Good day, thank you for standing by, and welcome to The Joint Corp. First Quarter 2021 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Moriah Shilton of LHA Investor Relations. Please go ahead.

Thank you, Rachel. We are on slide 1. Good afternoon, everyone. This is Moriah Shilton of LHA Investor Relations. On the call today, President and CEO, Peter Holt will review our first quarter 2021 performance metric and provide an update on the business. CFO Jake Singleton will detail our financial results, and then Peter will close with a summary and open the call up for questions. Please note we are using a slide presentation that can be found at ir.thejoint.com/events. Today, after the close of the market, The Joint Corp. issued its financial results for the quarter ended March 31, 2021. If you do not already have a copy of this press release, it can be found in 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 of 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 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, 2020, as updated…

Thank you, Moriah, and I welcome everybody to the call. I'm delighted to speak with you today. We've entered 2021 well positioned with the resilient business model and accomplished team operating at a very high level and a strong financial position. During the first quarter, we continue to execute our plan to accelerate growth and deliver strong results. In April, we celebrate our 600th clinic opening, and we continue to strive to reach our goal of 1,000 clinics in operation by the end of 2023. Let me be perfectly clear, this is just one of many milestones, and just the beginning of our long-term growth blueprint. Before I elaborate, I'll review our operational and financial performance for the quarter. I'd like to begin by welcoming and educating our new investors. The Joint is revolutionizing access to chiropractic care. Our core concept has remained steadfast. Located in convenient retail settings, we provide concierge-style membership-based services, without the need for insurance or appointment with attractive pricing and convenient hours. Our growth strategy is to build on our brand, increased awareness of the efficacy of chiropractic care, attract new patients and open more clinics. We're already the largest and most recognizable provider of chiropractic care in the country. Given the high level of fragmentation among chiropractic care providers, we have a significant opportunity to continue increasing our market share, as we redefine and expand the market itself. Turning to slide 4, while Jake will discuss our financial results in much in detail in a minute, here are a few highlights of our strong first quarter 2021 results. Revenue grew 29% compared to first quarter 2020; system-wide sales grew $77.8 million, increasing 28% compared to the first quarter last year, our comp sales for clinics has been open for at least 13 full months…

Thank you, Peter. Turning to slide 10. Comparing first quarter 2021 to first quarter 2020, system-wide sales for all clinics open for any amount of time increased to $77.8 million, up 28% year-over-year. System-wide comm sales for all clinics open 13 months or more were 21% compared to 15% in the prior year. System-wide comm sales for mature clinics open 48 months or more, were 14% compared to 10% in the prior year. Revenue was $17.5 million, up $3.9 million or 29%. Company-owned or managed clinics contributed revenue of $9.5 million increasing 30% from the same period a year ago. Franchise operations contributed $8.1 million. Cost of revenue and $8 million up 19% over the same period last year, reflecting the increase in franchises that resulted in higher RD royalties and commissions. Selling and marketing expenses were $2.5 million, up 21% over the same period last year by an increase in advertising fund expenditures from a larger franchise base and an increase in local marketing expenditures by the company-owned or managed clinics. G&A expenses were $10.1 million compared to $8.7 million; the $1.4 million increase was primarily due to higher payroll and related expenses as we scale our infrastructure for rapid growth. G&A as a percentage of revenue in Q1 2021 was 57%, down from 64% in Q1 2020, reflecting improved leverage of our operating model. Given the slower pace of Greenfield development in Q1, we believe it represents a proxy for mature operating system. However, with our planned accelerated Greenfield openings, we do not expect the same level of operating leverage over the next several quarters. Operating income was $2.0 million, compared to $753,000 in 2020. Income Tax Benefit was $364,000 compared to $66,000 in the prior year; the income tax benefit was primarily driven by excess tax benefits…

Thanks, Jake. Turning to slide 12. As discussed, we're investing in our future, we'll make decisions that impact our short-term profitability in favor for long-term growth, like increasing Greenfield clinics and expand our market position and brand awareness. In April, we're pleased to welcome Mark Miller into the newly created position of Vice President of Real Estate and Construction. Mark is a proven leader with more than 30 years' experience accelerating unit growth for Fortune 500 companies and industry leaders, such as Panda Restaurant Group, CVS and McDonald's. Mark will work closely with our Vice President of franchise, sales and development to bring additional expertise and horsepower to our already talented development team as we march toward our goal of reaching 1,000 units in operation by the end of 2023. Speaking of this goal, we believe that this is the only the starting point for a new phase of development, our next phase of development; 1,000 clinics is a known tipping point for franchise systems and achieving national brand awareness. At that scale of that magnitude, we can more easily and effectively leverage our brand marketing and operational infrastructure, which we expect to drive growth at an even faster pace. This model of accelerating expansion has been proven repeatedly by household name franchise systems operate in that small box retail space of approximately 1,000 square feet. The power of franchising that it brings together like minded people to build a brand, it drives faster expansion and increases market awareness and education and accelerated innovation. Looking ahead, we have a map that identifies more than 1,800 Clinic targets based on the analysis of actual patient demographic and psychographic. To be clear, this is just the tip of the iceberg. Only 50% of the US population knows what chiropractic care is. If…

[Operator Instructions] Our first question comes from the line of Frank Takkinen from Lake Street Capital.

Great. Thanks for taking my questions and congrats on another good quarter. Absolutely, so starting with the increased commentary beyond 1,000 being just the starting point to the growth of The Joint over time, can you bring us a little deeper into how you're thinking about, how this could unfold over the next three to five years after you hit that 2023 1,000 clinic mark, and just given your experience in getting clinics to this 1,000 point tipping point, explain the importance of that, and how you expect to accelerate growth from there, when the base will be getting very large from that point forward.

Sure. Frank, thanks are very great questions. I'll take the second question first that's in terms of how do we expect to see that expansion when we're already moving so quickly? And I would say the answer is the market itself is growing. As I mentioned on the call that 27% of all the patients who opened the door for the very first time to The Joint last year, had never seen a chiropractor before. So this isn't simply trading off market share. So we know it's roughly a $16 billion market. And we know we have roughly 1% of that market. What we're doing is redefining the market; we're expanding the market, which is absolutely one of the most important parts of that accelerated growth. Yes, we know we can get to 1,000 units and why 1,000 units are so important is this isn't that small box retail space. We're not a Procter and Gamble; I don't have $100 million to get you to change your toothpaste. What I have, as in those other small box retail concepts, is that we have storefronts and with those storefronts, we educate our consumer to open that door for the first time. And wow, this is a really interesting service. I'm going to use it oh my gosh, I'll tell my friends, I'll continue to use it. And you see that expand. So it's those storefronts that become one of the most powerful accelerators of the - of the growth of this business or the building of that brand. That's why there's such a focus on getting those units out and open, and if you look at our growth patterns is where do you see most of our new growth coming from, from our existing markets, because what happens is and this again, that space where you've got your customers coming in, they love your product and service. They're like, oh my gosh, this is amazing. Are you franchised? Why not. So some of the leads that we get for the new franchisees come directly from being patients of our clinics. So as you have more clinics out there, and you have more patients out there, you have more leads we're interested in growing and you have a market is only expanding. You can't have these incredible comps that are purely organically grown. So we just reported 21% comps in Q1 2021. With mature units at that over 14 months doing 14%, you can't have that kind of growth if you don't have an extraordinarily expanding market.

That's great. And then my second question, just wanted to ask about the guidance a little bit more specifically, given your previous years of seasonality excluding 2020 due to COVID, there's been this cadence of a building throughout the year, the likely strong quarter in Q4 with normally a pretty sizable bolus of open new franchise openings. So I wanted to ask just if there was an extra layer of conservatism built into the number here, given the strong start at $17.5 million for Q1. So is there anything you're seeing that's given you a little bit more conservatism here? Or is it just purely keeps it prudent and conservative and continues your beat and raise mentality?

Well, Frank, you've spent enough time around us. We're going to be thoughtful about the numbers we put out there. And that, yes, that we've had a remarkable response to the pandemic. But we still are in the middle of the pandemic. And there are things that are out there that could happen that we're not anticipating at this point. And so that we're thoughtful is that as we said, we were increasing our guidance, both on the adjusted EBITDA and on the growth sales, you're right to expect that we typically we have a much stronger fourth quarter than we do any other quarter. You're right that we saw more times than not that our growth comes from a new franchise sales more in the second half of the year than the first half of the year. So I mean we really are anticipating those to continue to influence where we go. But we want to be really thoughtful about that.

Our next question comes from the line of Jeff Van Sinderen from B. Riley.

Hi, everyone. And let me add my congratulations on your strong metrics. It's great to see. I guess my first it's kind of a multi-part question if you guys can bear with me. But and I understand that some of this is a little tough to parse out. But can you speak more about what you're seeing in markets that have broadly reopened more recently, versus markets that reopened earlier? And in general, how much tailwind you think you're getting from people being vaccinated and also from stimulus checks? If at all, just wondering on those things?

It's an interesting question. And I would tell you that one of the things that had been so significant as we look at our experience through the pandemic and where we are today, and obviously we're moving - we're making great inroads through the use of vaccines, but it's not over. Is how little the markets have been impacted by whether it was a market that was wide open or market that was shut down. So we've got a lot of clinics in California, for example, which has been one of the more shut down market. We have a lot of clinics in Texas, in Florida and in Atlanta or in Georgia, which has been more open market. And when we look at that and try to compare, okay, did someone move faster than the other is, it's shockingly consistent across all those markets. Now, the one market where I'd say that we really did see a significant impact to separate from almost any other place that we were, we talked about this before, and that was the Colorado market. And in Colorado, unlike in any other market that we face, is part of the governor's directive was that in order to protect PPE. They didn't - they wanted any medical service being shut down, that was not providing acute care. And so that part of the directive was that we were shut down for I think 17 days, and then they came back with an additional directive that said, okay, you can open but only on an appointment basis. And so that had a significant impact on those 28 clinics in the Colorado market. That directive has now been changed. And so that we are back to a non appointment basis in Colorado, but if I'm looking across the country and trying to understand what are the factors that have influenced the performance of the clinics and is there a regional variance or cadence to that is, I would say, not very distinguishable outside of Colorado market.

Okay, that's helpful. And then just turning to the eight clinics that you just bought. I guess I'm wondering, are you - do you feel like there's an increasing probability that more potential deals like that will come to the table? Or where the six units in North Carolina somewhat more a function of having bought back the RD rights for that territory? Just wondering how you think about that?

Sure, Jeff, it's a good question. I think it absolutely, by buying back the North Carolina territory, it created that opportunity. But we look at those acquisitions as being an opportunistic part of our strategy; we do hold the right of first refusal. So if any clinics are changing hands, or prospectively changing hands, we have the right to look at that deal. In the case of North Carolina, it was an opportunity that came across at the right valuation, and we capitalized on that. So I think that still remains an opportunistic strategy. If I acquire a unit, it doesn't add a net positive unit to my unit growth total, right. So that's why I think we're still strategically focused on opening the Greenfield supporting our franchisees and RDs as they open their units to try to reach that scale and that 1,000 unit goal.

Our next question comes from the line of Anthony Vendetti from Maxim Group.

Thanks. Just to follow up on the 1,000 Clinic goals. Is the cadence pretty much equal throughout these next couple years? It looks like it's probably going to accelerate. And then what's the breakout likely to be in terms of franchise versus corporate owned?

Hey, Anthony. Two great questions. And I would say absolutely, there's an expectation of acceleration. And certainly in the 30 plus years, I've been building and managing franchise systems. That is a very common experience, because again, as I was talking earlier on one of the questions is that it builds upon itself, as you have more units out there, you have more exposure, you have more interest in the franchise as the market expanding. And so that you absolutely see this accelerated year-over-year over year, I would have expected us to have a much higher acceleration in 2020 if we had not had the pandemic, if you look at our numbers, so we sold 37 clinics in 2017. Sold 99, in 2018, we sold 126, in 2019. And I would have expected that just to continue to go forward if we weren't hit by the pandemic. But even in that pandemic, we hit 121 sales. And so obviously, with the numbers that we're posting, you can do the math, we're sitting here at 600 units, we've got till 2023, to say we're going to get 1,000 units open, you can do it evenly. It's okay, this is the number you have each year, but the way I would look at it is absolutely year-by-year we'll see an acceleration of the number of those - it's opening. To your question about the mix is that right now, as you know 89% franchise level in corporate with the speed of the franchise system growing, it's going to be hard to push that number too hard, or too much harder, or the corporate side of it large without doing the acceleration of the corporate greenfields that as we've talked on the call today is we expect to see an increase from what we've done in the past that I think you can see in the numbers that we're getting better and better and running those corporate clinics and by being better and better at running those corporate clinics, there's a greater interest in getting more of them out in the field. But we've given really broad ranges when we talk about what will that percentage be in it. I said somewhere between that let's say 10% and 25%. And so I know that's not real helpful for modeling but I think that's reasonable range to be thinking through as okay what is that corporate clinical growth is going to look like compared to 1.000.

Okay, you know that's helpful. And then obviously this is a big undertaking switching out your IT services and I think you mentioned Peter expected to be complete by end of June.

Well, I said summer.

Okay, summer.

When do you think is summer again?

It could be July-August, IT issue sometimes takes longer just like construction unless you have a very well-oiled machine like you guys have at this point. But if we look at the advantages of this, what metrics are you looking at that the practices or the clinics are going to see? What's the overall benefit?

It's a great question. And I think it's one that changes over time, as I said on the call that this initially is a lift and shift. So the impact I expect to have in the benefits, there are certain benefits that are getting built in that first version. But the reality of it is all we're trying to do is to take our homegrown platform and put it on this new platform and retain all of the functionality that we have built on that new platform, then as we grow and build and improve it, there's a whole set of things that we can do that we are not able to accomplish in on our current homegrown platform. And they have - they ultimately Anthony affects every aspect of the business. I mean really simple one, when the first things we want to do is get a mobile checking out there. We don't I mean, it's just, it's - we're so behind by not having that in place today. And we haven't had the platform that allowed us to do it. But we will. Now that's not going to come out in summer. But that will be one of the top priorities going forward, creating a patient portal. This whole issue, if you look at the 21st century is marketing to you as an individual we can access who you are, and target what you want, or what your issues are, and craft the message to you, which improves the ability to your whole marketing strategy in a way that we've never had access before. I've always thought that this concept, one of the most powerful assets we have is our data. And on this new platform, it allows us to do so many things with that data that we simply can't do until we get to that newer platform. But these are all things coming down the road. This is Access 1.0. And so I don't want you to get ahead of ourselves. I know that this absolutely create the foundation that propelled us into that 21st century, but we've got to get through this lift and shift first.

Our next question comes from the line of Jeff Geiser from Geiser Wealth Management.

Hey, gentlemen, great quarter. Just one quick question is striving for the goal of 1,000 in 2023, the same as reaffirming guidance for 1,000?

Yes, it is. Now we're striving but yes, we're putting out there because we believe that we can achieve it.

Great. Well, I can't think of two other people I'd rather have at the helm. Great board. Great management. Thanks so much for being great stewards of my clients' capital. Thank you. There are no lines for question in queue. I'm now turning the call back to Peter Holt. Sir, please go ahead.

Thank you all for your time today. Please note that on June 2, we plan to participate virtually in the Craig-Hallum Annual Conference. Each quarter I close with a patient's story. And this one reminds and educates us that so often pain fell to one part of our bodies actually caused by an issue in another. Another part, a patient from Phoenix wrote and I quote, I woke up and I work at a computer all day. I started noticing pain in my upper arm and was having trouble lifting my arms. One morning, I woke up in excruciating pain and I could literally could not lift either my arms, I was in tears and couldn't go to work. My daughter had been going to The Joint was very happy with their treatment, so I decided to give it a try. My doctor was so comforting and kind. He took the time to go over all of my symptoms and areas of pain. I truly thought that I was having a problem with my back turned out to be my neck. We set up a plan that worked for my schedule and after every visit, I feel better. The pain in my arms went away and I can lift them without any problem and my mobility has come a long way. I can't thank my doctor enough. Thank you and stay well adjusted.

This concludes today's conference call. Thank you for participating. You may now disconnect.