Joint Corp (JYNT) 2020 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. And welcome to the first quarter 2020 financial results conference call. (Operator Instructions)

I would now like to turn the conference over to your speaker for today, Ms. Julie Cimino. Ma'am, you may begin your conference.

Thank you, operator. Good afternoon, everyone. This is Julie Cimino of LHA Investor Relations. On the call today, President and CEO, Peter Holt, will review our first quarter and the impact of COVID-19 on the business. CFO, Jake Singleton, will detail our financial results. Then Peter will close with a summary and open the call for questions. Please note, we are using a slide presentation that can be found on the Investor Relations section of the company's website.

Today, after the market close, The Joint Corp. issued its financial results for the quarter ended March 31, 2020. If you do not already have a copy of this press release, it can be found on the Investor Relations section of the company's website.

As provided on Slide 2, please be advised, today's discussion includes forward-looking statements, including statements concerning our strategy, future operations, future financial position and plans and objectives from management. Throughout today's discussion, we will present some important factors relating to our business that could affect these forward-looking statements. The forward-looking statements are made based on our current predictions, expectations, estimates and assumptions and are also subject to risks and uncertainties that may cause actual results to differ materially from the statements we make today.

Factors that could contribute to these differences include, but are not limited to: the continuing impact of the COVID-19 outbreak on the economy and our operations, including temporary clinic closures, shortened business hours and reduced patient demand; our failure to develop or acquire company-owned or managed clinics as rapidly as we intend; our failure to profitably operate our company-owned or managed clinics; and the other factors described in Risk Factors in our annual report on Form 10-K as filed with the SEC for the year ended December 31, 2019, as updated for any material changes described in any subsequently filed quarterly reports on Form 10-Q as they may be revised or updated in our subsequent filings, including the one we anticipate filing on May 8.

As a result, we caution you against placing undue reliance on these forward-looking statements and 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.

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 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, bargain purchase gain, net gain or loss on disposition or impairment and stock-based compensation expenses.

Turning to Slide 3. It is my pleasure to turn the call over to Peter Holt. Please go ahead, sir.

Thank you, Julie. I welcome everybody to our Q1 earnings call, and I'd like to begin by thanking the extraordinary health care workers across this nation as they battle COVID-19. Nothing could be more important than for each of us to do whatever we can to combat this pandemic and minimize its impact. As the CEO of The Joint Chiropractic, I want to reiterate that our primary concern, which guides all of our actions, is the health and well-being of our patients and those who serve our patients.

As we stated last month, The Joint is relying on guidance from national and local chiropractic associations and health care organizations to direct our conduct. Most states directives view chiropractic care as an essential health care service that can be used by patients with a wide array of health conditions. Therefore, we've been committed to remaining open wherever and whenever possible. Additionally, we've implemented increased hygiene routines, monitoring and operation protocols, which we have detailed in our company website.

As we weather this unfolding crisis, I'm so grateful for the compassion of our franchisees, doctors and support teams who are also on the front line and have continued to provide chiropractic care to our patients. By staying open, we're able to remove some of the burden from the traditional medical resources, allowing our health care system to focus on treating those afflicted by COVID-19. And the fact that so many of our patients continue to visit our clinics is a powerful testimony to the view that our services are indeed essential to their health care.

Today, I will briefly review our first quarter metrics and discuss how we've been managing our response to the coronavirus pandemic to support resources we offer our franchisees and our plans for the remainder of the year. Then Jake will discuss our financial results in greater detail. After which, I'll open the call for questions.

The Joint continues to revolutionize access to chiropractic care with convenient retail settings, concierge style and membership-based services, attractive pricing and hours without insurance or appointments. Our hybrid model of company-owned or managed clinics as well as our franchised clinics have fueled our ability to expand in a capital-light fashion. Already, we're the largest and most recognizable provider of chiropractic care in the country, which in 2019 was estimated to be $15 billion and expanding, illustrating our opportunity for continued growth.

After 4 years of robust unit growth and a focus on improving operations and marketing, we entered this crisis better prepared to manage these unprecedented circumstances. Strong momentum continued for the first 2.5 months of the quarter and approximately 95% of our clinics remained open through March 31. However, since then, we're seeing a significant impact from COVID-19, which will be discussed in greater detail later in the call.

For the first quarter of 2020, compared to the first quarter of 2019, we continued to deliver solid growth. System-wide sales grew 24%, and comp sales for clinics that had been open for at least 13 full months were 15%. On March 30, 2020, we had $10.7 million in unrestricted cash, up from $8.5 million, reflecting the $2.2 million drawn from our recently established line of credit.

Turning to Slide 4. Let's review our portfolio. At March 31, 2020, we had 530 clinics in operation, up from 513 at December 31, 2019. At quarter end, the clinic mix remains 88% franchised and 12% corporate. In February, we expanded the Los Angeles regional cluster with a new greenfield clinic, bringing the total company-owned or managed clinics to 61.

During the quarter, we opened 16 franchised clinics, bringing the total to 469. Three of the clinics opened in the Q1 2020, including 1 greenfield, earned the Go Elite status by achieving at least 400 new patients and $30,000 in sales within the first 2 months of operation. Notably, 5 of the 6 corporate greenfields that we've opened in 2019 and '20 have achieved the Go Elite status, with 1 of our corporate greenfields having the best grand opening performance of any clinic in the history of the company as measured by the first 2 months of growth for sales.

Turning to Slide 5. During the first quarter, we sold 24 new license -- franchise licenses compared to 30 licenses sold in Q1 2019. Traditionally, our franchised sales are highest in the second quarter as our annual franchise disclosure document is updated and at the end of -- updated at the end of April, and our franchisees often prefer to sign the old agreement. In April 2019, we sold 30 franchise licenses compared to 6 in April 2020. Albeit, it's a significant decrease, we believe selling any licenses in this current climate is remarkable and indicative of the positive long-term outlook of our business.

Our regional developers, or RDs, continued to fuel our growth, and were responsible for 92% of the franchised sales in Q1 2020 and 5 of the 6 sales in April. To further underscore the appeal of our concept, in late March of this year, we sold the new RD rights for Nebraska, Iowa and South Dakota, increasing our RD platform to 22. This new RD has an extensive multiunit franchise background and currently owns over 30 Great Clips salons. This territory carries a minimum 10-year development schedule of 18 units.

Turning to Slide 6. Let's review how COVID-19 is impacting The Joint, what actions we've taken and how we're prepared for managing the uncertainty caused by the pandemic. To assist us in our decision-making, we're carefully following guidelines from trusted authorities such as the Centers for Disease Control and the World Health Organization and local and state health authorities. Since the onset of the pandemic, The Joint has been working tirelessly to prepare the company to meet the challenges in this dynamic situation. Some of these actions include that we've increased the frequency of our communication to our franchisees and clinic teams, including weekly all-network town halls to help them navigate the rapidly changing environment and special edition webinars that dive deep into important topics such as marketing in this time of uncertainty, navigating economic relief options, managing HR issues, improving the patient experience and sales forecasting in light of the COVID-19 environment.

We instituted an internal hotline to our rapid response team and an FAQ website connecting franchisees with all our published information and documentation related to COVID-19. We're addressing patient safety concerns by educating them about the enhancements in our policies and our procedures utilized at our clinics to align with the latest facts and best practices related to hygiene and sanitation, patient screening, clinic operations and other critical protocols.

We're adapting our content marketing plan to provide patients with additional safety and support during the pandemic, including what to expect during the visit to The Joint as well as numerous tips in maintaining their health and wellness during this pandemic. And we're strengthening the supply chain of PPE and cleaning supplies to our clinics, including a new partnership we recently announced with Amazon Business to supply products approved by the CDC.

To further support our franchisees during this crisis, we've extended several temporary concessions to them. This includes waiving the minimum royalty requirement for all franchisees for the remainder of 2020, the minimum local ad spend requirement through the end of Q2 and the monthly tech fee for clinics closed 16 days or more in that month. We'll continue to explore opportunities to bring additional relief and support wherever we can, wherever it makes sense for the short- and long-term health of our franchisees.

To assess the effectiveness of our communications with our franchisees, in mid-April, we conducted a quick pulse survey that was executed by Franchise Business Review. The feedback was very positive. Among the highlights, 88% of the franchisees stated that they were either very positive or mostly positive about their association with The Joint. And 90% stated that they were either extremely confident or somewhat confident about the long-term future of the business. The survey results validates our effort to date and provided helpful insights that we're using to further improve our support of our franchise community.

In consideration of the impact of COVID-19, let's review our current corporate strategies for technology, marketing and overall operations. Regarding technology, we are suspending the launch of our new CRM system access. Successfully rolling out such a foundational platform for our business requires the entire network's full engagement. Given this, it did not make sense for us to proceed with such a critical project in the middle of the pandemic. We'll continue to view -- we continue to view this as one of the most important projects of our future, and we look forward to picking up with the development. For now, we estimate the rollout will most likely be a 2021 event.

Regarding marketing, we've shifted our messages to emphasize chiropractic care as an essential health care service and to provide content that gives our patients information for maintaining their health and wellness during the pandemic. We've encouraged our franchisees to sustain their advertising efforts and to continue nurturing their patient relationships in their communities. Most of our large markets have continued their broadcast media buys on television and radio. And we believe our strong efforts to maintain our marketing outreach during COVID-19 will benefit our brand.

We're taking actions to preserve cash. We're negotiating with landlords and deferring capital expenditures. Developing new greenfields and acquiring clinics are our most significant use of cash. Previously, we had targeted opening between 16 and 20 corporate clinics in 2020. However, due to COVID-19, for the remainder of this year, we've chosen to slow down the pace of our corporate clinic expansion.

Now I'll review the state of our business as of today. Unlike many retail systems that have been forced to close most or all of their operations, we've been fortunate that the vast majority of our network remains open for treating our patients. At the end of April, approximately 90% of our clinics were opened, though 38% had modified their hours of operation. And those patients who have been unable to visit a clinic either because the clinic was closed or because they're in self-quarantine, we've instituted a policy that allows them to temporarily freeze their memberships rather than cancel at no cost to them. In April, in this COVID-19 environment, where the majority of the states have some form of shelter-in-place directive, we maintained approximately 60% of our expected patient visits. This reflects the importance of chiropractic care to our patients and validates our point of view that they see us as an essential health care service.

April gross sales were down over 30% compared to our pre-COVID expectations. Member attrition has been fairly stable. While new patient conversion is up compared to previous periods, we have experienced a significant drop in our new patient counts. The core of our patient base remains engaged and appreciative that we're open.

Going forward, our focus is on the development of a marketing plan that will be launched once we emerge from the pandemic, aimed at our existing patient base as well as new patient growth.

And with that, Jake, I'll turn it over to you.

Thank you, Peter. Turning to Slide 7. I will compare first quarter 2020 to first quarter 2019. System-wide sales for all clinics open for any amount of time grew 24% to $60.6 million. System-wide comp sales for all clinics opened 13 months or more increased 15%. System-wide comp sales for mature clinics opened 48 months or more increased 10%. Please note, these comp sales included clinics that were closed for a portion of March. Buoyed by the strong first 2.5 months of the quarter, the growth rates are still remarkable. However, going forward, we anticipate system-wide comp sales will fall as we manage the impact of COVID-19.

Revenue was $13.6 million, up $2.9 million or 28%. Company-owned or managed clinics contributed revenue of $7.3 million, increasing 29% from the same period a year ago. Franchised operations contributed $6.4 million, up 26% compared to the same period last year. Increased revenue for both categories is due to the greater number of clinics and continued organic growth. Cost of revenues was $1.5 million, increasing 23% over the same period last year due to higher regional developer royalties and commissions, which reflects the success of the RD strategy.

Selling and marketing expenses were $2.1 million compared to $1.5 million. General and administrative expenses were $8.7 million compared to $6.6 million. As previously discussed, a significant increase in corporate clinics opened over the course of the year requires additional resources to ensure our high operating standards.

We posted net income of $815,000 or $0.06 per diluted share compared to $953,000 or $0.07 per diluted share. Total adjusted EBITDA for the first quarter of 2020 was $1.7 million compared to $1.6 million in the same quarter last year.

Our strong efforts to maintain our marketing outreach during COVID-19 will benefit our brand. Franchised clinic adjusted EBITDA increased 19% to $2.8 million. Company-owned or managed clinic adjusted EBITDA was $1.4 million, up 8% compared to last year, even with the expenses associated with the new clinics.

Corporate expense adjusted EBITDA loss increased from $2.1 million to $2.6 million due to accounting and legal fees. As Peter noted, we're conserving cash by deferring capital expenditures, including slowing the pace of our corporate clinic expansion, negotiating with landlords for rent deferrals or abatements and analyzing other opportunities to reduce costs.

During and after the quarter, we took measures to fortify our position and increase our financial flexibility. In February, we entered into a nondilutive line of credit with JPMorgan Chase Bank. The senior secured credit facility of $7.5 million included a $5.5 million developmental line of credit and a $2 million revolving credit line. To prepare for the uncertainty related to COVID-19, in March, we drew the full $2 million from the revolving credit line. And at March 31, 2020, our unrestricted cash totaled $10.7 million, including the $2 million draw compared to $8.5 million at December 31, 2019. The $5.5 million developmental line of credit can only be accessed for development, not for general corporate purposes or working capital needs. The accordion feature related to the revolving facility is uncommitted, and therefore, we are unable to utilize it at this time.

By March 31, 2020, the company fully utilized the debt financing available to it. In April, meeting the CARES Act and PPP loan requirements, we applied for assistance and received $2.7 million through JPMorgan Chase. This 2-year loan has an interest rate of 0.98% per annum with initial principal and interest payments deferred for 6 months. The goal of the program is to maintain jobs in the small business sector, and we are using the PPP loan proceeds to ensure we can retain our employees and fund the payroll. The Joint operates 61 clinics and as a franchisor, supports 469 franchised small businesses across 34 states in this country. Because of these PPP resources, we have been able to keep all of our corporate-owned or managed clinics open.

To date, we have not furloughed or laid off any of our 150 full-time employees or nearly 250 part-time employees. Based on our current interpretation of the regulations of the program and the ongoing uncertainty of the impact on our business due to COVID-19, we believe we continue to meet the eligibility requirements of the PPP loan.

As announced in our press release disclosing the loan, as of April 14, 2020, after giving effect to both loans, we had an unaudited unrestricted cash balance of $13.6 million. In March, we withdrew our financial and clinic opening guidance. Until we have a better understanding of the impact of COVID-19, we will not reiterate guidance.

And with that, I'll turn the call back over to you, Peter.

Thanks, Jake. Turning to Slide 8. While no one can accurately predict how ultimately this will unfold, we do know that people will continue to seek more noninvasive holistic ways in which to manage their pain, and we'll be ready to treat them. We're confident in the long-term viability and the value proposition of our business model.

In closing, I would like to once again express my deepest gratitude to all of The Joint Chiropractic teams who've continued to serve in this unprecedented pandemic. Their dedication to our mission is awe-inspiring. To our franchise community, our RDs, our corporate team and The Joint colleagues across the country, I thank you. We're in uncharted waters, and you are truly making a difference in all the lives that we touch.

Julia, I'm ready to open up for Q&A.

(Operator Instructions) Your first question comes from the line of Oliver Chen.

Regarding your remarks on new patient counts, what are your thoughts about what's ahead and what you're monitoring as a catalyst for that improving and things that you may be able to control versus ones that you cannot? I would also love your take on member attrition, which looks like it's been fairly stable and your thoughts on managing that as well. And I have 1 follow-up.

Thank you for those questions. That as we've talked about on the call is that there's no question that the metric that we've had the greatest in negative impact is our new patients, which makes sense to me, that we have a core patient base that continue to come in to see us. And that if you're questioning whether you want to try chiropractic care for the first time, it makes sense to me that in this pandemic, you may hesitate before you do that. And so that we are monitoring very closely the impact that's having on our overall business and that we are preparing for a program to relaunch, once we get further past this pandemic, to reeducate those consumers that they should be able to come in. We think, actually with chiropractic care, in light of this pandemic, with our doctors standing up and serving patients, that we're in a space more than ever before to truly be able to educate the consumer about the power and efficacy of chiropractic care.

That on the attrition rate and what -- or just what our level of members that drop, again, I would be -- I was a little surprised on how unaffected it was. It's almost -- it's a little -- maybe a few points or 1 point higher than our traditional attrition rate. And so again, I think that reflects those patients who are already a part of our system and using our services continue to do so. And they see this as a part of their essential health care. So that they are, in fact, coming in as we continue to be open to serve them. And so that, to me, was a little surprising, but very gratifying to see that in our system.

And my follow-up was you've done a really proactive job managing liquidity. What were some of the trade-offs you made in deferring the CapEx? And also as we think about your SG&A, are there fixed versus variable costs? How have you been managing some difficult choices?

Absolutely. Thanks, Oliver. You're right. We were in a pretty rapid period of growth. So we first looked at those capital expenditures and the greenfield development or acquisition of franchised units. We had a lot of dollars earmarked for that, that we're able to slow the pace and watch how this unfolds.

We've gone down line-by-line through the P&L, analyzing the rest of those variable expenses. As we mentioned, because of some of the liquidity choices that we've made, we've been fortunate to not have to make some difficult decisions yet. All of the actions that we've taken so far are geared towards preserving liquidity at the moment. And we'll watch and see how this unfolds, but there's such a great deal of uncertainty that we're being very mindful in going through kind of line-by-line on that front.

Your next question comes from the line of David Bain.

I guess, Peter, I understand the ramp down in CapEx in the current environment. But looking longer term, how does what's happening with COVID change your strategic mindset or opportunity for additional accretive buybacks? I'm sure there's several opportunities that have emerged in rents. I think you mentioned rents. Those are probably also lower in prime locations. I mean just given your cash position, given COVID, can you give us a broad-based view on kind of the corporate-owned strategy going forward? At what point visibility is there in your mind to take advantage what I think many of us think is a very proven business model?

David, thank you very much and a great question. And that -- to answer the question in the broadest terms, what do I think COVID impact would have on our overall strategic vision or strategy? And I would say none. I would say that the soundness of this business concept, as you just mentioned, is still there, that our strategy of having both a combination of corporate units with our franchised unit is sound. And I absolutely believe that we will continue down that direction.

The challenge we face right now is that for anybody to predict what's going to happen between now and whenever the end of this pandemic is or whatever we even call the end of the pandemic is uncertain. And that we all can look at different predictions. Are we going to get the big V? So we've gone through this plunge and now we're going to go up on the other side and everything will be better? Or is it going to be W? Or is it going to be this horrible squiggly mark that lasts for 18 months? I don't know.

And so as Jake just said, is that one of the biggest levers that we have to preserve cash is, in fact, our greenfield development and acquisitions now that we do have the $5.5 million line of credit from JPMorgan that is specifically for development. And that yes, there could be certain opportunities that would make sense as we look forward and continue to manage or to respond to the impact of the COVID virus that could mean that we do a couple of acquisitions here.

You didn't hear us say that we will stop greenfield. We -- listen, we -- you all know that if we're going to open between 15 and 20 greenfields in 2020, which is what we announced pre-COVID, what that means is that, that is a lot of work that we have been doing for the last year in preparation for that and that, that work is still out there. So that we are working with some of these nearly opened clinics, nearly signed leases, existing leases that we're trying to build out. And so we're being very, very thoughtful about where we push those resources to move those deals forward in light of where we -- and each day, looking at where we are as this pandemic impacts our business.

Right. Okay. Perfect. And I guess I got one more. I think the suspension of 2020 guidance -- I know, I'm trying to choose, 2020 guidance is obviously prudent, and I think we all appreciate you did it right away. I don't believe you suspended the calendar '23 metric guidance of 1,000 units. Based on your commentary just now, can I assume that, that, at this point, at least, is still intact?

Yes, it is. That we -- absolutely, we did -- we have not backed away the idea of getting to 1,000 units by 2023. I can reiterate, we believe in the soundness of this business model. We -- even in the midst of this pandemic, you can see the numbers that we're posting, that we believe that while we may have a little to catch up because of what happened in this year, is that we're still, at this point, believing that we can reach the 20 -- the 1,000 unit goal by the end of 2023.

Your next question comes from the line of Clarke Murphy.

I know you guys mentioned the slowing of corporate store growth from the 16% to 20% range that you initially guided. I'm just looking to see, is there going to be a similar decrease in franchised unit growth?

Yes. I think that's a logical leap of faith, Clarke. What we do have is, based on our previous guidance, there was a lot of clinics that are in the works. So we do have a pretty robust pipeline right now. I think the question is really -- as everyone is kind of waiting to see how this unfolds. So I think we'll have some pent-up demand, but there's no doubt that I think our overall numbers will be impacted.

Okay. And then if you could just provide any additional color. I know you mentioned that all of your corporate-owned clinics are still open. Do you have any visibility into how many franchised clinics are still opening and kind of what the impact to patient visits that those clinics has been like?

Absolutely. Yes. And that -- the overall system was affected by about 90%. So if you take that 10%, that's between 50 and 60 franchised units that were affected. And again, we've had quite a few others that have modified their hours to try to accommodate during this time. So that's the overall kind of impacted population. Was there a second [Q] to that...

Yes. Just like if you could talk about what percentage of patient visits are still occurring at those clinics.

Yes. And I mentioned that. And when I was talking about [area] people specific

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full month we've had with the full impact of the COVID-19. And that -- and what I mentioned is that, overall, both including corporate and franchised clinics, the overall expectation on the visits that we would have been expecting was 60% was theirs. So obviously, that was a 40% drop. And that really was across the network.

We had specific markets that had a unique impact. So for example, the only state where that -- because of the directives from the governor, that we closed down fully for at least a month was Colorado, where we had 28 clinics. At Colorado, the directive has been amended and those clinics are opening up. But when we talk about that 60%, it's an overall average of all corporate and franchised clinics. And what I would say is when we look at all the different metrics we've been mentioning, whether we're talking about new patient growth or attrition or even the conversion of those patients who are coming in, is that they've been pretty consistent across the board in terms of both the corporate and the franchise performance.

Your next question comes from the line of Frank Takkinen.

I'm going to follow up on Clarke's a little bit here on the 60% figure you were speaking to. I thought that was pretty impressive that you were even able to hold on to 60% of your business. So I was hoping you could talk a little bit more about some of the trends you saw across April, maybe comparing the first half of April versus the second half of April and maybe even potentially the first week of May to see if you're starting to see any early signs of maybe a potential trough in some geographies.

Frank, another great question in that what I would say is that -- just also understand that 60% is visits and that because 80% of the average clinic's member is subscription, is that, that doesn't necessarily even reflect what we would say is what the gross sales impact was. And I think I mentioned in my clinic (sic) [comments] is that gross sales against what we would have expected in April this year compared to April last year was down about 30%. And so you can see that there is still a lot of our patients, even though they may not be visiting us much, but they haven't necessarily dropped their membership. And so you have that overall impact.

And I've been talking to a lot of other franchisors and that both have been partially opened or doing just delivery and whatever their systems are, and I would say uniformly across the board is that we all have been feeling kind of an uptick, I would say, in the last part of April and into May. And so that -- there is definitely -- as we're measuring these metrics on a daily basis, we're seeing kind of -- it feels like at least 1 trough that we're moving to the other side of. Now what that trend means over a 10-day period or 2-week period or a few more days in May is anybody's guess, that it's very heartening to see. And that as we are preparing for, as I mentioned, the marketing campaign, where we want to go out and come back to those patients who have frozen or canceled and ensure that they come back to us and then do a further reach out to our new patients, who we believe that come under the fold of chiropractic care in a new way. We're watching that very, very, very carefully to see just how sustainable this is and what this means going forward.

Got it. And then following up on -- in that same area of thought. I was wondering if you're also seeing any differences of patient stickiness when you're thinking about your clinics that have been opened for maybe 48-plus months versus your 13 to 48, and then your newest, less than 12. Just trying to get a gauge for stickiness across your different -- more established clinics versus some of your more new clinics.

Yes. I think the more established the clinic, the more established their active member base is, right? So when you think about the phenomenon that we're most deeply impacted by our new patients, the clinics that have a robust, active member base that have those core customers, as their attrition levels continue, their active member base will decline, but the overall remaining patient base is still strong, right? They had a bigger base to start from. As you start to think some -- about some of the younger clinics, they're still building that active member base. So when you think about the impact to their new patients, it's going to create a longer ramp for those younger clinics. And that's why it's so critical for us to try to develop these marketing programs. One of the things that we're being really mindful of is that we want to make sure that we have the resources to get back out there and target those opportunities when we have a little bit more clarity where this is going. So I would say as clinics are building those new patient bases, they're probably going to have a little bit longer runway.

And be a little more vulnerable.

Absolutely.

Got it. And if I could just squeeze one last one in. Just given the fragmented nature of the overall market, could you talk to maybe the thought process around your guys' financial strength as a larger network when you do come out of this and maybe could tail it into how you're thinking about your marketing spend in the potential case that you could start to take some share from some of the less financially strong competitors in this fragmented market.

Yes. That's a great question. And obviously, I know all of us have been in all kinds of different webinars on topics related to COVID and the impact it's having on retail. And I think one of the uniform takeaways from this COVID impact is that the mom-and-pops of your industry, whether it's chiropractic or it's hair salons or your frozen desserts, are going to be the ones that suffer the most, have the least resources and are most vulnerable to bankruptcy. And so I've heard over and again is that in these change -- these franchise systems that have the ability to do these webinars and collectively work together and pool resources so that you can maintain a marketing presence in a local market, they're the ones -- they are absolutely going to be the ones that survive and thrive. And I think that we are, in fact, going to see quite a number of bankruptcies, specifically in those smaller mom-and-pop operations that just don't have the resources to tap into to weather this storm. And I think that is absolutely reflective of chiropractic.

In an interesting way, what that does for us is that -- one of our critical issues is to make sure that we have the highest quality doctors to fill our clinics and serve our patients. And as these challenges impact the chiropractic community, I don't know that it changes our competitor landscape so much because that we really don't have any major competitor at the moment. But I think what it does do is give the opportunity for those doctors who are independent, who are finding more and more of a challenge to maintain their practice to be able to take a second look at The Joint and see us as potentially place to work and still stay in the chiropractic community.

Your next question comes from the line of Jeff Van Sinderen.

I guess my first question, just thinking about this -- and a lot of people have been deferring going out anywhere and some of them deferring getting chiropractic work done on them. I'm just wondering how you're thinking about the potential for pent-up demand for those that have been suffering with pain during COVID?

Yes. It's certainly a possibility, Jeff. We -- right now, we are an essential business. We're out there providing that care. We will be there when those patients are ready to come in and receive their treatment. I think that's why it's important for us to be mindful of that marketing spend, right? So that we're -- our presence is still out there and trying to preserve the resources so that our name is out there, that they know that we're available to them. But we certainly have the clinics that are open and available. And you're right, I think there could be a pent-up demand. But again, with the uncertainty, it's just hard to say.

And one of the things we're doing from -- giving a lot of advice to our franchise community and our own corporate clinics is that this is a time to stay fully engaged in the relationship with your patients. That whether you're closed, whether you have more limited operating hours, whether you're open in the normal hours is that now more than ever is that whether their patient feels uncomfortable to come in or whether they're coming in on a regular basis is that you want to be as fully engaged in that relationship as ever before. And we feel that, that's going to help us as we come out of this and really go back out there and reach out to our frozen patients or patients that canceled because that they were uncertain, that gives us that space to be able to come back and let them know that we're there for them, and that this is the time to come back.

Okay. And then you mentioned webinars. Just wonder if maybe you can touch on a little bit more of how the process of regional directors adding new franchisees is evolving, if at all, during the COVID paradigm. And then maybe how we should think about the pace of adding new franchisees this year.

Sure. There is no question, as Jake said earlier, is that whether we're talking about franchised sales or franchise openings is that we definitely will have an impact on both those accounts. Our previous guidance, when we talked about new franchised clinics in 2020, we had guided between 80 and 90. And of course, we've pulled that back.

And as Jake said, is that -- and even with our own clinics is that there's a -- and listen, this pandemic is what, 2 months old? And the average time to build out a clinic, let's say, is somewhere between 6 and 9 months. So obviously, there's lot of signed leases there and businesses that are being built and that -- and interest in buying new franchises.

We talked about RDs sold at the end of March, when we felt like all the wheels were falling off in the U.S. economy, that we sold 6 franchises in April alone. And so that there is, I think, a group of investors and supporters of The Joint from a franchisee perspective or an RD perspective, who can see beyond this pandemic and truly see this as a viable business model that will be able to transcend the challenges that we're facing today.

We do expect that there will be an overall negative impact on our franchised sales, that we're seeing it. We just told you we had April sales, we're at 6 compared to 30 in last year. I would have expected to equal or exceed that number if we were in a normal environment. That we know that as this unfolds, that in some cases, you can get better deals with your landlords or in some locations that wouldn't have been available, but on the other hand, trying to get a municipality that's in -- that everybody is working from home or is closed and getting your permits. And we're definitely seeing a negative impact on the time to get a clinic opened just because of the fact that so many of the -- whether it's your construction teams or whether it's your permitting process, are being impacted by the timing to be able to move forward in those areas.

Okay. And if I could just squeeze in one more. Just wondering with the reopening of the U.S. upon us, how are you thinking about getting all clinics opened and ramping hours at some of those that have cut back and getting the rate of patient visits up?

Well, it's a great question. And the answer really is exactly as this patchwork of responses across this country is out there, is that as you know, every governor has had their version of shelter-in-place and has their determination about how much they're going to open and what parts that they're going to open. So I don't that we'll have like a national moment where, "Okay, we're all open." What we're doing is working region-by-region based on the directives and regulations of the state we're operating in to ensure that we're taking -- that we're able to either increase our hours or we reduce them or like in the case of Colorado, actually, we opened the clinics. As I mentioned, Colorado was the only state where we were literally, in order to comply with the directives from the governor, that all 20 clinics were shut down. Those directives were changed or were modified as you're seeing across the country. And that based on those modifications, while we've had to make some significant changes in the way we operate the clinics in Colorado in order to be compliant with those new directives is that the majority of those clinics now in Denver are, in fact, operating, and we're working with them to try to reengage, like as I said, with our patients to bring them back into the clinic. So we're seeing that and working closely. That's our safety and support team that we put out there, working with our franchisees to respond market-by-market as those conditions change. And then at some point, I think we'll get to a point when we feel there's enough of the country that is open, that we can look at something on a more national basis in terms of really reaching out and educating, on a national basis, consumers the effectiveness of chiropractic care.

Your next question comes from the line of Linda Bolton-Weiser.

So can you just remind us if you have franchisee groups that kind of have multiple units? Or are they more individual life-types situations?

And can you also give us some feel for how you are viewing the financial strength of the franchisee groups? Is there any way of saying a percentage that you think is leveraged versus a percentage that might have higher financial flexibility? Can you just give us a little color for that?

Sure, Linda. The first part of your question -- I guess, I'll start with the back end of the question first is of the 469 franchised clinics, all of them are supported by our team of regional developers or franchise business consultants. And they have a very intimate knowledge of each of the franchisees and their market. We can certainly look at the KPIs through our systems and monitor how their sales and visits and all their standard KPIs are tracking. But because we have our regional developer model and a great team of franchise business consultants, they have a great pulse on the health of the franchisees. So one, we have a pretty intimate touch point.

Of the composition of the franchise group, that 469, we've got 2 operators that operate about 50 clinics. So pretty significant operators in that right. And then the balance, there's about 160-something additional franchise groups that make up the balance of those units.

The other thing I just want to say, Linda, because I believe this is something that's really important to us as well as the financial health of our franchisees is that the majority of our franchisees did, in fact, also apply for PPP loans. So small businesses and that -- while that in the first round, maybe, I think, what, about 25%, 30% of our network as we could understand it, we're able to obtain those loans. I think in the second round, we've seen that move up. And so that we're pleased to see that those franchisees have been able to tap into that program precisely for what it's meant for: it's to protect our employees and keep them off unemployment. And so that we're doing everything that we can to ensure the financial security of our franchise community.

Okay. And then can I just ask you, I realize when you talk about it's not going to be like a one-moment reopening. It's going to be a gradual process. But can you give us like -- like what kind of metric are you looking at to determine what might trigger your desire to open corporate clinics again? So is it going to be looking at the new member, the new patient numbers metrics? Or is it going to be looking at that percentage of appointments kept? Like what's the metric that you're going to be looking at to say, "Okay, it's time to kind of get back to it?"

Yes. It's a great question, Linda. As a concierge kind of appointment-free model, we'll follow the KPIs in the markets, right? I think the tricky part of that question is when is the right time to open those clinics again. And again, there's so much uncertainty out there as to when that right time is. What we've always said is that clinics that start strong, stay strong. So we want to be really mindful that we're trying to time that right. And in a period where there's so much uncertainty or shelters-in-place or whatever the directives are, we're trying to make sure that we're staying, of course, in line with the public safety regulations, but also standing ready so that when the patients are ready to come see us, we're ready to open those doors. So we're monitoring the KPIs very closely in the surrounding areas to see what the traffic patterns will be like. But I don't think we can be too soon in that process because we want them to have the best foot forward.

I also would say, Jake, is that as we look at this, of course, cash is the question, that we have a number of clinics that are in the process. We have some ability to kind of speed it up or slow it down. Some of those issues are outside of our impact. We haven't said that we won't do any. We're just saying that we're slowing it down. And by slowing it down, what that does is it preserves us the ability to make sure that we are, in fact, preserving cash as we go through this impact. And we see when those metrics recover and we see gross sales improve, when we see a new patient comes in. And so I think that we have those metrics to help us understand the impact it's having on our overall network. And it also allows us to say how comfortable do we feel to recommit those resources to still make sure that we have the liquidity on hand to keep this business going forward.

Your next question comes from the line of Anthony Vendetti.

Just out of curiosity -- I may have missed the beginning of the call because I have multiple calls going on today. But as -- in terms of the -- I'm sure you have, for your corporate-owned clinics, a process in place so that the proper physical distancing and the proper PPE is being utilized by the staff and the chiropractors. In terms of the franchisees, are they following the corporate guidelines? Or is it left up to each franchise owner to decide how to best follow those type of guidelines and to ensure that the patients that are coming in feel safe and secure with the procedures you have in place?

Anton, it's such a great question. And that there is no question that the franchisees are being held to the exact same standards as our corporate units in terms of making sure that we're complying with all of the enhanced procedures and client cleanliness and social separation and making sure that the patients are in fact feeling safe. And now you also are governed by the local entities. So some of the rules and regulations, for example, in Colorado is that with these new directives to open, it's requiring that the patients themselves have a mask. It's requiring that the staff in the clinic have a mask. It's requiring the use of gloves that is -- that is changed between each of the patients. It's requiring actually the making of an appointment, which is we're a nonappointment-based concept. So we're adapting to very specific rules and regulations of each entity that we're operating in. But then we also have this national standard that's enforcing the social separation, that's pulling all of the nonessential things out of our waiting room so there's less opportunity for virus to be sitting in it. We're limiting the number of patients that go back into the open bay, that we're utilizing enhanced procedures to sanitize the tables between adjustments. There's a whole series of other programs and protocols that we're putting in place and that -- that are being enforced uniformly across the network. And it's something that -- it's not like we have franchisees who don't want to do it. I think that there's such a level of awareness across this country about this issue, is I think that there is a very high adherence in our system to ensure that we are using the highest standards to protect our patients and our staff.

(Operator Instructions) You have no questions at this time.

Okay. Thank you, Julia. I want to thank all of you for your time today. Please note, we plan to participate in the Craig-Hallum virtual conference scheduled at the end of May. And as I stated when I started this call, our primary concern is the health and well-being of our patients and those who serve our patients. Therefore, we're committed to remain open whenever and wherever possible.

Typically, I end the call with a patient story. As the social media had been -- had such an effective tool in engaging in our -- with our patients in this pandemic, I'd like to close with a collage of some patients' posts recently on our website. [Elaine A.] writes, "I was so happy you were open and there for me. My weekly visits are what keep me straight." [Matt] posts, "Thanks for being open. I open up the -- I work at a grocery store, and my clinic has kept me going during this difficult and crazy time." [David K.] writes, "Thanks for staying open and helping me to stay physical." And finally, [Catherine F.] posts, "Thanks for being open and so respectful of the social distancing process. We're all in this together. [Dr. F.], you got me back in order." I think our patients have kind of a sense of humor. This is a smattering of the thousands of messages that we've received that include gratitude of being open and being treated by our doctors. Thank you, and stay well adjusted.

This concludes today's conference, you may now disconnect.