The Joint Corp.

Good day and welcome to the Joint Corp Third Quarter 2022 Financial Results Conference Call. 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. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I'd now like to turn the conference over to David Bernard with LHA Investor Relations. Please go ahead.

Thank you, Sarah. 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 2022 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're using a slide presentation that can be found at httpsir.thejoint.com backslash events. Today, after the close of the market, the joint corporation issued its financial results for the quarter ended September 30, 2022. 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. Inflation, exacerbated by COVID-19 and the current war in Ukraine. 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 the 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, our failure to remediate the current or future material weaknesses in our internal control over financial reporting, which could negatively impact our ability to accurately report our financial results, prevent fraud, or maintain investor confidence, and other factors described in our filings with the SEC, including the section entitled Risk Factors. And our annual report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 14, 2022, and subsequently filed current and quarterly reports. 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. 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 franchisee 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 third quarter of 2022, we continued our vigorous pace of clinic openings and these new units delivering strong performance. both reflecting a robust underlying business model, particularly in a current macroeconomic environment. I want to take this opportunity to welcome our new and existing investors to the call. The joint is revolutionizing access to chiropractic care by providing affordable concierge-style membership-based services in convenient retail settings. Since our inception over a decade ago with fewer than a dozen clinics, we've grown tremendously. In fact, we reached the 800-unit milestone in September which places us in the top 2% of the roughly 3,500 franchisors in the United States, according to Fran data. As we build upon and leverage our national brand recognition, we continue to capitalize on the opportunity for more significant growth. The 2022 IBIS World Report noted that chiropractic market increased from $18 billion to $19.5 billion annually. And in October 2022, Reporter Linker stated that the global chiropractic care market is expected to reach $52 billion by 2027, yet the sector remains highly fragmented with over 40,000 chiropractic offices in the United States. The joint leads the profession as the largest chiropractic chain in the world with the greatest market share, in addition to publishing the most chiropractic care content in the public domain. Based on year-end 21 sales, the joint is approaching 22% of market share, with competitors in aggregate estimated to also approximately 2%. With our nationwide clinic base, we have economies of scale in marketing, in talent, and in infrastructure. And using our proven protocols and standards, we are systematically expanding in areas of known demand. As a result, during the time of our consumer uncertainty, the joint is continuing to post positive comp rates. Turning to slide four, I'll review a summary of our financial highlights for Q3 2022 metrics compared to Q3 2021. Later, Jake will discuss our results in greater detail. System-wide sales grew to $110.4 million, increasing 18%. Our comp sales for clinics that have been open for at least 13 full months grew 6%. Revenue increased 27%. Adjusted EBITDA was $3.1 million. and as of September 30, 2022, our unrestricted cash was $10.3 million compared to $9.4 million at June 30, 2022. Turning to slide five, during Q3 2022, we opened 38 clinics, up from 33 clinics in the prior year quarter. Regarding franchise clinics, during Q3 2022, we opened 33 and closed two. Regarding change in ownership, corporate purchased four previously franchised clinics, three in North Carolina and one in Scottsdale, and sold one company-managed clinic in California to a franchisee. Regarding Greenfield clinics, we opened five, three in California and two in our new market, Kansas City. Greenfields are performing well in the 2022 with gross sales on par with our class of 2021. This is an important point that validates the strength of our new clinic launch strategy and the growing demand for chiropractic care. For the first nine months of 2022, we opened 103 clinics, 91 franchised, and 12 greenfields. This compares to 87 openings in the first nine months of 2021 that consisted of 76 franchised and 11 greenfields. The net total purchase of previously franchised clinics was seven, and the closures were three. Our low unit closure rate of less than 1% annually continues to lead the franchise community. At September 30, 2022, we had 805 clinics in operation consisting of 690 franchise clinics and 115 company-owned or managed clinics, maintaining that portfolio mix of 86% franchise clinics and 14% corporate clinics. At quarter end, we also had 252 franchise licenses in active development compared to 283 at December 31, 2021. This metric continues to demonstrate the strength of our strong pipeline for franchise clinic openings and reflects the accelerated number of franchise openings. Subsequent to quarter end, we acquired two previously franchised clinics in North Carolina for approximately $2.2 million. We also opened two more Greenfield clinics in Kansas City market. Additionally, we sold one company-managed clinic in California to a franchisee. Our corporate portfolio now stands at 118 clinics as of November 3rd, 2022. Turning to slide six, in Q3 2022, we sold 12 franchise licenses compared to 44 in Q3 2021. For the first nine months of 2022, 58 licenses were sold compared to 132 in the same period last year when COVID had led to the pent-up demand of our franchise licenses. Although the number of franchise sales is fewer than last year, we believe it is holding strong considering today's macroeconomic environment including factors such as high inflation, higher interest rates, and decreased bottom lines that have been impacting by rising costs. Further, while higher unemployment is known to be a driver of franchise sales, today the U.S. has a historically low unemployment rate of around 3.5% to 3.7%. As of September 30th, we had 19 regional developers who sold 62% of our franchise licenses year-to-date. Our aggregate 10-year minimum development schedule for the new RD territories established since 2017 was 642 clinics as of September 30th. While this program continues to perform well under certain circumstances, we'll reacquire some of those RD rights. In October, we reduced the RD count to 18 when we reacquired the right to develop franchises in the Philadelphia market. The net consideration for the transaction was $151,000, This was an undeveloped market with two clinics, and we believe we have the opportunity to develop another 30 sites. Turning to slide seven, let's review our marketing efforts. Although we continue to attract healthy numbers of new patient prospects to our clinics, our average number of new patients per clinic is down when compared to our record-breaking years of 2021. One of the challenges we faced was last year Google changed its algorithms, which negatively impacted our organic search traffic. As a result, we've been aggressively adapting our SEO strategy in 2022, which is beginning to pay dividends with positive website traffic growth in August and in September. Another challenge is the impact of inflation on consumer confidence. With the average age of our patient base at just 36.4 years, the majority have never lived through an era of high inflation. Today, the average American household is spending $445 more per month to buy the same goods and services that they did a year ago, according to CNBC. This is forcing consumers into financial trade-offs. Two years ago, we faced somewhat similar circumstances during the COVID-19 pandemic and related government shutdowns and restrictions. At that time, we responded with our essential healthcare services statement and positioned the joint to survive and thrive despite the devastating impact to so much of the retail industry. We believe this positioning will continue to serve us well while consumers make tough choices on where to allocate their discretionary spending. We responded to the lower new patient counts with robust testing of new market tactics, promotions, media channels, and consumer messages. We continue to reinvest our marketing technology. This includes the launch of our new patient portal and an upgraded marketing automation platform planned for 2023. Additionally, our clinic local marketing spending has been robust, particularly for sponsorships of athletic programs in our communities. Our ability to form market co-ops distinguishes us from the single practitioners and small competitors as we leverage the power of our combined marketing dollars spent in those markets. According to the American Chiropractic Association, chiropractic care has gained wide use among professional and amateur sports teams across the country. Studies have shown that chiropractic care can be linked to faster injury recovery, injury prevention, improved levels of strength, and enhanced sports performance for athletes. According to Consumer Reports, it's estimated that 90% of all world-class athletes use chiropractic care to prevent injuries and increase their performance potential. It's notable that all NFL teams rely on doctors of chiropractic in various capacities, and 77% of athletic trainers have referred players to a chiropractor for evaluation or treatment. Finally, we're turning our attention to our annual holiday promotions, our Back Friday package sale in November, and our year-end membership promotion in December and January. Each year, these events grow in financial impact and franchisee participation. Our network is energized to make 2022 our best performance yet, and we look forward to reporting on our results. And with that, Jake, I'll turn it over to you.