The Joint Corp.

And welcome to the joint fourth quarter 2022 financial results conference call. All participants will be in listen-only mode. If 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. Please note that this event is being recorded. I'd like to turn the conference over to Mr. David Barnard, LHA Investor Relations. Please go ahead.

Thank you, Nick. Good afternoon, everyone. This is David Barnard of LHA Investor Relations. On the call today, President and CEO Peter Holt will review our fourth quarter and year-end 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 are using a slide presentation that can be found at httpsir.thejoint.com under Events. Today, after the close of the market, the joint corporation issued its financial results for the quarter in December 31st, 2022. If you have not already received a copy of the 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 projections, 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, our inability to identify and recruit enough qualified chiropractors and other personnel to staff our clinics, due in part to the nationwide labor shortage and an increase in operating expenses due to measures we may need to take to address such shortage, inflation exacerbated by COVID-19 and the current war in Ukraine, which has increased our costs and which could otherwise negatively impact our business, the potential for future disruption to our operations, and the unpredictable impact of our business of the COVID-19 outbreak and outbreaks of other contagious diseases, 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, short-selling strategies and negative opinions posted on the Internet, which could drive down the market price for a common stock and result in class action lawsuits, our failure to remediate 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 a section entitled Risk Factors in our annual report on Form 10-K for the year ended December 31, 2022, which is expected to be filed with the SEC on March 10, 2023, 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 discussion of these factors and other risks that may affect our future results or the market price of our stock. Finally, we're 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's my pleasure to turn the call over to Peter Holt.

Thank you, David, and welcome to the call. I'm delighted to speak with you today to review our strong close to 2022 and our solid positioning for long-term growth. Throughout 2022, we effectively managed economic challenges which accumulated in accelerated comps in the fourth quarter. This fortified our foundation as we entered 2023. For those investors who are new to our company, the joint is revolutionizing access to chiropractic care by providing affordable, concierge-style, membership-based service in convenient retail settings. Our robust underlying business model and unit economics are the basis for our long-term profitable growth and continue to fuel our clinic expansion. Turning to slide four, I'll review our optimal metrics that demonstrate the growth across the board. During 2022, our doctors of chiropractic at the joint performed 12.2 million adjustments, up from 10.9 million in 2021. During the year, we treated 1.6 million unique patients, up from 1.4 million in 2021. Of those treated, 845,000 were new patients, up from 807,000 in 2021. Now to review our financial metrics for 2022 compared to 2021. Turning to slide five, system-wide sales grew to $435.3 million, increasing 21%. Our comp sales for clinics that have been open for at least 13 full months grew 9%. Revenue increased 26%. Adjusted EBITDA was $11.5 million. And at December 31, 2022, our unrestricted cash was $9.7 million compared to $10.3 million at September 30, 2022. Turning to slide six, I'll discuss our clinic metrics. During 2022, we opened a record 137 total clinics, 121 franchised and 16 greenfields. This increased from 130 in 2021, which consisted of 110 franchised and 20 greenfields. During Q4 2022, we opened 34 clinics, 30 franchised and four greenfields. This compares to 2021 with 43 clinics, 34 franchised, and nine greenfields. Regarding franchise clinic closures, there was one during the fourth quarter for a total of five for the full year compared to three for the both fourth quarter and full year of 2021. Thus, our annual closure rate remains low, less than 1%, and continues to lead the franchise community. In Q4, we acquired eight previously franchised clinics, six in Northern California, and two in North Carolina. and sold a company-managed clinic in California to a franchisee. For 2022, we acquired 16 clinics and sold two clinics for a net of 14, which compares to 12 acquisitions and no dispositions in 2021. As noted, we opened four greenfields in the fourth quarter, bringing our total for 2022 to 16 compared to 20 in 2021, reflecting a heavy investment in greenfields over the past two years. In 2023, we plan to moderate the pace to allow Greenfield Clinic portfolio to mature. We strategically locate our Greenfield Clinics where they can capture pent-up demand and in new markets where we can rapidly build a solid presence. In 2022, we entered into Kansas City with four clinics and added to our Army and Air Force Exchange Service two locations, one in Texas and Florida, and augmented our existing clinic clusters in California, Arizona, and Virginia. In summary, at December 31, 2022, we had 838 clinics in operation, consisting of 712 franchise clinics and 126 company-owned or managed clinics. The portfolio mix was 85% franchise clinics and 15% corporate clinics. At year end, we had 235 franchise licenses in active development. This metric continues to demonstrate the strong pipeline for franchise clinic openings. Since the beginning of 2023 and through today, we've opened two new greenfields in existing clusters of Georgia and North Carolina. Turning to slide 7, in Q4 2022, we sold 17 franchise licenses, up from 12 in Q3 2022 and compared to 44 in Q4 2021. For 2022, we sold 75 licenses, compared to the company record of 156 sold in 2021, which reflected the pent-up demand related to COVID. That said, given the economic headwinds of 2022, we're pleased with our 75 licensed sales, which is quite high compared to other franchise systems. Further, approximately 60% of our franchise licenses were to existing franchisees reinvesting in the brand in 2022, up from 50% in 2019 through 2021. This demonstrates the health and viability of our franchise system and is a validation of our franchise belief in the strength of our business model. Regarding regional developers, in October 22, we repurchased the RD rights for Philadelphia. This put our RD count at 18, where it remained at December 31, 2022. Throughout the year, RD sold 67% of our franchise licenses and support 69% of our clinics. Our aggregate 10-year minimum development schedule for new RD territories established since 2017 was 626 clinics as of December 31. Turning to slide eight, our industry-leading franchise performance continues to be acknowledged. For 2023, Entrepreneur Magazine named the joint top franchise in the chiropractic service category and top 10% in the franchise 500. Franchise Business Review identified us as the top franchise for 2023 and one of the most profitable franchises and the top franchise for veterans. And for the eighth year running, Franchise Times recognized the joint as experiencing rapid yet sustainable growth on its 2023 Fast and Serious list. Additionally, FranData, which provides franchise business intelligence, is similar to a FICO score for consumers, rated the joint fund score at 910 out of 950, compared to the average of 593. They also presented us with the top fund award for the second year in a row. Turning to slide nine, let's review our marketing efforts. In Q4, we kicked off our promotion season with our new Give Thanks, Give Back social campaign sweepstakes. This is our strongest social campaign in our history with over a 2,700% increase in engagements from our patients and followers. We leveraged the surge of the momentum surrounding this campaign and shortly thereafter launched our annual holiday promotions, both of which topped last year's performance. Compared to 2021, Back Friday grew 32% and end-of-year promotion increased 44%. We continue to enhance our media campaigns in a variety of our sophisticated digital marketing programs. Digital leaves grew to 62% of all new patients in 2022, a record high for the joint, which further validates the importance of our digital program in patients' journey to chiropractic. In terms of our organic search engine traffic, we improved our website structure and responsiveness to optimize search engine readability in order to rank more favorably. As a result, we're demonstrating year-over-year growth in our web traffic Finally, in 2022, utilizing our public relation efforts, we continue to educate and create awareness around the chiropractic care and its benefits, thereby building value and equity in the brand with almost 900 million earned media impressions throughout the year. Before I turn it over to Jake, I would like to introduce our new Chief Human Resource Officer, Chrishell Tennyson. In today's competitive job market, recruiting, developing, and retaining top talent is crucial. Chrishell's nearly 30 years of experience and cross-functional focus of successful performance delivery will be instrumental in fostering our expansion and attracting the right people to join us in our mission to improve quality of life through routine and affordable chiropractic care. And with that, Jake, I'll turn it over to you.

Thank you, Peter. Turning to slide 10, I'll review the financial results for Q4 2022 compared to Q4 of 2021. System-wide sales for all clinics open for any amount of time, increased to $120.1 million, up 18%. System-wide comp sales for all clinics open 13 months or more were 8%, up from 6% in Q3, bolstered by sequential improvements in both corporate and franchise clinics, with corporate achieving low double-digit comps. System-wide comp sales for mature clinics open 48 months or more were 2%. Revenue was $27.8 million, up $5.7 million, or 26%. Company-owned or managed clinic revenue increased 39%, contributing $16.5 million. Our revenue from franchised operations increased 10%, contributing $11.3 million. The increases represent continued growth in both the corporate portfolio and the franchise base. On March 1, 2022, we implemented a price increase in approximately 75% of our clinics. However, existing patient memberships were grandfathered at their original price. Therefore, the revenue impact from the price adjustment will be gradual and incremental. At December 31, 2022, about 56% of our active members were on the new price structure, reflecting improved attrition. The cost of revenues was $2.6 million, up 8% over the same period last year, reflecting the associated higher regional developer royalties and commissions. Selling and marketing expenses were $3.3 million, up 13% 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 our company-owned or managed clinics. Depreciation and amortization expenses increased compared to the prior year period, primarily due to the continued greenfield development in acquired clinics. G&A expenses were $18.3 million, compared to $14.9 million, up 23%, reflecting the cost to support total clinic and revenue growth and higher payroll to remain competitive in the tight labor market, partially offset by the fact that bonuses were not paid in 2022. Operating income was $1.3 million compared to $7,000 in Q4 2021. The improvement was driven by margin expansion in the franchises and lower legal expenses as compared to Q4 2021. This was partially offset by continued corporate margin compression reflecting the newer greenfields and continued wage pressure. Income tax expense was $660,000 compared to $351,000 in Q4 2021. Net income was $547,000 or 4 cents per diluted share compared to a net loss of $360,000 or 2 cents per diluted share in Q4 2021. Adjusted EBITDA was $4 million, compared to $2.1 million for the same period last year. Franchise clinic adjusted EBITDA increased 20% to $6 million. Company-owned or managed clinic adjusted EBITDA was $1.6 million, flat compared to Q4 of last year, reflecting margin compression related to greenfield development, continued wage pressure, and overhead investment outside of the clinic's four walls. Corporate expense as a component of adjusted EBITDA loss was $3.6 million, improving $924,000 from Q4 2021. On to our balance sheet and cash flow review. At December 31, 2022, our unrestricted cash was $9.7 million, compared to $19.5 million at December 31, 2021. This reflects our $20.9 million investment in the reacquisition of 16 previously franchised clinics and the rights to three regional developer territories, as well as the development of 16 greenfield clinics. Cash flow from operations was $11.1 million, which supported our investments. We continue to have access to additional cash through our line of credit with J.P. Morgan. To date, we have drawn $2 million and have $18 million remaining available. On to slide 11, I'll review our results for the full year of 2022 compared to 2021. System-wide sales for all clinics open for any amount of time increased 21%. System-wide comp sales for all clinics open 13 months or more were 9%. System-wide comp sales for mature clinics open 48 months or more were 4%. Revenue increased 26% to $101.9 million, and adjusted EBITDA was $11.5 million compared to $12.6 million, reflecting the compression of earnings by the influx of 36 new Greenfield clinics in the past two years and higher payroll expenses associated with the tight labor market. On to slide 12 for a review of our guidance for 2023. We expect to grow revenue to be between $123 and $128 million, compared to $101.9 million in 2022. We expect adjusted EBITDA to be between $12.5 and $14 million. compared to $11.5 million in 2022. This reflects our continued investment in people with higher expected labor costs to attract and retain doctors and team members. We expect franchise clinic openings to be between 100 and 120, compared to 121 in 2022. Historically, company-owned or managed clinic openings included a combination of both greenfields and acquisitions. We will continue to acquire previously franchised clinics. However, as these transactions are opportunistic, we will no longer include the acquired clinic estimate in our guidance. To provide greater clarity, the 2023 company-owned or managed guidance includes greenfield clinic openings only. We plan to open between 8 and 12 greenfield clinics compared to 16 in 2022. We are approaching our near-term target of 1,000 clinics. Based on our current patient demographics, we are well on our way to our long-term goal of nearly 2,000 clinics. As we further develop our model with rural, urban, and international clinics, we broaden our long-term market potential. And with that, I'll turn the call back over to you, Peter. Thanks, Jake.

Turning to slide 13, approaching these milestones is quite an achievement, as less than 3% of franchise systems have achieved more than 1,000 units. Since 2016, we've been driving clinic expansion with transformational changes, including an improved grand opening process, new standard operating procedures, additional digital marketing strategies, sustainable focused procurement, improved IT, and more. Our efforts to manage economic headwinds in 2022 were fruitful, as we close the year with improving our core KPI metrics, such as conversion and attrition. While the macroeconomy still has uncertainty, the chiropractic care market has solid growth drivers, and the joint has even more positive catalysts. In addition to the joint attracting patients from other practitioners, 34% of our new patients in 2022 were completely new to chiropractic care. This means the joint continues to expand the entire market for chiropractic care. In fact, our 12-year compounded annual growth rate of 62% dwarfs the industry's figure of 4.3%, which is respectable on its own. Our growth is fueled by a combination of our patients' referrals and our successful marketing programs. Digital marketing continues to be an ever-increasing growth driver with the majority of our new patients having interacted with one of our digital platforms. We believe they also attract the younger population. Our patients come from all walks of life, and the median age is 37.6 years. This compares to the traditional chiropractic provider whose typical patient demographic weighs heavily toward those using insurance who are older, female, and affluent. The mark distinction is increasingly important because the younger generations don't typically carry a stigma toward chiropractic and are proactively looking for more natural, holistic ways to address their pain. To leverage these differences, we'll continue to invest in marking that effectively reaches consumers of all aspects of their patient journey. In doing so, we expect to capture greater portions of that $19.5 billion spend on chiropractic care in the United States annually, as well as to continue to expand the market. Turning to slide 14, we intend to do this by continuing to execute our corporate initiatives. First, in Forging the Chiropractic Dream in 2022, we increased our attractiveness by improving our employer branding, our social media engagement, our school partnerships and events, and our continuing education platform. Looking ahead, we continue to focus on recruiting and retaining the finest doctors of chiropractic to fuel our growth. Regarding the harnessing the power of our data, we've increased the speed of our system updates and launched the first version of our business intelligence and analytical reporting tool. Looking ahead, we plan to create an automated marketing program and later in the year, launch a patient portal. Lastly, in accelerating the pace of our clinic growth in 2022, we accomplished several milestones. Throughout the year, we entered new markets and opening clinics in Alaska, Montana, Washington, D.C., and Kansas City, as well as signing leases for clinics in New York City. By December 31, 2022, we reached 838 clinics in operation. Regarding their development, we've been testing proven concepts in smaller markets, pedestrian-driven, highly urbanized sites, as well as evaluating expansion to Canada. Overall, we remained focused on the driving long-term growth in stakeholder value. And with that, Nick, I'm ready to begin the Q&A.

Thank you, and I'll begin the question and answer session. To ask a question, you may press star to one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. This time, we'll pause momentarily to assemble the roster. And as a final reminder, please limit yourself to two questions and rejoin the queue if you have additional ones. First question will be from Jeff Van Sideren of B-Rally. Please go ahead.

Hi, everyone, and congratulations on a strong finish to the year. Just wanted to see if there's anything you can tell us, I guess, about what you're seeing so far in 2023, anything around retention, new patient ad metrics. so far. And then maybe if you could just touch on the corporate clinic performance that you saw in Q4 versus franchise clinic performance. And then also as kind of a dovetail to that, if you could just touch on maybe how you're evolving marketing plans. It sounds like you're really leaning into digital because you're getting great traction there. Any thoughts on that for 2023?

Again, thank you for the compliments. That was a lot of Parts of that one question.

Yes.

And so, you know, speaking to, you know, historically we don't really talk about, you know, the upcoming quarter on our fourth full year performance. But what we'd say is that we are seeing that continued momentum. As I mentioned in my call, as we go, we finish the year and we're seeing that momentum carry us into Q1. or at least into the first several weeks of this year. So that gives us, obviously, a positive view of where we're going. We also have to remember that in 2023, there's just a lot of potential headwinds that none of us can anticipate, whether it's inflation, whatever happens with the war in Ukraine, increasing rising of interest rates. So there's a lot of factors there that we're trying to manage through, as we did through 2022, without really knowing how it's going to work. As it relates to the overall corporate performance, I'm going to turn that one over to you, Jake.

Yeah, I think as we think about corporate versus franchise, a lot of expansion in the 2022 period. By the end of the fourth quarter, our corporate performance had actually reached back to double-digit comps. So we were really pleased with how that portfolio performed in the back half of the year, and again, looking for that momentum to continue for the full year. So total system was around 9%, still predominantly dominated by those 700-plus franchise clinics. So, you know, again, strong comp performance from the franchise base, but we were really pleased with our corporate clinic portfolio and especially how they performed around our two core promotions in the fourth quarter.

And then your final first question on talking about digital marketing is absolutely we see that as only becoming more and more relevant and important in that whole lead generation process for new patients. In our system, typically there's three sources for new patients. One is probably historically most important, and that's referral. So that's getting good service to our patients and those patients and referring their friends and family to come to the joint. And we have probably around a 30% referral rate right now system-wise. As I mentioned on the call, we can identify that 60% of those new patients are coming from our digital activity. Sometimes there's a little bit of overlap. A patient attribution is kind of tricky because we have all kinds of different ways that we're approaching educating a consumer about the joint. But we know we can identify that of that new patient count, at least 60% of them at one point touch one of our digital assets. And we see that as only more important especially in younger generations, okay, maybe like myself, as a baby boomer, I'm going to talk to friends and family as I decide who's going to be my medical provider or chiropractor or dentist. Younger generations are doing that same process, but it's online. And so it's important that you have a strong digital presence to be able to be where they are when they're looking for that relief from their pain. And then the third aspect of our patient counts really comes from that very traditional, what I call grill marking activities in a small box retail environment. So it's a coupon drop, it's reaching out to the schools, the gyms, the hospitals, and again, doing everything that you can to educate those consumers who are working, traveling around that five to 15 minute radius of that box or that clinic that you're there when they need your service.

Okay, that's really helpful. And then just one follow-up, if I could, just wondering kind of your latest take or outlook regarding what you're experiencing in retaining chiropractors.

Well, I think that we are increasingly improving our retention rate of our doctors. And so if I look at the full year of 2022, our turnover rate with our doctors was 34%. Now, I compare that to 2021, it was 56%. And that's a result of a lot of effort in terms of improving compensation, and we talked about that in earlier calls, improving our onboarding process, doing all the things that we can do to make that environment as attractive to doctors, not just to recruit them but to retain them. And so I'd say we've seen really positive results in that area. We also focus on the WC, or that wellness coordinator. There's not a lot of people in our clinics, and we, again, have increased compensation, increased onboarding process, trying to make sure that there's paths for them to continue to grow within the organization so that we can improve their turnover rate. And so while we haven't seen as dramatically improve as we've seen with the doctors, we have seen significant improvement from the WC turnover, so we're really pleased with that direction.

Okay. Great to hear. Thanks for taking my questions and continued success. Thank you very much.

Thank you. Our next question will be from Anthony Vendetti, Maxim Group. Please go ahead. Thanks.

Thanks. I was wondering if you could just talk about the greenfield opportunities and the goal for 2023. Has that changed at all in terms of the end of the year goal based on your guidance for now?

Yeah, I think the way I would characterize that, Anthony, is that the strategy remains the same. We'll continue to grow this brand through a mix of franchise and corporate development. I would say the change is that we've somewhat moderated the pace. So moving from 16 greenfields in 2022 to an estimate of between 8 and 12 for 2023. And so I think you're seeing that pace moderate, but we're still continuing the strategy. We're still continuing to develop that that portion of the portfolio, just at a more moderated pace.

Okay, so I guess the question is, the follow-up to that would be then, is there still a goal of having 1,000 clinics by the end of 23? Is that still a reasonable goal? It's just how you get there?

What I would say is that the goal is still there. If you just look at where we are at the end of the year with the 838 clinics and that the guidance we just provided in terms of Greenfields and corporate or franchise units, it suggests that we are going to be a little short. And we've said all along is that while that's an important goal, it's not a goal that we would compromise the quality of the franchisee or the quality of the site just to hit a number. Obviously, in 2022, we had some of the headwinds that slowed down a little bit, some of the franchise sales, for example. But we are anticipating that we'll still be able to achieve that goal, but more likely it's going to be not at the end of 2023, but closer to early 2024.

Okay, that's helpful. And then is there anything on the macro economic landscape or any other headwinds that you see or that you're facing in terms of opening up these clinics?

Well, I would say nothing that's new. That what we're seeing is with landlords, that they seem to be slower in negotiating and finalizing leases. Even though, I don't know, in this post-COVID environment, we are still experiencing slowdowns with the permitting process. We have a really simple build-out, so we are not hugely impacted by supply chain issues, but from time to time there's issues around that. But none of that is new that I'm anticipating any different in 2023 that we experienced in 2022.

Okay, great. I'll hop back in the queue. Thank you.

Thank you very much.

Thank you. Next question will be from George Kelly. Ross. MKM, please go ahead.

Hi, everybody. Thanks for taking my questions. So first one, I'm kind of confused. So throughout 2022, there was very steady EBITDA margin expansion ending, I think it was 14% in Q4. And if I just play through your guidance, it looks like you're calling for a step down year over year. And sequentially, it would reflect a pretty steep step down. So just curious what's changed, and are you just seeing a lot of pressure in one queue, or what's led to that?

Yeah, I wouldn't categorize it as pressure in the first quarter. I think a lot of the guide reflects some of the uncertainties that are out there. So as we look at the potential impacts, the top-line performance, our continued investment in our people, whether that be our doctors or our corporate support staff, it's a tight labor market across the board. And we're making those investments in people to make sure that we're growing in the right way. And so I think all of those things are kind of factored into the guide. I would really more categorize it as holding steady. In 2022, you saw that significant compression related to the investing cycle. When you do 36 new corporate clinics and their drag on the consolidated performance, you're going to see that overall step back. I think I would categorize 23 as more of a steadying of that. We are moderating the pace of those green fields, and then in doing so, that should allow for that margin expansion as those units continue to grow and mature.

Okay, and then second question, I don't know if you're going to want to say much, but can you just high-level say anything about your expectations for comp growth in 23, and what do you bake into your guidance? What helps form your full-year revenue guidance?

Yeah, we don't guide on comp, so I probably won't go into that level of detail. You know, the build is fairly sophisticated, both on our corporate clinics and our franchise segment. And that's KPI driven in terms of, you know, building those things from the ground up is really, you know, as well as recognizing, you know, some of the macro pressures that are out there, which creates, you know, some of the ranges within the guide. And so, you know, as we progress, we continue to see great momentum, as we mentioned at the end of 2022, really seeing that corporate portfolio, especially get back into those low double digit comps. So we're hoping that those Those trends continue. As I look at the core KPIs that build, we're still seeing great traction in the conversion metric, you know, getting people onto our subscription model. We're retaining our patients. We're seeing improvement in the length of membership. And we're still, you know, having some headwinds as it relates to new patients, and that's a critical focus of ours. So, you know, all of those things factor in into the model and the guide, and we're trying to just make sure we're remaining conservative in the 23 period that has some uncertainty.

Okay, thank you. I'll hop back in the queue.

Thank you.

Thank you. Next question will come from Brooks O'Neill, Lake Street Capital Markets. Please go ahead.

Good afternoon, guys, and thanks for providing all the detail you do. We really appreciate it. I'm hoping you could just talk a little bit about what you're seeing in terms of strength or weakness in new store opening performance, particularly, you know, the second half of 22 compared to historical performance?

Yeah, great question, Brooks. As I look at the openings, we continue to see strength in the top line performance. And so some of that aided by the price increase that went into effect. So year over year, year by year cohort, we continue to see strengthening in that top line performance. What I will tell you is that We've probably seen a slight step back in our time to break even, and that's really driven by those continued wage pressures that we talk about. You know, so when you have labor that's, you know, 40 to 45% now of your overall cost of your clinics, those continued wage pressures really have an impact into your overall time to break even. So I would say, you know, historically, you were talking break evens in the 25 to 28,000 range. That's probably 30 to 33,000 per month now. in monthly costs that you have to overcome in order to turn that corner. And so, you know, what that creates is maybe while we were breaking even in six months or less, historically, now you're probably in that six to nine month range as you reach that time to break even. And so, you know, just like you're seeing in our corporate portfolio performance, you know, we're seeing those wage pressures impact our margins along with all those new clinics. But really, as I think about the top line and how these clinics are ramping out the gate, Our grand opening marketing program continues to be a success, and we've got franchisees in our corporate units that are really continuing to break records in terms of how quickly some of these units can open. And that's the beauty of a franchise system is we can take those best practices and continue to roll those out and further improve the whole network. So we still see strength in terms of our top-line revenue performance.

Great. I appreciate all that detail, Jake. So I'll ask one more. I think you mentioned in your prepared remarks that you're seeing some improvement in attrition, which I think is a key metric. And I'm curious if you can pinpoint any things you're doing, or do you think it's just overall solid execution at both the corporate clinics and the franchises?

Brooks is a great question. I think it's a combination of things. Again, it's a focus for us on the clinic level is to help make sure that patient continues to stay on their membership and come in on a regular basis. And we have a whole series of activities on the clinic level to reach out to those patients that seem to be slowing down in the use of their adjustments for a month, for example, and making those phone calls and making them aware or just bring to their attention to stay in. I think also that we're seeing, you know, Jake mentioned that 56% of our patient base right now is on that new price list, and we've seen that improve in nutrition. I think part of that is caused by those patients on those lower rates, you know, are hanging on longer because they know if they drop off and come back, and that's such a traditional experience in our network. We've talked about this before. So if the average patient stays with us for six months, and then they use this, let's say, a little under three times a month in that period, that we know that at least 25% of them will come back within the next six months. And I think with that price change is that it's given a little pause of, okay, do I really want to let go of that lower price rate knowing that I'm going to probably come back in the future? So I think that's one of the factors that's helping improve that retention rate. And I do think we're getting better on a clinic level of educating our patients about the value of that ongoing chiropractic care, not simply as a pain remediation, but to truly as a part of a health and wellness program.

Absolutely. Great. Thank you very much.

Thank you. Next question will come from Jeremy Hamlin, Craig Hellam Capital Group. Please go ahead.

Thanks. Thanks for taking the questions. I wanted to start with the EBITDA guide for 23. You know, I think it implies about a 75 basis point decline versus the 22 results. And in terms of understanding the interplay there, you know, whether it's your gross margins, the franchise cost of revenues, sales and marketing, and GNA, just as kind of your key line items driving that, I wanted to get a sense for that decline. Is that coming exclusively from GNA ramping further? Because it does look like your gross margins were still pretty solid in Q4, and your franchise cost of revenue was actually lower than it's been in the past couple of years. Just wanted to understand that your sales and marketing cost controls also look like they're pretty solid. So any color you can share?

Absolutely, Jeremy. Thanks for the question. The way I would categorize the growth is really it's going to be rolled into that GNA line item. For us, all of our clinic-level costs flow through GNA, and so cost to revenue or our gross margin is relatively predictable, and we expect that to be you know, in that 90% plus range again. And so, you know, that up and through that of the P&L, we expect to be relatively predictable. Where you're seeing the cost come into play is, again, you know, the continued investment in our people. Our corporate segment, while I do expect margin expansion, you know, we are continuing to invest in that outside the four-wall overhead and making sure that we have the correct infrastructure in place to continue to allow these units to ramp as we know they can. Really where you're going to see a big year-over-year step up for us is in that corporate unallocated bucket. And so that, again, is an investment in the people here at our corporate office, tight labor markets, you know, continued wage pressure on that side as well. And then, again, our continued investment in the IT space. That's a critical component of our growth, and that's where a lot of our IT costs eventually flow through is in that corporate unallocated bucket. And so I think all of those things combined, I think you'll see the uptick in the G&A line item probably more heavily weighted towards that corporate unallocated for the 23 period.

Got it. That's helpful. And then, you know, if I could ask also about, like, your segment results. You know, you had actually pretty nice improvement both in revenue growth in 22 and but also your segment level franchise operations saw profitability growth. But you saw a pretty big step back, like about a $5.5 million decline in profitability to a loss for the year at your corporate clinics. So leaving the unallocated corporate to the side, can you just help me understand a little bit of why it looks like your franchisees are in a solid position, but the corporate clinics definitely took a step back on profitability. Is that more related to the newer clinics or is it some of the acquired clinics that are not maybe as profitable as legacy corporate clinics?

Yeah, the way I would break down the corporate clinic performance year over year, I think it has three driving factors. The first, as you mentioned, is just the greenfield clinics. Relatively staying on plan, again, higher wage costs without the full benefit of the price increase. But for the most part, that was a planned investing cycle, and you're going to feel that compression in the overall segment margin related to those greenfields. The second piece of that is our continued investment in outside the four wall overhead. So again, you know, increasing the infrastructure that we have in place to support a portfolio that really, you know, increased by 30 plus units in a very rapid period of time, you know, one year timeframe in over a two year timeframe, you're almost doubling the size of that portfolio. And so with that comes, you know, some infrastructure investment. And again, you know, people are just more expensive these days. And so making headcount investment and seeing wage pressures, you're going to see those costs flow through as additional outside the four-wall overhead. And that's traditionally for us about, right now in 2022, about an 8% drag between our four-wall margin and our overall segment margin in that space. And so, again, that's something that we know will lever with us over time. As we embark in new markets, we don't have the full density of units to fully lever the headcount that we've put in place You know, at a time when we only have two, three units in a particular market, you know, we still have the full headcount sitting there. So all of those have been designed to lever with us over time, but in the 22 period, you're just not feeling that level of leverage yet. And then the third would just be, you know, some softness in what I'll call the legacy performance, and that includes both, you know, the clinics that we've built or bought in the historical periods. You know, we had some same-store sales softness that we talked about, And the continued wage pressure there is across the board, we've seen increases in both the doctor and the WC salaries. So I really think it's those three things that have contributed to that impact. But we should see expansion in that corporate margin within the 23 period as I look at the overall expectation.

And the last thing I'd add to that, Jake, is that of those 16 acquisitions in 2022, eight of them happened in December. And so it's just obviously not a lot of time for that performance, but certainly they were accretive. So it's time for that to perform as well.

Got it. Last one for me is really more of like a cash flow balance sheet management question. So you ended the year with about $10 million in cash. usage last year was $11 million provided by operating activities offset by about $21 million of investing activities inclusive of the acquisitions and CapEx. In terms of thinking about managing that, you noted you have a $20 million revolver, $2 million drawn on that. How does that potentially change or impact your investment opportunities for this year? Obviously, you are going to have lower greenfield openings this year. Does it also impact just the thought of how many corporate clinic acquisitions that you might be willing to make because you want to not dip too far into that revolver?

No, I mean, I think we have signaled that we're moderating the pace of greenfield development. So, you know, if you do some simple math, you know, 300,000-ish cash flow to build a greenfield unit, we're going to do between 8 and 12. You can kind of get a sense for the planned CapEx as it relates to greenfields. You know, again, we generated over 11 million in cash flow from operations. You know, with continued expansion, you would assume that that number is hopefully going to trend in the right direction, meaning we have more resources to deploy on top of the $10 million that we have remaining on the balance sheet, as well as the $18 million remaining on the line. So as I think about the cash that we generate, which this is a cash generative business, plus the liquidity we have either with cash on hand or through the revolver, I don't see us having, I don't see us, those levels impacting our decision making at all.

Got it. Thanks for that color and best wishes this year. Thank you.

Thank you. Again, if you have a question, please press star then 1. Next question will be from Linda Boltenweiser, BA Davidson. Please go ahead.

Yes, hi. So I just wanted to explore a little bit the trend here of franchise licenses sold. 75 in 2022 I think that's below the pre-pandemic levels it was like 99 in 2018 126 in 2019 so I'm just trying to understand is it that your model is maturing and you've penetrated your markets adequately or you know I'm just trying to understand you know why you the pace of franchise licenses sold would not be continuing to be pretty high?

That's a great question. And there's a number of factors there. And certainly there is the headwinds we've been talking about in 2022, particularly uncertainty in the market, consumer confidence, interest rates increasing. What's interesting to me, when you look at those 75, 60% of them were existing franchisees who know the business, understand how to operate it, and still believe that it's a good time to invest. And I think that those franchisees, the potential franchisees new to the joint, with all this uncertainty out there, it does give them a pause in terms of, okay, is this the right time to invest in a franchise, whether it's us or anybody else? And so I think if you look across the industry, there's been a softness in franchise sales across 2022, and it will be interesting to see where that goes in 2023. So there is that factor. You mentioned that it's slowing down because you're just getting more mature, and I would say I don't want to make it too much of a factor, but that is correct, is that we've got a lot of major markets where we've sold a lot of clinics and are continuing to open them that are full. Now, that doesn't mean we still don't have a lot of white space out there, so we know that we have huge opportunities in the Northeast and in the Midwest, but in some of our more mature markets in the Southeast and in the Southwest, So there is, you know, if we're putting new clinics in the Scottsdale, Arizona market, you know, you're tucking them in here and there because the major markets absolutely are already developed. So there is an element to that. But I think overall it's really that consumer sentiment that does have such an influence on what's going to happen with franchise sales. The other factor that hugely are tied to that consumer sentiment is unemployment rate. is that there's no question when you see typically in a recession, we see franchise sales increase, people being laid off, they need to do something, and that while we continue to be experiencing these record high or record low unemployment rates, I think that is another factor that influences. You're sitting there at a job, okay, maybe you don't like it that much, but you are not feeling like, oh, my gosh, I've got to go do something different, or if I do something different, it's a lot safer to go to another job as opposed to take my life savings and buy a franchise. So I think those are elements that are influencing the number of franchise sales that we are experiencing. I think there's still a lot of growth in this market. You see in our numbers that we see a potential for nearly 2,000 units. And so I think as we continue to build out this market, as more and more people discover the efficacy of chiropractic, all that does is make it easier, more effective, able to dense pack our clinics in existing markets and open up new markets just because more and more people are finding chiropractic care to help alleviate their pain.

Okay. And then I guess I was also wondering, too, we've seen with some other franchise models that some of the franchisees developed ahead of contract requirements pre-pandemic. just because costs were low and the environment was good, and so they developed ahead of schedule. And now there's like debts contributing to slowing of development. Are you seeing that too or not so much with your model?

I'm not seeing so much of that with our model, but I think there is an element of impact there. And it is. There's no question. Let's say that you've signed a multi-pack agreement, so you're going to open up a number of units in a relatively short period of time. And when you sign that agreement, let's say interest rates were half of what they are today. And so does that give that franchisee a little pause and kind of slow down or make sure that those other clinics are getting past their break-even before I break down for that next clinic? I think there's a little bit of that. But I would say overall, when I think of the experience here at the Joint, is what we have is really a remarkable rate of getting clinics open. I mean, there's a lot of franchise systems out there that end up selling a lot of units that ultimately don't get open. And I think if you look at it compared to other franchise systems, is that we have a very effective rate of getting clinics open over time.

Okay, and then just one final question. I think we were all a little surprised to hear from Planet Fitness that one of their largest franchisees has to kind of stop development because of their capital structure. Can you just remind us, I know you're a whole lot different, but what are your biggest franchisees, like how many units do they have? And do you require financial statements of your franchisees to be submitted to the corporate office?

Oh, absolutely. In terms of the part of the process of due diligence for a potential franchisee coming in is that one of the many factors they go through is they have to submit complete financials and proof that they have the resources to take on whatever the number of units that they're considering. So that's absolutely part of our due diligence. And yes, our contract requires our franchisees to submit their P&Ls on an annual basis, that like many franchisors, we probably need to be better at that, but obviously we did get quite a number of them, and you'll see that in our FDD when we're putting in those full financials of our franchisees based on those submittals. And that's an area that we're going to continue to focus on and make sure those franchisees are, in fact, getting those in on a timely basis. And there's some other vendors that we're going to work with that really makes it easier and easier for that franchisee to be able to do that because it's a really powerful tool to understand clinic performance. that when we talk about us versus Planet Fitness, there's a huge difference in terms of just the makeup of our franchisees, because as you know, that their strategy for growth is very much tied to private equity. And that in our circumstances, while we have a little bit of interest in private equity, I think there's one small private equity group that has bought out one of our, I think, 11 clinics or eight clinics, that we don't have that same level of private equity participating in as a large holder of clinics in this market. Now, if you look at that overall number, the 700 plus or 712 operating franchise units that we have, our largest single franchisee has around 60 units operating in five states, and that is not in any way private equity backed. The second one would be 40 units, and that is, again, an investor or a very successful businessman that is not in any way related to private equity. that after that you'll see a pretty big drop in the number of units. The next biggest one is, I don't know, half a dozen, nine. If you look at that total number, we have probably a little under three units per franchisee. We have roughly around 230 franchises that are operating that 712 units.

Okay, thanks very much. Good luck.

Thank you. Pleasure.

Thank you. This concludes the question and answer session. I'd like to turn the conference back over to Mr. Peter Holt for closing remarks.

Thank you, Nick. Before I close, I'd like to note that we'll be at the Roth Annual Conference next week, participating in the Fireside Chat as well as conducting one-on-one meetings. Now I'm going to share with you a few comments from patients. As you may know, each December we run our end-of-year promotion, enabling patients to extend their membership by paying for a full year at a discounted rate. And several of our long-term patients recently wrote on social media, Martha notes, my daughter introduced me to the joint when I was visiting her in Texas a few years ago. I found one close to me at the beginning of 2020, and I've not looked back since. On my first visit, the doctor evened up my legs and even got my hips back in alignment. No other chiropractor that I've ever seen has done that for me. I was having a lot of hip pain before that, so I thank you. They added, I've been with the Joint Chiropractic since 2020, traveling around the United States and getting chiropractic care in different locations. Each time I received incredible service from the knowledgeable chiropractors that cared about their work and their clients. I always recommend the Joint to those I know who can greatly benefit from adjustments. Thank you and stay well adjusted.

Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. you Thank you. Bye.

Thank you. Thank you. you

Good day and welcome to the joint fourth quarter 2022 financial results conference call. All participants will be in listen-only mode. If 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. Please note that this event is being recorded. I'd like to turn the conference over to Mr. David Barnard, LHA Investor Relations. Please go ahead.

Thank you, Nick. Good afternoon, everyone. This is David Barnard of LHA Investor Relations. On the call today, President and CEO Peter Holt will review our fourth quarter and year-end 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 are using a slide presentation that can be found at httpsir.thejoint.com under Events. Today, after the close of the market, the joint corporation issued its financial results for the quarter into December 31st, 2022. If you have not already received a copy of the 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 projections, 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, our inability to identify and recruit enough qualified chiropractors and other personnel to staff our clinics, due in part to the nationwide labor shortage and an increase in operating expenses due to measures we may need to take to address such shortage. Inflation exacerbated by COVID-19 and the current war in Ukraine, which has increased our costs and which could otherwise negatively impact our business, the potential for future disruption to our operations, and the unpredictable impact of our business of the COVID-19 outbreak and outbreaks of other contagious diseases, 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, short-selling strategies and negative opinions posted on the Internet, which could drive down the market price for a common stock and result in class action lawsuits, our failure to remediate 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 a section entitled Risk Factors in our annual report on Form 10-K for the year ended December 31, 2022, which is expected to be filed with the SEC on March 10, 2023, 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 discussion of these factors and other risks that may affect our future results or the market price of our stock. Finally, we're 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's my pleasure to turn the call over to Peter Holt.

Thank you, David, and welcome to the call. I'm delighted to speak with you today to review our strong close to 2022 and our solid positioning for long-term growth. Throughout 2022, we effectively managed economic challenges which accumulated in accelerated comps in the fourth quarter. This fortified our foundation as we entered 2023. For those investors who are new to our company, the joint is revolutionizing access to chiropractic care by providing affordable, concierge-style, membership-based service in convenient retail settings. Our robust underlying business model and unit economics are the basis for our long-term profitable growth and continue to fuel our clinic expansion. Turning to slide four, I'll review our optimal metrics that demonstrate the growth across the board. During 2022, our doctors of chiropractic at the joint performed 12.2 million adjustments, up from 10.9 million in 2021. During the year, we treated 1.6 million unique patients, up from 1.4 million in 2021. Of those treated, 845,000 were new patients, up from 807,000 in 2021. Now to review our financial metrics for 2022 compared to 2021. Turning to slide five, system-wide sales grew to $435.3 million, increasing 21%. Our comp sales for clinics that have been open for at least 13 full months grew 9%. Revenue increased 26%. Adjusted EBITDA was $11.5 million. And at December 31, 2022, our unrestricted cash was $9.7 million compared to $10.3 million at September 30, 2022. Turning to slide six, I'll discuss our clinic metrics. During 2022, we opened a record 137 total clinics, 121 franchised and 16 greenfields. This increased from 130 in 2021, which consisted of 110 franchised and 20 greenfields. During Q4 2022, we opened 34 clinics, 30 franchised and four greenfields. This compares to 2021 with 43 clinics, 34 franchised, and nine greenfields. Regarding franchise clinic closures, there was one during the fourth quarter for a total of five for the full year compared to three for the both fourth quarter and full year of 2021. Thus, our annual closure rate remains low, less than 1%, and continues to lead the franchise community. In Q4, we acquired eight previously franchised clinics, six in Northern California, and two in North Carolina. and sold a company-managed clinic in California to a franchisee. For 2022, we acquired 16 clinics and sold two clinics for a net of 14, which compares to 12 acquisitions and no dispositions in 2021. As noted, we opened four greenfields in the fourth quarter, bringing our total for 2022 to 16 compared to 20 in 2021, reflecting a heavy investment in greenfields over the past two years. In 2023, we plan to moderate the pace to allow Greenfield Clinic portfolio to mature. We strategically locate our Greenfield Clinics where they can capture pent-up demand and in new markets where we can rapidly build a solid presence. In 2022, we entered into Kansas City with four clinics and added to our Army and Air Force Exchange Service two locations, one in Texas and Florida, and augmented our existing clinic clusters in California, Arizona, and Virginia. In summary, at December 31, 2022, we had 838 clinics in operation, consisting of 712 franchise clinics and 126 company-owned or managed clinics. The portfolio mix was 85% franchise clinics and 15% corporate clinics. At year-end, we had 235 franchise licenses in active development. This metric continues to demonstrate the strong pipeline for franchise clinic openings. Since the beginning of 2023 and through today, we've opened two new greenfields in existing clusters of Georgia and North Carolina. Turning to slide 7, in Q4 2022, we sold 17 franchise licenses, up from 12 in Q3 2022 and compared to 44 in Q4 2021. For 2022, we sold 75 licenses, compared to the company record of 156 sold in 2021, which reflected the pent-up demand related to COVID. That said, given the economic headwinds of 2022, we're pleased with our 75 licensed sales, which is quite high compared to other franchise systems. Further, approximately 60% of our franchise licenses were to existing franchisees reinvesting in the brand in 2022, up from 50% in 2019 through 2021. This demonstrates the health and viability of our franchise system and is a validation of our franchise belief in the strength of our business model. Regarding regional developers, in October 22, we repurchased the RD rights for Philadelphia. This put our RD count at 18, where it remained at December 31, 2022. Throughout the year, RD sold 67% of our franchise licenses and support 69% of our clinics. Our aggregate 10-year minimum development schedule for new RD territories established since 2017 was 626 clinics as of December 31. Turning to slide eight, our industry-leading franchise performance continues to be acknowledged. For 2023, Entrepreneur Magazine named the joint top franchise in the chiropractic service category and top 10% in the franchise 500. Franchise Business Review identified us as the top franchise for 2023 and one of the most profitable franchises and the top franchise for veterans. And for the eighth year running, Franchise Times recognized the joint as experiencing rapid yet sustainable growth on its 2023 Fast and Serious list. Additionally, FranData, which provides franchise business intelligence, is similar to a FICO score for consumers, rated the joint fund score at 910 out of 950, compared to the average of 593. They also presented us with the top fund award for the second year in a row. Turning to slide nine, let's review our marketing efforts. In Q4, we kicked off our promotion season with our new Give Thanks, Give Back social campaign sweepstakes. This is our strongest social campaign in our history with over a 2,700% increase in engagements from our patients and followers. We leveraged the surge of the momentum surrounding this campaign and shortly thereafter launched our annual holiday promotions, both of which topped last year's performance. Compared to 2021, Back Friday grew 32% and end-of-year promotion increased 44%. We continue to enhance our media campaigns in a variety of our sophisticated digital marketing programs. Digital leaves grew to 62% of all new patients in 2022, a record high for the joint, which further validates the importance of our digital program in patients' journey to chiropractic. In terms of our organic search engine traffic, we improved our website structure and responsiveness to optimize search engine readability in order to rank more favorably. As a result, we're demonstrating year-over-year growth in our web traffic Finally, in 2022, utilizing our public relation efforts, we continue to educate and create awareness around the chiropractic care and its benefits, thereby building value and equity in the brand with almost 900 million earned media impressions throughout the year. Before I turn it over to Jake, I would like to introduce our new Chief Human Resource Officer, Chrishell Tennyson. In today's competitive job market, recruiting, developing, and retaining top talent is crucial. Chrishell's nearly 30 years of experience and cross-functional focus of successful performance delivery will be instrumental in fostering our expansion and attracting the right people to join us in our mission to improve quality of life through routine and affordable chiropractic care. And with that, Jake, I'm going to hand it over to you.

Thank you, Peter. Turning to slide 10, I'll review the financial results for Q4 2022 compared to Q4 of 2021. System-wide sales for all clinics open for any amount of time, increased to $120.1 million, up 18%. System-wide comp sales for all clinics open 13 months or more were 8%, up from 6% in Q3, bolstered by sequential improvements in both corporate and franchise clinics, with corporate achieving low double-digit comps. System-wide comp sales for mature clinics open 48 months or more were 2%. Revenue was $27.8 million, up $5.7 million, or 26%. Company-owned or managed clinic revenue increased 39%, contributing $16.5 million. Our revenue from franchised operations increased 10%, contributing $11.3 million. The increases represent continued growth in both the corporate portfolio and the franchise base. On March 1, 2022, we implemented a price increase in approximately 75% of our clinics. However, existing patient memberships were grandfathered at their original price. Therefore, the revenue impact from the price adjustment will be gradual and incremental. At December 31, 2022, about 56% of our active members were on the new price structure, reflecting improved attrition. The cost of revenues was $2.6 million, up 8% over the same period last year, reflecting the associated higher regional developer royalties and commissions. Selling and marketing expenses were $3.3 million, up 13% 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 our company-owned or managed clinics. Depreciation and amortization expenses increased compared to the prior year period, primarily due to the continued greenfield development in acquired clinics. G&A expenses were $18.3 million, compared to $14.9 million, up 23%, reflecting the cost to support total clinic and revenue growth and higher payroll to remain competitive in the tight labor market, partially offset by the fact that bonuses were not paid in 2022. Operating income was $1.3 million compared to $7,000 in Q4 2021. The improvement was driven by margin expansion in the franchises and lower legal expenses as compared to Q4 2021. This was partially offset by continued corporate margin compression reflecting the newer greenfields and continued wage pressure. Income tax expense was $660,000 compared to $351,000 in Q4 2021. Net income was $547,000 or 4 cents per diluted share compared to a net loss of $360,000 or 2 cents per diluted share in Q4 2021. Adjusted EBITDA was $4 million, compared to $2.1 million for the same period last year. Franchise clinic adjusted EBITDA increased 20% to $6 million. Company-owned or managed clinic adjusted EBITDA was $1.6 million, flat compared to Q4 of last year, reflecting margin compression related to greenfield development, continued wage pressure, and overhead investment outside of the clinic's four walls. Corporate expense as a component of adjusted EBITDA loss was $3.6 million, improving $924,000 from Q4 2021. On to our balance sheet and cash flow review. At December 31, 2022, our unrestricted cash was $9.7 million, compared to $19.5 million at December 31, 2021. This reflects our $20.9 million investment in the reacquisition of 16 previously franchised clinics, and the rights to three regional developer territories, as well as the development of 16 greenfield clinics. Cash flow from operations was $11.1 million, which supported our investments. We continue to have access to additional cash through our line of credit with J.P. Morgan. To date, we have drawn $2 million and have $18 million remaining available. On to slide 11, I'll review our results for the full year of 2022 compared to 2021. System-wide sales for all clinics open for any amount of time increased 21%. System-wide comp sales for all clinics open 13 months or more were 9%. System-wide comp sales for mature clinics open 48 months or more were 4%. Revenue increased 26% to $101.9 million, and adjusted EBITDA was $11.5 million compared to $12.6 million, reflecting the compression of earnings by the influx of 36 new Greenfield clinics in the past two years and higher payroll expenses associated with the tight labor market. On to slide 12 for a review of our guidance for 2023. We expect to grow revenue to be between $123 and $128 million compared to $101.9 million in 2022. We expect adjusted EBITDA to be between $12.5 and $14 million. compared to $11.5 million in 2022. This reflects our continued investment in people with higher expected labor costs to attract and retain doctors and team members. We expect franchise clinic openings to be between 100 and 120, compared to 121 in 2022. Historically, company-owned or managed clinic openings included a combination of both greenfields and acquisitions. We will continue to acquire previously franchised clinics. However, as these transactions are opportunistic, we will no longer include the acquired clinic estimate in our guidance. To provide greater clarity, the 2023 company-owned or managed guidance includes greenfield clinic openings only. We plan to open between 8 and 12 greenfield clinics compared to 16 in 2022. We are approaching our near-term target of 1,000 clinics. Based on our current patient demographics, we are well on our way to our long-term goal of nearly 2,000 clinics. As we further develop our model with rural, urban, and international clinics, we broaden our long-term market potential. And with that, I'll turn the call back over to you, Peter. Thanks, Jake.

Turning to slide 13, approaching these milestones is quite an achievement, as less than 3% of franchise systems have achieved more than 1,000 units. Since 2016, we've been driving clinic expansion with transformational changes. including an improved grand opening process, new standard operating procedures, additional digital marketing strategies, sustainable focused procurement, improved IT, and more. Our efforts to manage economic headwinds in 2022 were fruitful, as we close the year with improving our core KPI metrics, such as conversion and attrition. While the macroeconomy still has uncertainty, the chiropractic care market has solid growth drivers, and the joint has even more positive catalysts. In addition to the joint attracting patients from other practitioners, 34% of our new patients in 2022 were completely new to chiropractic care. This means the joint continues to expand the entire market for chiropractic care. In fact, our 12-year compounded annual growth rate of 62% dwarfs the industry's figure of 4.3%, which is respectable on its own. Our growth is fueled by a combination of our patients' referrals and our successful marketing programs. Digital marketing continues to be an ever-increasing growth driver with the majority of our new patients having interacted with one of our digital platforms. We believe they also attract the younger population. Our patients come from all walks of life, and the median age is 37.6 years. This compares to the traditional chiropractic provider whose typical patient demographic weighs heavily toward those using insurance who are older, female, and affluent. The mark distinction is increasingly important because the younger generations don't typically carry a stigma toward chiropractic and are proactively looking for more natural, holistic ways to address their pain. To leverage these differences, we'll continue to invest in marking that effectively reaches consumers of all aspects of their patient journey. In doing so, we expect to capture greater portions of that $19.5 billion spend on chiropractic care in the United States annually, as well as to continue to expand the market. Turning to slide 14, we intend to do this by continuing to execute our corporate initiatives. First, in Forging the Chiropractic Dream in 2022, we increased our attractiveness by improving our employer branding, our social media engagement, our school partnerships and events, and our continuing education platform. Looking ahead, we continue to focus on recruiting and retaining the finest doctors of chiropractic to fuel our growth. Regarding the harnessing the power of our data, we've increased the speed of our system updates and launched the first version of our business intelligence and analytical reporting tool. Looking ahead, we plan to create an automated marketing program and later in the year, launch a patient portal. Lastly, in accelerating the pace of our clinic growth in 2022, we accomplished several milestones. Throughout the year, we entered new markets and opening clinics in Alaska, Montana, Washington, D.C., and Kansas City, as well as signing leases for clinics in New York City. By December 31, 2022, we reached 838 clinics in operation. Regarding their development, we've been testing proven concepts in smaller markets, pedestrian-driven, highly urbanized sites, as well as evaluating expansion to Canada. Overall, we remained focused on the driving long-term growth in stakeholder value. And with that, Nick, I'm ready to begin the Q&A.

Thank you, and I'll begin the question and answer session. To ask a question, you may press star to one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. This time, we'll pause momentarily to assemble the roster. And as a final reminder, please limit yourself to two questions and rejoin the queue if you have additional ones. First question will be from Jeff Van Sideren of B-Rally. Please go ahead.

Hi, everyone, and congratulations on a strong finish to the year. Just wanted to see if there's anything you can tell us, I guess, about what you're seeing so far in 2023, anything around retention, new patient ad metrics. so far. And then maybe if you could just touch on the corporate clinic performance that you saw in Q4 versus franchise clinic performance. And then also as kind of a dovetail to that, if you could just touch on maybe how you're evolving marketing plans. It sounds like you're really leaning into digital because you're getting great traction there. Any thoughts on that for 2023?

Again, thank you for the compliments. That was a lot of Parts of that one question.

Yes.

And so, you know, speaking to, you know, historically we don't really talk about, you know, the upcoming quarter on our fourth full year performance. But what we'd say is that we are seeing that continued momentum. As I mentioned in my call, as we go, we finish the year and we're seeing that momentum carry us into Q1. or at least into the first several weeks of this year. So that gives us, obviously, a positive view of where we're going. We also have to remember that in 2023, there's just a lot of potential headwinds that none of us can anticipate, whether it's inflation, whatever happens with the war in Ukraine, increasing rising of interest rates. So there's a lot of factors there that we're trying to manage through, as we did through 2022, without really knowing how it's going to work. As it relates to the overall corporate performance, I'm going to turn that one over to you, Jake.

Yeah, I think as we think about corporate versus franchise, a lot of expansion in the 2022 period. By the end of the fourth quarter, our corporate performance had actually reached back to double-digit comps. So we were really pleased with how that portfolio performed in the back half of the year, and again, looking for that momentum to continue for the full year. So total system was around 9%, still predominantly dominated by those 700 plus franchise clinics. So, you know, again, strong comp performance from the franchise base, but we were really pleased with our corporate clinic portfolio and especially how they performed around our two core promotions in the fourth quarter.

And then your final first question on talking about digital marketing is absolutely we see that as only becoming more and more relevant and important in that whole lead generation process for new patients. In our system, typically there's three sources for new patients. One is probably historically most important, and that's referral. So that's getting good service to our patients and those patients and referring their friends and family to come to the joint. And we have probably around a 30% referral rate right now system-wise. As I mentioned on the call, we can identify that 60% of those new patients are coming from our digital activity. Sometimes there's a little bit of overlap. A patient attribution is kind of tricky because we have all kinds of different ways that we're approaching educating a consumer about the joint. But we know we can identify that of that new patient count, at least 60% of them at one point touch one of our digital assets. And we see that as only more important especially in younger generations. Okay, maybe like myself, as a baby boomer, I'm going to talk to friends and family as I decide who's going to be my medical provider or chiropractor or dentist. Younger generations are doing that same process, but it's online. And so it's important that you have a strong digital presence to be able to be where they are when they're looking for that relief from their pain. And then the third aspect of our patient counts really comes from that very traditional, what I call grill marking activities in a small box retail environment. So it's the coupon drop, it's reaching out to the schools, the gyms, the hospitals, and again, doing everything that you can to educate those consumers who are working, traveling around that five to 50 minute radius of that box or that clinic that you're there when they need your service.

Okay, that's really helpful. And then just one follow-up, if I could, just wondering kind of your latest take or outlook regarding what you're experiencing in retaining chiropractors.

Well, I think that we are increasingly improving our retention rate of our doctors. And so if I look at the full year of 2022, our turnover rate with our doctors was 34%. Now, I compare that to 2021, it was 56%. And that's a result of a lot of effort in terms of improving, you know, compensation, and we talked about that in earlier calls, improving our onboarding process, doing all the things that we can do to make that environment as attractive to doctors, not just to recruit them but to retain them. And so I'd say we've seen really positive results in that area. We also focus on the WC or that wellness coordinator. You know, there's not a lot of people in our clinics, and we, again, have increased compensation, increased onboarding process, trying to make sure that there's paths for them to continue to grow within the organization so that we can improve their turnover rate. And so while we haven't seen as dramatically improved as we've seen with the doctors, we have seen significant improvement from the WC turnover, so we're really pleased with that direction.

Okay.

Great to hear. Thanks for taking my questions and continued success. Thank you very much.

Thank you. Our next question will be from Anthony Vendetti, Maxim Group. Please go ahead. Thanks.

Thanks. I was wondering if you could just talk about the greenfield opportunities and the goal for 2023. Has that changed at all in terms of the end of the year goal based on your guidance for now?

Yeah, I think the way I would characterize that, Anthony, is that the strategy remains the same. We'll continue to grow this brand through a mix of franchise and corporate development. I would say the change is that we've somewhat moderated the pace. So moving from 16 greenfields in 2022 to an estimate of between 8 and 12 for 2023. And so I think you're seeing that pace moderate, but we're still continuing the strategy. We're still continuing to develop that that portion of the portfolio, just at a more moderated pace.

Okay, so I guess the question is, the follow-up to that would be then, is there still a goal of having 1,000 clinics by the end of 23? Is that still a reasonable goal? It's just how you get there?

What I would say is that the goal is still there. If you just look at where we are at the end of the year with the 838 clinics and that the guidance we just provided in terms of Greenfields and corporate or franchise units, it suggests that we are going to be a little short. And we've said all along is that while that's an important goal, it's not a goal that we would compromise the quality of the franchisee or the quality of the site just to hit a number. Obviously, in 2022, we had some of the headwinds that slowed down a little bit, some of the franchise sales, for example. But we are anticipating that we'll still be able to achieve that goal, but more likely it's going to be not at the end of 2023, but closer to early 2024. Okay, that's helpful.

And then is there anything on the macro economic landscape or any other headwinds that you see or that you're facing in terms of opening up these clinics?

Well, I would say nothing that's new. That what we're seeing is with landlords, that they seem to be slower in negotiating and finalizing leases. Even though, I don't know, in this post-COVID environment, we are still experiencing slowdowns with the permitting process. We have a really simple build-out, so we are not hugely impacted by supply chain issues, but from time to time there's issues around that. But none of that is new that I'm anticipating any different in 2023 that we experienced in 2022.

Okay, great. I'll hop back in the queue. Thank you.

Thank you very much.

Thank you. Next question will be from George Kelly. Ross. MKM, please go ahead.

Hi, everybody. Thanks for taking my questions. So first one, I'm kind of confused. So throughout 2022, there was very steady EBITDA margin expansion ending, I think it was 14% in Q4. And if I just play through your guidance, it looks like you're calling for a step down year over year. And sequentially, it would reflect a pretty steep step down. So just curious what's changed, and are you just seeing a lot of pressure in one queue, or what's led to that?

Yeah, I wouldn't categorize it as pressure in the first quarter. I think a lot of the guide reflects some of the uncertainties that are out there. So as we look at the potential impacts, the top-line performance, our continued investment in our people, whether that be our doctors or our corporate support staff, it's a tight labor market across the board. And we're making those investments in people to make sure that we're growing in the right way. And so I think all of those things are kind of factored into the guide. I would really more categorize it as, you know, holding steady. In 2022, you saw that significant compression related to the investing cycle. When you do 36 new corporate clinics and their drag on the consolidated performance, you're going to see that overall step back. I think I would categorize 23 as more of a steadying of that. We are moderating the pace of those green fields. And then in doing so, that should allow for that margin expansion as those units continue to grow and mature.

Okay, and then second question. I don't know if you're going to want to say much, but can you just high-level say anything about your expectations for comp growth in 23, and what do you bake into your guidance? What helps form your full-year revenue guidance?

Yeah, we don't guide on comp, so I probably won't go into that level of detail. The build is fairly sophisticated, both on our corporate clinics and our franchise segment. And that's KPI driven in terms of, you know, building those things from the ground up is really, you know, as well as recognizing, you know, some of the macro pressures that are out there, which creates, you know, some of the ranges within the guide. And so, you know, as we progress, we continue to see great momentum, as we mentioned at the end of 2022, really seeing that corporate portfolio, especially get back into those low double digit comps. So we're hoping that those Those trends continue. As I look at the core KPIs that build, we're still seeing great traction in the conversion metric, you know, getting people onto our subscription model. We're retaining our patients. We're seeing improvement in the length of membership. And we're still, you know, having some headwinds as it relates to new patients, and that's a critical focus of ours. So, you know, all of those things factor in into the model and the guide, and we're trying to just make sure we're remaining conservative in the 23 period that has some uncertainty.

Okay, thank you. I'll hop back in the queue.

Thank you.

Thank you. Next question will come from Brooks O'Neill, Lake Street Capital Markets. Please go ahead.

Good afternoon, guys, and thanks for providing all the detail you do. We really appreciate it. I'm hoping you could just talk a little bit about what you're seeing in terms of strength and weakness in new store opening performance, particularly, you know, the second half of 22 compared to historical performance?

Yeah, great question, Brooks. As I look at the openings, we continue to see strength in the top line performance. And so some of that aided by the price increase that went into effect. So year over year, year by year cohort, we continue to see strengthening in that top line performance. What I will tell you is that We've probably seen a slight step back in our time to break even, and that's really driven by those continued wage pressures that we talk about. You know, so when you have labor that's, you know, 40 to 45% now of your overall cost of your clinics, those continued wage pressures really have an impact into your overall time to break even. So I would say, you know, historically, you were talking break evens in the 25 to 28,000 range. That's probably 30 to 33,000 per month now. in monthly costs that you have to overcome in order to turn that corner. And so, you know, what that creates is maybe while we were breaking even in six months or less, historically now you're probably in that six to nine month range as you reach that time to break even. And so, you know, just like you're seeing in our corporate portfolio performance, you know, we're seeing those wage pressures impact our margins along with all those new clinics. But really, as I think about the top line and how these clinics are ramping out the gate, Our grand opening marketing program continues to be a success, and we've got franchisees in our corporate units that are really continuing to break records in terms of how quickly some of these units can open. And that's the beauty of a franchise system is we can take those best practices and continue to roll those out and further improve the whole network. So we still see strength in terms of our top-line revenue performance.

Great. I appreciate all that detail, Jake. So I'll ask one more. I think you mentioned in your prepared remarks that you're seeing some improvement in attrition, which I think is a key metric. And I'm curious if you can pinpoint any things you're doing, or do you think it's just overall solid execution at both the corporate clinics and the franchises?

Brooks is a great question. I think it's a combination of things. Again, it's a focus for us on the clinic level is to help make sure that patient continues to stay on their membership and come in on a regular basis, and we have a whole series of activities on the clinic level to reach out to those patients that seem to be slowing down in the use of their adjustments for a month, for example, and making those phone calls and making them aware or just bring to their attention to stay in. I think also that we're seeing, you know, Jake mentioned that 56% of our patient base right now is on that new price list, and we've seen that improve in nutrition. I think part of that is caused by those patients on those lower rates, you know, are hanging on longer because they know if they drop off and come back, and that's such a traditional experience in our network. We've talked about this before. So if the average patient stays with us for six months, and then they use this, let's say, a little under three times a month in that period, that we know that at least 25% of them will come back within the next six months. And I think with that price change is that it's given a little pause of, okay, do I really want to let go of that lower price rate knowing that I'm going to probably come back in the future? So I think that's one of the factors that's helping improve that retention rate. And I do think we're getting better on a clinic level of educating our patients about the value of that ongoing chiropractic care, not simply as a pain remediation, but to truly as a part of a health and wellness program.

Absolutely. Great. Thank you very much.

Thank you. Next question will come from Jeremy Hamlin, Grant Hellam Capital Group. Please go ahead.

Thanks. Thanks for taking the questions. I wanted to start with the EBITDA guide for 23. I think it implies about a 75 basis point decline versus the 22 results. In terms of understanding the interplay there, whether it's your gross margins, the franchise cost of revenues, sales and marketing, and GNA, just as your key line items driving that, I wanted to get a sense for that decline. Is that coming exclusively from GNA ramping further? Because it does look like your gross margins were still pretty solid in Q4, and your franchise cost of revenue was actually lower than it's been in the past couple of years. Just wanted to understand that your sales and marketing cost controls also look like they're pretty solid. So any color you can share?

Absolutely, Jeremy. Thanks for the question. The way I would categorize the growth is really it's going to be rolled into that G&A line item. For us, all of our clinic-level costs flow through G&A, and so cost to revenue or our gross margin is relatively predictable, and we expect that to be you know, in that 90% plus range again. And so, you know, up and through that of the P&L, we expect to be relatively predictable. Where you're seeing the cost come into play is, again, you know, the continued investment in our people. Our corporate segment, while I do expect margin expansion, you know, we are continuing to invest in that outside the four-wall overhead and making sure that we have the correct infrastructure in place to continue to allow these units to ramp as we know they can. Really where you're going to see a big year-over-year step up for us is in that corporate unallocated bucket. And so that, again, is an investment in the people here at our corporate office, tight labor markets, you know, continued wage pressure on that side as well. And then, again, our continued investment in the IT space. That's a critical component of our growth, and that's where a lot of our IT costs eventually flow through is in that corporate unallocated bucket. And so I think all of those things combined, I think you'll see the uptick in the G&A line item probably more heavily weighted towards that corporate unallocated for the 23 period.

Got it. That's helpful. And then, you know, if I could ask also about, like, your segment results. You know, you had actually pretty nice improvement both in revenue growth in 22 and but also your segment level franchise operations saw profitability growth. But you saw a pretty big step back, like about a $5.5 million decline in profitability to a loss for the year at your corporate clinics. So leaving the unallocated corporate to the side, can you just help me understand a little bit of why it looks like your franchisees are in a solid position, but the corporate clinics definitely took a step back on profitability. Is that more related to the newer clinics or is it some of the acquired clinics that are not maybe as profitable as legacy corporate clinics?

Yeah, the way I would break down the corporate clinic performance year over year, I think it has three driving factors. The first, as you mentioned, is just the greenfield clinics, you know, relatively staying on plan, again, higher wage costs without the full benefit of the price increase. But for the most part, you know, that was a planned investing cycle, and you're going to feel that compression in the overall segment margin related to those greenfields. The second piece of that is our continued investment in outside the four-wall overhead. So, again, you know, increasing the infrastructure that we have in place to support a portfolio that really, you know, increased by 30-plus units in a very rapid period of time. You know, one-year time frame and over a two-year time frame, you're almost doubling the size of that portfolio. And so with that comes, you know, some infrastructure investment and, again, you know, people are just more expensive these days. And so making headcount investment and seeing wage pressures, you're going to see those costs flow through as additional outside the four-wall overhead. And that's traditionally for us about, right now in 2022, about an 8% drag between our four-wall margin and our overall segment margin in that space. And so, again, that's something that we know will lever with us over time. As we embark in new markets, we don't have the full density of units to fully lever the headcount that we've put in place You know, at a time when we only have two, three units in a particular market, you know, we still have the full headcount sitting there. So all of those have been designed to lever with us over time, but in the 22 period, you're just not feeling that level of leverage yet. And then the third would just be, you know, some softness in what I'll call the legacy performance, and that includes both, you know, the clinics that we've built or bought in the historical periods. You know, we had some same-store sales softness that we talked about, And the continued wage pressure there is across the board, we've seen increases in both the doctor and the WC salaries. So I really think it's those three things that have contributed to that impact. But we should see expansion in that corporate margin within the 23 period as I look at the overall expectation.

And the last thing I'd add to that, Jake, is that of those 16 acquisitions in 2022, eight of them happened in December. And so there's obviously not a lot of time for that performance, but certainly they were accretive. So it's time for that to perform as well.

Got it. Last one for me is really more of like a cash flow balance sheet management question. So you ended the year with about $10 million in cash. Usage last year was $11 million of provided by operating activities offset by about $21 million of investing activities inclusive of the acquisitions and CapEx. In terms of thinking about managing that, you noted you have $20 million revolver, $2 million drawn on that. How does that potentially change or impact your investment opportunities for this year? Obviously, you are going to have lower greenfield openings this year. Does it also impact just the thought of how many corporate clinic acquisitions that you might be willing to make because you want to not dip too far into that revolver?

No, I mean, I think we have signaled that we're moderating the pace of greenfield development. So, you know, if you do some simple math, you know, 300,000-ish cash flow to build a greenfield unit, we're going to do between 8 and 12. You can kind of get a sense for the planned CapEx as it relates to greenfields. You know, again, we generated over 11 million in cash flow from operations. You know, with continued expansion, you would assume that that number is hopefully going to trend in the right direction, meaning we have more resources to deploy on top of the $10 million that we have remaining on the balance sheet, as well as the $18 million remaining on the line. So as I think about the cash that we generate, which this is a cash generative business, plus the liquidity we have either with cash on hand or through the revolver, I don't see us having, I don't see us, those levels impacting our decision making at all.

Got it. Thanks for that color and best wishes this year. Thank you. Thanks a lot.

Thank you. Again, if you have a question, please press star then 1. Next question will be from Linda Boltenweiser, BA Davidson. Please go ahead.

Yes, hi. So I just wanted to explore a little bit the trend here of franchise licenses sold. 75 in 2022. I think that's below the pre-pandemic levels. It was like 99 in 2018 and 126 in 2019. So I'm just trying to understand, is it that your model is maturing and you've penetrated your markets adequately or, you know, I'm just trying to understand, you know, why the pace of franchise licenses sold would not be continuing to be pretty high?

That's a great question. And there's a number of factors there. And certainly there is the headwinds we've been talking about in 2022, particularly uncertainty in the market, consumer confidence, interest rates increasing. What's interesting to me, when you look at those 75, 60% of them were existing franchisees who know the business, understand how to operate it, and still believe that it's a good time to invest. And I think that those franchisees, the potential franchisees new to the joint, With all this uncertainty out there, it does give them a pause in terms of, okay, is this the right time to invest in a franchise, whether it's us or anybody else? And so I think if you look across the industry, there's been a softness in franchise sales across 2022, and it will be interesting to see where that goes in 2023. So there is that factor. You mentioned that it's slowing down because you're just getting more mature, and I would say I don't want to make it too much of a factor, but that is correct, is that we've got a lot of major markets where we've sold a lot of clinics and are continuing to open them that are full. Now, that doesn't mean we still don't have a lot of white space out there, so we know that we have huge opportunities in the Northeast and in the Midwest, but in some of our more mature markets in the Southeast and in the Southwest, So there is, you know, if we're putting new clinics in the Scottsdale, Arizona market, you know, you're tucking them in here and there because the major markets absolutely are already developed. So there is an element to that. But I think overall it's really that consumer sentiment that does have such an influence on what's going to happen with franchise sales. The other factor that hugely are tied to that consumer sentiment is unemployment rate. is that there's no question when you see typically in a recession, we see franchise sales increase, people being laid off, they need to do something, and that while we continue to be experiencing these record high or record low unemployment rates, I think that is another factor that influences. You're sitting there at a job, okay, maybe you don't like it that much, but you are not feeling like, oh, my gosh, I've got to go do something different, or if I do something different, it's a lot safer to go to another job as opposed to take my life savings and buy a franchise So I think those are elements that are influencing the number of franchise sales that we are experiencing. I think there's still a lot of growth in this market. You see in our numbers that we see a potential for nearly 2,000 units. And so I think as we continue to build out this market, as more and more people discover the efficacy of chiropractic, all that does is make it easier, more able to dense pack our clinics in existing markets and open up new markets just because more and more people are finding chiropractic care to help alleviate their pain.

Okay. And then I guess I was also wondering too, we've seen with some other franchise models that some of the franchisees developed ahead of contract requirements pre-pandemic. just because costs were low and the environment was good, and so they developed ahead of schedule. And now there's like debts contributing to slowing of development. Are you seeing that too or not so much with your model?

I'm not seeing so much of that with our model, but I think there is an element of impact there. And it is. There's no question. Let's say that you've signed a multi-pack agreement, so you're going to open up a number of units in a relatively short period of time. And when you sign that agreement, let's say interest rates were half of what they are today. And so does that give that franchisee a little pause and kind of slow down or make sure that those other clinics are getting past their break-even before I break down for that next clinic? I think there's a little bit of that. But I would say overall, when I think of the experience here at the Joint, is what we have is really a remarkable rate of getting clinics open. I mean, there's a lot of franchise systems out there that end up selling a lot of units that ultimately don't get open. And I think if you look at it compared to other franchise systems, is that we have a very effective rate of getting clinics open over time.

Okay. And then just one final question. I think we were all a little surprised to hear from Planet Fitness that one of their largest franchisees has to kind of stop development because of their capital structure. Can you just remind us, I know you're a whole lot different, but what are your biggest franchisees, like how many units do they have? And do you require financial statements of your franchisees to be submitted to the corporate office?

Oh, absolutely. In terms of the part of the process of due diligence for a potential franchisee coming in is that one of the many factors they go through is they have to submit complete financials and proof that they have the resources to take on whatever the number of units that they're considering. So that's absolutely part of our due diligence. And yes, our contract requires our franchisees to submit their P&Ls on an annual basis. Like many franchisors, we probably need to be better at that, but obviously we did quite a number of them, and you'll see that in our FDD when we're putting in those full financials of our franchisees based on those submittals. And that's an area that we continue to focus on and make sure those franchisees are, in fact, getting those in on a timely basis. And there's some other vendors that we're going to work with that really makes it easier and easier for that franchisee to be able to do that because it's a really powerful tool to understand clinic performance. that when we talk about us versus Planet Fitness, there's a huge difference in terms of just the makeup of our franchisees, because as you know, that their strategy for growth is very much tied to private equity. And that in our circumstances, while we have a little bit of interest in private equity, I think there's one small private equity group that has bought out one of our, I think, 11 clinics or eight clinics, that we don't have that same level of private equity participating as a large holder of clinics in this market. Now, if you look at that overall number of the 700-plus or 712 operating franchise units that we have, our largest single franchisee has around 60 units operating in five states, and that is not in any way private equity-backed. The second one would be 40 units, and that is, again, an investor or a very successful businessman that is not in any way related to private equity. that after that you'll see a pretty big drop in the number of units. Our next biggest one is, I don't know, half a dozen, nine. If you look at that total number, we have probably a little under three units per franchisee. We have roughly around 230 franchises that are operating that 712 units.

Okay, thanks very much. Good luck.

Thank you. Pleasure.

Thank you. This concludes the question and answer session. I'd like to turn the conference back over to Mr. Peter Holt for closing remarks.

Thank you, Nick. Before I close, I'd like to note that we'll be at the Roth Annual Conference next week, participating in a fireside chat as well as conducting one-on-one meetings. Now I'm going to share with you a few comments from patients. As you may know, each December we run our end-of-year promotion, enabling patients to extend their membership by paying for a full year at a discounted rate. And several of our long-term patients recently wrote in our social media, Martha notes, my daughter introduced me to the joint when I was visiting her in Texas a few years ago. I found one close to me at the beginning of 2020, and I've not looked back since. On my first visit, the doctor evened up my legs and even got my hips back in alignment. No other chiropractor that I've ever seen has done that for me. I was having a lot of hip pain before that, so I thank you. They added, I've been with the Joint Chiropractic since 2020, traveling around the United States and getting chiropractic care in different locations. Each time I received incredible service from the knowledgeable chiropractors that cared about their work and their clients. I always recommend the Joint to those I know who can greatly benefit from adjustments. Thank you and stay well adjusted.

Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.