Q3 2024 The Joint Corp Earnings Call
The End.
Speaker Change: Good day, and welcome to the Joint Corp. 3rd Quarter 2024 Financial Results Conference Call.
Speaker Change: All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions.
Speaker Change: To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note that this event is being recorded. I would now like to turn the conference over to David Barnard, LHA, Investor Relations. Please go ahead.
Speaker Change: Thank you, Wyatt, and good afternoon everyone. This is David Barnard of Alliance Advisors Investor Relations.
Speaker Change: Joining us on the call today are President and CEO Sanjeev Razdan and CFO Jake Singleton.
Speaker Change: Please note, we are using a slide presentation that can be found at HTTPS.
Speaker Change: backslash ir.thejoint.com under events. Today, after the close of the market, the joint corporation issued its results for the quarter ended September 30, 2024. If you not already have a copy of this press release, it can be found in the investor relations section of the company's website.
Speaker Change: As provided on slide 2, 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.
Speaker Change: All statements other than statements of historical facts may be considered forward-looking statements.
Speaker Change: Although the company believes that 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.
Speaker Change: Actual results may differ materially from those expressed or implied in forward-looking statements due to various risks and uncertainties.
Speaker Change: As a result, we caution you against placing undue reliance on these forward-looking statements.
Speaker Change: For a discussion of the risks and uncertainties it could cause, actual results differ from those expressed or implied in the forward-looking statements.
Speaker Change: Please review the risk factors detailed in the company's reports on Forms 10-K and 10-Q, as well as other reports of the company's files from time to time with the SEC.
Speaker Change: Finally, any forward-looking statements included in this earnings 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 events.
Speaker Change: Management uses EBITDA and adjusted EBITDA, which are non-GAAP financial measures.
Speaker Change: These are presented because they are important measures used by management to assess financial performance. Management believes they provide a more transparent view of the company's underlying operating performance and operating trends and gap measures alone. Reconciliation of net income to EBITDA and adjusted EBITDA is presented in the press release.
Speaker Change: The company defines EBITDA as net income or loss before net interest, tax expense, depreciation, and amortization expenses.
Speaker Change: 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.
Speaker Change: Bargain purchase gain, net gain or loss on disposition or impairment, costs related to restatement filings, restructuring costs, litigation expenses, consisting of legal and related fees for specific proceedings that arise out of the ordinary course of our business.
and other income related to the employee retention credits.
Management also includes commonly discussed performance metrics.
Speaker Change: System-wide sales include revenues at all clinics, whether operated by the company or franchisees.
Speaker Change: While franchise sales are not recorded as revenues by the company, management believes the information is important in understanding the company's financial performance because these sales are the basis on which the company calculates and records royalty fees and are indicative of the financial health of the franchisee base.
Speaker Change: System-wide comp sales include the revenues from both company-owned or managed clinics and franchised clinics that, in each case, have been open at least 13 full months and exclude any clinics that have closed. Turning to slide three, it's now my pleasure to turn the call over to Sanjeev Raostan.
Thank you, David, and I welcome everyone to the call.
Sanjeev Raostan: I'm excited to meet you today for my first conference call with the Joint.
Sanjeev Raostan: I'd like to begin by reviewing why I joined the company.
Sanjeev Raostan: I was approached about the joint because of my background. I have extensive experience leading successful multi-site consumer service companies and franchise businesses.
Dr. Kirsten Chapman, Dr. Kirsten Chapman, Dr. Kirsten Chapman,
Sanjeev Raostan: I leverage my strategic business acumen and branding expertise to drive growth and sustainable profitability.
Sanjeev Raostan: Most recently, I served as President of America and India for the Coffee Bean and Tea Leaf, which has 1,200 cafes operating in 30 countries.
Sanjeev Raostan: I was responsible for my division's cafe, consumer packaged goods, and e-commerce operations, and led their business transformation.
Sanjeev Raostan: By developing strong franchise relationships, repairing unit-level margins, and transforming the culture, my division delivered its strongest EBITDA results in over a decade.
Sanjeev Raostan: Similarly, as COO at Sweetgreen, I helped lead rapid growth while also optimizing the operating platform to ensure efficiency and improve unit-level profitability.
Sanjeev Raostan: And at Applebee's, as Senior Vice President and COO, I led the turnaround of the portfolio, which was 1,800-plus restaurants, predominantly franchise-owned, across all 50 states.
For more information visit www.FEMA.gov
Sanjeev Raostan: When I was approached about the joint, I was immediately interested in learning more because of my personal connection.
I am a chiropractic care enthusiast.
Sanjeev Raostan: A few years ago, while at the gym, I threw my back out. For several months, I tried traditional medicine, but got little to no comfort. Finally, with some skepticism, I tried chiropractic care.
Sanjeev Raostan: I recovered fully with this non-invasive treatment and now I am a believer who gets adjusted regularly for general good health.
Sanjeev Raostan: So I began to research the joint franchise concept. I was impressed by the scale of the business, the first mover advantage, and most importantly, the wide space for market growth both in the US and internationally.
Sanjeev Raostan: Also, I was inspired by the clinic economic model and the potential to leverage our core competencies and infrastructure as a platform over time, and our ability to increase profitability and create shareholder value.
Sanjeev Raostan: My findings indicated that, although the joint may be experiencing some near-term market headwinds, the opportunities for growth are compelling. This enticed me to accept the CEO role to lead the joint into our next phase of growth.
Sanjeev Raostan: As you can imagine, for the past three-and-a-half weeks, I have been asked quite a bit about my plans.
Sanjeev Raostan: While I joined with some ideas, my perspective is expanding as I meet our team.
Sanjeev Raostan: I will conduct my first 100 days business immersion prior to making significant changes.
Sanjeev Raostan: I will meet and listen to franchisees, regional developers, doctors of chiropractic, wellness coordinators and our corporate employees.
Sanjeev Raostan: I will learn details of the operations and our capabilities, then I will analyze data and rank a variety of initiatives based on their potential business impact and return on investment.
Go to www.FEMA.gov to learn more.
Sanjeev Raostan: While the board has granted me the latitude to redesign our strategic plan, I can clearly state we are continuing to drive ahead with refranchising.
Turning to slide 4
It is also important to know, I am dedicated to
Elevating patient care
Strengthening Clinic Economics
Sanjeev Raostan: driving innovation in everything we do, and building people capability and culture. As a result, I am confident we will increase profitability and create shareholder value.
Turning to slide 5.
Sanjeev Raostan: As noted, I am committed to executing our refranchising efforts with the intent of reinvesting the capital raised into the joint.
Sanjeev Raostan: It's a great opportunity to simplify and grow our business, focus on our franchisees, their clinic economics, and drive shareholder value.
Sanjeev Raostan: We are far along in marketing most of the corporate clinics. We have seen broad interest. We will continue to pursue transactions with existing and new franchisees.
Sanjeev Raostan: Regarding the two transactions announced last quarter, these were with existing franchisees for nine clinics in Savannah and Kansas City. They entered LOIs and now are in the process of conducting due diligence.
Turning to slide 6.
I'll start our marketing review.
Sanjeev Raostan: Our biggest consumer challenge is to increase new patient counts. We will do this through stronger lead generation and lead conversion.
Sanjeev Raostan: Our team has been focused on improving the patient experience to increase new patient lead conversion.
Sanjeev Raostan: After positive feedback in testing this summer, our team rolled out the initial Visit Bookings platform to the first 500 clinics and the results are strong.
Sanjeev Raostan: The initial visit Bookings platform has enabled the scheduling of new patients' intake sessions. Qualitatively, we are exceeding our marks. New patients have indicated they feel seen, heard, and well cared for. This has translated into quantitative success.
Sanjeev Raostan: While we don't intend to provide this data on an ongoing basis, today I'd like to note new patient digital lead conversion increased from 46% in July to 49% in September. With this data, we will continue the rollout.
of the initial visit bookings to all of our clinics.
Sanjeev Raostan: To create a frictionless new patient process, we are working to enable them to complete our enhanced digital intake forms using their own mobile devices.
Sanjeev Raostan: After extensive testing, we began the rollout in late August. Patients are reporting greater satisfaction with the process, and wellness coordinators are pleased to focus time on positive patient interactions.
Sanjeev Raostan: Also, regarding our user experience improvement, we are continuing to diligently work on our first consumer-facing mobile app.
Sanjeev Raostan: This will enable in-clinic check-in, patients will be able to see which doctors of chiropractic are present in clinic, and it will serve as a channel for patient education as well. We intend to continue to update the mobile app with new features over time.
Turning to slide seven.
I'll review our new patient acquisition efforts.
Sanjeev Raostan: To improve brand awareness and lead generation, we are shifting marketing spend to the top of the funnel. We have been working on initiatives to improve efficacy of our paid media and co-op strategies.
Sanjeev Raostan: This includes a shift in spend within the test market on Google's Performance Max platform.
Sanjeev Raostan: The platform follows our key audiences across Google properties, leveraging a mix of ad types based on the specific channel. It is showing fantastic interaction metrics, and we have started to accelerate rolling out this program within the system.
Sanjeev Raostan: Additionally, we are optimizing the creative content to drive relevance with these new audiences. Now we are marketing to both switchers from other providers and the people new to caro practice itself.
Finally, we are evaluating pricing options.
Sanjeev Raostan: In time for our Back Friday special on Black Friday in November, we plan to introduce new pricing for our walk-in rate.
Sanjeev Raostan: Additionally, we are reviewing membership levels, packages, and legacy policies for potential updates.
Speaker Change: David Holt, David Barnard, Kirsten Chapman, Jake Singleton, Kirsten Chapman, Jake Singleton, Kirsten Chapman, Jake Singleton
Speaker Change: In 2025, we plan to further build our patient lifetime value in addition to growing our patient base.
With that, I'll turn the call to Jake.
Jake Singleton: Thanks Sanjeev. And turning to slide 9, let's discuss our clinic metrics.
Jake Singleton: In Q3 2024, we opened 14 franchise clinics and re-franchised one clinic. We continue to experience a closure rate of less than 1% of our portfolio, with 11 clinic closures in the quarter.
Jake Singleton: This included three franchise clinics that are being relocated and reopened later, as well as three non-traditional corporate clinics that were part of the Army and Air Force Exchange Service development test.
Jake Singleton: In Q3 2024, we had a net increase of 3 clinics compared to 6 in Q2 2024.
Jake Singleton: On September 30, 2024, our total clinic count reached 963, with 838 franchised clinics and the portfolio mix shifting to 87% franchised, 1 percentage point higher than last quarter.
Turning to slide 10, I'll review franchise license sales.
Jake Singleton: As previously indicated, we expect franchise license sales to be impacted by our re-franchising strategy. During Q3, we sold 7 franchise licenses, compared to 7 in Q2 2024. This quarter, 43% of the franchise license buyers were new to the joint.
Jake Singleton: As previously announced in July, we reacquired the Maryland-D.C. Regional Developer Territory Rights for approximately $500,000.
Jake Singleton: It had 17 clinics open and the potential for another 31 clinics.
Jake Singleton: At September 30th, 2024, we had 16 regional developers, and their coverage is approximately 57% of the network. At quarter end, we had 148 franchise licenses in active development.
Jake Singleton: Turning to slide 11, I'll review our financial results for Q3 2024 compared to Q3 2023.
and Kirsten Chapman. Thank you. Thank you.
Jake Singleton: System-wide sales for all clinics open for any amount of time, increased to $129.3 million, up 8%.
Jake Singleton: System-wide comp sales for all clinics open 13 months increased 4%.
Jake Singleton: System-wide comp sales for mature clinics, open 48 months or more, decreased 2%.
Both improved 200 basis points over Q2 2024.
Revenue was $30.2 million, up $725,000, or 2%.
Jake Singleton: Revenue from franchised operations increased 9%, contributing $12.7 million, reflecting the increased number of clinics in operation.
Jake Singleton: Company owned or managed clinic revenue decreased 2%, contributing 17.5 million dollars, reflecting improved same-store sales growth in newer clinics partially offset by fewer clinics and operations.
Jake Singleton: Cost of revenues was $2.8 million, up 8% over the same period last year, reflecting the associated higher regional developer royalties and commissions.
Jake Singleton: Selling and marketing expenses were $4.8 million, up 11% year-over-year, reflecting the timing of the advertising spend.
Jake Singleton: Depreciation and amortization expenses decreased $1.1 million, or 47% compared to the prior year period, reflecting the accounting for corporate clinics that are being held for sale as part of the re-franchising efforts.
Jake Singleton: G&A expenses were $20.8 million compared to $20.2 million in the same period last year, reflecting the lower utilities and facilities costs due to the continued refranchising efforts.
Jake Singleton: Loss on disposition or impairment was $3.8 million, related to the quarterly analysis of clinics held for sale as part of the refranchising efforts, compared to $905,000 in Q3 2023.
Jake Singleton: Income tax expense was $63,000 compared to income tax benefit of $188,000 in Q3 2023.
Jake Singleton: Net loss was 3.2 million dollars, including 3.8 million dollars in loss on disposition or impairment, or a loss of 21 cents per share.
Jake Singleton: This compares to net loss of $716,000, including loss on disposition or impairment of $905,000 or loss of 5 cents per share in Q3 2023.
Adjusted EBITDA was $2.4 million compared to $2.9 million.
Jake Singleton: Franchise clinic-adjusted EBITDA increased 9% to 5.8 million dollars. Company-owned or managed clinic-adjusted EBITDA increased 3% to 2.1 million dollars.
Jake Singleton: Corporate expense as a component of adjusted EBITDA was 5.5 million dollars compared to 4.5 million dollars in Q3 2023.
Jake Singleton: On to slide 12, I'll review our balance sheet and cash flow.
Jake Singleton: At September 30, 2024, our unrestricted cash was $20.7 million, compared to $18.2 million at December 31, 2023.
Jake Singleton: Cash flow from operations for the nine-month period was $5.3 million.
Jake Singleton: The net proceeds of the sale of three clinics were offset by ongoing IT CapEx and the $2 million Q1 repayment on the line of credit with JPMorgan Chase.
Jake Singleton: Through this facility, we've retained immediate access to $20 million through February of 2027.
Jake Singleton: On to slide 13, for a review of our financial results for the nine months ended September 30, 2024, compared to the same period, 2023.
Jake Singleton: Revenue was $90.2 million, up 4%. Net loss was $5.8 million, including $5.6 million in loss on disposition or impairment, and the Q2 $1.5 million litigation expense, or a loss of 39 cents per share.
Jake Singleton: This compares to net income for the same period in 2023 of $1.3 million, including the $3.9 million net employee retention credit and $1.1 million of loss on disposition or impairment, or $0.09 per diluted share.
Jake Singleton: Adjusted EBITDA was $8.1 million compared to $8.2 million in the prior year period.
Jake Singleton: On to slide 14. As a result of the ongoing consumer headwinds that are impacting our clinic economics, we're adjusting all elements of our guidance.
Jake Singleton: System-wide sales are expected to be between $525 and $535 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 between 3 to 4 percent compared to an increase of 4 percent in 2023.
Jake Singleton: New franchise clinic openings, excluding the impact of re-franchise clinics, are expected to be between 55 and 60, compared to 104 in 2023. The difference reflects the impacts of our re-franchising efforts.
Speaker Change: In 2025, we believe the consumer market will improve, yet franchise license sales and clinic openings are likely to be less than 2024 as we work through the impact of our refranchising efforts and the economic headwinds over the last two years. And with that, I'll turn the call back over to you, Sanjeev.
Thanks Jake.
Turning to slide 15.
Speaker Change: In October, the Joint Chiropractic Network proudly celebrated our 25th anniversary of revolutionizing access to chiropractic care by providing affordable, concierge-style, membership-based services in convenient retail settings.
Speaker Change: In addition, we have been consistently recognized on the annual Franchise Times Top 400 list for over five years. In 2024, we were recognized in the Top 200 for our third year, at position 150, moving up a significant 18 spots over last year.
Speaker Change: I believe that being a patient-centric company will make us a stronger, franchised-focused company.
Speaker Change: Our patient satisfaction, our longevity, and our franchise performance awards are a testament to the value and opportunity of quality chiropractic care and our franchise concept.
Speaker Change: Our long-term opportunities far exceed our near-term market headwinds. I am very encouraged by the talented and committed team members that I am meeting.
Speaker Change: With the power behind the joint franchise concept, re-franchising and our strategies to improve clinic economics and drive growth, I am confident we will emerge a stronger company.
Speaker Change: We are the chiropractic care category leader. With over 960 clinics, our scale dominates the market and is several hundred units larger than the copycats and other competitors combined.
Speaker Change: We have created a premier nationwide brand with a presence in 41 states, the District of Columbia and Puerto Rico, and we intend to leverage this asset base to expand into the white space in the U.S. market and potentially internationally as well.
Speaker Change: With $8.5 billion being spent out of pocket annually on chiropractic care in the U.S., we have a very large opportunity, of which we have approximately a 1% market share. We expect to capture more market share.
Speaker Change: especially as we continue to improve our attractive asset-light franchise model.
Speaker Change: I look forward to elaborating on our go-forward strategy when we report fourth quarter 2024 results.
Speaker Change: In the meantime, to drive increasing profitability and create shareholder value, our decisions will be consistent with our guiding principles of elevating patient care, strengthening clinic economics.
Speaker Change: driving innovation in everything we do and building people capability and culture.
Speaker Change: Before we begin questions, I'd like to invite you to meet us at the Roth Deer Valley Conference in December.
and with that operator I'm ready to begin Q&A
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.
Dr. Kirsten Chapman, Dr. Kirsten Chapman
Speaker Change: And the first question comes from George Kelly with Roth Capital. Please go ahead.
Hey everyone, thanks and Sanjeev, congrats on the new role.
Thank you.
Speaker Change: First question, I was hoping, this is for Sanjeev. You mentioned in your prepared remarks...
Speaker Change: that you're taking pricing, I think, and contemplating taking additional pricing. It sounded like...
Speaker Change: I was curious if you could go through those sort of various levers and on an sort of all-in basis how significant do you expect the pricing changes to be?
Speaker Change: Yeah, so the way that our pricing construct works, we have a new patient price that we leverage as part of our marketing efforts to make sure we demonstrate how incredible value our proposition is. We have a walk-in price after that, but the predominant
Speaker Change: of our patients come through a recurring revenue model where there is a
Speaker Change: opportunity for patients to access some kind of a package price or a subscription price. The pricing that we are taking is on the component of walk-in prices.
Speaker Change: And what that does, in addition to giving us some incremental revenue, will make our recurring revenue packages even more attractive to our patients. So we're very excited about the impact of that.
Speaker Change: Correct me if I'm wrong. I thought you also hinted that you're contemplating taking maybe legacy pricing or there was something else. Maybe I've misheard.
Speaker Change: immersion and learning the business, we will be evaluating all levels available to us including all aspects of pricing and I think we're evaluating what might be the most effective way of
Speaker Change: being true to our mission of providing affordable chiropractic care but also maximizing the potential for revenue. So we're looking at all of those levels.
Speaker Change: Okay, understood. And then the second topic I was hoping to cover is just the ongoing consumer headwinds and the guide down in comp growth.
Speaker Change: Can you be a little more specific what you've seen just maybe since July, I think July you mentioned on the on the last conference call that COPS accelerated, so I'm curious what you saw in August and September and maybe what you've seen so far this quarter as well.
Speaker Change: Yeah, we did see comps cool a little bit within the quarter. You know, again,
Yeah
Speaker Change: some economic headwinds there, obviously the election going on. I think it's still just an interesting time for us and still we've been experiencing that over the last couple of years. So we did see a slight cooling of that. We did launch a promotion in the October timeframe that we are very excited about the opportunities and how that might flow through over time. Just a slight revision downward from that low side, really just to be prudent
you know, provide a better construct moving forward.
Speaker Change: Okay, and then the last one for me is just on re-franchising. Could you give us an update just on...
Speaker Change: I don't know if there's kind of new issues or challenges that you're facing in the process. Maybe it's the pricing still just sort of isn't there or not to what your expectations were or
Speaker Change: you know, the capstone, just any kind of added detail on timing with respect to the process.
Speaker Change: At this stage I am just wrapping my arms around what we've done thus far, how we've approached it and making sure that I feel
confident to give you a more
Speaker Change: specific response to the timing at a later date. So I'm still playing sort of just in the in the phase of just learning what's happening, but over time we'll be able to share more with you on our refranchising efforts.
Speaker Change: Yeah, George, I think the only thing I would add is, you know, the timing in which we received our indication of interest, right, Capstone did their full marketing. We did receive a number of indication of interest.
Speaker Change: We were in the process of starting those management presentations to the bidders. Obviously, with the CEO transition, we wanted to take a step back and allow those potential groups.
Speaker Change: to meet Sanjeev and go through that process. So, a little bit of a delay there and we'll continue, you know, allowing Capstone to work through their process and continue that with full force.
Understood. Thank you.
Speaker Change: The next question comes from Jeff Van Sinderen with Be Riley FBR. Please go ahead.
Yes, and let me say welcome Sanjeev.
Speaker Change: I guess a couple things, and I realize you've only been there a really short time, and these are these are tough questions.
Speaker Change: But maybe you could just give us a little more on what you've learned so far, and I guess what you're leaning into to be most focused on in your first hundred days, and then I have some follow-ups to that.
First of all, thank you, Jeff. I appreciate it.
really
I'm finding my time here very enjoyable and enriching.
Speaker Change: The distillation of that is what I had shared in the four principles, which is our mission is to provide affordable and accessible services.
Speaker Change: Patient care, we have to elevate patient care. I think for me that's number one.
I think
[inaudible]
Speaker Change: I think the third thing is that we live in a world where we've got to constantly innovate around all aspects of what we do, and we're certainly going to be fueling more innovation.
going forward and last but certainly not the least
Speaker Change: We have to continue to invest behind building culture and capability across our network. So those are the...
Speaker Change: focus areas for me as I learn more as part of my first hundred days.
Okay that's fair and then just since you mentioned innovation
Are there other services that you...
Speaker Change: might be thinking about adding to clinics. And I know you talked about becoming a platform. I'm just curious.
Speaker Change: what your thinking is around that, what you might layer out of the platform. And again, I realize it's only a few weeks.
Speaker Change: Jeff, thank you for recognizing that. I think even before I joined the joint, right, one took an opportunity to study the category.
Speaker Change: And I think two things popped out at me before I came here. One was that chiropractic care itself has evolved over time, right? And there are...
clinical
Speaker Change: treatments available today that have evolved from from previous years. So I think there's a that's one. Secondly, I think when I look at the landscape
Speaker Change: Clearly, there are certain opportunities for us to leverage around our core infrastructure and think of what might be adjacencies that are worth, that would add shareholder value for us should we contemplate being...
a platform.
Speaker Change: That was before I came into the business, certainly evaluating all levels for growth. Now that I'm in the business, I think I'm, again, taking time to see it from the inside, learn what's happening, and we'll be able to give you a more...
Speaker Change: informed opinion when we speak next as part of the quarter four conversation.
Speaker Change: Okay, I appreciate that and hope the next couple months go well. I'll jump back in the queue. Thanks.
Thank you, Devon.
Speaker Change: Again, if you have a question, please press star, then 1.
The End
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to CEO Sanjay Razdan for any closing remarks.
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Sanjay Razdan: Thank you for joining us. I look forward to getting to know you at conferences and non-deal roadshows.
Sanjay Razdan: Have a good day, and know that at the Joint, we always have your back.
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Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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