Good day, ladies and gentlemen, and welcome to the Q4 2015 Joint Corporation 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 morning, 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. More than 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 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…

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 Greenfields represent 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 NFA is also consistent with our strategy of demonstrated free markets and desired levels and concentrated clusters intensely where required as with new markets like Chicago. Continuing into 2016 we are pleased to announce 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…

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 acquisition 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…

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 to 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]. Our first question comes from Brent Rystrom from Feltl and Company. Your line is now open.

Can I ask to 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%?

This is John. You need at the clinic level?

Yes. I mean 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 wanted to enquire as to also the guidance on the store number. You had said that you are going to add 18 to 20 Greenfield corporate stores, is that right for 2016?

Actually 18 to 20 total units and breakdown contains but it will probably -- it probably is around 50-50 [just this product].

That's lower than we had previously thought. I am curious since the last time we talked about store development why have change? Is it just a more 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 activity 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 into the 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 are allowed 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.

Tell me [indiscernible] 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 and the beginning of a recovery in cash would be around the fourth quarter of 2017.

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%. This is kind of the best stat 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 20% from the prior six months or from the year six months?

Yes. Its sequentially 20% from the month before we owned it. So for six months it is 20%.

So implying, thinking how comps were [indiscernible] at some phase in the 40%?

Yes. Exactly right. 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 this is David, keep in mind that those units that we acquired had -- are members of a comp class it and of themselves. So you can't double apply a comp. So when -- 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, 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 for your age classes definitely. And the system wide number 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 see in some phases which we are sort of happy about.

Just one last point for me, necessarily the comps that we announced for this first quarter include or exceed the comp list afforded by that 20% revenue growth under our management [indiscernible].

Makes sense and sounds impressive. So how should we think, when I think 18 to 20 stores this year, you mentioned being a similar number next year, long term you are going to start to announce substantial amounts of cash within a couple of years. Would it be really more thanks to that 18 to 20 might grow by 25% a year something like that as the [virtual ramp] and do better cash flows?

I think that's a very fair assumption because as you know the model well, once it gets 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 Brent would be you should 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, [indiscernible] mature business operation 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 to the ramp was, I am sure you are keenly aware that the age class of the franchise system continues to be true up system and comp active system wide comp rate. So to do the [indiscernible] royalties associated with that that are embedded in the metrics against these 2017 number that Frank referenced.

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 their 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 hit its head. We expect Q1 to be the high watermark and then to start trending down from there.

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

I'd say around $0.5 million.

That's all I got guys. Thank you.

[Operator Instructions] Our next question comes from Anthony Vendetti from Maxim Group. Your line is now open.

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 you should [indiscernible] in the market for you most of them it seems like they 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, nine of them were in Chicago which is a brand new market for us. The balance were in LA and Orange County.

Then I just want 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?

That was for the quarter it was 31 I believe we said and for the year it was 34 [indiscernible].

31 for the quarter and 34 for the year. Okay.

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

So that would 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 your -- 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 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 recognize as we often do in retail as 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 it gets approximate to a chiropractic college as a higher degree of chiropractic penetration should have more choices. Chicago as an example, we talked about the fabulous numbers we did in opening those clinics relatively quickly. I will also say that operation 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 kind of the model that is going to be successful for these people. And we had 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. But [indiscernible] do more with themselves than they would have to do with ours. I think our franchisees have found that to be case as well.

Thank you.

We have a follow-up question from Mr. Brent Rystrom of Feltl and Company. Your line is now open.

I just 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?

I have got it here someplace. 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 the exact rate of the 4.8 million [indiscernible] in the fourth quarter how did they 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 a store, 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 those 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. 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 again 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, then take the $700,000 on 43 units and assume that that will rate per store is going to be normally [Greenfield].

That's right. Yes. Because -- as I am sure you know Brent, you got as much opening as 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 day so that it grows after that. And so the spending is always kind of larger, and if you have a lot of openings in that quarter you are going to have a higher number.

The final question I had guys, 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 its 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 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 will then gradually throughout the year. So the guidance does include, everything we would expect from a price increase.

Thanks again, guys.

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.

Yes. I had just like to take the opportunity to thank everyone for participating in the call today. And just once again a word of 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.