The Joint Corp.

Ladies and gentlemen, thank you for standing by. And welcome to the first quarter 2020 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star and the number one on your telephone keypad. If you require any further assistance, please press star and zero. I would now like to turn the conference over to your speaker for today, Ms. Julie Cimino. Ma'am, you may begin your conference.

Thank you, Operator. Good afternoon, everyone. This is Julie Cimino of LHA Investor Relations. On the call today, President and CEO Peter Holt will review our first quarter and the impact of COVID-19 on the business. CFO Jake Singleton will detail our financial results. Then Peter will close with a summary and open the call for questions. Please note we are using a slide presentation that can be found on the Investor Relations section of the company's website. Today after the market closed, the Joint Corp. issued its financial results for the quarter ended March 31, 2020. If you do not already have a copy of this press release, it can be found on the Investor Relations section of the company's website. As provided on slide two, please be advised today's discussion includes forward-looking statements, including statements concerning our strategy, future operations, future financial position, and plans and objectives for management. Throughout today's discussion, we will present some important factors relating to our business that could affect these forward-looking statements. The forward-looking statements are made based on our current predictions Expectations, estimates, and assumptions are also subject to risks and uncertainties that may cause actual results to differ materially from the statements we make today. Factors that could contribute to these differences include, but are not limited to, the continuing impact of the COVID-19 outbreak on the economy and our operations, including temporary clinic closures, shortened business hours, and reduced patient demand. Our failure to develop or acquire company-owned or managed clinics as rapidly as we intend, our failure to profitably operate company-owned or managed clinics, and the other factors described in risk factors in our annual report on Form 10-K, as filed with the SEC for the year ended December 31, 2019, as updated for any material changes described in any subsequently filed quarterly reports on Form 10-Q, as they may be revised or updated in our subsequent filings, including the one we anticipate filing on May 8. As a result, we caution you against placing undue reliance on these forward-looking statements and encourage you to review our filings with the SEC for a discussion of these factors and other risks that may affect our future results or the market price of our stock. Finally, we are not obligating ourselves to revise our results or publicly release any updates to these forward-looking statements in light of new information or future events. Management uses EBITDA and adjusted EBITDA, which are non-GAAP financial measures. These are presented because they are important measures used by management to assess financial performance. Management believes they provide a more transparent view of the company's underlying operating performance and operating trends than GAAP measures alone. Reconciliation of net income to EBITDA and adjusted EBITDA is presented in the press release. The company defines EBITDA as net income or loss before net interest, tax expense, depreciation, and amortization expenses. The company defines adjusted EBITDA as EBITDA before acquisition-related expenses, bargain purchase gain, net gain or loss on disposition or impairment, and stock-based compensation expenses. Turning to slide three, it is my pleasure...

Thank you, Julie. I welcome everybody to our Q1 earnings call, and I'd like to begin by thanking the extraordinary healthcare workers across this nation as they battle COVID-19. Nothing could be more important than for each of us to do whatever we can to combat this pandemic and minimize its impact. As the CEO of the Joint Chiropractic, I want to reiterate that our primary concern, which guides all of our actions, is the health and well-being of our patients and their families. and those who serve our patients. As we stated last month, the Joint is relying on guidance from national and local chiropractic associations and healthcare organizations to direct our conduct. Most states' directives view chiropractic care as an essential healthcare service that can be used by patients with a wide array of health conditions. Therefore, we've been committed to remaining open wherever and whenever possible. Additionally, we've implemented increased hygiene routines, Monitoring and Operation Protocols, which we have detailed in our company website. As we weather this unfolding crisis, I'm so grateful for the compassion of our franchisees, doctors, and support teams who are also on the front line and have continued to provide chiropractic care to our patients. By staying open, we're able to remove some of the burden from the traditional medical resources, allowing our healthcare system to focus on treating those afflicted by COVID-19. Andra Terrell, Debbie Gonzalez, Scott Justin Bowman, After which I'll open the call for questions. The joint continues to revolutionize access to chiropractic care with convenient retail settings, concierge style and membership-based services, attractive pricing and hours, without insurance or appointments. Our hybrid model of company-owned or managed clinics, as well as our franchise clinics, have fueled our ability to expand in a capital-like fashion. Already, we're the largest and most recognizable provider of chiropractic care in the country, which in 2019 was estimated to be $15 billion and expanding, illustrating our opportunity for continued growth. After four years of robust unit growth and a focus on improving operations and marketing, we entered this crisis better prepared to manage these unprecedented circumstances. Strong momentum continued for the first two and a half months of the quarter, and approximately 95% of our clinics remained open through March 31st. However, since then, we're seeing a significant impact from COVID-19, which will be discussed in greater detail later in the call. For the first quarter of 2020, compared to the first quarter of 2019, we continued to deliver solid growth. System-wide sales grew 24%, and comp sales for clinics that had been open for at least 13 full months were 15%. On March 30, 2020, we had $10.7 million in unrestricted cash, Up from 8.5 million, reflecting the 2.2 million drawn from our recently established line of credit. Turning to slide four, let's review our portfolio. At March 31, 2020, we had 530 clinics in operation. Up from 513 at December 31, 2019. At quarter end, the clinic mix remains 88% franchised and 12% corporate. In February, we expanded the Los Angeles regional cluster with a new Greenfield clinic, bringing the total company-owned or managed clinics to 61. During the quarter, we opened 16 franchise clinics, bringing the total to 469. Three of the clinics opened in the Q1 2020, including one Greenfield, earned the go-away lease status by achieving at least 400 new patients and $30,000 in sales within the first two months of operations. Notably, five of the six corporate greenfields that we've opened in 2019 and 20 have achieved the Go Elite status, with one of our corporate greenfields having the best grand opening performance of any clinic in the history of the company, as measured by the first two months of growth for sales. Turning to slide five, during the first quarter, we sold 24 new franchise licenses, compared to 30 licenses sold in Q1 2019. Traditionally, Our franchise sales are highest in the second quarter as our annual franchise disclosure document is updated at the end of April and our franchisees often prefer to sign the old agreement. In April 2019, we sold 30 franchise licenses compared to 6 in April 2020. Albeit it is a significant decrease, we believe selling any licenses in this current climate is remarkable and indicative of the positive long-term outlook of our business. Our regional developers, our RDs, continue to fuel our growth and we're responsible for 92% of the franchise sales in Q1 2020 and 5 of the 6 sales in April. To further underscore the appeal of our concept, in late March of this year, we sold the new RD rights for Nebraska, Iowa, and South Dakota, increasing our RD platform to 22. This new RD has an extensive multi-unit franchise background and currently owns over 30 great clip salons. This territory carries a minimum 10-year development schedule of 18 units. Turning to slide 6, let's review how COVID-19 is impacting the Joint, what actions we've taken, and how we're prepared for managing the uncertainty caused by the pandemic. To assist us in our decision-making, we're carefully following guidelines from trusted authorities such as the Centers for Disease Control and the World Health Organization and local and state health authorities. Since the onset of the pandemic, the Joint has been working tirelessly to prepare the company to meet the challenges in this dynamic situation. Some of these actions include that we've increased the frequency of our communication to our franchisees and clinic teams, including weekly all-network town halls to help them navigate the rapidly changing environment, and special edition webinars that dive deep into important topics such as marketing in this time of uncertainty, navigating economic relief options, Managing HR issues, improving the patient experience, and self-forecasting in light of the COVID-19 environment. We instituted an internal hotline to our rapid response team and an FAQ website connecting franchisees with all our published information and documentation related to COVID-19. We're addressing patient safety concerns by educating them about the enhancements in our policies and our procedures, utilized at our clinics to align with the latest facts and best practices related to hygiene and sanitation, patient screening, clinic operations, and other critical protocols. We're adapting our content marketing plan to provide patients with additional safety and support during the pandemic, including what to expect during the visit to the joint, as well as numerous tips in maintaining their health and wellness during this pandemic. And we're strengthening the supply chain of PPE and cleaning supplies to our clinics, To further support our franchisees during this crisis, we've extended several temporary concessions to them. This includes waiving the minimum royalty requirement for all franchisees for the remainder of 2020, the minimum local ad spend requirement through the end of Q2, and the monthly tech fee for clinics closed 16 days or more in that month. We'll continue to explore opportunities to bring additional relief and support wherever it makes sense for the short and long-term health of our franchisees. To assess effectiveness of our communications with our franchisees, in mid-April, we conducted a quick pulse survey that was executed by Franchise Business Review. The feedback was very positive. Among the highlights, 88% of the franchisees stated that they were either very positive or mostly positive about their association with the joint. And 90% stated that they were either extremely confident or somewhat confident about the long-term future of the business. The survey results validates our effort to date and provided helpful insights that we're using to further improve our support of our franchise community. In consideration of the impact of COVID-19, Let's review our current corporate strategies for technology, marketing, and overall operations. Regarding technology, we are suspending the launch of our new CRM system, Access. Successfully rolling out such a foundational platform for our business requires the entire network's full engagement. Given this, it did not make sense for us to proceed with such a critical project in the middle of a pandemic. We continue to view this as one of the most important projects of our future. and we look forward to picking up its development. For now, we estimate the rollout will most likely be a 2021 event. Regarding marketing, we've shifted our messages to emphasize chiropractic care as an essential healthcare service and to provide content that gives our patients information for maintaining their health and wellness during the pandemic. We've encouraged our franchisees to sustain their advertising efforts and to continue nurturing their patient relationships in their communities. Most of our large markets have continued their broadcast media buys on television and radio, and we believe a strong effort to maintain our marketing outreach during COVID-19 will benefit our brand. We're taking actions to preserve cash. We're negotiating with landlords and deferring capital expenditures. Developing new greenfields and acquiring clinics are our most significant use of cash. Previously, we had targeted opening between 16 and 20 corporate clinics in 2020. However, due to COVID-19, for the remainder of this year, we've chosen to slow down the pace of our corporate clinic expansion. Now I'll review the state of our business as of today. Unlike many retail systems that have been forced to close most or all of their operations, we've been fortunate that the vast majority of our network remains open for treating our patients. At the end of April, approximately 90% of our clinics were open, though 38% had modified their hours of operations and those patients who have been unable to visit a clinic either because the clinic was closed or because they're in self-quarantine, we've instituted a policy that allows them to temporarily freeze their memberships rather than cancel at no cost to them. In April, in this COVID-19 environment where the majority of the states have some form of shelter-in-place directive, we maintained approximately 60% of our expected patient visits. This reflects the importance of chiropractic care to our patients and validates our point of view that they see us as an essential healthcare service. April growth sales were down over 30% compared to our pre-COVID expectations. Member attrition has been fairly stable. While new patient conversion is up compared to previous periods, we have experienced a significant drop in our new patient counts. The core of our patient base remains engaged and appreciative that we're open. Going forward, our focus is on the development of a marketing plan that will be launched once we emerge from the pandemic aimed at our existing patient base as well as new patient growth. And with that, Jake, I'll turn it over to you.