The Joint Corp.

Ladies and gentlemen, thank you for standing by and welcome to the Joint Corp Q4 2020 Financial Results Conference Call. At this time, all participant lines are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today. Mariah Shilton of LHT Investor Relations. Thank you. Please go ahead, Madam.

Thank you, Justin. Good afternoon, everyone. This is Mariah Shilton of LHA Investor Relations. On the call today, President and CEO Peter Holt will review our year-end and fourth quarter 2020 performance metrics and provide an update 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 at ir.thejoint.com forward slash events. Today after the close of the market, the Joint Corp issued its financial results for the year and quarter ended December 31st, 2020. If you do not already have a copy of this press release, it can be found in the investor relations section of the company's website. As provided on slide two, please be advised today's discussion includes forward-looking statements, including statements concerning our strategy, future operations, future financial performance, position, and plans and objectives of management. Throughout today's discussion, we will present some important factors relating to our business that could affect these forward-looking statements. The forward-looking statements are made based on our current predictions, expectations, estimates, and assumptions. and are also subject to risks and uncertainties that may cause actual results to differ materially from the statements we make today. Factors that could contribute to these differences 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. We anticipate filing our December 31, 2020, 10-K on March 5. 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 the 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, and it is my pleasure to turn the call over to Peter Holt.

Thank you, Mariah, and I welcome everybody to the call. I'm delighted to speak with you today to review our company's performance in a year like no other. Our operational success is managing the impact of the pandemic on our business supported by our clinic staff treating our patients throughout this unpredictable environment, resulted in our strong financial performance and further validates the opportunity before us. I've said it before when reflecting upon 2020, and I do so now. Today, I am so grateful for our entire system, our doctors, wellness coordinators, franchisees, regional developers, corporate staff, for their dedication to our mission of improving quality of life of our patients. This pandemic has shown chiropractic care truly is an essential healthcare service to our patients. The joint is revolutionizing access to chiropractic care. Located in convenient retail settings, we provide concierge-style membership-based services without the need for insurance or appointments with attractive pricing and convenient hours. Our growth strategy is to build our brand, increase awareness of the efficacy of chiropractic care, attract new patients, and open more clinics. We're already the largest, most recognizable provider of chiropractic care in the country. Given the high level of fragmentation of the chiropractic industry, we have a significant opportunity to continue to increase our market share as we redefine and expand the market itself. Our core concept has remained steadfast. In adapting to the pandemic, the primary change we made to our operational practices was to increase sanitization and cleanliness procedures. This compares favorably to many other retail concepts that needed to reinvent their business models just to survive. While we experienced that initial negative financial impact in the second quarter of 2020, our resilient business model and the effective crisis management enabled us to quickly rebound. During the year, once again, we increased our productivity, resulting in improved clinic performance and greater company profitability. As a result, our adjusted EBITDA, positive for the third consecutive year, exceeded our plan and further strengthened our foundation. With our growth momentum reignited, we're optimistic about 2021. Turning to slide four, I'll review the performance metrics for the full year of 2020. The total number of adjustments performed during the year reached 8.3 million, up from 7.7 million in 2019. The total number of unique patients treated reached 1.1 million, up from 998,000 in 2019. 584,000 patients opened the door to the joint for the very first time, relatively flat compared to the 585,000 in 2019. 27% of our new patients had never been to a chiropractor before, up from 26% in 2019. 85% of the system-wide gross sales came from monthly memberships, up from 80% in 2019. We opened 70 new franchise clinics, nearly equal to the 71 new franchise clinics opened in 2019. And we sold 121 franchise licenses, pretty darn close to the 126 sold in 2019. We believe that achieving this level of performance in the 2020 environment is a powerful indicator of the positive long-term outlook for our business. Turning to slide five, while Jake will discuss our financial results in greater detail in a moment, all provide highlights to our strong fourth quarter results. System-wide sales increased 24% compared to fourth quarter last year. Our comp sales for clinics that have been open for at least 13 full months grew 16% compared to the same period, 2019. Revenue grew 23% compared to fourth quarter 2019, bringing the full year revenue to $58.7 million. Adjusted EBITDA increased to $3.7 million topping Q3 2020 and making it the strongest quarter in the company's history. Full year 2020 adjusted EBITDA rose to $9.1 million, up 47% from 2019. And at December 31, 2020, our unrestricted cash reached $20.6 million compared to the $18.3 million at September 30, 2020, driven primarily from an increase in cash flow from operations. Turning to slide six, Let's review our portfolio. During the fourth quarter, we opened up 21 new franchise clinics and no greenfields, slightly off the pace from the 25 opened in Q4 2019, which is one of our most active quarters in clinic openings in our history. Also during the quarter, we closed two franchise clinics and acquired one franchise clinic. For the full year 2020, we opened 70 franchise clinics and three greenfields, compared to 71 franchised and five Greenfield clinics in 2019. While our pre-COVID-19 guidance for the year was originally higher for franchise openings, we believe a flat number of openings in this environment is a win. In 2020, we closed seven franchise clinics and acquired one franchise clinic, compared to the four closures and eight acquisitions in 2019. Despite the pandemic, we continue to experience an unusually low closure rate of 1.2% in 2020, At December 31, 2020, we had 579 clinics in operation, consisting of 515 franchise clinics and 64 company-owned or managed clinics, maintaining a mix of 89% franchise and 11% corporate. At year-end, we had 253 franchise agreements and some level of development. This compares to the 204 at December 31, 2019, and is reflective of the increased interest in our franchise systems. Turning to slide seven, in the fourth quarter 2020, the year of the pandemic, we achieved the highest number of quarterly franchise license sales as a public company. We sold 56, up from 30 in the third quarter and 23 in fourth quarter 2019. For the full year 2020, we sold 121 new franchise licenses, only a handful less than the previous annual high set last year at 126 licenses sold. Frankly, for any franchise system to be selling licenses in a business climate is exceptional, and we're proud of our sales team and their dedication to attracting great franchise candidates. Frequently, I comment that franchising is a nationwide brand-building exercise, and in a small-box retail environment, our storefronts are our most effective way to build our brand. And we have and will continue to use regional developers, or RDs, to extend our reach and accelerate our brand building, particularly in new markets. They've been integral to our franchise sales growth since 2017. They've been responsible for 81% of our franchise sales. With RDs, we enter into a 10-year agreement to sell and support a minimum number of franchise clinics in a territory and can negotiate extensions to that territory as appropriate. Typically, the minimum development schedule is front-loaded. When markets reach maturity, it's not unusual for the franchisor to repurchase the RD rights. Recently, we did so in two well-run mature markets, North Carolina on December 31, 2020, and Georgia on January 1, 2021. These transactions totaled $2.4 million. As a result, 69 franchise clinics and 37 signed franchise license agreements for unopened clinics shifted from management by RDs to corporate management, thereby eliminating the payments made to these RDs for franchise sales commissions and royalties of 3% on the gross sales for their clinics. The transactions are immediately accretive and expand our margin contribution. At December 31, 2020, 419 of our clinics, or 72%, were supported by our 22 RDs, which covered 61% of the Metropolitan Statistical Areas, or MSAs, at December 31, 2020. On January 1, 2021, we reduced that to 378, or 65% of our clinics that were supported now by 20 RDs. We'll continue to evaluate new RD opportunities. Recently, we expanded the RD for the Wisconsin region to include a portion of Michigan. Today, our aggregate 10-year minimum development schedule for RD territories established since 2017 comes to 475 clinics. This large foundation of clinic commitment bodes well for our continued clinic expansion and sales growth. We're investing in the future and plan to expand our entire portfolio between franchise and corporate units well over 100 units in 2021. Our strong license sales set the stage for increased future franchise clinic opening as we remain committed to achieving our goal of opening 1,000 clinics by the end of 2023, resulting in increased revenue, scale, and brand recognition. Turning to slide 8, let's review our franchise system for a moment. Strengthening our franchisee relationship is a long-standing priority for the joint, and I'm pleased to report that we continue to make positive inroads. According to Franchise Business Review, an independent organization we've engaged to conduct our franchisee satisfaction surveys most recently in October 2020, the joint has achieved a Franchise Satisfaction Index, or FSI, of 75%. This is up from 65% in November of 2018 and 58% in April of 2017. An FSI score represents the weighted sum of positive responses and discounts the negative responses. FSI ratings allow a franchisor to benchmark their franchisee's satisfaction against various industry sectors. We scored in the top tier, validating our continued efforts to improve our relationships with our franchisees. Turning to slide nine, let's turn our attention to marketing. In Q4, we launched our annual holiday promotions, our Black Friday package sale, and our year-end membership promotion. With our clinic teams highly engaged in using our best promotional best practices resulted in both promotions exceeding our previous records. Black Friday sales per clinic were up 98% over prior year, and our year-end sales per clinic grew 42% over prior year. Clearly, our patients responded enthusiastically to these limited-time opportunities to save even more on chiropractic care. Sales growth and clinic expansion have increased the flow of dollars into our national marketing fund, and we're using these resources to invest in new strategic partnerships to fuel our growth. In 2020, we began working with a new public relations firm to build our national profile and grow awareness of chiropractic. In 2021, we've launched two new additional partnerships with media and creative agencies to elevate our brand advertising, and we look forward to releasing a new national campaign in Q2 of this year. Finally, among the many useful patient profile insights from our most recent annual independently conducted survey, I'd like to highlight, according to this survey, 27% of the patients who visited our clinics in 2020 had no previous experience with chiropractic care. In 2013, this number was only 14%. Nearly doubling our first-time users demonstrates the joint's growing ability to reach an increasing number of American consumers who have yet to benefit from chiropractic care. Turning to slide 10, let's review Access, our new IT platform. Access is our most important initiative in 2021. It will provide an improved point-of-purchase system financial systems, business intelligence, marketing automation, and patient feedback capabilities, among many other features. In Q2 2020, we had to pause our efforts to implement Access to focus on helping our franchise community respond to the impact of the pandemic. In the fall, we reengaged the Access project. At present, we're finalizing the user interface testing and preparing critical training programs, as well as end-user and clinic certification processes necessary for launching the platform. It's essential that that new platform be fully tested and that every franchisee is prepared and trained for the acceptance of the new system. As we complete this crucial project, we will not jeopardize it by rushing or shortcutting the process to meet an artificial timeline. Currently, we plan to begin the formal rollout in early summer. And with that, Jake, I'll turn it over to you.