The Joint Corp.

Good day, and welcome to the Joint Group Corp First Quarter 2024 Financial Results Conference Call. All participants are 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. You may press star, then one on a touch-tone phone. To withdraw your questions, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to David Bernard with LHS Investor Relations. Please go ahead.

Thank you, Kaylee. Good afternoon, everyone. This is David Barnard of LHA Investor Relations. 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 httpsir.thejoint.com under Events. Today, after the close of markets, The joint corporation issued its results for the quarter ended March 31st, 2024. If you not already have 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 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 facts 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 these 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 that the company files from time to time with the SEC. Finally, any forward-looking statements included in this earnings call are made only as of the date of this call. and we do not take any obligation 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're 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, which includes contract termination costs associated with reacquired regional developer rights, stock-based compensation, bargain purchase gain, net gain or loss on disposition or impairment, costs related to restatement filings, restructuring costs, and other income related to the employee retention credits. 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. System-wide 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 Holtz.

Thank you, David, and I welcome everybody to the call. The Joint is revolutionizing access to chiropractic care by providing affordable concierge-style membership-based services in convenient retail settings. We began 2024 with a vision to be the champions of chiropractic, and we focused on increasing new patient counts, improving existing patient engagement, and positioning to re-franchise the vast majority of our corporate portfolio. And we're making solid progress. Additionally, during the first quarter, we grew revenue, improved the bottom line, and tripled our franchise sales sequentially. Turning to slide four, I'll review the first quarter of 2024 compared to the same period, 2023. System-wide sales grew to $126.3 million, increasing 9%. System-wide comp sales for clinics that have been open for at least a full 13 months increased 3%. Revenue increased 5%. Adjusted EBITDA was $3.5 million for Q1 2024, up 74% over the same period last year. On March 31, 2024, our unrestricted cash was $18.7 million, compared to $18.2 million at December 31, 2023. Turning to slide five, I'll discuss our clinic metrics. We opened 23 franchise clinics and closed four in the first quarter of 2024, compared to 29 franchise clinics opened and one closed in the first quarter of 2023. At March 31, 2024, our total clinic count reached 954 units, consisting of 819 franchised and 135 corporate, up from 935 opened clinics, 800 of which were franchised, at the end of the year 2023. The clinic portfolio mix remains 86% franchised and 14% company-owned or managed, and although it's expected to shift during the year as we execute our re-franchising strategy. Turning to slide six, we're focused on re-franchising strategy as our primary initiative in 2024. As discussed, we received over 100 requests for information and have been vetting the opportunities to identify the most effective franchisees. We're going through a structured process to continue to conduct negotiations with multiple qualified franchisees in regard to the sales of our corporate clinics. There's been a strong interest in larger transactions. As these are more complex, we've identified an investment bank specializing in re-franchising to help us. Working together, we expect to ensure we re-franchise to the best of our franchisees, accelerate the process, and create value for all of our stakeholders. We are well in our way of generating capital to be reinvested in brand, marketing, RD territory acquisitions, and or stock repurchases, among other options. Turning to slide seven, I'll review our franchise license sales. During Q1, we sold 15 franchise licenses compared to 17 in Q1 2023. Of the licenses sold, 87% of the franchisees were new to the joint. This reflects investment and validation of our franchise concept. Q1 2024 tripled sales compared to Q4 2023, a solid increase given the ongoing high interest rates, inflation, and strong employment. I do want to note that franchise sales may also be impacted by our re-franchising strategy. On March 31, 2024, we had 166 franchise licenses in active development, as well as 17 regional developers with an aggregate 10-year minimum development schedule for 674 clinics. We do not plan to establish any new additional regional territories and will consider opportunities to require territories as the RD territories mature. Turning to slide eight, I'll review our marketing efforts. In Q1, we conducted our annual patient survey, which provided great insights into our brand perception. We're proud of the results of the survey and we remain committed to doing even better. First, the joint continues to demonstrate our ability to grow the market, with 36% of our patients being new to chiropractic in 2023. Next, patients gave the joint a strong net promoter score of 64%, and an amazing 92% of patients with prior chiropractic experience rated the joint as better or as equal to the previous care they'd received. Additionally, research led us to redirect some of our marketing resources from older campaigns to new social media influencer efforts. With strong positive perception from consumers new and not new to chiropractic, as well as our existing patients, our data indicates that the biggest opportunity is to drive awareness of chiropractic care in general and consideration of the joint in particular. In light of this data, we've made a strategic decision to forego our in-clinic new patient contest this past March to invest in driving consideration in April. We're doing that through evolving our to-go markets approach at all levels of the marketing funnel. At the top of the funnel, we've introduced social media influencers last month. Our lineup features both health and wellness as well as athlete influencers, including Sherry Hawkins, U.S. track and field Olympian. We're partnering with these influencers to reach their broad audiences as well as to showcase the benefits of chiropractic care in a relevant way. In addition, several co-ops will feature regional influencers to support the national campaign, driving consideration in their local markets by leveraging relevant personalities. We're also testing a variety of new promotions, channels, and tactics in our co-ops to better optimize our promotions and media mix based upon the market and the patient base. In Q1, we continued testing digital initiatives with our patient experience roadmap. We're seeing success in driving new patients in our initial visit bookings test by providing the opportunity for new patients to book an appointment to complete their initial exam and visit. Patients who have participated indicated that the booking was a positive experience and important to their choosing a joint. We've also made progress in replacing our patient paper intake forms with an enhanced digital intake process. and are now in the next phase of testing before our rollout. Finally, the team is hard at work in creating stronger local store marketing tools. Working with the development team and leveraging the wealth of data that we have about our patients, we're implementing a clinic segmentation strategy to provide more effective local store marketing programs. And with that, Jake, I'll turn it over to you.

Thanks, Peter. And let's turn to slide nine. I'll review our clinic comps for Q1 2024 compared to Q1 2023. System-wide sales for all clinics open for any amount of time increased to $126.3 million, up 9%. System-wide comp sales for all clinics open 13 months increased 3%. System-wide comp sales for mature clinics open 48 months or more decreased 3%. Revenue was $29.7 million, up $1.4 million, or 5%. Revenue from franchised operations increased 9%, contributing $12.2 million. Company-owned or managed clinic revenue increased 2%, contributing $17.5 million. The increases represent continued year-over-year growth in both the franchise base and the corporate portfolio. Cost of revenues was $2.7 million, up 10% over the same period last year, reflecting the associated higher regional developer royalties and commissions. Selling and marketing expenses were $3.9 million, down 7% year over year, reflecting the timing of the advertising spend. Depreciation and amortization expenses decreased $811,000, or 37%, compared to the prior year period, reflecting the accounting for corporate clinics that are being held for sale as part of the re-franchising efforts. G&A expenses were $20.3 million, up only 1% compared to the same period last year. reflecting the lower rent for corporate clinics held for sale as well as the continued cost control initiatives, offsetting the majority of increased expense to support more clinics. Loss on disposition or impairment was $362,000, related to the ongoing quarterly impairment analysis of clinics held for sale as part of the re-franchising efforts. This compared to $65,000 in Q1 2023. Operating income was $1.1 million, compared to operating loss of $653,000 in Q1 2023. Other income was $35,000, compared to $3.8 million in Q1 2023, which reflected the receipt of employee retention credits in the year-ago period. Income tax expense was $179,000, compared to $841,000 in Q1 2023. Net income was $947,000, or six cents per diluted share, compared to net income of $2.3 million, including the aforementioned employee retention credits received in Q1 2023, or 16 cents per diluted share. Adjusted EBITDA was $3.5 million, up 74% from $2 million in Q1 2023. Franchise clinic adjusted EBITDA was up 15% at $5.6 million. Company-owned or managed clinic adjusted EBITDA, reflecting the aforementioned accounting for rent expense, related to the clinics held for sale increased 94% to $3.1 million. Corporate expense as a component of adjusted EBITDA was $5.1 million, $738,000 higher than Q123, related to higher legal and accounting, and greater professional services related to our re-franchising efforts and IT maintenance. On to a review of our balance sheet and cash flow. At March 31st, 2024, our unrestricted cash was $18.7 million, compared to $18.2 million at December 31st, 2023. Cash flow from operations was partially offset by the $2 million repayment of the line of credit to JPMorgan Chase. Through this facility, we retained immediate access to $20 million through February 2027. On to slide 10, we are reiterating all elements of our guidance. System-wide sales are expected to be between $530 and $545 million. compared to $488 million in 2023. System-wide comp sales for all clinics open 13 months or more are expected to increase in the mid-single digits compared to an increase of 4% in 2023. New franchise clinic openings, excluding the impact of re-franchise clinics, are expected to be between 60 and 75 compared to 104 in 2023, the difference reflecting the impact of our re-franchising efforts. And with that, I'll turn the call back over to you, Peter.

Thanks, Jake. Turning to slide 11, at this point, the joint were committed to continually improving our brand, our people, and our performance to truly be the champion of chiropractic care. As I discussed earlier, our revitalized co-ops and digital marketing programs are positioned to drive brand awareness as well as enhance our performance by furthering our objectives to increase new patient counts and improve existing patient engagement. Additionally, we continue to identify potential adjunct products and services that patients want and have a viable business case. Our goal is to build brand equity and generate incremental revenue streams for all of our clinics. Regarding people, one of the ways in which we support our existing team of doctors at Chiropractic is by providing continuing education. We also empower the next generation of VCs in a variety of ways. As a part of our ongoing effort to educate the chiropractic community about the advantages of the joint offers patients, we've increased our interactions with the chiropractic universities. In addition to participating in job fairs, we support the schools with scholarships and donations to key chiropractic colleges such as Life, Palmer, Parker, Sherman, Texas Chiropractic College, and Life West. Additionally, last month we announced our first endowment, the Joint Chiropractic Endowed Scholarship for Logan University. This is another way to support the profession and the greater community, enhance our relationships with the schools, invest in the future of graduating doctors at chiropractic, and fuel the growth of our future pool of DCs. The quarter of a million dollar endowment scholarship will provide much needed tuition assistance for generations of students, awarding $10,000 annually to a student who demonstrates academic achievement and a passion for chiropractic and quality patient care. We also have our preceptorship program. We found that most chiropractic students and new graduates want to learn more about owning and operating the practice. We developed a learning path which combines real patient and business experience while students are building their clinical skills. The program has two components. Patient care completed under the supervision of joint preceptors in the clinics and 18 online training modules covering advanced clinical business, self-development topics such as goal setting, business planning, and creating enhanced patient experiences. These classes are presented by joint subject matter experts as well as clinical experts in the chiropractic field. In summary, in 2024, we stay focused on the re-franchising of our corporate portfolio, fostering our strong franchise base, and improving clinic economics and increasing productivity. Before I begin questions, I'd like to invite you to meet with us at the B. Reilly 24th Annual Institutional Investor Conference later this month and the Oppenheimer 24th Annual Consumer Growth and E-commerce Conference in June. And with that, Kaylee, I'm ready to begin the Q&A.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up the handset to ask your question. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Your first question comes from George Kelly with Roth.

Hey, everyone. Thanks for taking my questions.

Hey, George. Hey, Peter.

Maybe if we could start on comp growth. A couple questions on that topic. I was curious what you've seen so far in Q2. And then secondly, what gives you confidence that you can achieve a mid-single-digit percent comp growth rate that you mentioned as your target for this fiscal year?

Sure. I think that to answer the first part of that question is, no, the first part of that question was what have we seen in Q2? What have we seen in Q2? And I would say that, you know, typically we're not commenting too much on future clinics, but, you know, we obviously had a 3% in Q1. We have been talking about that we're cautiously optimistic as we reflect on 2024 performances. And I would say that we're seeing a continued improvement in that number as we look forward. That's certainly what we're expecting. And the second part of that question is why would you expect that? And I think that's really because we're continually focusing on the biggest challenge I think we've faced in the last couple of years is that new patient count drop. And I think we've got some great programs taking place that will really help us address that issue to bring those new patients in. When we look at those three metrics that govern our concept, the new patient count, the conversion, and the attrition, we're continually seeing positive results on our conversion and our attrition, our patients are staying with us longer. If you look at our new patient count for Q1, it was down 3% compared to the same period last period. But I think that was also related to just the challenges of March. March had five Sundays in it. One of those Sundays was Easter, and we also stopped our new patient program, our promotion that we ran last year that we did not run this year. So I think that hit that number a little bit for that last month. But I think looking at these programs that we're putting in place, our influencers, I feel very good that we'll be able to see an improvement in that new patient count, which is so important for us for our comps.

Okay, that's helpful. And then, Peter, you mentioned in your prepared remarks earlier that you are sort of assessing different products or services that might potentially work with the model. And in the past, you've talked about perhaps taking a little pricing on some of your oldest legacy members that are in a much lower price points. I'm curious if either of those initiatives are contemplated in that mid single digit comp guidance. And, and are there things that if they're not even still, are there things you might consider? you might put in place later this year?

The answer is yes, that we could get some of them put in place this year, probably towards the end of the year, because if we're talking about any kind of changing our grandfathering policy or any price increases, there's going to be some testing involved with that before we were to implement a program like that, but that is possible. And the same with the idea of any kind of eventually product or services that we would add to the clinics. And we certainly are looking for ways to do that. We want to be very thoughtful about that. We want to make sure that what we're adding is, you know, creative to the bottom line and not creating complexity in the business model that is not necessary. So we're still in those early stages of identifying the different programs that we can put in place to increase those sales through those additional products and services. So more to come on that. As we've designed our kind of a committee that's looking through that to help us make those good decisions. And the final part of that answer is no, our guidance on the comps did not include or take into account any change in the pricing structure or additional products or services that would be sold in the clinic in 2024.

Okay. Appreciate it. I'll hop back in the queue. Thank you.

The next question comes from Anthony Vendetti with Maxim Group.

Thank you. So just a couple quick questions here. So the clinics, you're saying store sales at 13 months, those are up around 3%, but the ones open about four years are down. What do you think that's attributed to? Is that sort of a leveling off? and then maybe just a little bit into the reasoning in general for the closures. I mean, this quarter you had four. I guess the quarter last year was one. You know, do you wait to see how, you know, if the ones that are down, are you looking at revenue trends and profitability or just profitability? How do you look at those in terms of the closures? And then I'll have a couple of follow-ups.

Okay. To specifically, you know, speak to the closures, that, yes, we did have foreclosures this year, and that, again, for a system of our size, nearly 1,000 units, you know, foreclosures even in one quarter still is an unbelievably low number of closures. And what's going to happen as your system matures, you've got situations where the market itself is changing. So they may lose an anchor where they've been located or you have demographics of that market fundamentally change. which just does not justify that clinic staying open. From time to time, you also have just some personal issues that come up that force the franchise to close the clinic. So I'm not concerned if I compare, okay, one unit closed in Q1 2023 compared to the four closures in Q1 2024, but it's something that we look at very carefully. And certainly the other part of that question is looking at what is our concern. Is it top-line revenue? Is it profitability of the clinic? And the answer, of course, is both, that we want to make sure that we are continuing to look at ways to increase that profitability of that unit because what I can tell you, in any system I've ever worked with in franchising, unit economics is one of the most important things that you have to stay focused on. And you have a couple of things you can do to influence that. One, increase revenue, and the other is to reduce costs. So those are the areas that we're focusing on right now. Now we know that, and we've talked a lot about this in the past, that when we look at the margins of our clinics is that one of the challenges we've been facing is the increased cost of our labor, and specifically our doctors, and that's suppressed the margin. And so now we're looking at ways to increase that margin. One of the things we did in March of 22 was do a price increase across the board. And one of the main reasons for that was to help address this issue of the increased cost of our labor. We're now looking at ways to be more streamlined on the clinic experience itself. And so we spend a lot of time always focusing on that new patient count. But what we're recognizing is that we can do, you know, this is with our new CMO, is that we can also focus on our existing patients and our last patients. And so with our existing patients to make sure they're staying with us longer and with our last patients to make sure they come in earlier. Because what we do know, if that average patient stays with us for roughly six months, and then they drop, we also see that 25% of them on average will come back within the next six months because their pain comes back. And so we feel there's some opportunities there with some of the marketing materials we're having and some automated marketing programs that we can influence those decisions about how long our patients stay with us and how quickly they can come back.

Okay. Just on the 48-month period, You know, how many of your clinics are, you know, four years or older? And then in aggregate, I guess they're down 3% in terms of revenue. You know, what do you attribute that to?

Well, I think part of it is a maturing of the system. A part of that I think I directly attribute it to the, you know, the new patient count itself or the new patient counts. is that in those more mature clinics where they've been established and they've drawn the core of patients that are in that area, it's harder to get newer and newer patients to come into that territory or into that clinic. So I think that's one of the reasons you're seeing kind of that drop in those clinics open more than 48 months compared to a clinic that's open less than that. I think that's probably the main thing I would look at right now. I don't know, Jake, your thoughts? Okay.

Yeah, I would say, you know, as you think about 23, you know, we did a 4% comp for the full year, and the mature stores did negative one, so you had a 5% spread there. Because of rounding, it was a 6% spread here in Q1. But I think I would just point to, you know, because we're on a fiscal calendar, you know, March just having the Sundays with Easter, and us not rolling over what was a long-standing new patient contest and allocating those dollars to some marketing efforts in the April-May timeframe, I think had an impact on that March period in particular that drove down the comp for the quarter. But the spread was relatively close.

Okay, that's helpful. And then just last, a very big picture. Obviously, we saw Starbucks come in very light in terms of sales and sales They were saying the occasional customer has not frequented Starbucks as often as they used to. Do you think the economy in general is having some negative impact in terms of getting new patients to come in the door? Maybe just to the extent that you're able to measure that, Is that something you're seeing? Because it's not just Starbucks. We're seeing that across other franchises as well this quarter.

No, no, Anthony, I think it's a real issue. We know that, okay, if you go back to fourth quarter, GDP growth I think was, you know, what, 4.3%, and this quarter it's still like 2.3% of GDP. And so we're not in a recession. That's very clear. But you still have half the American people saying that, you know what, I am personally. I'm paying more at the grocery store. I'm paying more to fill up the car with gas. I'm paying more to pay my interest rate on my credit card or my mortgage. Rents are going up. And so I think that if you look at the demographics, the economic demographics of our patient base, that average income is somewhere between $50,000 and $105,000. And so that group is, in fact, being hit by these increasing costs and feeling more uncertain about the economy and that they are, in fact, who is our patient base. And I've talked about this before on some of the other calls, that we do think one of the factors that we've seen in our lower patient count is the fact that they are feeling that, with that economic uncertainty, they're holding back, so that they're going over the counter medicine before they come in or not coming in at all. But those that do come in, they're converting at a higher rate. Those that do come in are staying longer as a member, So I think that there's still great value and importance of the service that we're offering, but I just think in this kind of economic uncertainty that it does impact specifically the demographics of our patients.

Okay, that's very helpful. Sure, that makes sense. I'll hop back in the queue. Thank you. Appreciate it.

Your next question comes from CJ DiPolina with Craig Hallam Group.

Hey, everyone. I'm on for Jeremy Hamblin. I had a couple questions for you. I wanted to start with the refranchising effort. It seems like you're still fairly early on the process, but just curious if you have a timeline on when we can start to see those transactions go through and anything you can share on kind of expected deal economics would be really helpful.

Sure, and we'll both answer this. What I would say is that we're well into the process, and as I said on the call, that we've had a lot of interest from our franchisees. We've also opened this up to franchisees outside the joint world. And so we've been looking at hiring an investment banker who specializes in re-franchising effort. Because, well, and I've talked about this before, this is not a fire sale. We're not just trying to get these off our books. These are valuable assets that we want to put them in the hands of the franchisees who can most effectively run them. I don't need to trade problems. And so we are, in fact, going through a very structured process to make sure that we put them in the hands of the right franchisees. But we're also looking at some of the interest that's been out, especially as we've opened this outside of the joint franchisees, is some very sophisticated groups who are interested in larger territory of our clinics. We've got 135 corporate clinics. We've talked about the vast majority being up for sale. So I think that we have some real opportunities to look at those transactions. And so those transactions, of course, are a little more, you know, they'll take a little more due diligence, take a little more time to put together. But what I would say is that we're certainly pleased with the interest in this re-franchising effort and that from our perspective, having said all I just said, we'd like to get this done as quickly as possible. Because it does take a toll on continuing to run these units when they know that they're, you know, if you're an employee or outside the four-wall employee for those units, It creates uncertainty, and people don't like uncertainty. We would expect that the majority of those employees would be hired by the new owners, but it creates that uncertainty that you just want to minimize as we go through this effort. I don't know, Jake, if you had anything more to add.

I think there was a part of the question there on valuation. We are in active negotiations, so probably don't want to give too much out there, but We've done a historical look-back analysis. We were purchasers of clinics for a lot of years, and we also see all the franchisee-to-franchisee transfers that happen within our system because we do hold that right of first refusal. So we have a pretty good sense for historical multiples of EBITDA that these trade for, and we'll continue to partner with the right groups that can maximize that value and generate the proceeds that these quality assets deserve.

Okay, understood. Thank you. And then moving on to the P&L, it looks like general and administrative was up year over year on an absolute basis. Just curious how you guys are thinking about G&A moving forward and if we should expect some more absolute increases year over year.

Yeah, I think... Q1 last year was $20.3 million for this quarter, so up slightly. We did have some accounting and legal and professional service costs associated with some of the refranchising effort. We do have a year's worth of additional headcount that's rolling over on a 100-plus unit increased base. I think the critical piece of that question is we understand that for the refranchising strategy to work we have to be critically focused on cutting the necessary G&A to reach those profitability targets that we have. So that will be something that we consistently monitor. As you gleaned from the call, we have not executed through March 31st a ton of those deals yet, and you'll expect to see that G&A begin to taper as we continue our progress through that refranchising effort. So it will really be dependent on when the refranchising transactions, how large they are, and then we'll be able to shed the associated GNA, but that will be a critical focus of management as we continue this process.

Okay, cool. Thank you. And then one more. So the FAST Act came into place about a month ago. I'm curious, you know, especially with the California stores, curious if you've seen any attrition or labor of, you know, maybe some of the lower paying jobs going, you know, and finding workouts where it

Yeah, I think from our perspective, you know, that had been, you know, rumored for a long time. So I think we started to see the wage pressures on that, you know, certainly before the bill was officially executed. We haven't seen really an uptick in turnover as it relates to our roles and knowing that they now have, you know, kind of a competitive benchmark out there for some other QSR-type concepts, something that we'll continue to monitor, but we haven't really felt a direct and immediate impact so far as it relates to our wage levels, because I think we had largely absorbed a lot of that pressure kind of leading up to the actual finalization.

And in turn, it's impacting the market, but specifically the QSR.

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

That does conclude our question and answer session.

I would like to turn the conference back over to Peter for any closing remarks.

Thank you, Kaylee, and thank you all for attending the call. Today I'd like to share a note from our VP of Chiropractic and Compliance he'd received from a prior student who went through a preceptorship program at the Joint and is now a full-time employee. And I'm quoting, my preceptorship with the Joint Chiropractic was an enriching experience that provided me the invaluable hands-on practice and deepened my understanding of patient care. The mentorship I received was top-notch with so many different doctors providing helpful input in my technique and flow. The opportunity to work with a diverse patient population allowed me to hone my adjusting skills and tailor my treatment plans to individual needs. This preceptorship bolstered my confidence in my chiropractic abilities and reinforced my commitment to this healing profession. And we're so pleased to have had that doctor join our team. Thank you and stay well, Justin.

That does conclude our conference today. Thank you for participating. You may now disconnect. Thank you. Thank you. Thank you. Thank you.

Thank you. Thank you.

Good day and welcome to the Joint Group Corp First Quarter 2024 Financial Results Conference Call. All participants are 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. You may press star then one on a touch-tone phone. To withdraw your questions, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to David Barnard with LHS Investor Relations. Please go ahead.

Thank you, Kaylee. Good afternoon, everyone. This is David Barnard of LHA Investor Relations. 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 httpsir.thejoint.com under Events. Today, after the close of markets, The joint corporation issued its results for the quarter ended March 31, 2024. If you do not already have 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 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 facts 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 these forward-looking statements. For a 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 that the company files from time to time with the SEC. Finally, any forward-looking statements included in this earnings call are made only as of the date of this call. and we do not take any obligation 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're 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, which includes contract termination costs associated with reacquired regional developer rights, stock-based compensation, bargain purchase gain, net gain or loss on disposition or impairment, costs related to restatement filings, restructuring costs, and other income related to the employee retention credits. 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. System-wide 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 I welcome everybody to the call. The Joint is revolutionizing access to chiropractic care by providing affordable concierge-style membership-based services in convenient retail settings. We began 2024 with a vision to be the champions of chiropractic, and we focused on increasing new patient counts, improving existing patient engagement, and positioning to re-franchise the vast majority of our corporate portfolio. And we're making solid progress. Additionally, during the first quarter, we grew revenue, improved the bottom line, and tripled our franchise sales sequentially. Turning to slide four, I'll review the first quarter of 2024 compared to the same period, 2023. System-wide sales grew to $126.3 million, increasing 9%. System-wide comp sales for clinics that had been open for at least a full 13 months increased 3%. Revenue increased 5%. Adjusted EBITDA was $3.5 million for Q1 2024, up 74% over the same period last year. On March 31, 2024, our unrestricted cash was $18.7 million, compared to $18.2 million at December 31, 2023. Turning to slide five, I'll discuss our clinic metrics. We opened 23 franchise clinics and closed four in the first quarter of 2024, compared to 29 franchise clinics opened and one closed in the first quarter of 2023. At March 31, 2024, our total clinic count reached 954 units, consisting of 819 franchised and 135 corporate, up from 935 opened clinics, 800 of which were franchised, at the end of the year 2023. The clinic portfolio mix remains 86% franchised and 14% company-owned or managed, and although it's expected to shift during the year as we execute our re-franchising strategy. Turning to slide six, we're focused on re-franchising strategy as our primary initiative in 2024. As discussed, we received over 100 requests for information and have been vetting the opportunities to identify the most effective franchisees. We're going through a structured process to continue to conduct negotiations with multiple qualified franchisees in regard to the sales of our corporate clinics. There's been a strong interest in larger transactions. As these are more complex, we've identified an investment bank specializing in re-franchising to help us. Working together, we expect to ensure we re-franchise to the best of our franchisees, accelerate the process, and create value for all of our stakeholders. We are well in our way of generating capital to be reinvested in brand, marketing, RD territory acquisitions, and or stock repurchases, among other options. Turning to slide seven, I'll review our franchise license sales. During Q1, we sold 15 franchise licenses compared to 17 in Q1 2023. Of the licenses sold, 87% of the franchisees were new to the joint. This reflects investment and validation of our franchise concept. Q1 2024 tripled sales compared to Q4 2023, a solid increase given the ongoing high interest rates, inflation, and strong employment. I do want to note that franchise sales may also be impacted by our re-franchising strategy. On March 31, 2024, we had 166 franchise licenses in active development, as well as 17 regional developers with an aggregate 10-year minimum development schedule for 674 clinics. We do not plan to establish any new additional regional territories and will consider opportunities to require territories as the RD territories mature. Turning to slide eight, I'll review our marketing efforts. In Q1, we conducted our annual patient survey, which provided great insights into our brand perception. were proud of the results of the survey and remain committed to doing even better. First, the joint continues to demonstrate our ability to grow the market, with 36% of our patients being new to chiropractic in 2023. Next, patients gave the joint a strong net promoter score of 64%, and an amazing 92% of patients with prior chiropractic experience rated the joint as better or as equal to the previous care they'd received. Additionally, research led us to redirect some of our marketing resources from older campaigns to new social media influencer efforts. With strong positive perception from consumers new and not new to chiropractic, as well as our existing patients, our data indicates that the biggest opportunity is to drive awareness of chiropractic care in general and consideration of the joint in particular. In light of this data, we've made a strategic decision to forego our in-clinic new patient contest this past March to invest in driving consideration in April. We're doing that through evolving our to-go markets approach at all levels of the marketing funnel. At the top of the funnel, we've introduced social media influencers last month. Our lineup features both health and wellness as well as athlete influencers, including Sherry Hawkins, U.S. track and field Olympian. We're partnering with these influencers to reach their broad audiences as well as to showcase the benefits of chiropractic care in a relevant way. In addition, several co-ops will feature regional influencers to support the national campaign, driving consideration in their local markets by leveraging relevant personalities. We're also testing a variety of new promotions, channels, and tactics in our co-ops to better optimize our promotions and media mix based upon the market and the patient base. In Q1, we continued testing digital initiatives with our patient experience roadmap. We're seeing success in driving new patients in our initial visit bookings test by providing the opportunity for new patients to book an appointment to complete their initial exam and visit. Patients who have participated indicated that the booking was a positive experience and important to their choosing a joint. We've also made progress in replacing our patient paper intake forms with an enhanced digital intake process. and are now in the next phase of testing before our rollout. Finally, the team is hard at work in creating stronger local store marketing tools. Working with the development team and leveraging the wealth of data that we have about our patients, we're implementing a clinic segmentation strategy to provide more effective local store marketing programs. And with that, Jake, I'll turn it over to you.

Thanks, Peter. And let's turn to slide nine. I'll review our clinic comps for Q1 2024 compared to Q1 2023. System-wide sales for all clinics open for any amount of time increased to $126.3 million, up 9%. System-wide comp sales for all clinics open 13 months increased 3%. System-wide comp sales for mature clinics open 48 months or more decreased 3%. Revenue was $29.7 million, up $1.4 million, or 5%. Revenue from franchise operations increased 9%, contributing $12.2 million. Company-owned or managed clinic revenue increased 2%, contributing $17.5 million. The increases represent continued year-over-year growth in both the franchise base and the corporate portfolio. Cost of revenues was $2.7 million, up 10% over the same period last year, reflecting the associated higher regional developer royalties and commissions. Selling and marketing expenses were $3.9 million, down 7% year over year, reflecting the timing of the advertising spend. Depreciation and amortization expenses decreased $811,000, or 37%, compared to the prior year period, reflecting the accounting for corporate clinics that are being held for sale as part of the re-franchising efforts. G&A expenses were $20.3 million, up only 1% compared to the same period last year. reflecting the lower rent for corporate clinics held for sale, as well as the continued cost control initiatives, offsetting the majority of increased expense to support more clinics. Loss on disposition or impairment was $362,000, related to the ongoing quarterly impairment analysis of clinics held for sale as part of the re-franchising efforts. This compared to $65,000 in Q1 2023. Operating income was $1.1 million, compared to operating loss of $653,000 in Q1 2023. Other income was $35,000 compared to $3.8 million in Q1 2023, which reflected the receipt of employee retention credits in the year-ago period. Income tax expense was $179,000 compared to $841,000 in Q1 2023. Net income was $947,000, or six cents per diluted share, compared to net income of $2.3 million, including the aforementioned employee retention credits received in Q1 2023, or 16 cents per diluted share. Adjusted EBITDA was $3.5 million, up 74% from $2 million in Q1 2023. Franchise clinic adjusted EBITDA was up 15% at $5.6 million. Company-owned or managed clinic adjusted EBITDA, reflecting the aforementioned accounting for rent expense, related to the clinics held for sale increased 94% to $3.1 million. Corporate expense as a component of adjusted EBITDA was $5.1 million, $738,000 higher than Q123, related to higher legal and accounting, and greater professional services related to our re-franchising efforts and IT maintenance. On to a review of our balance sheet and cash flow. At March 31, 2024, our unrestricted cash was $18.7 million, compared to $18.2 million at December 31, 2023. Cash flow from operations was partially offset by the $2 million repayment of the line of credit to JPMorgan Chase. Through this facility, we retained immediate access to $20 million through February, 2027. On to slide 10, we are reiterating all elements of our guidance. System-wide sales are expected to be between $530 and $545 million. compared to $488 million in 2023. System-wide comp sales for all clinics open 13 months or more are expected to increase in the mid single digits compared to an increase of 4% in 2023. New franchise clinic openings, excluding the impact of re-franchise clinics, are expected to be between 60 and 75 compared to 104 in 2023, the difference reflecting the impact of our re-franchising efforts. And with that, I'll turn the call back over to you, Peter.

Thanks, Jake. Turning to slide 11, at this point, the Joint were committed to continually improving our brand, our people, and our performance to truly be the champion of chiropractic care. As I discussed earlier, our revitalized co-ops and digital marketing programs are positioned to drive brand awareness as well as enhance our performance by furthering our objectives to increase new patient counts and improve existing patient engagement. Additionally, we continue to identify potential adjunct products and services that patients want and have a viable business case. Our goal is to build brand equity and generate incremental revenue streams for all of our clinics. Regarding people, one of the ways in which we support our existing team of doctors at Chiropractic is by providing continuing education. We also empower the next generation of VCs in a variety of ways. As a part of our ongoing effort to educate the chiropractic community about the advantages of the joint offers patients, we've increased our interactions with the chiropractic universities. In addition to participating in job fairs, we've supported the schools with scholarships and donations to key chiropractic colleges such as Life, Palmer, Parker, Sherman, Texas Chiropractic College, and Life West. Additionally, last month we announced our first endowment, the Joint Chiropractic Endowed Scholarship for Logan University. This is another way to support the profession and the greater community, enhance our relationships with the schools, invest in the future of graduating doctors at chiropractic, and fuel the growth of our future pool of DCs. The quarter of a million dollar endowment scholarship will provide much needed tuition assistance for generations of students, awarding $10,000 annually to a student who demonstrates academic achievement and a passion for chiropractic and quality patient care. We also have our preceptorship program. We found that most chiropractic students and new graduates want to learn more about owning and operating the practice. We developed a learning path which combines real patient and business experience while students are building their clinical skills. The program has two components. Patient care completed under the supervision of joint preceptors in the clinics and 18 online training modules covering advanced clinical business, self-development topics such as goal setting, business planning, and creating enhanced patient experiences. These classes are presented by joint subject matter experts as well as clinical experts in the chiropractic field. In summary, in 2024, we stay focused on the re-franchising of our corporate portfolio, fostering our strong franchise base, and improving clinic economics and increasing productivity. Before I begin questions, I'd like to invite you to meet with us at the B. Riley 24th Annual Institutional Investor Conference later this month and the Oppenheimer 24th Annual Consumer Growth and E-commerce Conference in June. And with that, Kaylee, I'm ready to begin the Q&A.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speaker phone, please pick up the handset to ask your question. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Your first question comes from George Kelly with Roth.

Hey, everyone. Thanks for taking my questions.

Hey, George.

Hey, Peter. Maybe if we could start on comp growth. A couple questions on that topic. I was curious what you've seen so far in Q2. And then secondly, what gives you confidence that you can achieve a mid-single-digit percent comp growth rate that you mentioned as your target for this fiscal year?

Sure. I think that to answer the first part of that question is, no, the first part of that question was what have we seen in Q2? What have we seen in Q2? And I would say that typically we're not commenting too much on future clinics, but we obviously had a 3% in Q1. We have been talking about that we're cautiously optimistic as we reflect on 2024 performance. And I would say that we're seeing a continued improvement in that number as we look forward. That's certainly what we're expecting. And the second part of that question is why would you expect that? And I think that's really because we're continually focusing on the biggest challenge I think we've faced in the last couple of years is that new patient count drop. And I think we've got some great programs taking place that will really help us address that issue to bring those new patients in. When we look at those three metrics that govern our concept, the new patient count, the conversion, and the attrition, we're continually seeing positive results on our conversion and our attrition, our patients are staying with us longer. If you look at our new patient count for Q1, it was down 3% compared to the same period last period. But I think that was also related to just the challenges of March. March had five Sundays in it. One of those Sundays was Easter, and we also stopped our new patient program, our promotion that we ran last year that we did not run this year. So I think that hit that number a little bit for that last month. But I think looking at these programs that we're putting in place, our influencers, I feel very good that we'll be able to see an improvement in that new patient count, which is so important for us for our comps.

Okay, that's helpful. And then, Peter, you mentioned in your prepared remarks earlier that you are sort of assessing different products or services that might potentially work with the model. And in the past, you've talked about perhaps taking a little pricing on some of your oldest legacy members that are in a much lower price points. I'm curious if either of those initiatives are contemplated in that mid-single-digit comp guidance. And are there things that, if they're not even still, are there things you might consider you might put in place later this year?

The answer is yes, that we could get some of them put in place this year, probably towards the end of the year, because if we're talking about any kind of changing our grandfathering policy or any price increases, there's going to be some testing involved with that before we were to implement a program like that, but that is possible. And the same with the idea of any kind of eventually product or services that we would add to the clinics. And we certainly are looking for ways to do that. We want to be very thoughtful about that. We want to make sure that what we're adding is, you know, creative to the bottom line and not creating complexity in the business model that is not necessary. So we're still in those early stages of identifying the different programs that we can put in place to increase those sales through those additional products or services. So more to come on that. As we've designed our kind of a committee that's looking through that to help us make those good decisions. And the final part of that answer is no, our guidance on the comps did not include or take into account any change in the pricing structure or additional products or services that would be sold in the clinic in 2024. Okay.

Appreciate it. I'll hop back in the queue. Thank you.

Tim comes from Anthony Vendetti with Maxim Group.

Thank you. So just a couple quick questions here. So the clinics, you're saying store sales at 13 months, those are up around 3%, but the ones open about four years are down. What do you think that's attributed to? Is that sort of a leveling off? and then maybe just a little bit into the reasoning in general for the closures. I mean, this quarter you had four. I guess the quarter last year was one. Do you wait to see how, you know, if the ones that are down, are you looking at revenue trends and profitability or just profitability? How do you look at those in terms of the closures? And then I'll have a couple of follow-ups.

Okay. To specifically, you know, speak to the closures, that, yes, we did have foreclosures this year, and that, again, for a system of our size, nearly 1,000 units, you know, foreclosures, even in one quarter, still, you know, an unbelievably low number of closures. And what's going to happen as your system matures, you've got situations where the market itself is changing. So they may lose an anchor where they've been located, or you have demographics of that market fundamentally change. which just does not justify that clinic staying open. From time to time, you also have just some personal issues that come up that force a franchise to close a clinic. So I'm not concerned if I compare, okay, one unit closed in Q1 2023 compared to the four closures in Q1 2024, but it's something that we look at very carefully. And certainly the other part of that question is looking at what is our concern. Is it top-line revenue? Is it profitability of the clinic? And the answer, of course, is both, that we want to make sure that we are continuing to look at ways to increase that profitability of that unit because what I can tell you, in any system I've ever worked with in franchising, unit economics is one of the most important things that you have to stay focused on. And you have a couple of things you can do to influence that. One, increase revenue, and the other is to reduce cost. So those are the areas that we're focusing on right now. Now we know that, and we've talked a lot about this in the past, that when we look at the margins of our clinics is that one of the challenges we've been facing is the increased cost of our labor, and specifically our doctors, and that's suppressed the margin. And so now we're looking at ways to increase that margin. One of the things we did in March of 22 was do a price increase across the board. And one of the main reasons for that was to help address this issue of the increased cost of our labor. We're now looking at ways to be more streamlined on the clinic experience itself. And so we spend a lot of time always focusing on that new patient count. But what we're recognizing is that we can do, you know, this is with our new CMO, is that we can also focus on our existing patients and our last patients. And so with our existing patients to make sure they're staying with us longer and with our last patients to make sure they come in earlier. Because what we do know, if that average patient stays with us for roughly six months, and then they drop, we also see that 25% of them on average will come back within the next six months because their pain comes back. And so we feel there's some opportunities there with some of the marketing materials we're having and some automated marketing programs that we can influence those decisions about how long our patients stay with us and how quickly they can come back.

Okay. Just on the 48 months, Peter, You know, how many of your clinics are, you know, four years or older? And then in aggregate, I guess they're down 3% in terms of revenue. You know, what do you attribute that to?

Well, I think part of it is a maturing of the system. A part of that I think I directly attribute it to the, you know, the new patient count itself or the new patient counts. is that in those more mature clinics where they've been established and they've drawn the core of patients that are in that area, it's harder to get newer and newer patients to come into that territory or into that clinic. So I think that's one of the reasons you're seeing kind of that drop in those clinics open more than 48 months compared to a clinic that's open less than that. I think that's probably the main thing I would look at right now. I don't know, Jake, your thoughts? Okay.

Yeah, I would say, you know, as you think about 23, you know, we did a 4% comp for the full year, and the mature stores did negative one. So you had a 5% spread there. Because of rounding, it was a 6% spread here in Q1. But I think I would just point to, you know, because we're on a fiscal calendar, you know, March just having the Sundays with Easter, and us not rolling over what was a long-standing new patient contest and allocating those dollars to some marketing efforts in the April-May timeframe, I think had an impact on that March period in particular that drove down the comp for the quarter. But the spread was relatively close.

Okay, that's helpful. And then just last, a very big picture. Obviously, we saw Starbucks come in very light in terms of sales and sales They were saying the occasional customer has not frequented Starbucks as often as they used to. Do you think the economy in general is having some negative impact in terms of getting new patients to come in the door? Maybe just to the extent that you're able to measure that, Is that something you're seeing? Because it's not just Starbucks. We're seeing that across other franchises as well this quarter.

No, no, Anthony, I think it's a real issue. We know that, okay, if you go back to fourth quarter, GDP growth I think was, you know, what, 4.3%, and this quarter is still like 2.3% GDP growth. And so we're not in a recession. That's very clear. But you still have half the American people saying that, you know what, I am personally. I'm paying more at the grocery store. I'm paying more to fill up the car with gas. I'm paying more to pay my interest rate on my credit card or my mortgage. Rents are going up. And so I think that if you look at the demographics, the economic demographics of our patient base, that average income is somewhere between $50,000 and $105,000. And so that group is, in fact, being hit by these increasing costs and feeling more uncertain about the economy and that they are, in fact, who is our patient base. And I've talked about this before on some of the other calls, that we do think one of the factors that we've seen in our lower patient count is the fact that they are feeling that with that economic uncertainty they're holding back, so that they're going over the counter medicine before they come in or not coming in at all. But those that do come in, they're converting at a higher rate. Those that do come in are staying longer as a member, So I think that there's still great value and importance of the service that we're offering, but I just think in this kind of economic uncertainty that it does impact specifically the demographics of our patients.

Okay, that's very helpful. Sure, that makes sense. I'll hop back in the queue. Thank you. Appreciate it.

Your next question comes from CJ DiPolina with Craig Hallam Group.

Hey, everyone. I'm on for Jeremy Hamblin. I had a couple questions for you. I wanted to start with the refranchising effort. It seems like you're still fairly early on the process, but just curious if you have a timeline on when we can start to see those transactions go through and anything you can share on kind of expected deal economics would be really helpful.

Sure, and we'll both answer this. What I would say is that we're well into the process, and as I said on the call, that we've got a lot of interest from our franchisees. We've also opened this up to franchisees outside the joint world. And so we've been looking at hiring an investment banker who specializes in re-franchising effort. And I've talked about this before. This is not a fire sale. We're not just trying to get these off our books. These are valuable assets that we want to put them in the hands of the franchisees who can most effectively run them. I don't need to trade problems. And so we are, in fact, going through a very structured process to make sure that we're putting them in the hands of the right franchisees. But we're also looking at some of the interest that's been out, especially as we've opened this outside of the joint franchisees, is some very sophisticated groups who are interested in larger territory of our clinics. We've got 135 corporate clinics. We've talked about the vast majority being up for sale. So I think that we have some real opportunities to look at those transactions. And so those transactions, of course, are a little more, you know, they'll take a little more due diligence, take a little more time to put together. But what I would say is that we're certainly pleased with the interest in this re-franchising effort and that from our perspective, having said all I just said, we'd like to get this done as quickly as possible because it does take a toll on continuing to run these units when they know that they're, you know, if you're an employee or outside the four-wall employee for those units, It creates uncertainty, and people don't like uncertainty. We would expect that the majority of those employees would be hired by the new owners, but it creates that uncertainty that you just want to minimize as we go through this effort. I don't know, Jake, if you had anything more to add.

I think there was a part of the question there on valuation. We are in active negotiations, so probably don't want to give too much out there, but You know, we've done a historical look back analysis. You know, we were purchasers of clinics for a lot of years. And we also see all the franchisee to franchisee transfers that happen within our system because we do hold that right of first refusal. So we have a pretty good sense for historical multiples of EBITDA that these trade for. And, you know, we'll continue to, you know, partner with the right groups that can maximize that value and generate the proceeds that these quality assets deserve.

Okay, understood. Thank you. And then moving on to the P&L, it looks like general and administrative was up year over year on an absolute basis. Just curious how you guys are thinking about G&A moving forward and if we should expect some more absolute increases year over year.

Yeah, I think Q1 last year was $20.3 million for this quarter, so up slightly. We did have some accounting and legal and professional service costs associated with some of the refranchising effort. We do have a year's worth of additional headcount that's rolling over on a 100-plus unit increased base. I think the critical piece of that question is we understand that for the refranchising strategy to work we have to be critically focused on cutting the necessary G&A to reach those profitability targets that we have. So that'll be something that we consistently monitor. As you gleaned from the call, we have not executed through March 31st a ton of those deals yet, and you'll expect to see that G&A begin to taper as we continue our progress through that refranchising effort. So it'll really be dependent on when the refranchising transactions, how large they are, and then we'll be able to shed the associated GNA. But that will be a critical focus of management as we continue this process.

Okay, cool. Thank you. And then one more. So the FAST Act came into place about a month ago. I'm curious, you know, especially with the California stores, curious if you've seen any attrition or labor of, you know, maybe some of the lower paying jobs going, you know, and finding workouts where it's

Yeah, I think from our perspective, you know, that had been, you know, rumored for a long time. So I think we started to see the wage pressures on that, you know, certainly before the bill was officially executed. We haven't seen really an uptick in turnover as it relates to our roles and knowing that they now have, you know, kind of a competitive benchmark out there for some other QSR-type concepts, something that we'll continue to monitor, but we haven't really felt a direct and immediate impact so far as it relates to our wage levels, because I think we had largely absorbed a lot of that pressure kind of leading up to the actual finalization.

And in turn, it's impacting the market, but specifically the QSR.

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

That does conclude our question and answer session.

I would like to turn the conference back over to Peter for any closing remarks.

Thank you, Kaylee, and thank you all for attending the call. Today I'd like to share a note from our VP of Chiropractic and Compliance he'd received from a prior student who went through a preceptorship program at the Joint and is now a full-time employee. And I'm quoting, my preceptorship with the Joint Chiropractic was an enriching experience that provided me the invaluable hands-on practice and deepened my understanding of patient care. The mentorship I received was top-notch, with so many different doctors providing helpful input in my technique and flow. The opportunity to work with a diverse patient population allowed me to hone my adjusting skills and tailor my treatment plans to individual needs. This preceptorship bolstered my confidence in my chiropractic abilities and reinforced my commitment to this healing profession. And we're so pleased to have had that doctor join our team. Thank you and stay well, Justin.

That does conclude our conference for today. Thank you for participating.