The Joint Corp.

Good day, and welcome to the Joint Corporation Second Quarter 2024 Financial Results Conference Call. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, I'll be an opportunity to ask questions. Please note that this event is being recorded. I'd like to turn the conference over to Mr. David Barnard, LHA and Investor Relations. Please go ahead, sir.

Thank you, Nick. Good afternoon, everyone. Again, 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 are using a slide presentation that can be found at httpsir.thejoint.com under the events section. Today, after the close of markets, the joint corporation issued its results for the quarter ended June 30, 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 Form 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 undertake any obligation to revise the results or publicly release any updates to these forward-looking statements in light of new information or future events. Management uses EBITDA and adjusted EBITDA, which are non-GAAP financial measures. These are presented because they are important measures used by management to assess financial performance. Management believes they provide a more transparent view of the company's underlying operating performance and operating trends and 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 expense, Barge and purchase gain, net gain or loss on disposition or impairment, costs related to restatement filings, restructuring costs, litigation expenses consisting of legal and related fees for specific proceedings that arise outside of the company's ordinary course of business, 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 is my pleasure to turn the call over to Peter Holt.

Thank you, David, and I welcome everybody to the call. The Joint continues to revolutionize access to chiropractic care. Our nationwide network of 960 clinics, 86% which are franchised, provides affordable concierge-style membership-based services in convenient retail settings. During Q2 2024, we furthered our strategies to improve unit economics and to re-franchise the vast majority of our corporate clinics. We also continued to deliver growth even during the ongoing macroeconomic pressure. Q2 2024 revenue increased 3%, and same-store comps grew 2% compared to the prior year period. Q2 adjusted EBITDA was $2.1 million, and in a moment, Jake will provide greater detail to our financials. To increase clinic profitability, we're embracing new innovation in operations, IT, and marketing that leverage the size of our network on national and local levels. Turning to slide four, I'll review the recent activity. As we approach having 1,000 clinics, we increased our purchasing power, which we're leveraging to the benefit of our clinics. For example, our unit economics task force created a clinic in the box to optimize the time and cost of our new openings. We redesigned interiors with lower cost material and sizes that can be shipped more economically. Now our vendor can produce and ship all the elements to open a clinic. We expect to both shorten the time to opening and significantly lower the build-out cost. In IT, we're supporting more financial tools that help franchisees automate and manage their businesses. And our recent patient innovations include adjusting elements of our business model to better align with current consumer preferences. An important part of growing patient loyalty is creating a frictionless experience. While our patients love the convenience of our model, we've learned a subset of patients would like to schedule their first visit to ensure that they can get in, out, and on their way. To answer this need, and after testing earlier this year, we launched the initial visit booking system-wide last month. Patients who had booked their first visit indicated that booking was both a positive experience and important to their choosing to join. We've extensively tested our enhanced digital intake forms now that enable new patients to use their own mobile devices when completing their intake form with a plan to roll this out system-wide later this month. Our trials have proven this process is easier and less time-consuming for patients as well as their wellness coordinators. We're aggressively developing our mobile check-in and in Q4 we'll beta the app. Additionally, we'll be evaluating different membership options and policies. We're assessing pricing and discount strategies, such as our walk-in rate, changes to hours and days of operation, as well as our legacy pricing policy. Turning to slide five, I'll review our re-franchise goals and efforts. As discussed previously, we're focused on driving long-term growth by selecting the most effective partners for our re-franchise clinics. In May, we engaged Capstone Partners, a full-service middle market investment bank with specialization in re-franchising, and recently finalized the confidential information memorandum package for marketing clusters of our clinics. In the meantime, we have considerable interest in the number of markets. Currently, two transactions with nine clinics have been approved and moving through the letter of intent process in Savannah and Kansas City. These transactions will address two smaller clusters that we can tie to existing franchisees. Also, based on earlier conversations during the quarter, we sold two clinics in California and Arizona, to existing franchisees for net proceeds of $224,000. We're well on our way to generating capital to be reinvested in brand marketing, R&D territory acquisitions, and or stock purchases, among other options. Turning to slide six, I'll review our marketing efforts. In the last nine months, we've conducted significant research and formulated programs to amplify patient acquisition and retention, engage less patients, increase referrals, and improve conversion and attrition. we realized we need to optimize our marketing investment to better support the marketing funnel and shift resources from lead generation toward consideration and awareness campaigns. This is an important adjustment to our marketing strategy as 49% of adults in the United States have never been to a chiropractor, even though 80% have back pain at some point in their lives. Similarly, while the joint has 1.67 million active patients, which represents less than 1% of adults in the United States, we're constantly working to educate more people about the efficacy of chiropractic care. Currently, we have first mover advantage, and our goal is to make the joint synonymous with chiropractic, like Kleenexes to tissue, as we focus on building our brand strategy that defines and leverages our unique strengths to grow clinic profitability and patient loyalty. Additionally, we know an important part of driving patient loyalty is affordability. In June, we began, offered our five plus one summer sale giving our patients access to a free month of care when they purchase five months in advance. This promotion exceeded our expectations. What makes these results even more impressive is in that year, for this year, the sale was not valid for legacy-priced memberships. This exclusion is part of our ongoing commitment to drive clinic-level profitability, and even without the discounting of legacy members, we had a strong demand for the promotion. We've continued to work with our co-ops to provide a more robust marketing-level strategy. Leveraging what we know about those patients new to chiropractic and those not new to chiropractic with their behavior, we've worked with our largest co-ops to implement new channels and tactics. This increase includes a TikTok spend market-wide to reduce costs and increase impressions, as well as the introduction of new channels aimed at driving awareness and consideration and lowering the patient acquisition costs. Turning to slide seven, let's discuss our clinic metrics. In Q2 2024, we opened nine franchised clinics, re-franchised two clinics, and closed three clinics, one franchise and two corporate, for a net increase of six clinics. In the same period a year ago, we opened 23 franchised and three greenfield clinics, acquired three previously franchised clinics for our corporate portfolio, and closed six clinics, four franchised and two corporate, for a net increase of 20 clinics. On June 30, 2024, our total clinic count reached 960, consisting of 829 franchised and 131 corporate. The clinic portfolio mix remains at 86% franchise and 14% company owner managed, although it's expected to shift during the year as we execute our re-franchising strategy. Turning to slide 8, I'll review our franchise license sales. As previously indicated, we expect franchise license sales to be impacted by our re-franchising strategy. During Q2, we sold seven franchise licenses compared to 21 in Q2 2023. Of the licenses sold, 73% of the franchisees were new to the joint. At June 30, 2024, we had 158 franchise licenses in active development, as well as 17 regional developers with an aggregate 10-year minimum development schedule for 674 clinics. In July, for approximately half a million dollars, we reacquired the Maryland DC RD territory with 17 open clinics and a potential for another 31 clinics. This reduced the number of RDs to 16 and their coverage to approximately 59% of the network. And with that, I'll turn it over to Jake.