Joint Corp (JYNT) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to The Joint Corporation first-quarter 2017 results conference call. (Operator Instructions). As a reminder, this conference is being recorded. Now it is my pleasure to welcome and turn the call to Mr. Peter Vozzo, Investor Relations for The Joint Corp.

Thanks, Carmen. Good afternoon, everyone. Today after the close of the market The Joint Corp. released financial results for the quarter ended March 31, 2017. Before we begin, if you do not already have a copy, the press release announcing these financial results 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 we 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 Peter Holt, Chief Executive Officer.

Thank you, Peter. And thanks, everyone, for joining us on today's call to discuss our 2017 first-quarter results. Joining me to present is John Meloun, our Chief Financial Officer. I will provide the financial and operational highlights for the quarter and then provide an overview of clinical operational improvements going forward. And then John will discuss our financial results in more detail.

For the benefit of those of you who are listening to our quarterly call for the first time, our purpose of The Joint is to improve the quality of life for the patients we serve. We do that through our network of over 370 retail clinics utilizing over 800 fully licensed chiropractic doctors who performed more than 4 million chiropractic adjustments last year. Our doctors provide patient care focused on pain relief and ongoing wellness to promote healthy, active lifestyles.

As a retail concept, one of the most important measures of health of the business is system wide comp sales and overall revenue growth. Comp sales simply means comparing retail sales through the same clinic or clinics for the same period one year earlier to measure why the sales are expanding or contracting.

In the first quarter of 2017 our system wide comp sales were up 19% and our revenue of $5.7 million was up 33% compared to the same period last year. Comp sales includes only those sales from clinics that have been open for at least 13 full months and excludes any clinics that have been closed.

Additionally, we will continue to make progress towards profitability demonstrated by the fact that our adjusted EBITDA continues to improve year-over-year. Adjusted EBITDA for the first quarter of 2017 was a loss of $0.5 million, a meaningful improvement compared to the loss of $2.7 million in the same period last year.

During the first quarter we added 12 new franchise clinics and closed one franchise clinic. As a part of our plan to improve cash usage, we closed five Company managed clinics in the Chicago area and three Company managed clinics in upstate New York, which accelerates our progress towards profitability. This brought the total number of clinics to 373 as of March 31, 2017, up from 331 clinics as of March 31, 2016.

During the first quarter our Company owned and managed clinics continued to demonstrate improved performance. As of March 31, 2017 we had 47 Company owned or manage clinics, which represented 13% of the clinic portfolio as compared to 54 or 16% of the clinic portfolio at the same point previous year. 31 of the 47 clinics were acquired from existing franchisees, which we refer to as buybacks. And 16 of the clinics were built from the ground up, which we refer to as greenfields.

Our Company owned or managed buybacks as a portfolio continue to be cash positive on the clinic level. Gross sales for those clinics acquired in 2015 that we've owned and managed for at least 12 months have increased on average by 59% through the first quarter of 2017.

In addition, during the quarter our greenfield clinics continued to make progress towards profitability. The greenfields there were open for the full first quarter of 2016 experienced a 102% increase in first quarter of 2017 sales compared to the first quarter of 2016.

As I mentioned, system wide comp sales in the first quarter of 2017 increased by 19% over the same period last year with the performance of our most mature clinics, those that have operated for 48 months or more, continuing their strong comp clinic sales growth, increasing by 11% over the prior year. System wide sales for the clinics were $28.1 million in the first quarter of 2017, an increase of approximately $6.1 million or 28% up from the same quarter 2016.

At the corporate level, our strong revenue growth of 33% to $5.7 million for the first quarter of 2017, as compared to the same quarter last year, reflects the net addition of 42 clinics over the last 12 months.

It's important to highlight our continuing efforts to control costs. Unallocated corporate overhead, which we define as all expenses that are not directly tied to our corporate clinic segment or our franchise segment, was down $0.4 million to $2.4 million compared to $2.8 million in the same period prior year.

Unallocated corporate overhead was 42% of revenue compared to 65% in the same period prior year. This is the power of our business model. We are able to leverage corporate overhead and expand the business with nominal increases in costs. In 2017 we forecast to add 50 to 60 new franchise clinics with little expected growth in our unallocated corporate overhead.

From my 30-plus years in experience in building and managing franchise systems, I've understood that one of the essential steps necessary to improve the performance of our franchise and corporate owned or managed clinics is to stay focused on the operational learnings from the field and to incorporate those best practices into our training and ongoing support programs.

With a Companywide initiative led by our newly hired VP of Operations, we've been able to work with our top-performing franchisees to distill and share the collective experience of our strongest operators to restructure the training and operational programs.

Concerning franchise sales and development, in the first quarter this year we've opened 12 new franchise clinics and sold three regional developer territories covering Chicago, Philadelphia and the state of Washington. Their combined development schedules require the opening and operating of a minimum of 70 clinics over the next 10 years.

As the remainder of 2017, we are focused on achieving profitability for our corporate clinic segment, expanding our franchise network, and continuing to control costs to operate our business. We anticipate improvements in adjusted EBITDA each quarter for the remainder of 2017 and will remain focused on achieving adjusted EBITDA break even as quickly as possible.

Based upon our current core customer profile and usage, we've identified the opportunity to expand to more than 1,700 clinics across the country. With 373 clinics today the road before us is clear. To fully capitalize on this opportunity we will focus on the rapid expansion through our franchise efforts, amplified by the network of strategically located company-owned or managed clinics.

I'd now like to turn the call over to John Meloun who will discuss the 2017 first-quarter results and the general outlook for the full year of 2017.

Thanks, Peter. We have provided detail on our financial performance for the quarter ended March 31, 2017 in the press release issued earlier today. I will now take a few moments and discuss some of the highlights broken down by the two operating segments, corporate clinics and franchise operations, as well as our unallocated corporate overhead. This segment data will be available in our 10-Q which will be filed tomorrow, May 12.

Revenues increased 33% or $1.4 million to $5.7 million compared to the same period last year. $0.8 million of the increase is from the corporate clinic segment and $0.6 million from our franchise operations. Revenue growth in the corporate clinic segment is attributed to increasing sales in our existing clinic portfolio and from the six clinics that were acquired since the end of the first quarter of 2016.

Franchise segment revenue increased due to higher sales from both existing clinics and from a net 49 clinics added since the end of the first quarter of 2016. The improvements in both our corporate clinic segment and franchise segment revenues are driven by strong comp sales that our clinics continue to experience as they mature, with clinics in the first year of comp sales, that is those in the 13- to 24-month category growing at the fastest rate, and notably those clinics over four years old still growing at a rate of 11% in the first quarter all on a very stable cost structure.

Cost of revenues of $0.7 million in the first quarter of 2017 were virtually flat compared to the first quarter last year as lower regional developer commissions from fewer clinic openings were offset by higher regional developer royalties in the first quarter of 2017.

Selling and marketing expenses increased by 30% or $0.2 million to $1 million compared to $0.7 million in the same period last year primarily due to increased spending in our franchise operation's national marketing program.

General and administrative expenses decreased 20% or $1.1 million to $4.6 million in the first quarter of 2017 compared to $5.7 million in the first quarter of 2016 due to lower payroll and lower legal and accounting expenses. Loss on disposition or impairment was $0.4 million in the first quarter of 2017 due to exit cost obligations from the closure of Company managed clinics in Chicago and New York.

Depreciation and amortization expenses were unchanged from the year-earlier period at $0.6 million. Consolidated loss from operations improved by 54% or $1.9 million in the quarter from $3.5 million in the first quarter 2016 to $1.6 million in the first quarter of 2017.

Loss from operations in our corporate clinic segment increased by $1.1 million and improved in our franchise operations by $0.4 million in both cases as compared to the first quarter of 2016. Our unallocated corporate overhead decreased by $0.4 million to $2.4 million reflecting the reduction in expenses.

Adjusted EBITDA loss in the first quarter of 2017 was $0.5 million, an improvement over $2.7 million loss in the same quarter last year. $1 million of the improvement was generated in the corporate clinic segment due to growth in sales. Our franchise operations, which made up $0.4 million in adjusted EBITDA improvement, continues to grow in profitability from increasing sales as well. Our unallocated corporate overhead made up the remaining $0.8 million in adjusted EBITDA improvement, which is attributable to reduction in expenses.

Net loss in the first quarter of 2017 was $1.6 million or a negative $0.13 per share as compared to a net loss of $3.5 million or negative $0.28 per share in the first quarter of 2016. Approximately 13 million weighted average common shares were outstanding in the first quarter of 2017 as compared to 12.6 million shares in the same period the prior year.

At March 31, 2017 cash and cash equivalents were $2.7 million compared to $3 million as of December 31, 2016. Once again our use of cash diminished in the first quarter of 2017 compared to the first quarter of 2016 as operating losses generated from our Company-owned or managed clinics, which is our biggest use of cash, continues to improve along with a reduced run rate in unallocated corporate overhead expenses.

It should be noted that the cash balance in the quarter was positively impacted by the $1 million minimum required draw per the terms of our line of credit. This draw remains unused and is part of our cash and cash equivalents on the Company's balance sheet as of March 31, 2017.

Now turning to the 2017 guidance, we continue to expect total revenues in the range of $22 million to $24 million; adjusted EBITDA loss in the range of $1.5 million to $0.5 million. In addition, in 2017 we expect net new franchise clinic openings in the range of 50 to 60.

Finally, based on our current cash balance and operating plan, we believe that we have sufficient cash to reach Companywide adjusted EBITDA breakeven and to fund planned operations through 2017. And with that I'd like to turn it back to Peter.

Thank you, John. We remain on track to achieve our 2017 financial operational goals and our first-quarter 2017 results show a continuation of our overall positive growth and operating strategy. This progress would not be possible without the commitment and perseverance of our franchise community and our employees and I want to thank each and every one of them for their efforts.

We indeed are very passionate about our business and excited about the opportunities ahead. And with those comments we would like to open the floor to questions.

(Operator Instructions). Mark Smith, Feltl and Company.

First off just a couple housekeeping things. Was the impairment charge, the $418,000, was that all due to clinics that were previously sold or closed or was there anything else in that line?

The impairment charge was related to all clinics that were closed and the leases for those clinics.

And do we expect anything else going forward from those closures as far as impairments or charges?

At this point in time we have no expectations of additional charges.

Okay, then just one more housekeeping. When would you expect to get some maybe benefits with the pretax loss? Or do you expect the tax, what you report into, to stay at this current rate?

Expectations are that we will stay at the current rate.

Okay, perfect. And then more big picture, it's good to see you on track to hit the opening guidance with franchisees. A couple questions on that. First, how do you feel your relationship with your franchisees is today? And then secondly, anything that you can speak to as far as the health of the franchisees and the franchise system?

Sure, Mark. It's Peter. First of all, I would say that I think our relationships with the franchisees are continuing to improve. And that quite frankly was one of the first reasons I was brought in almost a year ago is to really work with our franchise community to improve those relationships which quite frankly had gotten frayed.

And my experience is that with any franchise system the management of that relationship between the franchisee and the franchisor is absolutely the most important responsibility that we have as a franchisor. And it's not something that you have a national conference or you have a good speech and that there are solves; it's something that you work on every day to improve.

And when you have that trust and that relationship with the franchise community, it is remarkable what can be unleashed in that franchise system. And my view is that we have made great progress in improving the relationships with our franchise community and that we are not done yet and we will continue to do so.

Related to your relationship with your franchise community is profitability, that unit economics. Franchisees -- my experience is even if they may have a troubled relationship with their franchisor, if their business is doing well and they're profitable, it's a lot easier to deal with those challenges than if we're dealing with other issues.

And certainly in the time that I've been with this Company and looking at the fundamental unit economics of this business model is that they are very, very strong for that small box retail environment.

And when I say smallpox retail what I'm talking about is that 1,000 square feet, in line, anchored by a supermarket where most of our clinics are located. And that I think we have some very, very strong unit economics that drive our business. That doesn't mean that we can't continue to improve them, to increase the time to break even in a new clinic that's opening, but it's a strong base to work from.

And then last one for me, I think last quarter you guys spoke a little bit to this, but do you still feel like you can get to positive EBITDA perhaps here in the first half or maybe in third quarter?

Well, as I said in my comments is that we are working as aggressively as possible to get there and with changes in Chicago by transferring six of the franchise clinics to our top franchisee, closing the five and the three in New York is that that diminished our cash usage and absolutely increased the time frame to profitability and that we are working very aggressively to get there.

Okay, great. Thank you.

(Operator Instructions). And I'm not showing any further questions in the queue.

Okay, I want to thank all of you for participating in today's call and for your questions. We look forward to keeping you informed and up-to-date our progress. Have a great day. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program and you may all disconnect. Have a wonderful day.