any updates to the forward looking statements in light of any new information or future events.

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

A reconciliation of the net income to EBITDA and adjusted EBITDA is presented in the press release. The company defines EBITDA as net income or loss before debt interest tax expense depreciation and amortization expenses.

The company defines adjusted EBITDA as EBITDA before acquisition related expenses, which includes contract termination costs associated with re acquired regional developer rights stock.

Kirsten F. Chapman: The company defines adjusted EBITDA as EBITDA before acquisition-related expenses, which includes contract termination costs associated with reacquired regional developer rights. Stock-Based Compensation Expense. Bargain Purchase Game

Stock based compensation expense.

Bargain purchase gain net loss or gain on disposition of impairment costs related to restatement filings restructuring costs and other income related to employee retention credits.

Peter D. Holt: Net Loss or Gain on Disposition of Impairment, costs related to restatement filings, restructuring costs, and other income related to employee retention. Management also uses commonly discussed performance metrics. System-wide sales includes revenues at all clinics, whether operated by the company or by... While franchise sales are not recorded as revenues by the company, management believes this information is important in the understanding of the franchisees' and the company's performance because these sales are based on which the company calculates and records royalty fees and are indicative of the financial health of the franchise. System-wide comp sales includes the revenue from both company-owned for Managed Clinics and franchised Turning to slide three, it is my pleasure to turn the call over to Peter Holt. Please go ahead, Peter.

Management also uses commonly discuss performance metrics system wide sales includes revenues at all clinics, whether they're operated by the company or by franchisees well franchise sales are not recorded as revenues by the company management believes this information is important and the understanding of the company's financial performance. Because these sales are based on which the company calculate.

Yeah.

And of course royalty fees and are indicative of the financial health of the franchisee base system wide comp sales include the revenue from both company owned.

Or managed clinics and franchise clinics that in each case have been opened at least 13 full months and exclude any clinics that have been closed.

Turning to slide three its my pleasure to turn the call over to Peter Holt. Please go ahead Peter.

Peter D. Holt: Thank you, Kirsten, and I welcome everybody to the call. As we review 2023, I'd like to begin by acknowledging how proud I am of our whole team, our doctors, wellness coordinators, corporate employees, franchisees, and regional developers, for their steadfast commitment to supporting our patients. In a market of ongoing uncertainty among our patient demographic, we delivered growth in system-wide sales, revenue, adjusted EBITDA, the number of new patients, and the number of patients treated. Additionally, we improved our patient conversion and existing patient attrition rates. I'm even more impressed that they embraced our enhanced marketing strategies targeted to increase new patient count and improve existing patient engagement. Our efforts are beginning to gain traction, and we're augmented by our year-end campaign. The Joint is revolutionizing access to chiropractic care by providing affordable, concierge-style membership-based services in convenient retail settings, and this franchise concept remains strong.

Thank you Kirsten and I welcome everybody to the call.

As we review 2023, I'd like to begin by acknowledging how proud I am of our whole team our doctors wellness coordinators corporate employees franchisees and retail developers for their steadfast commitment to supporting our patients in a market of ongoing uncertainty among our patient demographic, we delivered growth in system wide sales revenue adjusted EBITDA.

The number of new patients and the number of patients treated.

Also we improved our patient conversion in existing patient attrition rates.

I'm, even more impressed us they embraced our enhanced marketing strategies targeted to increasing new patient count and improving existing patient engagement.

Our efforts are beginning to gain traction and were augmented by our year end campaign.

The joint is revolutionizing access to car Practic care by providing affordable concierge style membership based services and convenient retail settings.

And this franchise concept remains strong.

Peter D. Holt: In fact, there's been significant interest in our re-franchising strategy, as we announced at the end of last year. We put a thoughtful process in place to ensure that we are getting these clinics into the hands of our franchisees who can most effectively run them. As we move into 2024, we've renewed our mission to improve the quality of life through routine and affordable chiropractic care, and we've advanced our vision to be the champions of chiropractic care. Jake and I will elaborate, but first, I'd like to review our 2023 operating metric. During the year, the doctors of chiropractic at the Joint performed 13.6 million adjustments, up from 12.2 million patient visits in 2022. We treated 1.75 million unique patients, from 1.6 million in 2022. And of those treated, over 932,000 were new patients, from approximately 845,000 in 2022. Of our new patients, 36%, or approximately 336,000 people, had never been to a chiropractor before visiting the joint.

In fact, there's been significant interest in our Refranchising strategy as we announced at the last at the end of last year.

We put a thoughtful process in place to ensure that we are getting these clinics into the hands of our franchisees, who can most effectively run them.

As we move into 'twenty 'twenty four we've renewed our mission to improve quality of life through routine and affordable car Practic care and we've advanced our vision to be the champion car Practic.

Jack and I will elaborate but first I'd like to review our 2023 operating metrics.

During the year the doctors a car Patrick at the joint performed $13 6 million adjustment up from $12 2 million patient visits in 2022.

We've treated 175 million unique patients up from $1 6 million in 2022 and of those treated over 932000 were new to patients new patients from approximately 845000 and 2022.

All of our new patients, 36% or approximately 336000 people had never been to a car prechter before visiting the joined our model is literally expanding the market of chiropractic users.

Peter D. Holt: Finally, during 2023, our monthly memberships contributed 85% of our system-wide growth sales, up from 84% in 2022. Turning to slide four, I'll review our financial highlights for the full year 2023. System-wide sales grew to $488 million, increasing 12% compared to 2022. Comp sales for clinics that have been open more than 13 full months increased 4% compared to 2022. And revenue increased 16% compared to 2022. Adjusted EBITDA was $12.2 million for 2023, up 6% over last year. At December 31, 2023, our unrestricted cash was $18.2 million, compared to $9.7 million at December 31, 2022.

Finally during 2023, our monthly memberships contributed 85% of our system wide gross sales up from 84% in 2022.

Turning to slide four I'll review, our financial highlights for the full year 2023.

Systemwide sales grew to $488 million, increasing 12% compared to 2022 comp.

Comp sales for clinics that have been more open more than 13 full months increased 4% compared to 2022 rare.

Revenue increased 16% compared to 2022.

Adjusted EBITDA was $12 $2 million for 2023 up 6% over last year.

At December 31, 2023, our unrestricted cash was $18 2 million compared to $9 $7 million at December 31, 2022.

Peter D. Holt: Turning to slide 5, I'll discuss our clinic metrics for 2023. We opened 114 clinics, 104 franchised, and 10 greenfields. This compares to 2022 with 137 clinics open, 110 franchised, and 20 greenfields. We closed 13 franchised and 4 corporate units, which is less than 2% of our portfolio. This reflects the fact that some of the clinic market's conditions have changed. For example, a retail center may lose an anchor tenant, or other demographic changes impact the viability of the site.

Turning to slide five I'll discuss our clinic metrics for 2023.

We opened 114 clinics.

104, franchised and 10 Greenfield.

This compares to 2022 with 137 clinics open 110, franchised and 20 Green pills.

We closed 13 franchised and for corporate unit, which is less than 2% of our portfolio.

This reflects the fact that some of the crude market condition changed for example, a retail center may lose an anchor tenant or other demographic changes impacted by ability of the site, having said that we're working on a number of profitability initiatives to improve financial performance of our clinics.

Peter D. Holt: Having said that, we're working on a number of profitability initiatives to improve the financial performance of our clinics. We added three previously franchised clinics to our corporate portfolio. As of December 31, 2023, we had 935 clinics in operation, consisting of 800 franchise clinics and 130 company-owned or managed clinics.

We added three previously franchised clinics to our corporate portfolio.

At December 31, 2023, we had 935 clinics in operation consisting of 800 franchise clinics and 130 company owned or managed clinics.

Peter D. Holt: The clinic portfolio mix shifted slightly to 86% franchise and 14% company owner managed from 85 to 15% at the end of 2022. As we execute our refranchising strategy, the portfolio mix will shift more significantly. Regarding our corporate portfolio, while we're no longer proactively pursuing a greenfield expansion strategy, we're actively supporting the three greenfield clinics that are in the process of being opened. We will uphold our various obligations related to their leases and build-ups.

Clinic portfolio mix shifted slightly to 86% franchise and 14% company owned or managed from 85% to 15% at the end of 2022.

As we execute our refranchising strategy the portfolio mix will shift more significantly.

Regarding our corporate portfolio, while we're nowhere no longer proactively pursuing our greenfield expansion strategy. We're actively supporting the three greenfield clinics that are in the process of being opened we will uphold our various obligations related to their leases and build outs.

Peter D. Holt: Turning to slide 6 regarding our re-franchising strategy, as noted before, many of these clinics are quality assets of high value, and we will allow the necessary time to capture that best value. Our team has prepared the framework for the sale of the majority of our corporate clinics. We've organized units in clusters and generated comprehensive disclosure packets for efficient marketing.

Turning to slide six regarding our franchise <unk>, our refranchising strategy as noted before many of these clinics are quality assets of high value and we will allow the necessary time to capture that best value. Our team has prepared the framework for the sale of the majority of our corporate clinics, we've organized units in clusters and generated comprehensive disclosure.

<unk> for marketing efficiently.

Peter D. Holt: We gave initial preference to existing franchisees and have broadened the net to potential buyers outside the existing joint community. The majority of our corporate clinics are at various stages of sales negotiations. We intend to sell these clinics to our franchisees who can most effectively run them. Today, we've received significant interest with over 100 requests for information.

We gave initial preference existing franchisees and their broadened the net to potential buyers outside the existing joint community the.

The majority of our corporate clinics are at various stages of sales negotiations.

We intend to sell these clinics to our franchisees, who can most effectively run them today.

Today, we have received significant interest with over 100 requests for information later this month, we'll be marketing at the multi unit franchise conference in Las Vegas.

Peter D. Holt: Later this month, we'll be promoting at the Multi-Unit Franchise Conference in Las Vegas. Ultimately, our goal is to get these clinics in the hands of our best-performing franchisees, and generate capital that can be used for many purposes, such as reinvesting in the brand, reacquiring RD territories, and or repurchasing stock, among other options. Turning to slide 7, let's review our franchise license sales. As expected when we announced our new re-franchizing strategy, we experienced a slowdown in new franchise license sales.

Ultimately our goal is to get these clinics in the hands of our best performing franchisees Gen generate capital that can be used for many purposes, such as reinvesting in the brand marketing requiring Rd territories <unk> repurchasing stock among other options.

Turning to slide seven let's review our franchise license sales.

As expected when we announced our new French Refranchising strategy, we experienced a slowdown in new franchise license sales, while there will be some franchisees that want to start with a brand new clinic and continue to purchase new licenses. We expect the speed of new franchise sales can be impacted while the refranchising is in full swing.

Peter D. Holt: While there will be some franchisees that want to start with a brand new clinic and continue to purchase new licenses, we expect the speed of new franchise sales to be impactful. Well, re-franchising is in full swing. During Q4, we sold five franchise licenses, bringing the 2023 sales to 55 compared to 75 in 2022. The year-over-year change reflects the continued impact of higher interest rates, inflation, and strong employment rates. In addition to our newly announced refranchising strategy, of the licenses sold, 58% were sold to existing franchisees who reinvested in a joint, reflecting their belief in our business. At year end, we had 172 franchise licenses in active development. Our marketing efforts, which I'll detail more in a moment, are built to support our nationwide brand-building efforts. Our regional developer strategy remains consistent. We have demonstrated over the past several years that the natural progression of territory development can lead to the reacquisition of certain RD regions, and will continue to execute as criteria are met. We do not plan to add additional R.D.

During Q4, we sold five franchise licenses, bringing the 2023 sales to <unk> 55, compared to 75 and 2022.

The year over year change reflects the continued impact of the higher interest rates inflation strong employment rates. In addition to our newly announced Refranchising strategy.

Of licenses sold 58% were sold to existing franchisees, who reinvested into joined reflecting their belief in our business.

At year end, we had 172 licensed franchise licenses in active development.

Our marketing efforts, which I'll detail more in a moment are built to support our nationwide brand building efforts.

Are we doing developer strategy remains consistent we have demonstrated over the past several years as the natural progression of territory development can lead to the re acquisition of certain Rd regions and will continue to execute as criteria is met.

We do not plan to add additional Rd territories and as such over time, we would expect R&D share of franchise royalty fees to decrease as we acquire those Rd rights.

Peter D. Holt: territories, and as such, over time, we would expect R.D.'s share of franchise royalty fees to decrease as we acquire those R.D. rights.

Peter D. Holt: We ended 2023 with an RD count of 17, and the aggregate 10-year minimum development schedule for the RD territories is 674. Turning to slide 8, let's review our key performance indicators. We've taken great measures to increase our new patient conversion rates, grow new patient counts, and lower patient attrition. In 2023, compared to 2022, we improved attrition by 20 basis points to 11%. Also, conversions rose 160 basis points to 52.1%, and we're continuing to work hard to increase our new patient count. I'll review our marketing efforts related to that on slide 9. Back Friday and year-end wellness sales were both strong promotions for us in 2023, resulting in a new record-breaking total in several areas. Total sales for the Back Friday packages increased 31% compared to 2022.

We ended 2023 with an Rd count of 17, and the aggregate 10 year minimum development schedule for the Rd territories a 674.

Turning to slide eight let's review our key performance indicators.

We've taken great measures to increased our new patient conversion rates grow new patient counts and lower patient attrition in 2023 compared to 2022, we improved attrition by 20 basis points to 11%.

Also conversions rose 160 basis point to 52, 1%.

And we're continuing to work hard to increase our new patient count.

I'll review, our marketing efforts related to that on slide nine.

Back Friday and year end.

Wellness cells were both strong promotions for us in 2023.

Resulting in a new record breaking totals in several areas.

Total sales for the back Friday packages increased 31% compared to 2022.

Peter D. Holt: The annual end-of-year wellness sale helps patients start the new year with wellness in mind. This promotion enabled our patients to purchase 10 months of membership and receive two months free. Total end-of-year promotional sales increased 21% compared to 2022; 2024 is shaping up to be an exciting year for marketing as our joint, as a joint, led by our new CMO, Lori Abu-Habib. We focus on initiatives to drive new patients, including increasing our media efficiency by adjusting our channel mix and increasing our working media spend to reach even more prospective patients. This adjusted media mix pairs with our patient strategy to ensure that we're delivering the message of affordable, convenient chiropractic care to those most likely consumers. Additionally, we plan new promotions and offers aimed directly at adding new patients. To take advantage of our local differences, we're creating more robust local store marketing programs by providing proven tactics and more nuanced tools for our system.

The annual your end of year wellness sale help the patient to start the new year with wellness in mind this promotion and nail their patients to purchase 10 months of membership and received two months free.

Total end of year promotional sales increased 21% compared to 2022.

In 2024 is shaping up to be an exciting year for marketing as our joint effort joined led by our new CMO Lori Abou Habib.

We focused on initiatives to drive new patients, including increasing our media efficiency by adjusting our channel mix and increasing our working media spend to reach even more prospective patients.

This adjusted media mix pairs with our patient strategy to ensure that we're delivering the message of affordable convenient car practic care to those most likely consumers.

Additionally, we plan new promotions and offers aimed directly adding new patients.

To take advantage of our local differences, we're creating more robust local store marketing programs by providing proven tactics and more nuanced tools, where our system.

Peter D. Holt: Finally, to ensure that we maximize convenience for our patients, we're testing an initiative to enable initial patient bookings, something that we're learning is important to a subset of our prospective patients. Additionally, we're putting a greater focus on existing and lapsed patient engagement. We will introduce new promotions aimed at reengaging former patients. Furthermore, we'll apply our learnings about the patient life cycle to automated messages to retain patients during the critical phases of their journey.

Finally to ensure that we maximize convenience for our patients. We're testing an initiative to enable initial patient bookings something that we're learning is important to a subset of our prospective patients.

Additionally, we're putting a greater focus on existing and lapsed patient engagement, we will introduce new promotions aimed at re engaging former patients more over we'll apply our learnings about the patient lifecycle to automatic automated messages to retain patients during the critical phases of their journey.

Peter D. Holt: In partnership with our marketing co-ops, we're testing new programs and channels to increase our co-op synergies and overall brand awareness. The marketing team has been working hard on expanding the brand's architecture. We continue to evolve our brand, positioning, and defining the brand essence to deepen our competitive advantage. During Q4, we had several workshops to define current consumer perceptions, target consumers, and unique benefits that we can offer as a brand.

Partnership with our marketing co op, we're testing new programs and channels to increase our Cogs synergies and overall brand awareness.

The marketing team has been working hard on expanding the brand's architecture, we continue to evolve our brand positioning and defining the brand essence to deepen our competitive advantage.

During Q4, we had several workshops to define current consumer perceptions.

Our target consumers and unique benefits that we can offer as a brand more recently, we had an opportunity to work with our franchisees to incorporate their feedback into the process, we're refining language and defining impact areas to leverage this new positioning.

Peter D. Holt: More recently, we had an opportunity to work with our franchisees to incorporate their feedback into the process. We're refining language and defining impact areas to leverage this new position. We expect these efforts to have a positive impact on performance in 2024.

We expect these efforts to have a positive impact on our performance in 2024.

And with that I'll turn the call over to Jake Thanks.

Jake Singleton: Thanks, Peter. Let's turn to slide 10. I'll review our clinic comps for Q4-23 compared to Q4-22. System-wide sales for all clinics open for any amount of time increased to $133.1 million, up 11 percent. System-wide comp sales for all clinics open 13 months increased 5%. System-wide comp sales for mature clinics opened 48 months or more decreased 1%.

Thanks, Peter let's.

Let's turn to slide 10.

I'll review, our clinic comps for Q4 dollars 23 compared to Q4 'twenty two.

System wide sales for all clinics opened for any amount of time increased to $133 $1 million up 11%.

System wide comp sales for all clinics opened 13 months increased 5%.

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

Jake Singleton: Revenue was $30.6 million, up $2.9 million, or 11%. Revenue from franchised operations increased 14%, contributing $12.7 million. Company-owned or managed clinic revenue increased 9%, contributing $17.9 million. The increases represent continued year-over-year growth in both the franchise base and the corporate portfolio. Cost of revenue was $2.9 million, up 16% over the same period last year, reflecting the associated higher regional developer royalties and commissions.

Revenue was $30 6 million up $2 $9 million or 11%.

Revenue from franchise operations increased 14% contributing $12 $7 million.

Company owned or managed clinic revenue increased 9% contributing $17 9 million.

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

Cost of revenues was $2 $9 million up 16% over the same period last year, reflecting the associated higher regional developer royalties royalties and commissions.

Jake Singleton: Selling and marketing expenses were $3.4 million, up 2% year over year and down 22% compared to Q3'22. This reflects our Q4 cost management efforts to offset selling and marketing spending earlier in the year. Depreciation and amortization expenses decreased $379,000, or 18 percent, compared to the prior year period, reflecting the corporate clinics that are being held for sale as part of the re-franchising effort. General and administrative expenses were $21.3 million compared to $18.3 million, reflecting the cost of support to increase clinic costs.

Selling and marketing expenses were $3 4 million up.

Up 2% year over year and down 22% compared to Q3 'twenty. Three this reflects our Q4 cost management efforts to offset selling and marketing spending earlier in the year.

Depreciation and amortization expenses decreased $379000 or 18% compared to the prior year period, reflecting the corporate clinics that are being held for sale as part of the Refranchising efforts.

General and administrative expenses were $21 $3 million compared to $18 $3 million, reflecting the cost to support the increased clinic count.

Jake Singleton: Although these were partially offset by cost control initiatives, such as hiring freezes, travel reductions, and the elimination of non-corporate projects, loss on disposition or impairment was $1.5 million compared to $50,000 in Q4-22. The increase is related to our re-franchising efforts, which include those additional corporate clinics that were announced to be held for sale in November of 2023. Operating loss was $147,000 compared to operating income of $1.5 million in Q4 2022, reflecting the aforementioned impairment charges. Additionally, during Q4, we recorded a non-cash valuation allowance of $10.8 million against our deferred tax assets. A valuation allowance is a non-cash accounting entry to record a reserve against existing deferred tax assets.

These were partially offset by cost control initiatives, such as hiring freezes travel reductions and the elimination of noncore projects.

Loss on disposition or impairment was $1 5 million.

Compared to $50000 in Q4 22.

The increase is related to our Refranchising efforts, which include those additional corporate clinics that were announced to be held for sale in November of 2023.

Operating loss was $147000 compared to operating income of $1 $5 million in Q4, 2022, reflecting the aforementioned impairment charges.

During Q4, we recorded a noncash valuation allowance of $10 8 million against our deferred tax assets.

Valuation allowance is a noncash accounting entry to record a reserve against existing deferred tax assets. As we mentioned earlier there is uncertainty regarding the timing of our refranchising transactions.

Jake Singleton: As we mentioned earlier, there is uncertainty regarding the timing of our re-franchising transactions. When you introduce uncertainty, the GAAP accounting guidance indicates you should review the potential realizability of or our ability to benefit from those future tax assets. Until such time as those uncertainties are resolved, it's more prudent to record a valuation allowance at this time. It's important to know that we still maintain these tax assets, and they will be available to utilize in the future as we return to profitability. As a result, income tax expense was $10.9 million, compared to $629,000 in Q4 2022.

When you introduce uncertainty the GAAP accounting guidance indicates you should review the potential realize ability or our ability to benefit from those future tax assets until such time that those uncertainties are resolved, it's more prudent to record a valuation allowance at this time.

It's important to know that we still maintain these tax assets and they will be available to utilize in the future as we returned to profitability.

As a result income tax expense was $10 $9 million compared to $629000 in Q4 2022.

Jake Singleton: Q4 2023's net loss was $11.0 million, or $0.75 per share, compared to Q4 2022's net income of $763,000, or $0.05 per diluted share. Adjusted EBITDA was $4 million for both Q4 2023 and 2022. Franchise Clinic adjusted EBITDA was up 11% at $6.6 million. Company-owned or managed clinic adjusted EBITDA increased 15% to $1.8 million. Corporate expense as a component of adjusted EBITDA was $4.4 million, $814,000 higher than Q4 2022, related to increased headcount to support the larger clinic count.

Q4, 2023, net loss was $11.0 million or <unk> 75 per share compared to Q4, 2022, net income of $763000 or <unk> <unk> per diluted share.

Adjusted EBITDA was $4 million for both Q4 2023 and 2022.

Franchise clinic, adjusted EBITDA was up 11% at $6 $6 million.

Company owned or managed clinic, adjusted EBITDA increased 15% to $1 8 million.

Corporate expense is a component of adjusted EBITDA was $4 $4.814 million higher than Q4 2022 related to increased head count to support the larger clinic count.

Jake Singleton: On to slide 11, for the year ended December 31st, 2023, compared to 2022, system-wide sales for all clinics open for any amount of time increased 12%. System-wide comp sales for all clinics open 13 months or more increased 4%. System-wide comp sales for mature clinics opened 48 months or more decreased 1%. Revenue was $117.7 million, up $16.4 million, or 16%. In 2023, the net loss, including the non-cash valuation allowance, was $9.8 million, or $0.66 per basic share.

On to slide 11 for the year ended December 31, 2023 compared to 2022.

System wide sales for all clinics opened for any amount of time increased 12%.

System wide comp sales for all clinics opened 13 months or more increased 4%.

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

Revenue was $117 $7 million up $16 4 million or 16%.

2023, net loss, including the noncash valuation allowance was $9 8 million or <unk> 66 per basic share.

Jake Singleton: This compares to 2022 net income of $627,000, or $0.04 per diluted share. Adjusted EBITDA was $12.2 million, up $691,000 or 6%. On to a review of our balance sheet and cash flow at December 31st, 2023, our unrestricted cash was $18.2 million, compared to $9.7 million at December 31st, 2022. This reflects $14.7 million in cash from operations, including the receipt of employee retention credits of $4.8 million, net of $6.2 million investment in clinic acquisitions. Development of Greenfield Clinics and the Improvement of Existing Clinics and Corporate Assets. As of December 31st, 2023, we had $2 million drawn on our line of credit with JPMorgan Chase.

This compares to 2022 net income of $627000 or <unk> <unk> per diluted share.

Adjusted EBITDA was $12 $2 million up $691000 or 6%.

On the review of our balance sheet and cash flow at December 31, 2023, our unrestricted cash.

Was $18 $2 million compared.

Compared to $9 $7 million.

At December 31, 2022.

<unk> $14 $7 million in cash from operations.

Including the.

The receipt of employee retention credits of $4 $8 million net of $6 $2 million investment in clinic acquisition.

Development of Greenfield clinics in the improvement of existing clinics and corporate assets at December 31, 2023, we had the we had $2 million drawn on our line of credit with Jpmorgan Chase.

Jake Singleton: Since year-end, based on our high closing cash balance and our projected proceeds from the re-franchizing strategy, we decided to reduce our interest expense and repay the $2 million line of credit balance. We continue to have immediate access to $20 million of additional cash through this line of credit with JPMorgan Chase. On to slide 12 for a review of our guidance. As Peter discussed, we are well into our refranchising strategy. Because the timing of the corporate clinic sales is uncertain and will impact revenue and adjusted EBITDA in 2024, we have modified financial guidance to be system-wide growth sales and system-wide comp sales. We will continue to provide guidance on new franchise openings, excluding the impact of refranchised clinics. System-wide sales are expected to be between $530 and $545 million compared to $488 million in 2023.

Since year end based on our high closing cash balance and our projected proceeds from the Refranchising strategy, we decided to reduce our interest expense and repaid the $2 million line of credit balance.

We continue to have immediate access to $20 million of additional cash through this line of credit with JP Morgan Chase.

On to slide 12 for a review of our guidance as Peter discussed we are well into our Refranchising strategy.

Because of the timing of the corporate clinic sales is uncertain and will impact the revenue and adjusted EBITDA in 2024, we've modified financial guidance to be system wide gross sales and system wide comp sales. We will continue to provide guidance on new franchise openings, excluding the impact of re franchised clinics.

System wide sales are expected to be between 530 and $545 million compared to $488 million in 2023.

Jake Singleton: System-wide comp sales for all clinics open 13 months or more are expected to increase in the mid-single digits, compared to an increase of 4% in 2023. New franchise clinic openings, excluding the impact of refranchised clinics, are expected to be between 60 and 75, compared to 104 in 2023. The difference reflects the impact of the re-franchising effort. As we think about the financial impacts of the re-franchising efforts, please note that our cost of sales is primarily related to regional developer fees, and 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.

System wide comp sales for all clinics opened 13 months or more are expected to increase in the mid single digits compared to an increase of 4% in 2023.

New franchise clinic openings, excluding the impact of Refranchising clinics are expected to be between 60 and 75 compared to 104 in 2023 the.

The difference reflects the impact of the Refranchising efforts.

As we think about the financial impacts of the Refranchising efforts. Please note that our cost of sales is primarily related to regional developer fees and 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.

Jake Singleton: Currently, our corporate clinics spend about $3,000 per clinic per month on local advertising. Regarding general and administrative expenses, we expect to see significant reductions in our clinic-level, four-wall operating expenses, our outside-the-four-wall expenses, and in our unallocated corporate overhead. These expenses will be reduced proportionately as we reduce the scale of our corporate portfolio.

Currently our corporate clinic spend about $3000 per clinic per month in local advertising.

Regarding general and administrative expenses, we expect to see significant reductions in our clinic level four wall operating expenses are outside the four wall expenses and in 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.

Jake Singleton: As such, the timing of these G&A reductions will be gradual and incremental. Overall, while we reduce our top-line revenue, we expect reductions in G&A to expand our operating margins and increase profitability in the long run. Finally, it's important to note that while some of our underperforming clinic valuations may result in non-cash impairment charges, the better the clinic performs, however, the better a clinic performs, it will create higher sales proceeds and the opportunity for a gain on sales. And with that, Peter, I will turn the call back over to you. Thank you, Jake.

Gradual and incremental.

Overall, while we reduce our topline revenue, we expect reductions in G&A to expand our operating margins and increased profitability in the long run.

Finally, it's important to note that while some of our underperforming clinic valuations may result in noncash impairment charges.

The better the clinic performs however, the better clinic performs that will create higher sales proceeds and the opportunity for a gain on sale.

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

Sure.

Thank you Jake as I noted on the onset of this call we've expanded our vision to be the champion of chiropractic care by providing consumers expanding access to car Practic services that meets the demands and improve their health.

Peter D. Holt: As I noted at the beginning of this call, we've expanded our vision to be the champion of chiropractic care by providing consumers with expanding access to chiropractic services that meet their demands and improves their health. Our strategic pillars are our brand, our people, and our performance. To elevate our brand equity and drive awareness, we'll strive to increase our active patient count by improving the intake process, by testing booking new patient initial visits, and by optimizing local clinic markets. We plan to lengthen the time patients stay engaged with a joint and to reactivate lapsed patients by leveraging new content, automated messaging, and additional promotion. Also, we intend to employ new media campaigns to increase our new patient leads. Our goal is to ensure that we assemble and retain the strongest team.

Our strategic pillars, our brand our people and our performance.

To elevate our brand equity and drive awareness will strive to increase our active patient count by improving the intake process by testing book booking new visit patients initial visits and by optimizing local clinic marketing we plan to lengthen the time patients stay engaged with the joined and to reactivate lapsed patients by leveraging new content automated messaging.

And additional promotions.

Also we intend to employ new media campaigns to increase our new patient leads.

Our goal is to ensure we assemble and retain the strongest team. We're continually building our lead pipeline through our doctors a car practic to share with our whole franchise system by cultivating professional relationships and mentoring programs.

Peter D. Holt: We are continually building our lead pipeline for our doctors of chiropractic to share with our whole franchise system by cultivating professional relationships and mentoring programs. We're evaluating and recommending enhancing incentives and benefits, including creating The Joint's first continuing education platform for doctors. Additionally, we're employing programs that better align staff with our patient experience vision. These initiatives are being implemented to improve our performance. We expect to drive total system sales by increasing new patient counts and optimizing sales per patient. Additionally, we're evaluating line extensions and ancillary products. Ultimately, we expect to foster a strong franchise base, improve unique economics, increase productivity, and expand margins at the clinic and company level. Finally, the Joint is consistently recognized for its excellence.

We're evaluating and recommending enhance incentives and benefits, including creating the joined first continuing education platform for doctors.

Additionally, we are employing programs that better align staff with our patient experience vision.

These initiatives are being implemented to improve our performance, we expect to drive total system sales by increasing new patient counts and optimizing sales per patient. Additionally, we're evaluating the line extensions and ancillary products ultimately, we expect to foster our strong franchise base improve unit economics increased productivity and expand margins.

The clinic and company level.

Finally, the joint is consistently recognized for excellence. Most recently entrepreneur magazine ranked the joint number one franchise and carpeting services number 61 for veterans and number 83.

Peter D. Holt: Most recently, Entrepreneur Magazine ranked the Joint the number one franchise in chiropractic services, number 61 for veterans, and number 83 out of the top 500 franchise systems in the United States. Before we begin questions, I'd like to invite you to meet us at the Roth Annual Growth Conference later this month in Orange County. And with that, Jamie, I'm ready to take the Q&A. Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and then one on your touch-tone telephone. If you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the keys to ensure the best sound quality.

500 franchise systems in the United States.

Before we begin questions I'd like to invite you to meet us at the Roth annual growth Conference later this month in Orange County.

And with that Jamie I'm ready to take the Q&A.

Ladies and gentlemen at this time, we'll begin the question and answer session to ask a question you May Press Star and then one and you touched on telephones.

We are using a speaker phone, we do ask that you. Please pickup your handset prior to pressing the keys to ensure the best sound quality.

Operator: To withdraw your questions, you may press star and then one to join the question queue. And our first question today comes from George Kelly from Roth MKM. Please go ahead with your question. Hey everybody, thanks for taking my question. Maybe I'll start with...

To withdraw your question you May press Star two.

Once again that is star and then one to join the question queue.

And our first question today comes from George Kelly from Roth and Kim. Please go ahead with your question.

Hey, everybody thanks for taking my questions.

Maybe I'll start with trying.

George Arthur Kelly: Trying to just get a feel for the process, the re-franchising process underway. And there was a comment, I think, in your prepared remarks, and it's in the slide deck as well, just about how you're sort of broadening the scope of potential buyers of those businesses. And I'm just curious, is it fair to interpret that as like the initial interest has maybe lacked your previous expectation?

Trying to just get a feel for the process that refranchising process underway.

And there was a comment.

In your prepared remarks, and it's in the slide deck as well just about how you are sort of broadening the scope of potential.

Buyers of those businesses.

And I'm just curious is it fair to interpret that as like the initial.

Interest is maybe lacked your previous expectation.

Peter D. Holt: Or how should I interpret that comment in the presentation? And then the second part of the question, on the same topic, is, Do you have a better sense of timing when this process should be complete? Are you comfortable, you know, should it be a year-end thing, or could it be several years? Hey, George.

Or how should I interpret that.

Comment in the presentation and then the second part of your question same topic is.

Do you have a better sense of timing when this process should be complete or are you comfortable.

Should it be a year end thing or could this be several years.

Peter D. Holt: Two great questions. To answer your first question, is that somehow the idea of broadening the people that could potentially be interested in our franchise clinics that we're selling a reflection of lower interest than expected from our franchise community? Absolutely not.

Hey, George two great questions to answer. Your first question is that is somehow by the idea of broadening the people that could potentially be interested in our franchised clinics that were selling a reflection.

Lower interest and expected of our franchise community absolutely not.

Peter D. Holt: What we've also recognized is the most important thing for us to get these clinics, not just off our balance, off our books, but to get them in the hands of franchisees who can most effectively run them. And we recognize that it makes sense, at the same time as working closely with the interest of our franchisees, in terms of acquiring some of these clusters that we've created, but to also be open to some other alternatives. And so that was really the purpose there, to broaden the scope of what we're looking for to make sure that we're getting the best franchisees in the system.

What we've also recognizes the most important thing for us to get these clinics aren't just off our balance sheet are off our books, but to get them in the hands of franchisees, who can most effectively run them and.

And we recognize that it makes sense at the same time is working closely with the interest and our franchisees.

In terms of.

Wiring that some of these clusters that we've created but also be open to some other alternatives and so that was really the purpose. There is just a broadened the scope of what we're looking for to make sure that we're getting the best franchisees in the system.

Peter D. Holt: Your second question was getting a better sense of the timing of it, and I would say that we're still a little early in the process. As I said, we've got all of our systems in place, we've done the clustering, and we are in our conversations with our franchisees. I don't have an exact timeline to give you, but I would expect, let's say, we should see a significant amount of this clinic sold by this year, but I would expect it to also go into 2025. Okay, thanks. And then I have just one other question for you.

Your second question.

Was.

Getting a better sense of the timing of it and I would say that we're still a little early in the process as I said, we've got all of our systems in place who've done a clustering.

Conversations with our franchisees.

That.

So I don't have an exact timeline to give you, but I would expect you would say well you should see a significant.

The amount of this clinic sold by this year, but I would expect it to also go into 2025.

Okay. Thanks, and then just one other question for you.

Peter D. Holt: I'm wondering if you could, I appreciate the guidance you gave, that's helpful, just those key metrics for the year. But curious if you could maybe give a little more on what you've seen so far this year, just in the couple months on same store sales growth, and has it improved from what you just reported in Q4? Or is it kind of inconsistent? Just any observations there would be helpful. And that's all I had.

Wondering if you could I appreciate the guidance you gave that's helpful. Just does.

Key metrics for the year, but curious if you could just maybe give a little more on what you've seen so far.

And in this year just in the couple of months on same store sales growth and has it improved from what you just reported in Q4 or is it kind of consistent just any any observations there would be helpful and thats all I had thank you.

Peter D. Holt: Thank you. As we look at, you know, typically, George, we do not guide outside of quarters, but as we look at the first two months of 2024, I would say we're, and I kind of referenced in the call, that we're kind of seeing a turn in the corner in our new patient counts, and so I think that we're seeing some improvement as we look forward this year and beyond. That's great!

As we look at typically George we do not guide outside of quarters, but as we look into the first two months of 2024.

Okay.

And I kind of referenced in the call is that we're kind of seen a turn.

Turning the corner in a new patient counts and so I think that we're seeing some improvement as we look forward for this year and beyond.

That's great. Thank you.

Operator: Thank you. And our next question comes from... Ryan Myers from Lake Street Capital. Please go ahead with your question. Hey guys, thanks for taking my questions. This is a little bit of a follow-up to the last question, but as I look through this slide deck, it looks like the more mature clinics, ones open greater than 48 months, saw a slight decline in same-source sales. Just wondering if you could maybe unpack that a little bit, or if there's any more commentary you can provide there. Yeah, consistent results with last quarter, Ryan.

And our next question comes from.

Brian Meyers from Lake Street Capital. Please go ahead with your question.

Hey, guys. Thanks for taking my questions just a little bit of a follow up to the last question, but you know as I look through the slide deck. It looks like the more mature clinics ones greater open greater than 48 months.

It's a slight decline in same store sales just wondering if you could maybe unpack that a little bit or if theres any more commentary you can provide there.

Yes, consistent result to last quarter Ryan.

Jake Singleton: You know, we have seen that trend for the last couple of quarters, and I think that's why you see the continued emphasis on our marketing efforts, not only trying to show the rebound in those new patient prospects but also increasing our focus on our labs or trying to increase the engagement of our existing patient base. You know, as clinics mature and your markets become more dense, you have a greater number of prospects in order to kind of refill the bucket, if you will, from an attrition standpoint. So it has to remain a critical focus of ours, and I think you heard that in terms of our renewed interest and focus on some of those marketing initiatives. I got it.

We have seen that trend for the last couple of quarters and I think that's why you see the continued emphasis on our marketing efforts not only trying to show the rebound in those new patient prospects.

But also increasing our our focus on our lapsed or and try to increase engagement of our existing patient base.

As clinics mature in your markets become more dense.

When you have that you have a greater amount of prospects in order to kind of refill. The bucket. If you will from an attrition standpoint. So it has to remain a critical focus of ours and I think you heard that in terms of our renewed interest and focus in some of those marketing initiatives.

Got it and then just kind of as a follow up to that question.

Jake Singleton: And then just kind of as a brief follow-up to that question, obviously, the marketing strategy remains kind of a priority, like you just mentioned, you know, as this has been a newer initiative. How have you seen some of those results pay off? And are you seeing, you know, positive trends there? Absolutely, as we've talked about it, you know, the one key metric. We look at three key metrics for our business, patient counts, conversion, and nutrition. And the one metric that we've had the most challenge with, and certainly in 23, and as I said, we're improving, is the new patient count. And if we look at our new patient count for the full year of 2023, we were 6% below where we were in 22. In 22 compared to 21, it was 14%, so we had an improvement from a negative 6% in 22. In the last four months, our new patient counts have been flat.

Obviously, the marketing strategy remains kind of a priority like you just mentioned you know as this has been a newer initiative how have you seen some of those resolved to pay off and are you seeing you know positive trends there.

Absolutely as we've talked about it.

One key metric, we look at three key metrics for our business new patient counts conversion in nutrition.

And the one metric that we've had the most challenged with and it certainly in 'twenty three and as I said, we're improving our new patient count.

And if we look at our new patient count for the full year of 2023 were 6% below where we were in 'twenty, two and 22% compared to 21. It was 14%. So we had an improvement from a negative 6% and 22 in the last four months, our new patient counts are flat. So if we look at 2023 are we added 86, new patients per clinic per month.

Peter D. Holt: So if we look at 2023, we had 86 new patients per clinic per month compared to 91 in 2022. So we are seeing a flattening of that curve, and I think we'll see that continue to improve as some of the marketing programs that our new CMO is putting in place really start taking effect. We're also really looking more at focusing in a way we hadn't done before, not just simply at new patients but focusing on making sure that we keep those patients with us for a longer period. Right now, the average patient that stays as a member for a little over six months.

Compared to <unk> 91 in 2022, so we are seeing a flattening of that curve I think we'll see that continue to improve as some of the marketing programs that our new CMO is putting in place really start taking effect. We're also really looking more at a focus in a way we hadn't done before not just simply add new patients, but focusing on making sure that we keep those patients in.

With us for a longer period right now the average patient that stays as a member of little over six months.

Peter D. Holt: And so Lori is putting in new programs that will help extend that period. And the final part of that is we're also really focused on our lapsed patients, because what we know is when those patients come, they stay with us for roughly that six months, very often their pain goes away, and their membership, but we can see about 25% of them will come back in the next six months. And so we've got programs that are being designed to really focus on that lapsed patient to make sure that we're bringing them in sooner than they otherwise would. So I think we have some real opportunities there to develop in 2024. I got it.

And so.

Lori has put in a new programs that will help extend that period and the final part of that is we're also really focused on our lapsed patients because what we know is when those patients come they stay with us that roughly that six months.

Often they're paying goes away so.

And their membership, but we can see about 25% of them will come back in the next six months and so we've got programs that are being designed to really focus on that lapped lapsed the patient to make sure that we're bringing in sooner than they otherwise would so I think we have some real opportunities there to develop in 2024.

Got it that's helpful. Thank you for taking my questions.

Operator: That's helpful. Thank you for taking my call. Our next question comes from Jeff Van Sinderen from E. Riley. Please go ahead with your question. Hi everyone.

Our next question comes from Jeff Van <unk> from B Riley. Please go ahead with your question.

Hi, everyone.

Jeffrey Wallin Van Sinderen: I realize some of these questions may be a little tough due to the refrangizing efforts, but all things considered, how many new licenses do you think you will sell or expect to sell this year? Maybe a targeted range there would be helpful. Hey Jeff, thanks for the question, and we do not guide on franchise sales, as you know. And we talked about, let's say we had 55 sales for the full year. We know that some of the things that impacted those new sales are the economic environment, the higher interest rates, and you know, just the high employment rate because there's always been kind of a relationship between unemployment and growth and franchise sales. And so there are a lot of factors there that have impacted where we were in 23 compared to 22. In 22, we sold 75 licenses.

I realize some of those questions, maybe a little tough due to the refranchising efforts, but all things considered.

How many new licenses.

Do you think you would sell or expect to sell this year, maybe a targeted range there would be helpful.

Hey, Jeff Thanks for the question and that we do not guide on franchise sales as you know and we've talked about it let's say we had 55 sales for the full year 'twenty three we know that some of the things that impacted those new sales.

The economic environment of higher interest rates.

Just a high employment, because there's always been kind of a relationship between unemployment and growth in franchise sales and so theres a lot of factors there that that has impacted where we were in 23 compared to 'twenty to 'twenty two we've sold 75 licenses.

Peter D. Holt: And so when we say that we're expecting there to be an impact on new license sales in 2024, and we had 55 in 2023, I should kind of triangulate kind of where we expect that to be. And so that's kind of the way I would look at it. Okay, that's helpful.

And so when we say that we're expecting there to be an impact on new license sales in 'twenty four and we had 25, we had 55.

23.

Triangulate kind of where you expect that to be and so that's that.

That's kind of the way I would look at it okay. That's helpful.

Jake Singleton: And then sort of along the same lines of guidance, and, again, realize this is a little bit of a moving target, but based on the refranchised cadence or work that you're doing there so far in the interest levels, and I know you said it'll continue into 2025, but is there a way you can help us understand? I mean, I know you gave the system-wide sales, but just, I guess, maybe try to get to a.., you know, a reported sales line decline rate for FY 24, just maybe an order of magnitude there. Any help you can give us there would be greatly appreciated.

And then sort of along the same lines of guidance.

And again realize this is a little bit of a moving target, but based on the re franchised cadence or work that youre doing there so far and the interest levels and I know you said it'll continue into 2025.

But is there a way you can help us understand I mean, I know you gave the system wide sales but.

I guess, maybe try to get to a.

No.

Our reported sales line.

Decline.

Right for FY 'twenty for just maybe order of magnitude there.

Any help you can give us there.

Peter D. Holt: Yeah, I mean, that's the tough part, Jeff, you know, the gap revenues are going to move from 100% recognized for a corporate location to a royalty stream as we execute the transactions. And so the depth and the breadth of that revenue decline will really be predicated on, you know, the pace and the size of some of these early transactions, which made it, you know, a really hard thing to determine from a guidance perspective for 2024. And so that's why you saw us change the guidance metrics to, you know, overall sales figures because that's where we have predictability now. So we're not going to put out a target from a gap revenue basis because it's really so predicated on the timing of those transactions. Okay, fair enough.

Yes, I mean, thats the tough part Jeff.

You know the GAAP revenues are going to move from being a 100% recognized for our corporate location to a royalty stream as we execute the transactions and so the depth and the breadth of that GAAP revenue decline will really be predicated on the pace and the size of some of these early transactions, which made it.

You know a really hard.

Thing to determine from a guidance perspective for 2024, and so that's why you saw us change the guidance metrics to overall sales figures, because that's where we have the predictability now so we're not going to put out a target from a GAAP revenue basis, because it's really so predicated on the timing of those transactions.

Okay fair enough.

Go ahead Sir.

Peter D. Holt: Once we finish this, I think we can get back to, at least for us, the traditional metrics that we guide on. But there's just too much uncertainty in terms of how this unfolds to be able to give you relevant guidance right now on EBITDA and revenue. And then, if we could shift to marketing for a minute, and I know you spoke to that, but I'm just wondering, is there any other color you can give us in terms of, you know, to the degree that you want to, how you're shifting marketing? I know you mentioned maybe new channels and just any other color you can give us there.

We finished this I think we can get back.

To that.

And at least for us the traditional metrics that we guide on.

But it just.

Or is there just too much uncertainty in terms of how this unfolds to be able to give you relevant guidance right now on an EBITDA and revenue.

Understood.

And then if we could shift the marketing for a minute and I know you.

Spoke to that but I'm just wondering is there any any other color you can give us in terms of to the degree that you want to.

How you're shifting the marketing I know you mentioned, maybe new channels.

Just any other color you can give us there.

Peter D. Holt: Sure, and I think it's really exciting to just see, of course, we have a strong CMO that's come into play. She was the CMO over at Sonic, so she brings fresh eyes, she brings fresh programs, and, quite frankly, different disciplines. So one of the first things that she did was to go in and do an audit of all of our media buys to make sure that we're getting the full power of them. We'll be doing some RFPs on just some of those key vendors in marketing to make sure that we're working with a partner that can most effectively support our business. She's designed some new programs that she's putting out there, and that is where we are going to I think she's really focused on the power of our co-ops.

Sure and I think it's really exciting to see of course, we have a strong CMO that's come into place.

I'm over Sonic so should bring fresh eyes, he brings risk programs.

And quite frankly different disciplines. So one of the first things that she has done is to go in and do an audit of all of our media buys to make sure that we're giving them the full power of them.

We will be doing some some rfps on just some of those key vendors and marketing to make sure that we're working with a partner that can most effectively support our business.

That she is designed from new program fees, putting out there than where we are going to be working more with influencers.

I think she is really focused on the power of our co ops and we have a lot of these great clusters and what they put their funds together that you can put an impact on that market that quite frankly is incompatible compared to anybody else all those independents in that local market. Because if you have 30 or 40 units all contributing to that local marketing spend which you can see.

Peter D. Holt: We have a lot of these great clusters, and when they put their funds together, they can make an impact in that market that, quite frankly, is uncompetable compared to anybody else, all those independents in that local market. Because if you have 30 or 40 units all contributing to that local marketing spend, what you can spend that on is very different than if you're a sole practitioner trying to market to your clinic. So I think there are a lot of really exciting things that will be coming down the pike, and we'll get more details as we go forward. And I also think it's just that focusing on our lapsed patients and focusing on making the patient experience better so that we can keep that patient longer could have huge implications for us.

And that on it's very different than if you're a sole practitioner trying to market to your clinic. So I think theres a lot of some really exciting things that will be coming down the pike and we will give more details as we go forward and I also think it is just that focus on our lapsed patients and focusing on making the patient experience better. So that we can keep that patient longer could have huge implications for.

Peter D. Holt: I mean, if you think about the last seven or eight years, we've always been so focused on new patients and really haven't spent the time we could have on that lapsed patients and on trying to extend the time for that patient to stay with us. So there are some real opportunities, I think, to really focus on that, quite frankly, improvement of the bottom line. You know, what you should be hearing is we are highly focused on improving Unit Economics on that clinic level. We know we've had some challenges with higher costs of labor over the last several years.

I mean, if you think about the last seven or eight years, we've always been so focused on new patients and really haven't.

The time, we could have on that lapsed and on that I'm trying to extend the time for that patient to stay with it. So there's some real opportunities I think to really focus on the quite frankly, the improvement of the bottom line and what you should be hearing is we are highly focused.

Improving unit economics on that clinic level, we know we've had some challenges with higher costs on labor over the last several years. We know we've had some issues with new patients and so it's really incumbent upon us as the franchisor to stay laser like focus on improving those unit economics for our franchisees and of course, our corporate units as well.

Operator: We know we've had some issues with new patients, and so it's really incumbent upon us as a franchisor to stay labor-like focused on improving those unit economics for our franchisees and, of course, our corporate units as well. Okay, appreciate you taking my questions, and best of luck. Thank you very much.

Okay.

Appreciate you taking my questions and best of luck.

Thank you very much.

And our next question comes from C. J <unk> from Craig Hallum Capital. Please go ahead with your question.

C.J. Dipolino: Please go ahead with your question. Hey guys, CJ DiFilino on for Jeremy Hamblin. Wanted to ask a quick question about sales and marketing. Looks like it was down about 1 million sequentially from Q3 to Q4. Could you give a little color on that drop and then maybe how we should think about it into the new year? Sure.

Hey, guys see Jade, if we know on for Jeremy Hamblin.

Wanted to ask a quick question about sales and marketing it looks like it was down about 1 million sequentially from Q3 to Q4 could.

Could you give a little color on that drop and then maybe how we should think about it into the new year.

Sure I think I think you'll see that normalize.

Jake Singleton: I think you'll see that normalized. As we try to put it in the commentary a little bit, through the first three quarters of 23, we were running a little bit hot in terms of our overall planned spend for the year in sales and marketing. So in Q4, you just saw some of that normalize. As we think about our National Marketing Fund, the goal is to really spend that entire pool each period. And so when you've kind of accelerated some of your expenses into the earlier parts of the year, you kind of see a natural step back in Q4. So really, I think you're just seeing the timing of that play out quarter to quarter through 2023. So as we get back into 2024, I think you'll see that normalize again into the quarter by quarter cadence. Where that typically falls is Q2 and Q3, which are usually a little bit heavier. Q1 and Q4 are a little bit lighter.

As we.

Tried to put it in the commentary a little bit.

Through the first three quarters of 'twenty, three we were running a little bit hot in terms of our our overall planned spend for the year and sales and marketing. So Q4, you just saw some of that normalize as we think about our national marketing fund. The goal is to really spend that entire pool each period and so when you.

And have accelerated some of your expenses into the earlier parts of the year, you kind of see a natural step back in Q4. So it really I think you're just seeing the timing of that play out quarter to quarter through 2023, So as we get back into 2024, I think you'll see that normalize again.

Into the quarter by quarter cadence, where that typically falls in Q2, and Q3 are usually a little bit heavier Q1, and Q4 are a little bit lighter I think its also important to always remembers as the bulk of the marketing that takes place in the franchise system and certainly in our case is that local store marketing, which is completely off.

Peter D. Holt: I think it's also important to always remember that the bulk of the marketing that takes place in the franchise system, and certainly in our case, is that local store marketing, which is completely off our P&L. And so yes, we have NMF that runs through the P&L, but it's really that local store marketing that each of those franchisees spending on average $3,000 or more a month is where you're seeing the real spend in our franchise system as it relates to marketing. Okay, very helpful. And then just one more on the P&L. Thinking about G&A moving forward, it looks like in 22-23, it jumped up to about 69-70% of sales. How would you think about that moving forward in 24?

Our P&L until yes, we have the Nf that runs through the P&L, but it's really that local store marketing each of those franchisees spending on average $3000 or more months.

Where youre seeing the real spend in our franchise system as it relates to marketing.

Yeah.

Okay very helpful. And then just one more on the P&L thinking.

Thinking about G&A moving forward it looks like in 'twenty, two 'twenty three it jumped up to about 69% 70% of sales how would you think about that moving forward in 'twenty four.

Jake Singleton: Yeah, again, I think the overall GNA burden will be reduced considerably for the consolidated organization with the refranchising strategy. You know, again, the timing of when we can start to reduce that GNA is really predicated on the timing of those refranchising transactions. So, you know, as we move through 24 and 25, and we begin to execute on the refranchising, all of the clinic level GNA costs will come off the books, and then we'll begin to, you know, curtail the outside the four wall overhead, as well as the corporate unallocated overhead. We expect those to reduce as we move through. And that's really the critical focus of management understanding that, you know, for that strategy to work, we'll have to curtail GNA expenses accordingly.

Yeah again, I think the overall with the Refranchising strategy, we expect to.

See the overall G&A burden reduce considerably for the consolidated organization.

Again, the timing of when we can start to to reduce that G&A is really predicated on on the timing of those refranchising transactions. So.

As we move through 'twenty, four 'twenty five and when we begin to execute on the Refranchising.

All of the clinic level G&A cost.

We will come off the books and then we will begin to curtail the outside the four wall overhead as well as the corporate unallocated overhead we expect those to reduce as we move through and that's really the critical focus of management understanding that for that strategy to work, we will have to curtail the G&A expenses.

Operator: And we'll stay focused on that. Okay, very helpful. Thanks, guys, and best of luck. Thank you very much. And our final question today comes from Thomas McGovern from Maxim Group. Please go ahead with your question, guys.

And we will stay focused on that.

Okay very helpful. Thanks, guys and best of luck.

Thank you Raj.

And our final question today comes from Thomas Mcgovern from Maxim Group. Please go ahead with your question.

Hey, guys. So real quick I wanted to touch back on something that employee retention. So based on my industry research I've seen a lot of articles, suggesting that theres going to be fairly.

Peter D. Holt: It's a great question because doctors are the core of our business. Without doctors of chiropractic, we have no business, because that's obviously the core of what we do, and we are very much focused on working with the schools and working with the associations to make them aware of the Joint and why we are a good place for them to either become a franchisee, if they have the resources, or come and work for us. If you just look at the overall market for doctors of chiropractic, there are 16 accredited schools in the United States today that graduate doctors of chiropractic. It's usually about a three and a half year program, and those 16 schools graduate roughly between 24 and 2,500 doctors a year.

Reduction in skilled medical professional professionals over the coming years. So maybe you can just go into a little bit more color on some of your plans to keep joined attractive and keep that retention rate high.

Yes.

A great question Theres no question, because doctors are the core of our business without doctors of chiropractic, we have no business because that's obviously the.

The core of what we do.

And that we are very much focused on working with the schools and working with associations to make them aware of the joint and why we are a good place for them to either become a franchisee if they have the resources are our come and work for US. If you just look at the overall market doctors of car Practic Theres 16 accredited schools in the United States today that.

Graduated doctors a car practic, it's usually about a three and a half year program in those 16 schools graduated roughly between 24 and 2500 doctors a year, if we come back to the joint with our 935 clinics at the end of the year.

Peter D. Holt: If we come back to the joint with our 935 clinics at the end of the year, we had a little over 3,000 doctors who were under the umbrella of the Joint, either full or part-time. And so, did that suggest to us, you know, in addition to that, there's 40,000, or actually, there's 70,000 licensed practitioners in the United States today, and they have to, you know, register, you know, they have to license with the state if they want to practice. Not all of them are practicing, so we know there are roughly about 40,000 that are active.

We had a little over 3000 doctors, who are under the umbrella of the joined either full or part time and so does that suggest to US. In addition to that there is 40000 are they actually their 70000 licensed practitioners in the United States in the United States today and they have to.

Register that's a license with this data they want to practice not all of them are practicing so we know theres roughly about 40000 that are active.

Peter D. Holt: And so, if you look at it from the broadest perspective, is that there enough doctors to fill the growth of the Joint in the United States today? Absolutely. But are the doctors where we want them, the high-quality doctors, and making sure that they stay with us, not just being recruited? So this is a hugely important effort for us to maintain and, you know, recruit and retain the best doctors in the world. But I think it's incumbent upon us to create those environments where they want to come work with us, and they stay with us, as opposed to there's just theoretically not enough licensed doctors to sort of fulfill our growth. Okay, so last, you guys mentioned on the call that your portfolio... Whiteley. You also mentioned that you would expect that to, you know, automatically add up.

And so that if you look at from the broadest scope is that there is there enough doctors fulfilled the growth of the joint in the United States today absolutely.

But are the doctors, where we want them the high quality doctors getting making sure that they stay with us not just be recruited. So this is a hugely important efforts for us is to maintain.

To recruit and retain the best doctors in the world, but I think it's incumbent upon us to create those environment, where they want to come work with us and they stay with us as opposed to Theyre, just theoretically not enough licensed doctors to fulfill our growth.

Understood I appreciate that color was very helpful. Okay. So last thing you know you guys mentioned on the call that.

Our portfolio mix.

Slightly 14%.

Total clinics are company owned versus 15% in 2022, you also mentioned that you expect that to largely that's going to that's going to shift more dramatically as you guys move through this.

Peter D. Holt: And that's it. Thank you. I was just wondering if you guys have a, you know, maybe a targeted portfolio niche. Darf settled, uh... you know the company. We haven't, in any way, guided on an expected percentage, but what's very clear is we've said the majority of our corporate portfolio we expect to re-franchise, and so if we ended last year with 135, I would say by majority we're talking about We don't have a final number, but it's going to be the vast majority of those corporate units will, in fact, ultimately be re-franchised, so you can see that that number is going to be pretty significantly lower than where it is today at 14%.

Franchising initiatives I was just wondering if you guys have a maybe a targeted portfolio nature.

When the dust settles, where you guys expect.

The company owned.

Percent.

Total clinics opened thanks.

We haven't had any way guided under on AR.

Expected percentage about what's very clear is we've said the majority of our corporate portfolio, we expect to Refranchising. So if we ended last year with 135.

I would say by majority of we're talking about more than 51%. We don't have a final number but it's going to be the vast majority of those corporate units will impact ultimately be re franchise. So you can see that that number is going to be pretty significantly lower than where it is today at 14%.

Understood I appreciate you guys, taking the time to answer my questions.

Peter D. Holt: I appreciate you guys. Thank you. And ladies and gentlemen, at this time, I'd like to turn the floor back over to management for any closing remarks.

Thank you.

And ladies and gentlemen at this time I'd like to turn the floor back over to management for any closing remarks.

Operator: Thank you, Jenny. In February, we ran our annual Love the Joint campaign, during which our patients shared their comments about the joint on our social media. We received thousands of posts each week, so it's hard to pick the best, but I'll read a few that highlight our patient value proposition. As Casey noted, if I miss a session, I feel terrible.

Thank you Jamie.

In February we ran our annual loved the joint campaign during which our patient share their comments of the joint on our social media. We received thousands of posts each week. So it's hard to pick the best but I'll read a few that highlight our patient value proposition Casey.

Casey noted if I missed this session I feel terrible my life revolves around the joined now it has helped me so much with my headaches I sleep better I feel better mentally and physically my Doctor is incredibly helpful and sending me homeward stretch it to do and ways to treat my body better I Couldnt imagine my life without the joint now.

Peter D. Holt: My life revolves around the joint now. It's helped me so much with my headaches. I sleep better. I feel better mentally and physically. My doctor is incredibly helpful in sending me home with stretches to do and ways to treat my body better. I couldn't imagine my life without the joint. Julie said: "I liked it; no matter where you travel, the chances are the joint will be there as well. Listen, I've been a member for six years, and I don't know how I'd manage my health-wise and financially without the joint." I'm 69 years old, on a fixed budget, and being a member has totally improved my body. I'm certain it saved me money, and I will continue to promote the joint. There's nothing like the joint.

Julie said I liked it no matter, where you travel the chances are that joy will be there as well listen I've been a member for six years and I don't know how to manage my health wise and financially without the joined him 69 years old on a fixed budget and being a member that has totally improve my body I'm certain it save me money and I have an hour.

To promote the joint.

There is nothing like the joined whoever thought up this and made it happen. Thank you.

Peter D. Holt: Whoever thought up this and made it happen, I thank you. And, finally, Caleb reported that the staff at my local Joint Car Project facility are fantastic. They've always made me feel welcome and focused on the problems that I need them to. They've been a great help in my healing journey as a disabled veteran. Thank you and stay well, Justice. Ladies and gentlemen, with that, we'll be concluding today's conference call and presentation. We do thank you for joining. You may now disconnect your line. Thanks, Jamie. Thanks a lot.

And finally <unk> reported the staff at my local joined Kirkpatrick facility are fantastic.

Always made me feel welcome and focus on the problems that I need them to.

They've been a great help in my healing journey as a disabled veteran.

Thank you and stay well adjusted.

Ladies and gentlemen, with that we'll be concluding today's conference call and presentation. We do thank you for joining you may now disconnect your lines.

Thanks, Jamie.

Thanks, a lot I appreciate it.