The Joint Corp.

Good afternoon, everyone, and welcome to the joint fourth quarter and full year 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 and then one on your touchtone telephones. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Kirsten Chapman with LHA Investor Relations, Division of Alliance Advisors. Please go ahead.

Thank you, Jamie. Good afternoon, everyone. This is Kirsten Chapman of LHA Investor Relations, the Division of Alliance Advisors. Joining us on the call today are President and CEO Peter Holt and CFO Jake Singleton. Please note we're using a slide presentation that can be found at Today, after the market closed, the joint issued its results for the quarter and year ended December 31st, 2023. You can find that press release on 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 of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact may be considered forward-looking statements. Although the company believes that 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 undue reliance on the forward-looking statements. For discussion of the 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 Forms 10-K and 10-Q, as well as other reports the company files from time to time with the SEC. Finally, any forward-looking statements included in this 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 the forward-looking statements in light of any 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 the financial performance. Management believes they provide a more transparent view of the company's underlying operating performance and operating trends than GAAP measures alone. A reconciliation of the 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, which includes contract termination costs associated with required regional developer rights, stock-based compensation expenses, bargain purchase gain, net loss or gain on disposition of impairment, costs related to restatement filings, restructuring costs, and other income related to employee retention credits. Management also uses commonly discussed performance metrics. System-wide sales includes 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 this information is important in the understanding of the company's financial performance because these sales are based on which the company calculates and records royalty fees and are indicative of the financial health of the franchisee base. system-wide comp sales includes the revenue from both company-owned or managed clinics and franchise clinics that in each case have been opened at least 13 full months and exclude any clinics that have been closed. Turning to slide three, it is my pleasure to turn the call over to Peter Holt. Please go ahead, Peter.

Peter Holt Thank you, Kirsten, and I welcome everybody to the call. As we review 2023, I'd like to begin by acknowledging how proud I am of our whole team, our doctors, wellness coordinators, corporate employees, franchisees, and regional developers for their steadfast commitment to supporting our patients. In a market of ongoing uncertainty among our patient demographic, we delivered growth in system-wide sales, revenue, adjusted EBITDA, the number of new patients, and the number of patients treated. Also, we improved our patient conversion and existing patient attrition rates. I'm even more impressed as they embraced our enhanced marketing strategies targeted to increasing new patient count and improving existing patient engagement. Our efforts are beginning to gain traction, and we're augmented by our year-end campaigns. The Joint is revolutionizing access to chiropractic care by providing affordable, concierge-style, membership-based services in convenient retail settings. And this franchise concept remains strong. In fact, there's been significant interest in our re-franchising strategy as we announced at the end of last year. We put a thoughtful process in place to ensure that we are getting these clinics into the hands of our franchisees who can most effectively run them. As we move into 2024, we've renewed our mission to improve quality of life through routine and affordable chiropractic care, and we've advanced our vision to be the champions of chiropractic. Jake and I will elaborate, but first I'd like to review our 2023 operating metrics. During the year, the doctors of chiropractic at the joint performed 13.6 million adjustments, up from 12.2 million patient visits in 2022. We treated 1.75 million unique patients, up from 1.6 million in 2022. And of those treated, over 932,000 were new patients, up from approximately 845,000 in 2022. Of our new patients, 36%, or approximately 336,000 people, had never been to a chiropractor before visiting the joint. Our model is literally expanding the market of chiropractic users. Finally, during 2023, our monthly memberships contributed 85% of our system-wide gross sales, up from 84% in 2022. Turning to slide four, I'll review our financial highlights for the full year 2023. System-wide sales grew to $488 million, increasing 12% compared to 2022. Comp sales for clinics that have been more open more than 13 full months increased 4% compared to 2022. Revenue increased 16% compared to 2022. Adjusted EBITDA was $12.2 million for 2023, up 6% over last year. At December 31, 2023, our unrestricted cash was $18.2 million compared to $9.7 million at December 31, 2022. Turning to slide five, I'll discuss our clinic metrics for 2023. We opened 114 clinics, 104 franchised, and 10 greenfields. This compares to 2022 with 137 clinics opened, 110 franchised, and 20 greenfields. We closed 13 franchised and four corporate units, which is less than 2% of our portfolio. This reflects the fact that some of the clinic market's conditions changed. For example, a retail center may lose an anchor tenant or other demographic changes impacts the viability of the site. Having said that, we're working on a number of profitability initiatives to improve financial performance of our clinics. We added three previously franchised clinics to our corporate portfolio. At December 31, 2023, we had 935 clinics in operation consisting of 800 franchise clinics and 130 company-owned or managed clinics. The clinic portfolio mix shifted slightly to 86% franchise and 14% company-owned or managed, from 85% to 15% at the end of 2022. As we execute our re-franchising strategy, the portfolio mix will shift more significantly. Regarding our corporate portfolio, while we're no longer proactively pursuing a greenfield expansion strategy, we're actively supporting the three greenfield clinics that are in the process of being opened. We will uphold our various obligations related to their leases and build-outs. Turning to slide six, regarding our re-franchising strategy, as noted before, many of these clinics are quality assets of high value, and we will allow the necessary time to capture that best value. Our team has prepared the framework for the sale of the majority of our corporate clinics. We've organized units and clusters and generated comprehensive disclosure packets for marketing efficiently. We gave initial preference to existing franchisees and have broadened the net to potential buyers outside the existing joint community. The majority of our corporate clinics are at various stages of sales negotiations. We intend to sell these clinics to our franchisees who can most effectively run them. Today, we've received significant interest with over 100 requests for information. Later this month, we'll be marketing at the multi-unit franchise conference in Las Vegas. Ultimately, our goal is to get these clinics in the hands of our best performing franchisees, generate capital that can be used for many purposes, such as reinvesting in the brand marketing, reacquiring RD territories, and or repurchasing stock, among other options. Turning to slide seven, let's review our franchise license sales. As expected, when we announced our new re-franchising strategy, we experienced a slowdown in new franchise license sales. While there will be some franchisees that want to start with a brand new clinic and continue to purchase new licenses, we expect the speed of new franchise sales to be impacted, while the re-franchising is in full swing. During Q4, we sold five franchise licenses, bringing the 2023 sales to 55, compared to 75 in 2022. The year-over-year change reflects the continued impact of the higher interest rates, inflation, strong employment rates, in addition to our newly announced re-franchising strategy. Of licenses sold, 58% were sold to existing franchisees who reinvested in a joint, reflecting their belief in our business. At year-end, we had 172 franchise licenses in active development. Our marketing efforts, which I'll detail more in a moment, are built to support our nationwide brand-building efforts. Our regional developer strategy remains consistent. We have demonstrated over the past several years that the natural progression of territory development can lead to the reacquisition of certain RD regions and will continue to execute as criteria is met. We do not plan to add additional RD territories, and as such, over time, we'd expect RD share franchise royalty fees to decrease as we acquire those RD rights. We ended 2023 with an RD count of 17, and the aggregate 10-year minimum development schedule for the RD territories is 674. Turning to slide eight, let's review our key performance indicators. We've taken great measures to increase our new patient conversion rates, grow new patient counts, and lower patient attrition. In 2023 compared to 2022, we improved attrition by 20 basis points to 11%. Also, conversions rose 160 basis points to 52.1%, and we're continuing to work hard to increase our new patient counts. I'll review our marketing efforts related to that on slide 9. Back Friday and year-end wellness sales were both strong promotions for us in 2023, resulting in a new record-breaking total in several areas, Total sales for the back Friday packages increased 31% compared to 2022. The annual end of year wellness sale helped the patient start the new year with wellness in mind. This promotion enabled our patients to purchase 10 months of membership and receive two months free. Total end of year promotional sales increased 21% compared to 2022. In 2024, is shaping up to be an exciting year for marketing at the joint led by our new CMO, Lori Abu-Habib. We focused on initiatives to drive new patients, including increasing our media efficiency by adjusting our channel mix and increasing our working media span to reach even more prospective patients. This adjusted media mix pairs with our patient strategy to ensure that we're delivering the message of affordable, convenient chiropractic care to those most likely consumers. Additionally, we plan new promotions and offers aimed directly at adding new patients. To take advantage of our local differences, we're creating more robust local store marketing programs by providing proven tactics and more nuanced tools for our system. Finally, to ensure that we maximize convenience for our patients, we're testing an initiative to enable initial patient bookings, something that we're learning is important to a subset of our prospective patients. We're putting a greater focus on existing and lapsed patient engagement. We will introduce new promotions aimed at reengaging former patients. Moreover, we'll apply our learnings about the patient life cycle to automated messages to retain patients during the critical phases of their journey. In partnership with our marketing co-ops, we're testing new programs and channels to increase our co-op synergies and overall brand awareness. The marketing team has been working hard on expanding the brand's architecture. We continue to evolve our brand, positioning and defining the brand essence to deepen our competitive advantage. During Q4, we had several workshops to define current consumer perceptions, our target consumers, and unique benefits that we can offer as a brand. More recently, we had an opportunity to work with our franchisees to incorporate their feedback into the process. We're refining language and defining impact areas to leverage this new positioning. We expect these efforts to have a positive impact on performance in 2024. And with that, I'll turn the call over to Jake.