The Joint Corp.

ourselves to revise the results or publicly release any updates to these four linking 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 or net gain or loss on disposition or impairment, and stock-based compensation expenses. Management also includes commonly discussed performance metrics. System-wide sales include revenues at all clinics, whether operated by the company or by franchisees. 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 franchise base. Comp sales include the revenues from both company-owned or managed clinics and franchise 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 is now my pleasure to turn the call over to Peter Holt.

Thank you, David, and I welcome everybody to the call. During the second quarter of 2022, our growth momentum continued. Before I go into greater detail, I'd like to welcome our new and returning investors in addition to our existing shareholders. As you know, the joint is revolutionizing access to chiropractic care by providing affordable concierge-style membership-based service in convenient retail settings. We've had a huge addressable market in both size and opportunity. First, the joint accounts for only 2% of nearly $18 billion spent annually in the United States on chiropractic care. Next, Our system provides the most robust environment for chiropractic clinics to excel financially, demonstrated by our research comparing average collections of independent practices to average sales of our clinics in our network. In addition to our strong unit economics, our hybrid business model continues to position us for long-term growth. Our corporate clinics will drive long-term bottom-line improvement. Our franchisees will continue to fuel our expansion in a capital-like fashion. As we increase our scale and presence, bringing us closer to our interim goal of 1,000 clinics, our national brand awareness also increases, adding further momentum to our expansion. That said, it's important to reiterate our commitment to responsible growth, which means our highest priority remains maintaining our high standards in providing quality patient care. To that end, we closely monitor clinic performance. As discussed during our Q1 2022 earnings call, With a large influx of greenfield openings in late 21, coupled now with our managing a portfolio of over 100 units, we experienced a temporary negative impact on our corporate clinic portfolio, and we took swift action. We've sharpened our focus on supporting our doctors of chiropractic and our wellness coordinators, and we've strengthened our oversight of our corporate units. As a result, we delivered improved Q2 2022 clinic performance compared to Q1 2022, Turning to slide four, I'd like to review our financial highlights for Q2 2022 metrics compared to Q2 2021. Jake will discuss our results in greater detail in a moment. System-wide sales grew to $106 million, increasing 21%. Our comp sales for clinics that have been open for at least 13 full months grew to 8%. Revenue increased 24%. Adjusted EBITDA was $2.6 million. And at the end of June 30, 2022, our unrestricted cash was $9.4 million compared to $19.5 million on December 31, 2021, reflecting our strategy of investing in our corporate clinic portfolio, as well as our acquisition of regional developer territory rights. Turning to slide five, again, Q2 performance improved compared to Q1, 2022. It also compared well to Q2, 2021. especially when taking into consideration that that quarter delivered record-breaking performance due to our exceptional rebound from COVID and capture a pent-up demand in both clinic openings and franchise-licensed sales. Regarding clinic expansion, during Q2 2022, we opened 34 clinics, up from 31 clinics in Q1 2022. Of the 34 opened in Q2, three were Greenfield clinics and 31 were franchise clinics. Also, during Q2, one franchise clinic closed compared to none in Q2 2021. The joint continues to have very low clinic closure rates of less than 1% annually. In Q2, consistent with our growth strategy, we opened the three greenfield clinics in Arizona, Virginia, and New Mexico, which have increased our presence in existing corporate clusters. Year-to-date in 2022, we opened 65 clinics, 58 franchises, and seven greenfields. This compares to 54 openings in the first six months of 2021 that consisted of 48 franchises and six greenfields. Also in May, we acquired four previously franchised clinics. A multi-unit franchisee with clinics in both Arizona and California wanted to consolidate their clinic ownership to California, thus creating the opportunity for us to buy their high-performing mature clinics in Arizona. This expanded our headquartered region cluster to 24. Easily incorporated into the portfolio, these clinics improved our corporate clinic operating margin and were immediately accretive to our bottom line. The purchase price of $5.8 million reflected the strength of these clinics and was in line with previous acquisition valuations. In summary, at June 30, 2022, we had 769 clinics in operation, consisting of 662 franchise clinics and 107 company-owned or managed clinics, maintaining a portfolio mix of 14% corporate clinics to 86% franchise clinics. At the end of the quarter, we also had 270 franchise licenses in active development compared to 283 on December 31, 2021. This metric continues to demonstrate the strong pipeline for franchise clinic openings and reflects both the accelerated number of franchise openings as well as ongoing increased interest in our franchise system. Subsequent to quarter end, we completed several more transactions that built upon our clustered location strategy. We acquired three previously franchised clinics in North Carolina and one clinic in Scottsdale, Arizona. We also opened up one greenfield clinic in California and our first two greenfield clinics in Kansas City, which is a new market for us where we expect to expand to at least five clinics in a relatively short period. This increased our corporate portfolio to 114 clinics as of August 4, 2022. Turning to slide 6, in Q2 2022, we sold 24 franchise licenses, up from 22 licenses in Q1 2022, compared to 63 in Q2 2021. Year-to-date, 2022, 46 licenses were sold, 67% by regional developers. This compares to 89 licenses sold in the first six months of 2021. As of June 30, we had 19 RDs supporting 67% of our franchise clinics. Their territories covered 55% of the metropolitan statistical areas, or MSAs. The aggregate 10-year minimum development schedule for our new RD territories established since 2017 was 640 clinics as of June 30. Keep in mind that a portion of this clinic count is already opened, but the remaining unopened clinics still provide a large foundation to fuel our continued clinic expansion and sales growth. Our RD program continues to deliver accelerated expansion. However, under certain circumstances and when territories mature, we'll acquire RD territories. In April, we purchased the rights for the Northern California for $2.4 million. Our model indicates that the region has a potential for 75 clinics. Already, 20 franchise clinics are in operation and 36 sold licenses are in active development. This leaves room for another 19 sites for future corporate or franchise clinic development. In May, we hosted our National Franchise Conference with the theme Align 22. During this well-attended event, we aligned our strategies and our tactics, celebrated our successes and culture, shared our latest research, listened to inspiring industry and business visionaries, and continued developing the future leaders of our growing chiropractic movement. There were multiple noteworthy takeaways, and I'll share some of the compelling research that we reviewed during that event. Turning to slide 7, according to FranData, which analyzes the franchise landscape, of approximately 3,500 franchise businesses in the United States today, only 4.9% have more than 500 units. Even more notably, only 94 brands, approximately 2.7%, have grown to over 1,000 units and benefit from the significant brand awareness that that creates. According to the 2022 Essential Guide of Pricing Business and Franchisees, The joint is an elite franchise system, and based on analysis of the franchise unit sales price, our clinics garner higher valuations than the majority of franchise concepts, further enhancing the attractiveness of our franchise offering. Turning to slide 8, we also evaluated data from the annual chiropractic economics compensation survey, comparing two alternatives available to chiropractors, becoming an independent practice or joining our franchise concept. According to the survey, the average independent practitioner collected about $264,000 per clinic in 2021. By comparison, in 2021, the average gross sales per clinic of the joint was 2.3 times greater at almost $600,000. Further, studying the data from 2017 to 2022, independent clinics' billings decreased 14% and collections decreased 11%. while the average gross sales per joint clinic grew 76%. Turning to slide 9, during our national conference, we were also presenting awards to our high-performing clinics. The number of 2021 bronze, silver, gold, platinum, and diamond honorees grew markedly over 2020. In 2021, 308 clinics achieved sales greater than $550,000, or up 82% from the 169 clinics of 2020. That included 41 platinum clinics with over $1 million in sales, more than four times higher than the nine platinum clinics in 2020. Finally, in 2021, we doubled our diamond category as the second clinic achieved a remarkable milestone of over $1.5 million in sales for the year. This unit volume increase success continues to attract more sophisticated franchisees, and the positive cycle repeats itself. It also illustrates that our clinics have more room to expand their patient base, creating additional clinic value as well as overall enterprise value. Turning to slide 10, let's review our marketing efforts. In Q2, we continue to leverage our growing scale and resources by investing in brand building and lead generation at the national, regional, and local levels. This tiered approach provides clinics with a degree of marketing support and sophistication that is unprecedented in chiropractic. It also enables us to test tactics before they're added to the toolkit for individual clinics. Nationally, we're consistent advertisers on multiple digital marketing platforms. Reasonably, many of our co-ops invest in broadcast media and sports sponsorships, such as our June announcements with the North Fork Tide, a minor league baseball team. And locally, our clinics nurture prospects within their own trade areas by utilizing our proven local marketing tactics. This support, combined with the power of our data from millions of patient transactions, provides clinics with a significant competitive advantage in attracting new patients. Another facet in the development and management of our online marketing strategy, which is essential for reaching millennial and Gen Z consumers seeking solutions for pain relief. One challenge we navigate is adapting to Google's frequent changes in their search algorithms, which can impact our online visibility. Such a change occurred in late 21 and continued to negatively impact our organic search traffic into Q2. While our new patient acquisition remains exceptionally high when compared to historic levels, we've been implementing changes to our search engine optimization activities across the network. As a result, our July online traffic improved, which indicates our new patient acquisition pipeline is increasing. In June, we executed our annual summer sale direct marketing promotions. where we targeted lapsed patients with a limited time offer to restart their membership with a joint. We achieved the highest number of conversions per clinic, and our highest ever conversion rate is the promotion with a five-year history. The success of the summer sale once again demonstrates the potential growth in marketing to our own database, as well as the progression of our digital marketing tactics, which we expect to further leverage with the harness of the power of our data enterprise initiative. And with that, Jake, I'll turn it over to you.

Thank you, Peter. And turning to slide 11, I'll review the financial results for Q2 2022 compared to Q2 2021, which, as Peter mentioned, was a record-breaking quarter benefiting from demand built up during the early part of the pandemic. System-wide sales for all clinics open for any amount of time increased to $106 million, up 21%. System-wide comp sales for all clinics open 13 months or more were 8%. System-wide comp sales for mature clinics open 48 months or more, were 3%. It's worth noting that both the franchise and corporate clinic cohorts comped positively, and we look forward to growth as the impact of our price increase continues to come into effect. Revenue was $25.1 million, up $4.8 million, or 24%. Company-owned or managed clinic revenue increased 27%, contributing $14.5 million. Franchise operations increased 20%, contributing $10.6 million. The increases represent growth in both the corporate portfolio and the franchise base. On March 1st, we implemented a price increase in the majority of our clinics. However, existing patient memberships are currently grandfathered at their original price. Therefore, the revenue impact from the price adjustment will be gradual and incremental. Cost of revenues was $2.4 million, up 19% over the same period last year. reflecting the increase in franchise clinics, the associated higher regional developer royalties and commissions, and higher website hosting costs related to the new IT platform. Selling and marketing expenses were $3.8 million, up 23% over the same period last year, driven by an increase in advertising fund expenditures from a larger franchise base and an increase in local marketing expenditures by the company-owned or managed clinics. Depreciation and amortization expenses increased compared to the prior year period, primarily due to the depreciation expenses associated with our new IT platform and continued greenfield development. G&A expenses were $16.5 million, compared to $11.6 million, up 42%, reflecting the cost to support total clinic and revenue growth, greater IT expenses, higher payroll, including the increase in salaries for DCs, which began in the latter half of 2021, and for wellness coordinators, which continued through the second quarter of 2022, all these to remain competitive in the tight labor market. As noted previously, our pace of greenfield openings will increase GNA as a percentage of revenue over the next several quarters and will also compress earnings. As a result, we reported an operating income of $473,000, which reflects the compressed margins from accelerated greenfield development, the aforementioned higher depreciation, and higher GNA expenses. This compares to $2 million in Q2 2021. Income tax expense was $109,000 compared to a benefit of $666,000 in Q2 2021. Net income was $345,000 or two cents per diluted share compared to net income of $2.7 million or 18 cents per diluted share in Q2 of 2021. Adjusted EBITDA was $2.6 million compared to $3.8 million for the same period last year. Franchise clinic adjusted EBITDA increased 13% to $4.4 million. Company-owned or managed clinic adjusted EBITDA was $1.8 million. While the Q2 2022 margin for corporate clinics has improved over the Q1 2022, compared to Q2 of last year, it decreased $1.2 million, reflecting the margin compression related to the greenfield development and higher payroll expenses. Corporate expense as a component of adjusted EBITDA loss was $3.6 million, increasing $433,000 compared to Q2 2021. On to our balance sheet and cash flow review. At June 30, 2022, our unrestricted cash was $9.4 million, compared to $19.5 million at December 31, 2021. During the first half of the year, our investing activities of $11.4 million consisted of the acquisition of RD territory rights, franchise clinic acquisitions, and continued greenfield developments. which were partially offset by $1.5 million provided by operating activities. On to slide 12, I'll review our results for this first six months of 2022 compared to the same period in 2021. Revenue increased 26% to $47.5 million, and adjusted EBITDA was $4.4 million compared to $7.2 million in the prior year period, reflecting the compression of earnings by the influx of new corporate Greenfields clinics and higher payroll expenses associated with the tight labor market. On to slide 13. We are reaffirming all elements of our guidance for 2022. We continue to expect revenue to be between $98 and $102 million. The midpoint is up 24% compared to the $80.9 million in 2021. We continue to expect adjusted EBITDA to be between $12 and $14 million compared to $12.6 million in 2021. We continue to expect franchise clinic openings to be between 110 and 130 compared to 110 in 2021. We continue to expect to increase our company-owned or managed clinics by between 30 and 40 through a combination of Greenfield openings and franchise clinic purchases. This compares to 32 in 2021. And with that, I'll turn the call back over to you, Peter.