The Joint Corp. (JYNT) Q2 2021 Earnings Report, Transcript and Summary

Good day and thank you for standing by. Welcome to the Joint Corporation Q2 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' remark, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your first speaker, Mr. David Bernard [sic - David Barnard], LHA Investor Relations. Thank you. Please go ahead.

Thank you, Robert. Good afternoon, everyone. This is David Barnard of LHA Investor Relations. On the call today; President and CEO, Peter Holt will review our second quarter 2021 performance metrics and provide an update on the business. CFO, Jake Singleton will detail our financial results and guidance. 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 at https/ir.thejoint.com/events. Today after the close of market, the Joint Corporation issued its financial results for the quarter ended June 30th, 2021. 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 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 subject to the risks and uncertainties that may cause actual results to differ materially from the statements we make today. Factors that could include - 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 31st, 2020. As updated or revised for any material changes described in any subsequently filed quarterly reports on Form 10-Q or other SEC filings. We anticipate filing our June 30th, 2021 10-Q on August 6th. 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're not obligating ourselves to revise our results or publicly release any updates to the 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, is my pleasure to turn the call over to Peter Holt.

Thank you, David and I welcome everybody to the call. The strength of our business model continues to deliver and I'm delighted to inform you that we broke record - broke several records this quarter. More importantly, we expected to continue to accelerate growth and to build upon our financial foundation. During the second quarter, we opened 41 clinics, including 5 greenfield clinics, and in April, we achieved a significant milestone of opening our 600th clinic. Additionally, we sold 53 franchise licenses during the quarter. This metric supports our mid-term goal to have 1,000 clinics in operation by the end of 2023 as well as our drive for longer-term expansion. I'd like to pause and welcome our new investors. The Joint's revolutionizing access to chiropractic care. Our clinics are located in convenient retail settings. We provide concierge-style membership-based services without the need for insurance or appointments with attractive pricing and convenient hours. Our growth strategy is to build our brand, increase awareness of the efficacy of chiropractic care, deliver an exceptional patient experience and open more clinics. We're already the largest most recognizable provider of chiropractic care in the country. However, we're only account for approximately 1% in this highly fragmented nearly $18 billion chiropractic care market. We have a significant opportunity to continue to increase our market share, as we further refine and expand the market itself. Turning to Slide 4, I'd like to review a few highlights of our second quarter 2021 results. In a moment, Jake will discuss our financial results in detail. We had a strong Q2 2021. It was further enhanced and combined comparison to the Q2 2020, which is the nadir of the impact of the COVID-19 on our business. To provide context, I'll include sequential comparisons as well. System-wide sales grew to $87.8 million increasing 64% compared to our Q2 2020 and 13% compared to Q1 2021. Our comp sales for clinics that have been opened for at least 13 full months grew 53% compared to Q2 2020. And in Q1 2021, 13-month comp sales grew 21% compared to the same period prior year. Revenue grew 61% compared to Q2 2020 and 15% compared to Q1 2021. Adjusted EBITDA increased to $3.8 million, up 237% from Q2 2020 and 9% up from Q1 2021. And on June 30, 2021, our unrestricted cash was $18.8 million, compared to $20.6 million at December 31, 2020. Turning to Slide 5, I'd like to review our portfolio. Regarding clinics. During Q2, we opened a record-breaking 41 clinics, 36 franchised and 5 greenfields, compared to 12 and 1, respectively in the same quarter last year. This brings our 6-month total to 54 clinics opened compared to 30 in the first half of 2020 and 29 in the first half of 2019. 4 of our greenfields were in a cluster strongholds in Arizona, California and New Mexico. Our 5th greenfield in Virginia, marks our first corporate clinic in a brand new market in over five years. This important milestone expands our presence in the southeast and is supported by a continuous operational improvement. Most recently, we've benefited from advancements in our grand opening program and investments in digital marketing. During the quarter, 3 of our franchise clinics and 1 greenfield opened in April, achieved go-early status, which means, they attracted over 400 patients reported over 30,000 in sales in the first two months of operation. On April 1st, we acquired 8 previously franchised clinics, which were immediately accretive to the bottom line. 2 of the acquired clinics were in the Phoenix, Scottsdale market, expanding our region, our headquarters region. 6 of the acquired clinics were in North Carolina, made possible by the repurchase of the RD territory in that state, further broadening our corporate clinic presence in the southeast. Once again, we did not close any clinics this quarter. In summary, at June 30, 2021, we had 630 clinics in operation, consisting of 555 franchised clinics and 78 corporate-owned or managed clinics. Our portfolio mix shifted slightly with our corporate clinic representation increasing 1% to 12% of the total and our franchised clinics adjusting to 88%. At the quarter end, we had 282 signed agreements in some level of development. This compares to 260 at March 31, 2021, and reflects the increased interest in our franchise system. Turning to Slide 6, we're tracking to our mid-term goal of 1,000 clinics to open by the end of 2023. And we're confident in our continued clinic expansion through our franchises and greenfield openings. One natural extension of our customer base is to build upon our commitment to support the Armed Forces. We continue to honor our military by providing them discounts to our services across our clinics. In July, we announced our partnership with the Army & Air Force Exchange Service, will bring chiropractic care on base to better serve members of the entire military - community. Our initial target of clinic sites include Air Force bases in Phoenix, Arizona; Tampa, Florida; and Trenton, New Jersey. The exchange serves an eligible customer base of 33 million active duty service members, their families, retirees and their families, along with disabled veterans and government civilians who work on the military installations. Exchanges has more than 4,900 facilities around the world. Turning to Slide 7. In the second quarter of 2021, we sold a record-breaking 63 franchise licenses, bringing our 6 months' sales to 89. This compares to 11 and 35 franchise license sales for the second quarter and the first half of 2020, respectively. Our brand continues to attract sophisticated, well capitalized franchisees with proven track records. During the second quarter, our regional developers sold 87% to the franchise licenses, and they continue to accelerate our growth. At June 30, 2021, 70% of our clinics were supported by 21 RDs, which covered 59% of the Metropolitan Statistical Areas or MSAs. In May, we elected to renew 2 RD agreements with continued growth opportunities in those areas. This increase - increases our aggregate 10-year minimum development schedule for new RD territories established since 2017 to 693 clinics. Now, keep in mind, that a portion of this clinic count is already opened, but still provides a large foundation to fuel our continued clinic expansion and sales growth. Turning to Slide 8, this discuss marketing. We continue to set monthly records for new patient acquisitions during Q2 with the best April, May and June months in our history. This reflects growing consumer confidence, the benefit of increased national awareness advertising and the strong marketing contributions of our regional co-ops. In May, we kicked off a new marketing campaign emphasizing the positive impact of chiropractic on good posture. Particularly relevant was the rise of remote work and distance learning. The campaign was supported by 18 TV and radio interviews from media around the country and we're pleased to drive over 14,000 unique visitors to our new posture website. In June, we've launched a win-back campaign directed to our inactive patients. This is our fourth consecutive year, executing this direct marketing promotion and I'm happy to report that the number of patients who reactivated their membership rose 32% versus 2020. Finally, we continue to reap the benefits of our new patient digital lead nurturing platform, which we rolled out in Q4 2020. This technology enables our - our clinic teams to guide their digital leads through their initial journey to chiropractic. In Q2 2021, our digital lead conversion reached an all-time high, improving 38% compared to our performance in 2020. Turning to Slide 9, let's review our initiative to improve our IT infrastructure. I'm pleased to announce that in July, we successfully launched AXIS 1.0, the first iteration of our new IT platform. Thanks to the extraordinary efforts by our implementation team and our franchise community, we are now live nationwide. As a result, over 630 clinics transitioned from our former homegrown IT platform to our new licensed CRM built to foster continuous improvement. We now have moved to the typical debugging phase that any IT transition of this magnitude must go through. Looking forward, we're preparing to unleash the power of our new CRM platform with future enhancements that include improved business intelligence, marketing automation, patient portal, mobile check-in and more. This first critical phase was a great accomplishment. And I'm incredibly grateful for the dedication efforts of everyone in our network that help this to make this a reality. And with that, Jake, I'll turn it over to you.

Thank you, Peter. And turning to Slide 10. As Peter stated, Q2 was a record-breaking quarter. To provide context, I'll review sales from Q2 2019, as well as 2020 and 2021 to take into account the impact that the pandemic had on our business last year. Q2 system-wide sales for all clinics open for any amount of time increased $87.8 million, up 64% year-over-year in 2021, compared to 2% in 2020 and 34% in 2019. Q2 system-wide comp sales for all clinics open 13 months or more were 53% in 2021, compared to a negative 6% in 2020 and a positive 25% in 2019. Q2 system-wide comp sales for mature clinics open 48 months or more were 44% in 2021, compared to a negative 10% in 2020 and a positive 18% in 2019. When reviewing our operating statement, I typically provide color regarding our variances by line item. For Q2 2021, all of our variances reflect both the increased number of franchises and company-owned or managed clinics, as well as a favorable comparison to Q2 2020. As such, I will only speak to additional factors. Revenue was $20.2 million, up $7.6 million or 61%. Company-owned or managed clinics contributed revenue of $11.4 million, increasing 67% from the second quarter 2020. Franchised operations contributed $8.8 million, up 53% compared to the same period last year. Cost of revenues was $2 million, up 49% over the same period last year. Selling and marketing expenses were $3.1 million, up 76% over the same period last year. This reflects the larger franchise clinic base and the timing of the national marketing fund spend as well as an increase in local marketing expenditures by our company-owned or managed clinics. G&A expenses were $11.6 million, compared to $8.5 million. G&A as a percent of revenue in Q2 2021 was 57%, down from 68% in Q2 2020. While we believe the Q2 2021 level is a good proxy for a mature operating system, we believe G&A as a percent of revenue will increase over the next several quarters due to the opening of 4 greenfield at the end of June, the accelerated pace of greenfields opening in the latter half of the year and the related upfront expense of those openings. In addition, please note that our Axis IT platform is now live and certain development costs and licensing costs will now be - will no longer be capitalized and will now be reflected as a component of operating expense. Operating income was $2 million, compared to $259,000 in 2020. Income tax benefit was $666,000 compared to an expense of 118,000 in the second quarter of 2020. Income tax benefit was primarily driven by excess tax benefits from the exercise of stock options. Net income was $2.7 million or $0.18 per diluted share, compared to $116,000 or $0.01 per diluted share in the second quarter of 2020. We delivered total adjusted EBITDA of $3.8 million, which increased 237% compared to the same period last year. Franchise clinic adjusted EBITDA increased 53% to $3.9 million. Company-owned or managed clinic adjusted EBITDA increased 169% to $3 million, supported by the accretive acquisitions on April 1st. Corporate expense as a component of adjusted EBITDA loss increased 24% to $3.2 million. On to Slide 11, for a review of our financial results for the six months ended June 30th, 2021, compared to the same period in 2020. Revenue was $37.8 million, up 44% compared to $26.2 million in the same period of 2020. Operating income was $4 million, up 296% compared to the same period in 2020. Net income was $5 million, compared to $931,000 in the first half of 2020. And adjusted EBITDA was $7.2 million, up 160% compared to the $2.8 million in the same period of 2020. On to the balance sheet and the cash flow review. At June 30th, 2021, our unrestricted cash was $18.5 million, compared to $17.8 million at March 31st, 2021 and $20.6 million at December 31st, 2020. During the first six months of 2021, net cash provided by operating activities was $9 million, which was offset by $8.9 million of investing activities, consisting of acquisitions, greenfield development and IT capital expenditures, as well as the $2.7 million repayment under the Paycheck Protection Program loan that we took out in March of 2021 that we repaid in March of 2021. On to Slide 12, for a review of our guidance for the full year 2021. Based on the strength of our Q2 performance, as well as our increased franchise openings in greenfield activity, we are raising all elements of our guidance. We now expect revenue to be between $77 million and $79 million, up from $37.5 million to $77.5 million. The updated midpoint reflects a 33% increase compared to 2020. We now expect adjusted EBITDA to be between $12.5 million and $13.5 million, up from $11 million to $12.5 million. Please note, this guidance includes the impact of a greater number of greenfields that would be more heavily weighted in the second half of the year. The updated midpoint reflects a 43% increase compared to 2020. We now expect franchise clinic openings to be between 90 and 110, up from 80 to 100. The updated midpoint reflects a 57% increase compared to the 70 in 2020. We now expect company-owned or managed clinics through a combination of both greenfield openings and franchise clinic purchases to be between 25 and 35, up from 20 to 30. The updated midpoint is 7.5 times greater than the 4 opened in 2020. With that, I'll now turn the call back over to you, Peter.

Thank you, Jake. Turning to Slide 13. The numbers speak for themselves. I am so proud of our team who repeatedly identifies, develops and delivers on our growth initiatives, and the franchise community who implements these programs. Our future is even brighter. We have so much room in our business model to expand far beyond the mid-term goal of the 1,000 clinics. Market trends support our industry growth. The June 2021 IBIS report estimates industry revenue to increase an annualized rate of 2.2% to $17.9 billion by the end of 2021. With our annualized revenue, we have approximately 1% market share, and there's plenty - opportunity to increase our patient base from existing chiropractic users alone. In addition, there's room to grow the overall market as only 50% of the US population knows about chiropractic care. Notably, that nearly half a million new patients who visited The Joint in 2020, 27% of them have never seen a chiropractor before. This increase from just 16% in 2013, demonstrating our increasing ability to bring new people into the category and grow the number of chiropractic users. Given the macroeconomic climate and the industry dynamics in the June 2021 Kentley Insights Chiropractic Care Market Research Report, that's a mouthful, forecast industry revenue growth rate for the next five years to be a 5.4% per year. The Joint consistently outperforms the industry. In fact, our system-wide gross sales 10-year CAGR of 70% dwarf these rates. And the clinic level currently cites the average annual revenue per clinic in the industry is approximately $300,000. In 2020, The Joint's average clinic revenue was approximately $490,000, with our top performers seen over $1.5 million. Our success reflects many key differentiators. We leveraged the knowledge and experience helping us to create efficient operating models. We increasingly attract sophisticated franchisees accelerating our national footprint. We implement effective hiring and training practices to attract the finest doctors and utilize national and regional marketing programs to support our business and build our brand. In addition we lead general public education efforts, which attract the patients who've never tried chiropractic care before. In fact, The Joint is the largest online publisher of chiropractic information in the world. Also, to educate doctors of chiropractic about The Joint, we continue to deepen our relationships with associations and the 16 accredited chiropractic schools in the United States. Most recently, we became the Life University's official athletic scoreboard sponsor, which increases our ability to engage its student body to provide internships and employment opportunities to our clinics. It also complements our standing athletic sponsorships with schools such as the University of Houston, the University of Miami, University of South Florida and most recently, Vanderbilt University. Relationships like these enable us to draw out the natural connections between chiropractic and sports performance and exposes our brand to a wider audience. Overall, we continue to invest in the future. In fact, our decisions like increasing greenfield clinics that expand our market position and brand awareness, focus on long-term growth, and are expected to impact our short-term profitability. We are marching toward our goal of 1,000 clinics in operation by the end of 2023 and we expect that to be the tipping point that will ignite the next phase of accelerated national recognition and long-term expansion. I'd like to thank our entire system, our doctors, our wellness coordinators, our franchisees, regional developers and corporate staff, for their dedication to our mission of improving quality of life for our patients. Robert, with that, we're ready to begin the Q&A.

Thank you. [Operator Instructions] We'll have our first question coming from the line of Mr. George Kelly with ROTH Capital Partner [sic - ROTH Capital Partners]. Your line is open.

Hey, everybody. Thanks for taking my questions and congrats on a nice quarter.

Thanks, George.

So a few questions for you. First, maybe about the guidance you provided. When I played through my model and just turn it back into what you've given for full year, it's a real kind of flattening of growth of same-store sales growth in the back half. Can you talk to, are there any kind of promotions in the second quarter or anything unique that won't be repeated in the back half of the year? Or just anything you can talk to there?

Sure, yeah. I think, you know, as I mentioned in that element of the guidance in the prepared remarks, George, I think the issue there is more so in terms of the weighting of our greenfield development. So as you know, anytime we do a large amount of greenfield development, you're going to have a short-term suppression on your earnings. And so, when I look at the cadence and you notice that we expanded our corporate clinic guidance as well, basically, what we're signaling there is that, a large portion of those greenfields are going to be back end weighted to the year. And so really, what you're seeing there is that pipeline of greenfields that are going to kind of suppress the earnings in the second half of the year, versus any other macro, you know, non-recurring promotions or anything of that nature.

I also think it's unrealistic to expect 33% comps to the rest of the year. That was obviously a pretty remarkable number for Q2 or for this quarter. But as we know that that was also impacted by the very fact that - last Q2 2020 was the lowest point we had and our impact to the pandemic. So we're looking specifically at comps, we do expect that to decelerate compared to the performance of Q2.

Okay, understood. And then, next question for me, different topic. You talked about this surging new patient acquisition in the second quarter. And you mentioned, digital lead conversion improving and a few other things. I was just wondering if you could dig into that more. What exactly - any kind of quantification around your new patient acquisition in the quarter would be helpful. I think you may have given something but if you could repeat it. And then just exactly what - what in your view is really driving that?

Yeah, George, I think for me, you know, the increased sophistication of our digital tactic is certainly a driving factor. But as I look at, you know, the strength of overall new patients in the quarter, to me, there's a few things. One, you know, I think we have to acknowledge that, you know, overall consumer sentiment in the second quarter was increased. So I think we have to acknowledge that we had some wind at our back as it relates to that kind of macro environment. The second, you know, I think we have increasing brand awareness in the scale of our system. And so, we've always said that we're going to build through our storefronts. And so the greater scale and awareness and awareness marketing dollars that we have out there is continuing to aid that new patient acquisition. Next would probably be the sophistication of our coops, you know, we now have, I think it's 37 coops around the country. And those local dollars that they're putting to work are large contributing factor, and then we continue to be more sophisticated in our digital tactics. So I think it's all those combined that are leading to those strong new patient figures.

Okay, great. And then last question for me, just about the announcement from last week with the Army & Air Force Exchange Service. So what exactly does that relationship mean? Does it basically open up those facilities for you to start to scout for locations? Or you sort of get certified? And then and what do you think this sort of location TAM could be of that opportunity? And that's all I had. Thank you.

Sure. Thank you, George. And then to answer that question, is that, yes, we have signed an agreement and agreement calls for those 3 clinics on - on the Air Force bases that I mentioned, that there is opportunity to expand that. While, yes, there's 4,900 facilities across the world, that the contract really is what they do is that each base has to give an approval that they want, in fact, a chiropractic clinic to be on base. And then we work with the Exchange to negotiate the term or that that number of bases that we're adding to the contract. And so, it's really incremental. So at the moment, we are committed to the 3, we know there's opportunity that will continue to expand as the interest on other bases you know is realized. And we go through a formal approval process base-by-base.

All right, thank you. [Operator Instructions] Next question will be coming from the line of Jeremy Hamblin with Craig-Hallum Capital. Your line is open.

Thanks. And I'll add my congratulations on really impressive performance. I want to come back to the trends for a moment here in terms of understanding the guidance implications, you know, certainly can understand not making any assumptions around repeating the top line from Q2, but in terms of just putting some contexts behind expectations around maybe your revenue, you know, at clinics versus Q1, you know, that were, you know, kind of more modest growth still strong. Is that kind of what you're building into your expectations here? Because it does imply, you know, a notable deceleration, is there any color you can share here on kind of the first five weeks of performance?

Sure, yeah. I mean, there's obviously a lot of factors that go into, you know, the back half estimates for this year and beyond. You know, what we do expect is increased clinic counts and continued positive comp growth. So on the revenue side, you know, we've got those as a typical trend. So, you know, I still - it's still implies that we'll have sequential improvement in the revenues. I think, you have to go back and then look at the overall earnings flow through. And so you know, again, signaling that we've got a lot of greenfields that are in coming in the second half of the year, and associated with those a lot of working capital burn. And so we've got 19 leases that are already executed, we've got another 12 LOIs that are out there. So you know, we have continued confidence in our greenfield development. But with that, you have that short-term suppression of earnings. So I think that's really the macro. The other thing is, you know, we're going to continue to be smart in the way that we do this, we want to make sure that we're appropriately resourced and have the infrastructure. And so a lot of factors that go in there. We also mentioned the IT platform now moving to an element of G&A, so we've got a little bit increased cost there that will come through in the second half of the year and beyond. So, a lot of those factors that are weighing in, and I think you have to acknowledge that, you know, we've still got the COVID era, and there's an element of uncertainty there. And so all of those things playing into those estimates in the forward guidance.

And, okay. So sequentially you're still expecting revenues up. But you know, could you answer the question on the quarter to-date trends, maybe on system-wide comp performance?

Yeah, we won't comment on Q3 so far. You know, we're excited about the Q2 results, and then we'll point to the forward guidance for the back half of the year.

Okay. So then, let me just follow-up on the point though, I understand the G&A ramp over the next couple of quarters here as you get more greenfields out there. I did want to understand, though, the selling and marketing costs, you know, the timing of the national marketing fund spend is an expectation, you know, that your sales and marketing costs on an absolute basis are likely to trend higher in Q3 and Q4 than what you just spent in q2?

Yeah, I think the important part of Q2 is really that timing element, right, we were a little bit late in Q1. So we had some favorability there, you know, some of those costs rolled into Q2, and now you've seen some, you know, higher costs as it relates to Q2. Now, at the end of the day, a lot of those costs for us, we expect to even out. So yes, in a perfect world, we would have those perfectly spread out throughout the year, but there is an element of timing that just coincides to, you know, the tactics and the development and where we're deploying those dollars. So, I think the largest thing I'll highlight there is, you know, Q2 did have that element of timing, we would expect, you know, again, the components of that line are largely the 2% that's contributed into the national marketing fund. And we always try, you know, to spend that full - full pool of funds each year. And then the second is our local spend for our clinics. Now, we've got more clinics coming online, each of those, we have a grand opening marketing cost associated to it. And so with that, you know, we want to make sure they start on the right foot. And so you're going to see some additional sales and marketing that come through from those grand opening efforts as well. So, you know, Q2 kind of has a little bit excess in it, as you know, we were a little bit late in Q1, that's that timing element. And then you've got the other factors to consider as we kind of move throughout the rest of the year.

Okay, great. And then just want to follow-up too on, you know, the Axis system. In terms of the implementation of that, you know, one, Peter, I think you've mentioned that, you know, kind of normal, you know, fits and starts when you turn on a new CRM system. You know, one, I want to just make sure there wasn't anything that you felt, you know, in the bugs and working that out, that is, you know, impacting top line ability. And two, you know, Jake, I just want to make sure that I understood in terms of where that line item is likely to fall? Is that going to impact your G&A cost? Or where will the expense for that fall into? I don't know if it's falling into that IT cost of revenues or another category?

Okay, I will let Jake answer that question. But to your question to me, is that, you know, do we believe that the implementation of this new IT platform is going to impact top line sales? The answer is no. That do we believe that there's bugs that you're going to have to work through and challenges we're going to get through and learning that we're going to go through, absolutely. We spent a huge amount of time working with our franchise community, as you know, creating training programs so that they know how to use the system. This is not just simply a CRM system that, okay, you - that's managing you know leads with our patients, this is a system that we use as our POS system, we use it for all the data analytics on the business, it even helps with us in the patient flow at the clinic level. And that a 100% of our system is on it and utilizing it. And so, just given the size of our business and this conversion from our homegrown - our homegrown platform to this new CRM platform, it's just inevitable that you're going to have these cleanups and bugs that you try to minimize in the research and in the testing period. And that we've got - we'll get through them. And so, I would say that there's, I have seen absolutely nothing that would suggest that there's going to be impact on top line sales. We're describing this very clearly that this is the lift and shift, we know that there's a lot of - capacity that's built into this new platform that we're going to unleash over time. Right now as the way I look at it for the rest of the year is really focused on just getting everybody comfortable and working effectively. And then we can start really seeing what we can do to add the programs that I'd mentioned in my formal remarks. So Jake, for you.

Sure. And then as where those costs will come through, it'll be two-fold. A portion of them will come through in the IT cost to revenue. And that's the more generalized kind of webhosting costs, right. We've got a lot of patients, we get a lot of data, and therefore we got a lot of capacity that we need up in the cloud. So that'll come through in the IT cost to revenue. And the second piece in really, you know, the licensing and a lot of the headcount and things like that, and that'll be in corporate overhead for us. So in the non-operating segment, and that's G&A.

Great, thanks. Thanks for color guys and best wishes here on continuing to perform so strongly.

Thanks, Jeremy.

Our next question will be coming from the line of Jeff Van Sinderen with B. Riley. Your line is open.

Hi, everyone and let me add my congratulations. Just to follow-up a bit more on the new software implement - implementation, by the way, great to hear that you've got it out there. Any sense of timeframe or sort of the debugging phase, and maybe any color on how - franchisees are working with it so far? And I guess what you're seeing in your corporate clinics that are running it so far at this phase?

Yeah, I would say that. Jeff, we took - we really did spend an enormous amount of time educating all of our users on how to use this new system, because we knew we're going to a brand new system. You know, we have kind of two parts to it. We have the front office, for our Wellness Coordinator that we have the back office where the doctors are using it to document all the patients that they're visiting, and that the back office is probably closer to what our original platform was. But the front office is a brand new platform. And so that we had this requirement that 100% of the users had to go through the train before we would start this process, and I am delighted to say that they did. So we - and there's our entire network has spent so much time and energy in helping to prepare for this to make this go as seamlessly as possible. And so, what am I hearing? You know it's I think that it's so often happens in programs like this, I'm hearing you know a group of people who are really excited about all the new changes. I'm hearing from a group of people who have concerns or some of the bugs that they've experienced. I think that the vast majority is using it every day to service our patients. And so, I would say from my perspective, it was a really remarkably pain-free transition, without any way minimizing the challenges you're facing, taking something as complex as we just went through. And it does take time to work them out, because it's in that use that you find out some of those little bugs that have to be turned around and addressed. And so what my experience in other platforms like this is that, you'll get it the big ones right up front, because they're obvious. And then it'll take over time where you'll see you know little things that you don't see initially that will come up or do the hotfix, we'll fix it. So that part of it's going to be ongoing and probably initially the first quarter, first half a lot. And then that's going to go down significantly. But then we have the other part of how we're going to be continually refining and improving the process, because there's all kinds of ways we can improve the way that we designed already. And so that ongoing continuous improvement will be a fundamental part of how we utilize this platform for its entirety.

Okay, great. And then let me ask you this. Would you - we would think that the new software improves efficiency, but also that it may improve customer experience, which might benefit customer retention. Can you speak more to that? Or I guess how you see benefits manifesting from the new software system?

I think there's no question that there will be enormous benefit on the consumer side, on the patient side. But that's not quite here. That's for example, when we rolled out our mobile check-in, that's when we rolled out the patient portal, that's when we roll out where you can be tracking your membership and how many you know patient visits you have left from your monthly membership. And so, those are not in place at this moment. But those - that's - those are some of the features that are specifically patient forward-facing that I absolutely believe will enhance the patient's experience. We're - again, we're just not there today. But we that's - that's the steps that we're going to get to.

Okay. And then, would you anticipate any change in customer behavior with the Delta variant? Just obviously, where there's still uncertainty out there about the pandemic or COVID? And then any change to your safety protocols as a result of Delta?

It's such a great question for, not just us, for everybody out there is, what is ultimately going to be the impact of Delta variant on your lives, on our businesses? And the - really, the main thing I have to draw on is, how did we experience the COVID to-date? And what we've experienced is, that our clinic stayed open, we're an essential healthcare service and that our doctors continue to serve and, most importantly, our patients came into the clinic. The impact we had was greatest on our new patient count as we've talked a lot about, you - as you heard in the call that - that has recovered and in an exceeding numbers that we've ever seen before. If this really blows up across this country, would I expect that to maybe have that same kind of impact on - new patient count? I would believe, yes, I think so. But I expect our patient base to continue to come in because we have to, we see this essential to their healthcare, absolutely. And so, that's the best I have in terms of what do I expect to happen with wherever we go with the Delta variant, which I think is a concern for all of us. And the second part of your question -

Safety protocol.

With safety protocols. And what I would say is, we were continually looking at that, but we have also maintained our safety protocols from the beginning. So, well I know there's - there's states and communities that have, for example, removed their requirement to wear masks that we are still requiring, not our patients, who always will follow whatever the directive is in the state or community that we're operating in. But as a network, all of our doctors, wellness coordinators staff in the clinics are required to wear a mask. And that hasn't changed. And that was also guided by the CDC that wasn't issue we make, we're a healthcare service. And when the CDC came out with their guidelines, is that, they who made it very clear that you know healthcare services still required to wear masks. So we continue to follow that protocol. And so I would say that we have not in any way lessened our protocols as we go forward to to-date. And we'll continually look at them depending on how things are taking place as this pandemic continues to unfold. What we do know is, it's, you know, it's improved and we saw that in the numbers in Q2 and we'll see where that takes us you know to the rest of the year.

Right. Okay. Thanks for taking my questions and continued success.

Thank you very much. Thanks for your support.

[Operator Instructions] Our next question will be coming from the line of Brooks O'Neil with Lake Street Capital. Your line is open.

Hi. This is [Michael Howard] [ph] filling in for Brooks. My first question is in regards to the new IT platform. So when you think about the general business infrastructure, where do you need to invest to be able to scale to 1,000 clinics and beyond?

Well, I think the investment for the business you know if you're asking where do we need to invest to be able to achieve the clinic opening of 1,000 is by the end of 2023, I think it's pretty clear, it's going to be in greenfield, and we've made that very clear. We're accelerating our greenfield this year, that's a huge part of the investment that we make. That, you know, do we expect that to continue to accelerate as we go forward between now and the end of 2023? That's a real possibility. Well obviously, this is about units. And so what the other part of that is franchised, and so we'll continue to invest in our franchise community and making aware of those into people interested in buying a franchise and learning about The Joint and why this could be a good investment for their family and their lives. And so we'll continue to invest in the franchise side of this. The other piece that is really that fueling this business, is that, we have to continue to improve the operations of the business, whether just looking at it from an IT perspective, from an operations perspective, from a marketing perspective. So we have been continually investing more resources in our marketing department, and more resources in our operations department and more resources in our IT department to support this accelerated growth. So those are the real buckets that we're going to make those investments in.

Okay that's helpful -

And now, Jake if you have anything that to add to that?

No, go ahead, Michael.

And then it looks like you had a really great strong corporate store openings. Can you talk to the drivers here? And if we can expect to see more quarters with outsized growth in the corporate stores?

Absolutely. Yeah, we had 5 greenfields that opened up, you know, a lot of them in the back half of Q2, but again, signaling that we've got a lot of anticipated corporate store openings in the second half of the year. So, you know, that is very much going to come through, and you'll see that acceleration, and we increased that corporate clinic guidance as part of this release. So, yes, I think you'll definitely see that. We have continued confidence and we're looking forward to increasing that pace.

And we've added additional resources there. That's why on the last call, we talked about hiring our new VP, Real Estate and Construction. And part of that was, again, to make sure that we're giving the full emphasis on that side of the business and we'll continue to reinvest.

Okay. Thank you, guys. And then, where do you feel that comps will normalize on the back half of the year? I know you guys had really strong Q2 comps.

Well, not a 33%. Let just be very clear. And Michael, I think the way to look at that is that, and then we don't guide on comps going forward. We don't guide it for the full year. But if you look at historically, let's say pre-pandemic from 2016 to 2019, in that four year period, if you stack our comps, it was 99%. year-over-year over year almost 25% a year, the pandemic accounts for the full year were 9% as we went into Q1, and I think that's a more of a rationalized quarter to compare to, you know, because we - most of that quarter was not impacted by COVID. Our Q1 2020 what I can think you know that 20 - Q1 2020 to Q1 2021 - Q1 '21 with 21%. And so, you know, I think that you - could we use to extrapolate the number and in Q2 for going forward, no. Could I rely on Q1 to give me an indicator what to expect if we're not taking into account the impact of the pandemic? I think that's a reasonable assumption.

Perfect. Thank you for taking my questions and congratulations on a great quarter.

Thank you so much.

Next question will be coming from the line of Anthony Vendetti with Maxim Group. Your line is open.

Hi, this is [Matt] [ph] on for Anthony. I just had a question about your RDs obviously you've had a lot of success with your regional developers in the past, and I think you mentioned they cover about 50% - 59% of our Metropolitan areas. Do you have a plan for expanding that coverage area? And how should we think about that?

It's a great question. And as you know, I truly believe in the power and value of RD model to accelerate growth of a concept like this. I would say that we also are looking at, you know, certain markets, you know, we don't mix RD markets with corporate development, and so that there are markets that we see is more interesting from a corporate perspective for growth. But I would say that there are RD opportunities out there still with the market. But so if you go back a couple of years ago, we're selling 10 RDs in a year or 8 RDs in a year, do I expect that going forward? No. Are there certain markets that would make sense for us if we have the right RD partner that can accelerate the growth to the level that we expect? You could - yes, you could expect to see that happen, but not at the pace that we were in last, you know, in those '19 - 2017-18 years.

Great, that's helpful. And then just one quick follow-up, obviously, a pretty large expansion of the clinics in development over last year, think it's at 282 at quarter end. What's the good rule of thumb in terms of when we should expect a clinic in development to open and maybe what percentage of your clinics in development you would expect on a quarterly basis to be opened?

Well, we don't guide on openings on a quarterly basis, we obviously guide it on an annualized basis. And so you can kind of - extrapolate from that. And, of that, that group of 280 agreements that are signed and in some form of development, we do have a lot of multiunit operations. And so, for example, if I just use a straight line average, if I think about opening up the clinic from first contact to actually opening their doors, that's probably about a, let's say, a 10-month process. And then the bulk of that time gets used up in site selection and lease negotiation. And so, that's the framework that I would expect a sign agreement to open is something that with just that one clinic. But let's say for example, if I sold a five pack, and I would not expect that franchisee to open up all five clinics in that nine months, and we will put them on a timeline so every one of those licenses has a timeframe in which they're required to open. And we're working closely with the franchisees to make sure they're meeting those timelines. And so out of that 280, there's a lot of them are tied to an extended timeline just because that they're in multiunit contracts. And so I don't have a percentage of, okay, I have 280, how many of those should open? You can kind of do the math yourself and say, okay, if we said we had 260 at the end of March of 31, excuse me, with Q1, end of March 31, 2021, we had 280. And in Q2, we opened 40 - 36 franchise unit. So there's at least some numbers that give you something.

Absolutely, very helpful. I'll hop back in the queue.

And we don't have any further questions at this time. Peter, the floor is back yours.

Thank you very much. Thank you all for your time today. This fall, we're going to present virtually at Lake Street's Best Ideas Growth Conference in September. And given that we signed the contract with the Army & Air Force Exchange Service in July, and I thought it's very fitting to end up today's call with a paraphrase of a very long thank you note that we got from a veteran that was very recently. And he wrote, “I served in at the Iraq War with the US Army from 2009 to 2010. I sustained a vast array of injuries during my deployment, which hindered me for a decade before I sought out chiropractic care. For years I struggled with reoccurring pain from head to my feet resulted in many sleepless nights. Over the past few years, chiropractic care and adjustments have provided me with relief. I had no clue what chiropractic care could do for me. I wish I had known earlier so I didn't suffer so much. My outlook has improved dramatically due to the amazing staff of doctors at The Joint Chiropractic. Thanking the doctors for the care I received just doesn't seem enough because they're doing their job. The Joint's doctors have given me so much look forward to in my life and I could not keep going if I was not in their care.” Thank you and stay well adjusted.

And this concludes today's call. Thank you all for your participation. You may now disconnect.