The Joint Corp.

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

Thank you, Harmony, and thank you everyone for joining us this afternoon. This is Kirsten Chapman of LHA Investor Relations. Joining us on the call today are President and CEO Peter Hull and CFO Jake Singleton. Please note that we are using a slide presentation that can be found at ir.thejoint.com slash events. Today, after the close of the market, the Joint issued its operating metrics and financial results for the quarter ended September 30th, 2023. If you do not 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 within the meaning of the Safe Harbor provisions and the Private Securities Litigation Reform Act of 1995. All statements other than the statements of historical facts may be considered forward-looking statements. Although the company believes the expectations and assumptions reflected in these forward-looking statements are reasonable, it can make no assurances that such expectations or assumptions will prove to have been correct. Actual results may differ materially from those expressed or implied in forward-looking statements due to various risks and uncertainties. As a result, we caution you against placing any undue reliance on these forward-looking statements. For a discussion of these risks and uncertainties that could cause actual results to differ from those expressed or implied in the forward-looking statements, please review the risk factors detailed in the company's reports on the forms 10-K and 10-Q, as well as other reports that the company files from time to time with the SEC. Finally, any forward-looking statements included in this conference call are made only as of the date of this call, and we do not undertake any obligation to revise our results, or publicly release any updates to these forward-looking statements in light of new information or future results. 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 of the franchise base. System-wide comp sales used in revenues from both the company and company-owned managed and franchise clinics are those in each case have been open for at least 13 months and exclude any clinics that have been closed. The company also uses adjusted EBITDA and provides a reconciliation to GAAP in its press release and presentation. Turning to slide three, it's my pleasure to turn the call over to Peter Holt. Please go ahead, sir.

Thank you, Kirsten, and I welcome everybody to the call. During Q3 2023, we continue to execute our mission to improve quality of life through routine and affordable chiropractic care. The strength of our franchise concept remains strong as we continue to revolutionize access to chiropractic care by providing affordable concierge-style membership-based services in convenient retail settings. However, ongoing economic uncertainty and continued cost pressures have impacted our corporate clinic portfolio performance. After evaluating options for improvement, the Board has authorized management to initiate a plan to re-franchise or sell the majority of our company-owned or managed clinics. Management intends to retain a portion of highly performing corporate clinics. This refined strategy will leverage our greatest strength, our capacity to build a franchise, to drive long-term growth both for our franchisees and the joint as a public company. We intend to use the clinic sales proceeds to support marketing and patient acquisition and to reinvest in our company through a possible acquisition of regional developer territories and potential stock repurchases. The reduction of corporate clinic portfolio will also facilitate our unallocated cost reduction efforts. Jake and I will elaborate more on these initiatives and our progress in a moment. Turning to slide four, I'll review our operating financial highlights for the third quarter of 2023. System-wide sales grew to $119.3 million, increasing 8% compared to Q3 2022. Comp sales for clinics that have been open for at least 13 full months were flat at 0%. Revenue increased 11% compared to Q3 2022. Adjusted EBITDA was $2.9 million for Q3 2023. At September 30, 2023, our unrestricted cash grew to $16 million compared to $9.7 million on December 31, 2022. Turning to slide five, I'll discuss our clinic metrics. During Q3 2023, we opened 26 clinics, 24 franchised and two greenfields. This compares to 38 clinics opened in Q3 2022, 33 franchised, and five greenfields. During both Q3 23 and Q3 22, we closed two franchise clinics. With today's foundation of over 900 clinics, our closure rate is less than 1% and remains one of the lowest in the franchise community. At September 30, 2023, we had 914 clinics in operation consisting of 778 franchise clinics and 136 corporate-owned or managed clinics. The portfolio mix remains 85% franchise clinics and 15% company-owned or managed clinics. Regarding our corporate portfolio strategy, in September we announced that we had earmarked about 10% of our underperforming clinics for sell, relocation, or closure. Our team is executing well. Already eight clinics are in various stages of sales negotiations, two are sold in October, and in addition, two corporate clinics are about to be sold. As I mentioned at the beginning of the call, we've increased our goal to re-franchise the majority of our corporate clinics. We expect to sell the lion's shares of them to existing franchisees, but we'll also consider qualified franchisees new to the joint. It's important to note that we'll be selling valuable assets and will not be in rushed negotiations to accelerate the process. We'll retain some corporate clinics due to their maturity and their strong performance, which we believe will yield benefits. For example, they'll continue to be strong financial contributors. We can use them to test price adjustments, new membership plans, and various ancillary products and services that we're assessing for wider rollout of our network. Regarding our remaining greenfield pipeline, we have four greenfields in the process of being opened and will uphold our various obligations related to the leases and buildups. In some cases, we may complete the clinic's grand opening and sell the clinic after a patient base is established. In others, we'll transfer permits and contracts to a franchisee prior to the opening. Our regional developer strategy remains consistent. We have demonstrated over the past several years that the natural progression of our territory development can lead to the reacquisition of certain RD regions, and we'll continue to execute as the criteria is met. We do not plan to establish any additional RD territories, and as such, over time, we expect the RD share of franchise royalty fees to decrease as we reacquire RD rights. We ended Q3 with an RD count of 17, and an aggregate 10-year minimum development schedule for RD territories established since 2017 is 590 clinics. Looking ahead, and most importantly, we maintain unwavering dedication to our franchise community, We're focused on improving franchise clinic performance and unit economics. We continue to invest in tools to drive franchise growth and support our nationwide expansion. At the quarter end, we had a solid pipeline for future franchise clinic openings with 202 franchise licenses in active development. Turning to slide six, in Q3 2023, we sold 12 franchise licenses, the same numbers we sold in Q3 2022. This reflects the continued impact of higher interest rates, inflation, and strong employment rates negatively influencing franchise sales. That said, existing franchisees who have enjoyed the advantages of the joint clinics continue to reinvest, year-to-date comprising 58% of franchise-licensed sales this year. Turning to slide 7, we'll review our marketing efforts. This quarter, we welcomed our new Chief Marketing Officer, Lori Abu-Habib, She's an expert in digital marketing and building customer loyalty with extensive franchise experience. Laurie's initial focus area has been to leverage the power of our data to understand our existing and prospective patients. We're using our patient journey research and the wealth of patient data to craft distinct journeys for patients who have never seen a chiropractor before, patients who are familiar with the chiropractic care, and patients we have not seen recently. This research and strategy will inform message optimization and the customer experience from that initial search for a chiropractor through becoming and remaining a patient. In Q4, we will begin to apply these insights on our media buys and content on meta, highlighting key themes that are most important to each of these patient segments. Additionally, Lori has focused on three main areas. Number one, grow new leads and patients. We're working diligently to increase the flow of new patients to our clinics by introducing new functionality, improving current processes, and mining our local trade areas for new patient growth. We're working on projects to decrease friction for our new patients by improving the intake process, creating a sense of urgency by introducing first visit bookings, and optimizing our local clinic marketing. Number two, increasing lifetime patient value. In addition to getting new patients, We're also taking a more nuanced approach to generating more revenue from our existing patient base. To enable this, we're working on projects like creating a year-ago promotional calendar to drive same-store sales, increase content, and leverage marketing automation to deliver the right message to the right audience at the right time. And number three, growing brand equity. We have a strong brand with a rich story. By deepening the brand's unique essence and meaning of leveraging our footprint, we can become synonymous with chiropractic care in a way that our competitors cannot. We're working on our brand architecture to evolve our brand positioning and define brand essence to deepen our competitive advantage. And before I turn the call over to Jake, I'm delighted to welcome Jeff Graham, who will join the board in January of 2024. He's a long-term supporter. We've enjoyed productive conversations with Jeff and look forward to his contribution on how to make this company more effective. And with that, I'll turn it over to you, Jake. Thanks, Peter.