Joint Corp (JYNT) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 2015 Joint Corp Earnings 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 reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, Mr. Peter Vozzo from Westwicke Partners. Sir, you may begin.

Thank you, Lauren. Good afternoon, everyone, and welcome to The Joint Corp Fourth Quarter and Full-Year 2015 Financial Results Conference Call. Before we begin, if you do not already have a copy of the 2015 fourth quarter financial results press release with financial statements 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.

These 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 thanks, everyone, for joining us on today's call to discuss our 2015 fourth quarter and full-year results. Joining me to present on the call is David Orwasher, Chief Development and Strategy Officer, and Frank Joyce, Chief Financial Officer. We are pleased to be able to provide you with this update.

We achieved another quarter and year of outstanding financial operational performance. The Company finished its first full-year as a public company by meeting or exceeding all its guidance metrics. David will provide details on clinic openings in 2015. I will provide a few highlights on the clinic expansion and operational performance as well as our outlook for clinic openings in 2016.

During 2015, we continued to execute on our strategy of building the leading national provider of chiropractic services. We added 47 corporate owned managed clinics in 2015 including 18% or 38% in the fourth quarter alone and exceeded the high end of the goal we stated at the beginning of 2015 for corporate owned or managed clinic development. Nearly half of these corporate owned or managed clinics were Greenfield clinics, while the remainder were repurchased franchise clinics. These substantial development accomplishments are consistent with, and demonstrate our ability to execute against, our strategy of driving growth through the acquisition of select franchises and the Greenfield development of new clinics in concentrated clusters.

During 2015 we also added 54 new franchise clinics. This resulted in a net increase of 23 franchise clinics and factoring in company franchise buybacks and franchise clinics disclosures. The first phase of the strategy in 2015 included our acquiring 22 clinics in Los Angeles, San Diego, Tucson, Upstate New York and Phoenix to immediately establish our presence of company owned or managed clinics in these important markets and included our establishing our first Greenfield clinic in Tucson, Arizona. This happened on an accelerated basis from a standing start right after the Company's initial public offering in November 2014 and extended through July 2015.

The second phase of our year one strategy was to fill in these selected markets with additional clinics in concentrated clusters, while also establishing a clustering of new clinics in one new major market Chicago, the Company's third-largest metropolitan statistical area at the end of 2015 and the beginning of 2016. During this second phase in the second half of the year we added 21 Greenfield clinics with the bulk of these clinics, 17 of the 21, or 81%, added in the fourth quarter alone. I am pleased to announce that our operational influence on sales performance in 2015 across the portfolio of acquired company owned or managed clinics has been strong.

Our progress in acquiring and upgrading acquired operations is squarely on target. While operational performance of our newly acquired clinics has been strong, the performance of our mature clinics have continued to be strong as well. For instance, those clinics acquired in 2015 that we owned or managed for at least six months, saw their revenues grow on average by 20% in the first six months under our management.

System-wide comp sales in the fourth quarter of 2015 increased 31% over system-wide comp sales in the same period last year. System-wide comp sales for the full-year of 2015 was 34% with the performance of our most mature clinics, that is, those that we have operated - we have operated for 48 months or greater continued their strong comp clinic revenue growth, growing by 13% over the prior year. Remember that comp store sales include only the sales from clinics that have been opened at least 13 full months and exclude any clinics that have closed. It is worth noting that system wide sales in 2015 totaled $70 million, an increase of approximately $24 million over the prior year, or a 52% year-over-year growth.

Moving forward and to prudently manage that growth, our strategy in 2016 will be to optimize the performance of these newly developed Greenfield company-owned or managed clinics while selectively adding and acquiring clinics that contribute to our revenue base and are consistent with our strategy of adding to our operating and marketing leverage. We intend to productively manage this growth and allow it to mature in 2016 towards the goal of reaching profitability during 2017.

Overall, we expect to add approximately 68 to 72 clinics in 2016, about the same number of total clinics we added in 2015. This will include approximately 18 to 20 company owned or managed clinics and 58 to 60 franchise clinics. We plan to open company owned or managed clinics in 2016 at a more measured pace as I just mentioned and in comparison to the rapid pace at which we open them at the end of 2015. We expect this approach will improve short-term companywide operational performance while allowing the relatively large number of Greenfield clinics opened in the fourth quarter of 2015 time to mature.

It's important to keep in mind that company owned or managed clinics are projected on average to turn cash positive within approximately 12 to 18 months in operation and thereafter progress to generate EBITDA margins in the range of 25% to 35% as they approach maturity. Clinics Greenfield in established markets such as Tucson will ramp more quickly than historical averages while clinics in new markets such as Chicago are expected to typically experience a more extended ramp.

As I mentioned we expect to add somewhat more franchise clinics in 2016 than we did in 2015. This will be important as a loyalty stream from franchise clinics as it is a relatively predictable source of revenue and will contribute to our drive to profitability. During 2015, we invested heavily in operational and development support of the franchise system, including three new franchise support managers and upgraded development over site. This has had the impact of improving our franchise pipeline and should ensure that this part of the system remains robust and productive. This measured approach to growth will allow us to prudently manage the investment capital that we have effectively and ensure that we have sufficient capital and selectively add the requisite number of company owned or managed clinics and carry us through profitability in 2017.

Lastly, the fourth quarter of 2015 we completed a successful follow-on public offering raising net proceeds of approximately $13 million. With a total of $16.8 million in cash and investments at year-end 2015, we are now in a very good position to control our destiny, execute our strategy of measured clinic expansion, both company, and franchise while growing sales and increasing operational performance.

Now I would like to turn the call over to David Orwasher, our Chief Development and Strategy Officer, to provide more detail on clinic expansion for the fourth quarter and the full-year of 2015. David?

Thank you, John. Expanding on what John just referenced, revenue growth in the fourth quarter and the year was driven by continued strong performance of our acquired company owned or managed clinics and by our addition of 21 Greenfield clinics, the bulk or 81% as John mentioned, having been added in the fourth quarter. As of December 31, 2015, we had 312 clinics opened. This represented an increase of 66 clinics or 27% as compared to 246 clinics operating on December 31, 2014, and also equals the net increase of 35 clinics since the preceding quarter September 30, 2015.

The 18 company owned or managed clinics added in the fourth quarter which included 17 Greenfield represents an increase of three times the number of clinics that were added in the prior or third quarter of 2015. That brought the total number of company-owned or managed clinics to 47 at December 31, 2015. It is worth noting that of the 17 Greenfield clinics that we added eight were located in Los Angeles, Orange County, California area. This is consistent again with our stated strategy to build into existing markets and to locate clinics in concentrated clusters with the goal of achieving critical mass that optimizes our marketing operational leverage.

Similarly, we added nine Greenfield clinics in Chicago in the same timeframe. The pace and distribution of clinics across the Chicago MSA is also consistent with our strategy of demonstrating our ability to penetrate markets in desired levels and concentrated clusters intensely where required as with new markets like Chicago. Continuing into 2016, we are pleased to announced that we've opened an additional four Greenfield clinics in the first two months of 2016, two again in the Chicago Metropolitan statistical area and two in Los Angeles and Orange County, California, respectively. Thereby bringing the total company-owned or managed clinics to 51 as of February 29, 2016, and the total system number of clinics at that time to 323.

51 owned or managed clinics by the Company stands in comparison to little more than a year ago and when just following the IPO when the Company did not own or operate a single clinic. This, again, is consistent with our stated strategy as was defined in the IPO to evolve the portfolio of the enterprise from one that was 100% comprised of franchise clinics to one that is now comprised of 51, or 15.8% company-owned or managed clinics. I just like to point out that entering the Chicago market late in the year was a very important accomplishment for us in 2015. We not only opened our first new major MSA as we said we would do with our first Greenfield clinic in Chicago and Schaumburg, Illinois but have also, since then, added 11 new clinics in the Chicago area and as I stated a moment ago including two in the first two months of 2016.

All clinics in the Chicago MSA are in high traffic convenient visible suburban locations as well as in denser more urban areas and around the city of Chicago. The opening of these 11 clinics in such a short period of time, again, is consistent with that strategy of developing clinics in concentrated markets, clusters that we note efficiently achieved levels of critical mass in each market that we do business in as quickly and as prudently as possible. Again the depth and pace are intended to secure the requisite leverage of both operational and marketing efficiencies as well as organizing our growth and accelerating and cementing our brand presence. Our focus, as John mentioned, will now turn to maturing these clinics in 2016 along the 12 to 18 month timeframe we have discussed before.

As to the class of 2016 Greenfield units, we will continue to focus on building our concentration extensively in markets that we've already entered in 2015. Potential acquisitions of selected franchisees will be assessed on an opportunistic basis and as is consistent with our overall development strategy, once again to operate clinics in concentrated geographic clusters. We expect to introduce into operations, as John mentioned, earlier 18 to 20 company clinics over the course of 2016 in combination of Greenfields and buybacks. We will be distributing these openings across the year, affording the class of 2015 Greenfields an opportunity to cure while again managing our capital and growth accordingly.

We will continue and remain resolute in applying our clustering strategy not only to our company clinics but also to our franchise clinics across the entire ecosystem as we continually seek to leverage and improve system wide operational and margin efficiencies.

Turning now for a moment to the regional developer aspect of our portfolio. Through December 30, 2015, the Company reacquired or retired seven regional developer licenses. They were located in California, in Orange County, San Diego County, State of Louisiana, in Tampa and Sarasota in Florida, State of New York, New Jersey and Minnesota. This too is consistent with our IPO strategy to facilitate the unencumbered growth of both franchise and company owned or managed clinics across the system by acquiring or retiring regional developer licenses where opportune.

Continuing to build on that strategy for the quarter ending March 30, 2016, we are further pleased to announce that the Company has additionally reacquired the regional development ranks to the Inland Empire in California. This brings our total regional developer license for targeted reacquired to nine and includes the acquisition of Los Angeles County and California in December 2014. In considering the totality of the data just discussed, it is important to emphasize that the critical strategic value of the continued focus, addition of company owned or managed clinics to the portfolio at the guided pace will over time measurably accelerate enterprise revenue as compared to that of an exclusively operated franchise clinic revenue system derived singularly from royalties.

I will now like to turn the call over to Frank Joyce our Chief Financial Officer to discuss the 2015 fourth quarter and full-year results and general outlook for the full-year of 2016. Frank?

Thanks David. We have provided details on our financial performance for the quarter and year-ended December 31, 2015 in the press release issued earlier today. I will now take a few moments and discuss some of the highlights. As mentioned, we had 312 clinics opened at December 31, 2015, an increase of 66 clinics since the end of the year of 2014. As a result revenues increased 83% in the fourth quarter of 2015 to $3.8 million and increased 94% for the full-year of 2015 to $13.8 million, both as compared to prior periods. Revenue growth of both periods was driven primarily by the addition of 47 company owned or managed clinics since the beginning of 2015 and also by more than 40% increase in franchise royalties during the year due to franchisees continuing sales growth.

Net loss in the fourth quarter of 2015 was $3.4 million or $0.31 a share as compared to a net loss of $2.6 million or $0.35 a share in the fourth quarter of 2014. For full-year 2015, net loss was $8.8 million or $0.88 a share compared to a net loss of $3 million or $0.56 a share in 2014. Net loss in the 2015 period compared to same period year ago reflects marketing, payroll and operating expenses at the Company's 47 owned or managed clinics that were developed or acquired during the year along with increases in the number of employees at the corporate level to support our growth initiatives and public company operations, higher national marketing sum expenditures which are funded by increased sales from franchisee and company owned units and higher stock based compensation.

During the year, general and administrative expenses increased by $10.3 million over the prior year. However $4.8 million or 47% of that total G&A growth was at the clinic level where the Company acquired a total of 47 units during 2015. Corporate G&A growth, which consists primarily of new hires required to support our growth initiatives and public company operations slowed in the second half of 2015 to a sequential growth rate in the second half that is in the low single digits. Going forward we expect the vast majority of G&A growth to be at the clinic level and it will vary directly with the number and timing of company units added. Corporate G&A, on the other hand, is on track for a more moderate growth rate in 2016 which we expect will be in the mid single digits.

Adjusted EBITDA for the fourth quarter of 2015 was a loss of $2.8 million compared to an adjusted EBITDA loss of $0.8 million in the fourth quarter of 2014. Adjusted EBITDA for the full-year of 2015 was a loss of $6.8 million compared to adjusted EBITDA loss of $1.4 million in 2014. We define adjusted EBITDA as EBITDA before acquisition-related expenses as well as stock-based compensation expense and bargain purchase gain.

As John mentioned, total system wide sales increased to $70 million in 2015 an increase of 24 million over 2014 representing an approximate growth rate year-over-year of 52%. Approximately 10.8 million weighted average shares were outstanding in the fourth quarter of 2015 and approximately 10 million weighted average shares for the full-year of 2015 compared to 7.3 million weighted average shares and 5.5 million weighted average shares for the same period last year.

Turning now to the balance sheet as of December 31, 2015 cash and cash equivalents were $16.8 million compared to $20.8 million at December 31, 2014. During the fourth quarter of 2015 the Company sold approximately 2.6 million shares of common stock to an underwritten offering at a price of $5.50 per share resulting in net proceeds for the Company of approximately $30 million after expenses. This financing provides us with financial strength to advance our national strategy of clinic growth. As of March 11, 2016, there were approximately 12.6 million shares outstanding.

Now turning to 2016 guidance, today we are providing 2016 financial guidance for the first time. For the full-year of 2016 we are expecting total revenues in the range of $19 million to $21 million, adjusted EBITDA loss in the range of $6.6 million to $6.4 million, and we expect new clinic openings in the range of 68 to 72 clinics. This includes an estimate of between 18 to 20 company owned or managed clinics, and between 58 to 60 franchise clinics. The Company owned clinics will be both from buybacks of existing franchises and Greenfield for newly constructed units.

As John mentioned overall we expect to open approximately the same number of clinics in 2016 that we did in 2015 with a focus on driving operational performance in these units across the system, prudently managing our investment capital and with the objective of ensuring we have sufficient capital to carry us through to profitability which we expect in 2017.

And with that, I would like to turn it back to John.

Thank you Frank. Overall, we are very pleased with our fourth quarter and full-year results. And I thought I would take just a moment to remind everyone why we are so excited about the prospects for this company. This is indeed a huge market. Some $14.5 billion in annual chiropractic sales and an even larger amount, $85 billion, is spent by people who suffer from some sort of back ailment and seek the care for it. And our young company is by far the leader in this market, attracting 20% of our patients new to chiropractic last year to our convenient and affordable concept.

Now as we have mentioned we achieved $70 million in system wide sales up 52% year-over-year and comp store sales of 34%. Now where have you heard of comp store sales like this in retail before? We conducted over 3.3 million adjustments and have the privilege of employing or managing practices that employ more than 700 chiropractors. We are already the largest employer manager of these doctors in the country.

Now all this happens in 350 plus clinics that are company and our 114 fine franchisees manage and all of this after one year as a public company. So after the first year of ferocious growth and company capability building where we hit all the metrics we set, we now plan to settle into managing this growth responsibly and drive it to profitability as we mentioned during this call. We are really just getting started.

So let me close by thanking our team members, franchisees and investors for their support. We look forward to an exciting second year as a public company. And now we are pleased to take questions from the floor. Thank you.

(Operator Instructions) Brent Rystrom from Feltl and Company.

Could I ask you - just to repeat something, one of your, I believe, John, it was you had mentioned kind of the long term margin build at the unit level. Did you say 25% to 35%?

Yes. This is about right. You mean at the clinic level?

Yes. And I'm - what I am wondering is that an operating margin or if not you guys contribution margin including depreciation and amortization, how do you define that?

Adjusted EBITDA margin on a [four wall] basis.

So, I want to make sure I understood also the guidance on store number. You had said that you're going to add 18 to 20 Greenfield corporate stores, is that right for 2016?

Actually, 18 to 20 total units and the breakdown can change, but it probably is around 50-50, just for start out, right?

All right. And that's lower than we had previously thought. I am curious since the last time we talked about store development what had change? Is it just a greater focus on conserving the cash to get to breakeven?

That's part of it, but I think recall during this conference call, we mentioned that the effective back loading of a substantial number of Greenfield clinics that basically happened right at the end of the year and effectively are going to mature during the 2016 year and into 2017. And this is just a function of the fundraising activities when it happened and what we were able to do in terms of getting a development stream on line, and then ultimately, the implications of that to the proper dynamics of the business. So we determined that it made more sense for us to do somewhat less development since we certainly know how to do it, we can do more if we would like to and manage these clinics properly to maturity since that's really the signal that the market should expect from us.

And, Brent, just a little bit of color on the fourth quarter numbers, of the 17 Greenfields in the fourth quarter, 16 were in November and December alone, nine of those were in Chicago, which is a brand new market for us. So, a pretty strong concentration in the last two months of the year and largely in the new market.

And, Brent, I think you know us, we have been around retail for a good long time probably done 5,000 or 6,000 openings in the course of our careers and one thing we know is that young companies and new concepts as they open up and tap in new markets can run into trouble if they try to do things too quickly and get ahead of themselves. We don't have a need to do that here and we want to make sure that we allow to use these markets to cure properly and we manage the growth rate prudently. Because we certainly had to grow rapidly as we demonstrated even at the end of this past year, but we want to make sure that we have a good handle on managing the growth rates in what is still a pretty young company.

Carrying that a step further, when do you see the cash burn ending and where or what quarter do you think cash levels will trough?

Good question. So in our 2016 guidance, we have said that we would do, in terms of company units, 18 to 20 units in 2016. If we were to do that same number in 2017, we would see EBITDA profitability for the organization in the second half of 2017 and the cash trough in the beginning of a recovery in cash would be around the fourth quarter of 2017.

Okay. Would you guys be giving corporate owned clinic comps, so as you report or you have been reporting quarterly the comps in the system and you have been giving tidbits on how well your stores are doing and that you have acquired. As you sort of anniversary full-year ownership, comparable period to comparable, period are you going to start to report corporate comps as well for corporate stores?

Yes, we will. Keep in mind it's a little bit more complicated because how we bought them throughout the year. For instance John mentioned a stat how with those clinics that we owned for six months the growth in that first six month period was 20%. Those are kind of the best that we can get at this point in the first year, but we will certainly get comps going forward. The important thing to know, though, is our stores generally do better than the comps and you have heard the 31% to 34% numbers that John had mentioned.

So upon just thinking about that, so when say you say 20% better is really not a comp even, you are talking about 20% better than the run rate when you bought them I would assume, right?

Actually, just to be clear, for those clinics that we have owned for a full six months, the growth, the revenue growth, the absolute revenue growth during that six months period of our [corporation] is 20%. So, 20% growth in revenues in six months.

But, again, I'm asking 20% from the prior six months or from the year ago six months?

Sequentially 20% from the month before we owned it. So first six months it is 20%.

So implying, thinking how comps at some place in the 40% to 50%?

Yes. Exactly right. And you know, just to put that in context, John mentioned that total revenues for the system grew by 52% and you have heard the 34% and the 31% comps for the year and the quarter. So that's all good point.

Brent, keep in mind that those units that we acquired had are members of a comp class in and of themselves. So you can't double apply a comp. So, that's why John segregated and we segregated it in the corporate influence because many of those stores were already in the Company wide or system wide comp class. Does that make sense?

Makes absolute sense, thanks David.

So as a further elaboration on that, the average months in operation of the clinics we acquired, to put in the context of what David just described is a little less than 20 months. So we acquired some mature ones, we acquired a lot of young ones, everything in between. So that would put them kind of right in between the first and second year, full-year age classes, definitely. And the system wide numbers for those particular elements of the business are pretty substantial. We have the first year of comps between 13 months and 24 months is often in the range of 60% plus growth and so on and so forth, beyond that. We had a natural sort of maturation process that happens with these units that we have been able to exceed in some case of which we're certainly happy about.

And just, Brent, last point for me, necessarily, the comps that we announced for this first quarter include or subsume the comp lift afforded by that 20% revenue growth under our management hospices.

Yes, makes sense and sounds impressive. So, how should we think, when I think 18 to 20 stores this year, you mentioned maybe a similar number next year, long term, you're going to start throwing out substantial amounts of cash within a couple of years. You know, would it be reasonable to think that 18 to 20 might grow by 25% a year, something like that, as you start to ramp and do cash flows?

I think that's a very fair assumption because as you know the model well, once it does start to ramp, the cash flow, these are very much self funding. So, I think that's a pretty good assumption.

I think the other part of this, Brent, which you'd also understand is that, again, just finishing our first full-year of funded operations, we have a ramp literally everything up in the Company simultaneously to achieve the first year numbers, capability of operations, development capability, literally across the entire company. And obviously, as we get into the second and third year of operation, we just have a more mature business operationally and we can handle and should handle more growth because we are simply not spread around the line in terms of having the capability and bodies here to do it.

And again the increase that John and Frank mentioned earlier too, Brent, was I'm sure you are keenly aware, that the age class of the franchise system continues to mature at the system and comp active system wide comp rate. So, to do the correlative royalties associated with that that are embedded in the metrics to get to the 2017 number that Frank referenced.

Yes. We are pleased to have a really solid franchise group of partners who are doing more than their share particular to other business and we are doing everything we can to support them and keep up with them in some respect, but that gives us a lot of comfort about the stability of the business,

Can you characterize how you will expect EBITDA loses by quarter to flow? I would assume they go a little bit higher in the first quarter from the fourth quarter, and then sequentially, I would assume they start to improve by somewhere in the $500,000 to, maybe, close to $1 million per quarter level just to get to your guidance. Let's say you have an EBITDA loss in the first quarter of $3 million, to get to that 64% to 66%; that would be 34% to 36% or somewhere just over $1 million, $1.2 million per quarter.

To do that, obviously, you are going to have to gap up on your EBITDA losses. Is that a fair expectation that they will peak in the first quarter and then gap up fairly, not necessarily like clockwork, but I would assume it's a fairly reasonable range per quarter thereafter is that reasonable?

Yes. You got it. You got it pegged. We expect Q1 to be the high watermark and then to start trending down from there.

And, Frank, is Q1, you know, is it a couple of hundred thousand? Is that - is it 0.5 million worse to the 4Q, I would assume it's worse, but can you give us kind of a ballpark of what you kind of would expect?

I'd say around $0.5 million.

(Operator Instructions). Anthony Vendetti from Maxim Group.

I just wanted to sort of understand a little bit one of the questions that you talked about some of the store openings, the ones in the Chicago, I know that's a new market for you. Most of them, it seems like it occurred at the back end of the quarter, November, December. Can you just go through that again? Did you say 16 of them?

Yes. We did 17 Greenfields in Q4 alone opened. So of those 17, 16 were in November and December only. And then of the same 17, 9 of them were in Chicago, which is a brand new market for us. The balances were in L.A. and Orange County.

And then I just wanted to go through a couple of other numbers. So you said same store comp sales excluding closures and for clinics open 13 months or more were up how much?

For the quarter it was 31, I believe, we said and for the year it was 34. Yes. [We're all amounting].

31 for the quarter and 34 for the year.

And just that you know, the total system wide sales year-over-year for franchise and corporate clinics was up to 52%.

Okay, so that would, you know, basically account for maybe not getting to the revenue estimate because some of these clinics will open a little bit later in the quarter so you have had chances to ramp them up. But in terms of patient throughput or volume to the clinics, you are satisfied with what you are seeing in terms of that through the clinics didn't have open today. Is that correct?

Yes we are. Actually, for the patient visits are growing nicely and they are in the actually in the same range as the revenue growth. Total patient visits of course the number of times people come and actually ring the cash register so that's a key revenue driver.

You said 700 chiropractors; you are the largest employer of those.

Employer or manager.

Can you talk a little bit about the recruitment of them and is that getting more difficult or is it about the same as you expand into additional markets?

As you recall, Anthony, because I know you were here when we went through some of the details, we recognized, as we often do in retail that we obviously have had a staffing model organized in advance of any of this. So, we have a group that does nothing but focus on doctor recruiting and we found so far that the challenge in the job of recruiting doctors has been, I don't want to say easy, but it's been very much within our ability to manage the way we like to. Certain markets for whatever reasons are a little more difficult than others. Some of it has to do with the density of the market, remember chiropractors in residence and sometimes a market, if it's proximate to a chiropractic college, it has a higher degree of chiropractic penetration, so there's more choices.

Chicago is, as an example, we talked about the fabulous numbers we did in opening those clinics relatively quickly. I will also say that operationally, we were 100% on target there in terms of staffing and operations, which we feel very, very good about. I would say the most important operating statistic that both ourselves and the franchisees pay attention to is making sure that we are staffed properly and that the doctor's supply is there. So, it's always going to be an important challenge, but in certain markets its more so than others. But so far we have not had a particularly unusual challenge with it, but then we have muscled up for it pretty substantially.

I will also say this that we did quite a bit of strategic analysis on the doctor population before we got into this and really understood, you know, kind of the model that is going to be successful for these people. And we have set out to be the employer of choice, to offer the right salary levels, the right type of incentives, the right type of benefits, so that we were a positive alternative for these people who are typically coming out of some form of independent practice which usually isn't as attractive to them because they have to either do more with themselves than they would have to do without. I think our franchisees have found that to be case as well.

Brent Rystrom of Feltl and Company.

I got just a few additional questions. I very much appreciate that you gave the $4.8 million data point on G&A at the clinic level in the year. Can you tell us how much it was in the fourth quarter?

The total increase is about $2.9 million and $3 million in the fourth quarter. $2.4 million was at the clinic level and as I am sure you know, the vast majority of that is payroll and facilities cost.

And so, can you give me a sense of that $4.8 million, that half of it was in the fourth quarter? How did it progress first, second and third?

$4.8 million I believe is the full-year number. So it became bigger and bigger proportion during the year. So, for instance, corporate G&A growth in the second half and bear with me, on a sequential basis, was in the low single digits. So, it really tapered off. So the vast majority in second half G&A growth and especially fourth quarter G&A growth is at the clinic level. Because as you know, when you open its door, , even though the revenues aren't there all of your G&A shows up on the first step.

Sales and marketing expenses were higher than you had expected. Don't know what you had in your budget but I am just wondering it seemed like they spiked a little bit higher than they had been relative to either sales or system sales previously. Was there a change in the quarter or am I just looking at that wrong?

No, no, you are. And basically, it was up about $800,000 in the quarter year-over-year and probably about $0.7 million of that was at the clinic level. So we had a lot of new store openings and things like that. We probably put more in the fourth quarter than we normally would, but we had a lot of new units and new markets opening.

So don't annualize the fourth quarter number - Okay, don't take the $700,000 on 43 units and assume that that will rate per store is going to be normal rate going forward?

That's right. That's right. Yes. Because - as I am sure you know, Brent, you got as much openings, you got to put some energy behind it and the critical statistic is making sure that you have a good first month in terms of new patient base so that it grows after that. And so, the spending is always kind of frontloaded. And if you have a lot of openings, in that quarter you are going to have a higher number.

I know you have been testing pricing in a few markets. Any plans for price increases either by market or nationally in 2016?

We are at the tail end of the pricing tests that we have been doing and I think we will probably have some information on our next steps with that at the end of the first quarter. By then we will be through all the numbers and be able to give kind of consistent guidance on that sort of stuff and in terms of how it's impacting it. And as you know strategically, we have been looking at it for all the right reasons, and I think we feel that we have a pretty good census to how it's going to play out now and how execute it.

And so, as the guidance stands now, is it not included on your assumed price increases?

The guidance does have price increase that's rolled in gradually throughout the year.

All right.

So the guidance does include everything we would expect from a price increase.

And I am showing no further questions at this time. I would like to turn the call back over to Mr. John Richards for closing remarks.

Thank you. I'd just like to take the opportunity to thank everyone for participating in the call today. And just once again, real gratitude of thanks to not only all of our company team mates here, but our franchisees who really made the concept as successful as it is today and certainly a thanks to our investors for supporting us through this important first year as a public company.

We look forward to keeping you all up to date on our progress. It's an exciting time and I am sure I will have lots of good news to bring forward in the coming months. We look forward to talking to you again next quarter and have a great day everybody.

Ladies and gentlemen thank you for your participation in today's conference. This concludes the program. You may all disconnect. Everyone have a great day.