Joint Corp (JYNT) 2014 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to The Joint Corp's 2014 third quarter and nine months results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time.

(Operator Instructions).

As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, [Peter Basso] of Westbrook Partners The Joint Corp's investor relations firm.

Thank you, Sayed. Good morning, everyone and welcome to The Joint Corp's third quarter and nine months 2014 results conference call. I am joined by John Richards, Chief Executive Officer, and David Orwasher, Chief Operating Officer.

Before we begin, if you do not already have a copy of the third quarter and nine months results press release with financial statements and our 10Q can be found in the investor relations section of our website at www.thejoint.com.

Please be advised that today's discussion includes forward looking statements, including predictions, expectations, estimates, and other information that might be considered forward looking. Throughout today's discussion, we will present some important factors relating to our business which could affect these forward looking statements. The forward looking statements are also subject to risks and uncertainties that may cause actual results to differ materially from the statements we make today.

As a result, we caution you against placing undue reliance on these forward looking statements and would encourage you to review our filings with the SEC for a discussion of these factors and other risks that may affect our future results or the market price of our stock.

Finally, we are not obligating ourselves to revise our results or publicly release any updates to these forward looking statements in light of new information or future events. With that, I will turn the call over to John.

Thank you, Peter, and welcome to everyone on the call. And thank you for joining us on our first conference call as a public company. Now, we met many of you in the process leading up to our IPO in November but for those new to The Joint Corp, I would like to provide a brief summary of what we do and highlight some of the strengths of our business model.

David will then discuss briefly our results for the quarter and nine months ended September 20, 2014 and provide a general outlook on the business. The Joint Corp provides affordable, high-quality, chiropractic services to more than 240 chiropractic clinics in the U.S. Our affordable private pay, cash only plans and packages eliminate the need for insurance and our no-appointment policy, convenient hours and locations, make care more accessible to a broad cross section of our customers.

Our strategy is to become the leader in the national market for core chiropractic adjustment services through the rapid expansion of corporate owned clinics and the continued, more focused expansion of franchise clinics. While all of our clinics today are operated by franchisees, our future growth strategy will increasingly focus on opening clinics that are directly owned and operated by us. While continuing to grow through the sale of additional franchises.

This strategy is based on an existing and proven unit model at the franchise level that is inexpensive to build and lends itself to rapid expansion. On average, these units turn cash positive within approximately 12 to 15 months and generate EBITDA margins in the range of 25% to 35% as they approach maturity. Our greater control over company owned clinics will enable us to accelerate our clinic development, implement our operating standards and capture a greater share of clinic economics. This strategy development and ownership of these units will have a substantial impact on the overall profitability and enterprise value of The Joint Corp moving forward.

We are pleased to have completed a successful IPO in November. This public fund raising resulted in net proceeds of approximately $20 million and allows us to set the stage for continued and accelerated national expansion.

Also, as we mentioned in our press release issued this morning, I am pleased to announce the appointment of Francis T. Joyce, as chief financial officer and treasurer of The Joint Corp. Francis comes to us with a wealth of emerging and established public company experience as CFO of the IMAX Corporation, The Globe.com, and The Mistress Group among others.

We believe Frank's public company experience and diverse background will enable him to make an immediate impact on our company and its future. Now, I would like to turn the call over to David Orwasher, our chief operating officer, to discuss the third quarter and nine months results, and provide a general outlook.

David?

Thanks, John.

We have provided detail on our financial performance for the three months and nine months ending on September 30, 2014 in the press release and 10Q issued this morning. I will take a few minutes and discuss some of those highlights. We have 230 clinics opened as of September 30, 2014, which represents an increase of 76 clinics or 49% as compared to 154 at September 30, 2013. As a result, revenues increased 23.3% in the third quarter 2014, and increased 17.6% for the first nine months of 2014 as compared to the year ago periods.

Revenue growth for both periods was partially offset by a reduction in initial franchise fees as the result of fewer clinics being opened during the third quarter and nine months periods as compared to the same period a year ago.

Net loss in the third quarter of 2014 was $202,373, or $0.04 a share as compared to net income of $42,548 or one penny per diluted share in the third quarter of 2013. For the first nine months of 2014, net loss was $464,019 or $0.10 per share as compared to net income of $155,899 or $0.02 per dilutes share in the same period in 2013.

Net loss in 2014 periods compared to the same period a year ago reflects the increase in the number of employees hired during 2014. And the increase in infrastructure support -- to support our growth initiatives.

As of September 30, 2014, cash and cash equivalents were $2.59 million as compared to $3.58 million at September 30, 2013. During November 2014, we completed an initial public offering issuing 3,450,000 common shares at a price of $6.50 per share totaling net proceeds of approximately $20 million.

As of December 10, there were approximately 9.72 million shares outstanding.

While our plan for expansion is well underway, we do not expect to provide a more complete annual financial guidance until the release of our 2014 fourth quarter and year end results in March. This will allow us time to provide a more complete frame of reference for 2015 and beyond. However, in general, we expect to add between 70 and 90 clinics during 2015, which will be comprised of a blend of company and franchise units.

The company owned clinics will be further broken down into buybacks of existing franchise units and greenfielded or newly constructed units.

Moving forward, our revenue will be composed of three distinct streams. Franchise revenue derived from royalties, franchise revenue derived from the sale of franchise licenses, and corporate revenue derived from acquired or newly built Greenfield corporately operated clinics. In 2015, we expect this revenue to evolve our enterprise from one of 100% franchise generated revenue in 2014 to one that will reflect an increased proportion of corporate revenue contributed by the year end. This blend will continue to evolve in favor of corporate units as our growth in this area accelerates. As we noted previously, the addition of corporate units will have a positive impact on overall profitability and enterprise value over the long term.

And with that, I will now turn it back to John.

Thank you, David. This has been a very exciting year for The Joint Corp, both in terms of our successful IPO and as well as the continued momentum we are now experiencing in our business. I want to take a moment to thank each and every one of our employees, our franchisees, and of course, our investors for their support and dedication to our business.

As a reminder, our strategy is to become the leader in the national market for routine chiropractic care, through the rapid expansion of private pay, corporate owned clinics and continued but more focused expansion of franchise clinics.

We have a very profitable unit model which is inexpensive to build, lends itself to rapid expansion and is convenient and affordably and is staffed by an exceptional team of licensed chiropractors. We will continue to execute our plan today and look forward to updating you on our progress going forward.

Thank you.

And with those comments, we would like to open the floor for questions. Operator?

Thank you, sir.

(Operator Instructions).

And our first question comes from Tony Brenner from Roth Capital Partners. The line is open, please go ahead.

Thank you very much. Good morning. I wonder if you could give a little bit of sense with respect to company clinics, the timing of those openings, will they be back ended during the year of fairly even during the four quarters?

I can start that, Tony, this is John Richards. I think that we are in the process of ramping up our execution plan as we speak and of course as soon as the public offering was completed, we had a sense as to what was possible on the timing of it. And I think in general, the opening of corporate clinics will be spread evenly throughout the year. I think in this first quarter, you know, we will start a little slow and then it will begin to build obviously as the system get set up.

Okay, you mentioned a more focused franchise expansion, does that simply mean fewer franchise openings or does it mean something else.

No, and this is David, Tony, it means that -- focusing our strategy around our cluster development to leverage and optimize both our marketing and operating efficiencies and so it is targeting those units to fill in those territories and to the extent that they are entirely new, it is to enter with the cluster. Our development strategy remains intact whether it is through franchise units or company units, it's to gain leverage through optimal penetration in a given market and we are going to direct this strategy in that fashion.

Okay, one last question, and I know you have been setting up some sort of a marketing and advertising effort, I wonder if you could just elaborate a little bit on what we might expect on that end.

Well, you know, this is consistent with our overall strategy to bring concentration of effort focus of our messaging, and really efficient use of resources that comes from the consolidation from not only the franchise group but then increasingly, the corporate units as they begin to open up. And you know, I think that is critical in any business, it is certainly critical in a multi unit retail business. And so I think the process will really have a couple of things with it. First, we have hired a national marketing firm, Moroch, who is also known for their efforts with McDonalds and Midas among others. So the firm is very experienced in supporting a multi-unit businesses of our type.

And I think, importantly, after that, we are now in the process of developing consolidated messaging and marketing -- of the marketing product as we go out. And then we will begin to focus on both digitally oriented customer acquisition tools and in those markets where we have enough scale, more broadcast marketing as we move forward.

And so a lot of concentration on that against our key target markets.

Thank you very much.

Thank you, Tony.

Thank you. And our next question comes from Brent Rystrom from Feltl. Your line is open, please go ahead.

Yes, and the first question is just basically how would you suggest we think about the sold but unopened franchises yet? From a timing perspective, if there is 250 or roughly -- you know, how many per year do you think we will see open over the next three or four years out of that pool?

Well, I think in general, we expect to open the franchises essentially on the pace that we have up to this point. You know, they continue to open it at a fairly healthy clip, you know, in the range of about 75 per year and we expect that to continue as we, in effect, deplete down that pipeline that we currently have. And so you know, in round figures, I think that 75 is a pretty good number for franchise openings in general as we move forward. David, if you go any expand on that?

No, I think that is about right, John. And you know, we are going to try to keep kicking that pipeline up and moving it forward but I think those numbers are solid.

And as a quick follow on to that, is it possible, that you could buy back some sold but not opened franchises, is that part of the possible expansion strategy for corporate stores?

Yes, Brent, it is a potential and it is dependent upon the overall portfolio mix and the players involved but we are looking at this from an organized strategy of staged opening in the markets that we talked about earlier and in the question that we responded. And we will be consistent within that strategy to try to get those units open in accordance with those schedules.

And then from a simplistic perspective, you open your first units in the first quarter, you opened some more, obviously second and third throughout the year, you know, at what point do you think you kind of get a lot more confidence at the model at a corporate level just really starting to execute? Can you tell that after a couple of quarters? Do you have to see a year?

You know, I think that you know, it takes about a year to see the -- you know, the unit begin to mature and to pay back its initial investment, something in that range as we mentioned earlier in the comments and I think that our feeling based on the substantial sort of proven efforts of our existing franchise base where we have really quite a large sort of data base if you will of experience out there.

We have a pretty good sense of what happens when units are properly located and put in the ground on the right basis. And that experience has been pretty consistent. And so we don't have any reason to believe that our corporate units won't perform at least as well, if not better.

That leads me to my final question then, so you know, obviously the offering was a little bit smaller than the original intent and I think the expectations were dialed back a little bit and between seeing the results of your first new stores open, and then also looking at you know, the performance -- the ongoing performance of the franchises, at what point do you start to think about you know, maybe get in the bank line as a second source of funding and is that something that could happen in late 2015? Is that something that you would anticipate maybe looking in 2016?

Good question, you know, first let me say that and I mentioned this in the initial remarks, you know, the money we have raised is really sufficient for us to execute what we consider to be a substantial proof of concept, you know, with the roll out of corporate units. But it is also a model that is very profitable and you know, that allows us to generate a subsequent income to execute additional units.

Having said that, you know, this is a model that lends itself to rapid expansion and it is a very efficient use of capital, and I think that after we you know, kind of get our sea legs under us and get a good routine of expansion going that you know, toward the end of 2016, we will begin to think of you know, kind of subsequent strategies with respect to potentially accelerating the national rollout and that might include various financial scenarios that we might contemplate.

Thank you.

Thank you. (Operator Instructions).

I'm showing no further questions at this time, I would like to turn the conference over back to Mr. John Richards.

All right, I just want to once again, thank everybody for their support and interest in The Joint Corporation. You know, we look forward to visiting with you on a quarterly basis moving forward and you know, please accept all best wishes for the holidays, Merry Christmas, Happy New Year to everyone from us and we will be seeing you soon.

Ladies and gentlemen, this concludes today's conference, thank you for your participation and have a wonderful day. You may all disconnect.

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