The Joint Corp.

Hello and welcome to the Joint Corps Second Quarter 2023 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw from the question queue, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Kirsten Chapman of LHA Investor Relations. Please go ahead.

Thank you, MJ. Good afternoon, everyone. This is Kirsten Chapman of LHA Investor Relations. Joining us on the call today are President and CEO Peter Holt and CFO Jake Singleton. Please note we are using a slide presentation that can be found at ir.thejoint.com. Today, after the close of market, the joint issued its operating metrics for the quarter ended June 30th, 2023. If you do not already have a copy of this press release, it can be found in the investor relations section of the company's website. As provided on slide two, please be advised that 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 current predictions, expectations, estimates, and assumptions and are also subject to risks and uncertainties that may cause actual results to differ materially from 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, an increase in operating expenses due to measures we may need to take to address such shortage, inflation exasperated by COVID-19 and the current war in Ukraine, which has increased our cost and which could otherwise negatively impact our business, the potential for further disruption to our operations and predictable impact on 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 of our common stock and result in class action lawsuits. Our failure to remediate any future material weaknesses in our internal control over financial reporting, which could negatively impact our ability to accurately report our financial results, prevent fraud, or maintain investor confidence, and other factors described in our filings with the SEC, including the section entitled Risk Factors in our annual report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 10th. to 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 a 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. Due to ongoing quarterly review procedures being performed in conjunction with the joint's independent public accounting firm, management has postponed the issuance of its second quarter financial results as of June 30, 2023. The matter in question is related to our regional developer arrangements that would have a non-cash impact to the company's financial statements. Management also includes commonly discussed performance metrics. System-wide sales includes revenue, 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 in franchise base. Comp sales include the revenues from both company-owned or managed clinics and franchise clinics that in each case have been open at least 13 full months and 48 full months and excludes any clinics that have been closed. Turning to slide three, it's my pleasure to turn the call over to Peter Holt. Please go ahead, Peter.

Thank you, Kirsten, and I welcome everybody to the call. For Q2 2023, during an environment of continued economic uncertainty, we posted growth in system-wide sales, supported by our ongoing franchise license sales, clinic openings, and new patient acquisitions. That said, we strive to do more and to do better. As such, we're implementing strategies to increase our long-term opportunities. I'll review these in detail in a moment. First, for those investors who are new to the company, the joint is revolutionizing access to chiropractic care by providing affordable, concierge-style, membership-based services in convenient retail settings. Turning to slide four, let's review our operating metrics for the second quarter of 2023 compared to the second quarter of 22. System-wide sales grew to 120.1 million, increasing 13%. Comp sales for clinics that have been open for at least 13 full months increased by 5%. And at the end of June 30th, 2023, our unrestricted cash was 13.6 million compared to $9.7 million at December 31, 2022. Turning to slide five, I'll discuss our clinic metrics. During Q2, we opened 26 clinics, 23 franchised and three greenfields, one of which is in Southern California, another in Santa Fe, and the third in Fort Dixon, New Jersey, in conjunction with our Army and Air Force Exchange Service. This compares to Q2 2022, in which we opened 34 clinics, 31 franchised, and three greenfields. We also acquired three previously franchised clinics in Northern California, which was made possible by the acquisition of the regional developer rights to that territory in April of 22, as compared to the acquisition of four previously franchised clinics in Q2 22. In Q2 23, we closed two corporate clinics, one which will be relocated, and four franchise clinics, compared to closing one franchise clinic in Q2 2022. At less than 1%, our closure rate remains one of the lowest in the franchise community. In summary, in June 30, 2023, we had 890 clinics in operation, consisting of 556 clinics, franchise clinics, and 134 company-owned or managed clinics. The portfolio mix remained at 85% franchise clinics and 15% company-owned or managed clinics. At the quarter end, we had a solid pipeline for future franchise clinic openings, with 214 franchise licenses in active development. Subsequent to quarter and through the end of August 9th, we opened one Greenfield clinic and nine franchise clinics. And we are delighted to announce that we opened our 900th clinic in Texas earlier this week. Turning to slide six, in Q2 2023, we opened 21 franchise licenses, up from 17 in Q1 2023, compared to 24 franchise licenses sold in Q2 2022. This past quarter, 76% of our new licenses were purchased by existing franchisees. Their reinvestment reflects their understanding and the confidence in the joint, even in this environment, which we believe indicates the strength of our business model and demonstrates the health of our franchise system. In June, we acquired the territory rights to Wisconsin, reducing our regional developer count to 17. Our aggregate 10-year minimum development schedule for new RD territories established since 2017 is 590 clinics. Turning to slide seven, let's review our marketing efforts. Our new patient acquisition is our highest priority, and in Q2, we've implemented new tools, programs, and several tests, and I'll review a few for you now. We launched our first phase of our marketing automation initiative on May 31st with a different email series designed to support lead generation, new patient onboarding, and patient retention. Each email campaign is tailored to the unique needs and perceptions of the prospective and current patients based on their chiropractic journey. Using our new marketing technology, we are automating the sending of the right message at the right time in that patient journey. We have multiple initiatives underway, including employee incentive plans, new lead management programs, and new regional landing pages. Additionally, we're assessing appointments for first-time patients to improve the experience and ensure smooth patient flow in the clinics. We also continue to expand our digital marketing efforts. For example, we started a test with TikTok in four markets. The initial results were positive, with lead costs 15% lower than when compared to meta. Subsequently, we increased the test to include four additional markets on expanding the targeted radius and updating the creative for better optimization. We continue two new promotions in our mix, In April, we launched a digital referral program to drive new patient counts during the most effective validation marketing. In June, we introduced the buy five, get one free wellness sale, which was very successful and allowed any patient that made an advanced wellness plan purchase of five months to receive the six months free, demonstrating our patient's value and an affordable commitment to their treatment plan. Lastly, we're updating our patient journey research. These findings will inform message optimization and customer experience from their initial search for a chiropractor to becoming and remaining a patient. As noted on prior calls, chiropractic care is a natural fit with sports and military, and we enjoyed opportunities to support veterans and the local sport teams. The Department of Manpower and Reserve Affairs conducted a trial found increased isometric strength and endurance among members of the military who received chiropractic adjustments and noted chiropractic care improves key fitness characteristics among active duty service members with lower back pain. In June, we began a collaboration with our Canine for Warriors, a nonprofit organization that pairs highly trained service dogs with military veterans suffering from service-connected traumas. Military training, deployment, and the service can take a serious toll on the body's physical and mental state, and the Canine for Warriors program mirrors the joint's philosophy that everyone can benefit from a natural approach to pain relief. We're sponsoring an impactful conversation surrounding a shared philosophy that supports a drug-free approach to wellness, as well as the training and pairing of a service dog for a veteran in need. Through our year-round military appreciation program, we also honor active and retired members of the military, as well as their immediate families nationwide with discounted initial visits and monthly wellness plans. Also, Chiropractic Economics has several articles citing the study that demonstrate chiropractic boosts sports performance and assists with rehab. In July, we were excited to announce that the joint chiropractic was named the official chiropractor for the Tampa Bay Buccaneers, our first NFL partnership, and our second major league sports sponsorship. The Tampa and Orlando marketing co-op groups, which cover almost 40 clinics, partnered with a team to highlight the benefit of routine chiropractic care for the loyal fan base in the surrounding community. Before I turn the call to Jake, I'd like to note that I'm excited that next week we will welcome our new chief marketing officer. With vast experience, franchise experience, she's an expert in digital marketing and building customer loyalty. We're excited to have her join the team as we implement our programs, including additional brand building efforts with a focus on increasing new patient acquisition.