The Joint Corp.

Good day and thank you for standing by. Welcome to the Joint Corp Q3 2021 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 the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to David Barnard, LHA Investor Relations. Sir, please go ahead.

Thank you, Lee. Good afternoon, everyone. This is David Barnard of LHA Investor Relations. On the call today, President and CEO Peter Holt will review our third quarter 2021 performance metrics and provide an update on the business. CFO Jake Singleton will detail our financial results and guidance. 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 httpsir.thejoint.com backslash events. Today, after the close of market, the joint corporation issued its financial results for the quarter ended September 30th, 2021. 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 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, our inability to identify and recruit enough qualified chiropractors and other personnel to staff our clinics, due in part to nationwide labor shortage, short-selling strategies and negative opinions posted on the Internet, which could drive down the market price of our common stock and result in class action lawsuits, 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, 2020, as updated or revised for any material changes described in any subsequently filed quarterly reports on Form 10-Q or other SEC filings. We anticipate filing our September 30, 2021 10-Q on November 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 our results or publicly release any updates to these forward-looking statements in light of new information or future events. Please note, during the quarter ended September 30, 2021, the company identified an immaterial error in the calculation of deferred revenue related to wellness packages. Management assessed the materiality of error and determined the impact and the company's condensed financial statements was not material. December 31, 2020 balance sheet has been revised to correct the error as of January 1, 2020. 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 gap 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 to turn the call over to Peter Holt.

Thank you, David, and I welcome everybody to the call. During the third quarter, we continue to execute our long-standing strategy to build a joint brand by opening franchised and corporate-owned or managed clinics in retail settings. Additionally, we look to opportunistically acquire creative franchise clinics and build new greenfield clinics that complement our corporate portfolio. As a result, we've advanced our revenue growth momentum, We continue to be on track with our goal of 1,000 clinics in operation by the end of 2023, and while positioning our business for longer-term expansion well into the future. Recently, we've received a great deal of interest from new investors. I'd like to welcome them and summarize our investments rationale. The joint is revolutionizing access to chiropractic care. Located in convenient retail settings, our clinics provide concierge-style membership-based services. Patients benefit from attractive pricing and convenient hours without the need of insurance or appointments. Our growth strategy is to build a brand, increase awareness of the efficacy of chiropractic care, deliver on exceptional patient experience, and open more clinics. We're already the largest and most recognizable provider of chiropractic care in the country, and yet we only account for approximately 2% of this highly fragmented, nearly $18 billion chiropractic care market. As such, we have a significant opportunity to continue increasing our market share as we further refine and expand the market itself. Turning to slide four, I'll review a few highlights of our third quarter 2021 results. Later, Jake will discuss our financial results in detail. In Q3 2021, compared to Q3 2020, system-wide sales grew to $93.4 million, increasing 37%. Our comp sales for clinics that have been open for at least 13 full months grew to 27%. Revenue grew 36%. Adjusted EBITDA increased to $3.3 million, up 25%. And at September 30th, 2021, our unrestricted cash was $19.5 million, compared to $20.6 million at December 31, 2020. Turning to slide five, let's review our portfolio. Regarding clinic expansion, during Q3, we opened 33 clinics, 28 franchised and five greenfields, up from a total of 21 opened and one closed in Q3 2020. This brings our nine-month total to 87 clinics opened compared to 52 in the same period of 2020. Our clinic expansion strategy remains unchanged. We're accelerating our openings of new franchise clinics, and we're significantly increasing our corporate portfolio by strategically building greenfield clinics where we can open up new markets or enhance existing corporate clinic clusters, and finally, by purchasing franchise clinics in strategic locations that will be accretive. During Q3, we opened five greenfields that extend our reach in Virginia, Southern California, and Arizona. Virginia also increases our footholds in the newly established corporate clinic presence in the Southeast region. That said, It's important to remember that when Greenfields first opened, they are expected to compress margins. As corporate clinics, they contribute 100% of the top and bottom lines, and therefore, when mature, they have a greater financial economic benefit compared to franchise clinics for the company. We continue to have exceptionally low clinic closure rates of less than 1% annually. This quarter, once again, we did not have any clinics closed compared to only one closure in Q3 2020. In summary, on September 30, 2021, we had 666 clinics in operation, consisting of 583 clinics franchised and 83 company-owner managed clinics. Our portfolio mix remained at 12% corporate clinics and 88% franchised. At quarter end, we also had 295 franchise licenses in active development. Reflecting the increased interest in the franchise system, this figure continues to grow and compares to 282 at the end of June 30, 2021. After the quarter closed in October, we opened an additional greenfield in Arizona, bringing our total greenfield count to 12 for the year. On November 1st, we acquired four previously franchised and strong-performing clinics in North Carolina, bringing our total corporate portfolio to 88 as of today. The acquisition was immediately accretive to the strengths of our corporate presence in the South Weeds region. The ability to create a formidable cluster to a new territory reinforces our decision to repurchase the regional developer territories at the beginning of the year. Turning to slide six, in Q3 2021, we sold 44 franchise licenses compared to 30 in Q3 2020. This brings our nine-month sales total to 132 compared to 65 franchise license sales in the same period in 2020. Our franchise concept continues to attract sophisticated, well-capitalized franchisees. One such investment group in which a board member holds a minority interest owns three clinics, which is less than 1% of our total clinic count. Please note that all franchisees follow the same rules and the same fee schedules, and as independently owned and operated businesses, keep their finances completely separate from that of the joint corporate. During Q3, 82% of the franchise licenses were sold by our regional developers, who continue to accelerate our growth. As noted previously, all franchisees, whether sourced by an RD or a corporate sales rep, must meet our high criteria to be selected and must participate in a thorough due diligence process prior to approval. To understand the health and viability of a franchise system, an important measurement to track is the number of franchise licenses sold to franchisees new to the concept compared to existing franchisees. Each year, from 2018 through today, over 50% of our franchise license sales have been to existing franchisees reinvesting in the brand. This very healthy mix demonstrates the strength of our business model and provides positive validation for new candidates interested in the franchise. At September 30, 2021, our 21 RDs supported 70% of our clinics, and their territories covered 59% of the Metropolitan Statistical Areas, or MSAs. Our aggregate 10-year minimum development schedule for new RD territories established since 2017 is 693 clinics. Keep in mind that a portion of this clinic count is already open, but this still provides a large foundation to fuel our continued clinic expansion and sales growth. Turning to slide 7, let's review our marketing efforts. In Q3, we launched a new educational campaign promoting the benefits of chiropractic care for kids during back-to-school season. Our efforts relied heavily on our PR and social media content to reach parents of school-age children with our message. We're pleased to secure over 230 million media impressions from that campaign. In Q4, our focus will be on our holiday promotions, starting with our November Black Friday package sale and then moving to our December year-end membership promotions. These direct marketing campaigns offer our patients a limited time opportunity to save on their chiropractic care. Finally, I'd like to congratulate Jason Greenwood, whom we just promoted to Chief Marketing Officer. Jason joined us almost four years ago and has been an instrumental driver of growth during his tenure. As a talented strategist, he's leveraged our unique market position and skill to build successful marketing programs and elevate our performance. Jason's efforts continue to enhance branding, build culture, attract key talent, generate leads, and increase our new patient conversion. I look forward to his ongoing contribution as we begin to unleash the power of this new IT platform, particularly from a marketing perspective. Speaking of which, I'll turn to slide eight to review our initiative to improve our technology infrastructure. Access 1.0, the first iteration of our new IT platform, was formally launched in July. Our goal was to migrate from our homegrown legacy system to a licensed, scalable platform, which we accomplished successfully without major disruptions. Like any implementation of a system of this complexity and magnitude, we're currently addressing bugs and process improvements as we plan for the next phases of our technology roadmap. I want to pause and thank our franchisees and our clinic users for their enormous effort to help us through this transition and their patience through this process. We look forward to introducing new innovations that will build on this platform and create increased value for our business. And with that, Jake, I'll turn it over to you.