The Joint Corp. (JYNT) Q3 2022 Earnings Report, Transcript and Summary

Good day, and welcome to The Joint Corp. Third Quarter 2022 Financial Results Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to David Barnard, with LHA Investor Relations. Please go ahead.

Thank you, Sarah. Good afternoon, everyone. This is David Barnard of LHA Investor Relations. On the call today, President and CEO, Peter Holt, will review our third quarter 2022 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. After the close of the market, The Joint Corp. issued its financial results for the quarter ended September 30, 2020. If you 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, inflation exacerbated by COVID-19 and the current war in Ukraine, 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, our inability to identify and recruit enough qualified chiropractors and other personnel to staff our clinics due in part to the nationwide labor shortage, short-selling strategies and negative opinions posted on the Internet, which could drive down the market price of our common stock and result in class action lawsuits, our failure to remediate the current or future material weaknesses in our internal control over financial reporting, which could negatively impact our ability to accurately report our financial results, prevent fraud or maintain investor confidence and other factors described in our filings with the SEC, including the section entitled Risk Factors in our annual report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 14, 2022 and subsequently filed current and quarterly reports. As a result, we caution you against placing undue reliance on these forward-looking statements and encourage you to review our filings with the SEC for a discussion of these factors and other risks that may affect our future results or the market price of our stock. Finally, we are not obligating ourselves to revise our results or publicly release any updates to these forward-looking statements in light of new information or future events. Management uses EBITDA and adjusted EBITDA, which are non-GAAP financial measures. These are presented because they are important measures used by management to assess financial performance. Management believes they provide a more transparent view of the company's underlying operating performance and operating trends and 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. Management also includes commonly discussed performance metrics. System-wide sales include revenues at all clinics, whether operated by the company or by franchisees. While franchise sales are not recorded as revenues by the company, management believes the information is important in understanding the company's financial performance because these sales are the basis on which the company calculates and records royalty fees and are indicative of the financial health of the franchisee base. Comp sales includes revenues from both company-owned or managed clinics and franchise clinics that in each case have been open at least 13 full months and exclude any clinics that have closed. Turning to Slide 3. It is now my pleasure to turn the call over to Peter Holt.

Thank you, David, and I welcome everybody to the call. During the third quarter of 2022, we continued our vigorous pace of clinic openings and these new units delivering strong performance, both reflecting a robust underlying business model particularly in the current macroeconomic environment. I want to take this opportunity to welcome our new and existing investors to the call. The Joint is revolutionizing access to chiropractic care by providing an affordable concierge-style membership-based services in convenient retail settings. . Since our inception over a decade ago with fewer than a dozen clinics, we've grown tremendously. In fact, we reached the 800-unit milestone in September, which places us in the top 2% of the roughly 3,500 franchisors in the United States according to FRANdata. As we build upon and leverage our national brand recognition, we continue to capitalize on the opportunity for more significant growth. The 2022 IBES World report noted that chiropractic market increased from $18 billion to $19.5 billion annually. And in October 2022, [indiscernible] stated that the global chiropractic care market is expected to reach $52 billion by 2027. Yet the sector remains highly fragmented with over 40,000 chiropractic offices in the United States. The Joint leads the profession as the largest chiropractic chain in the world with the greatest market share, in addition to publishing the most chiropractic care content in the public domain. Based on year-end '21, The Joint is approaching 20 -- 2% of market share with competitors in aggregate estimated to also approximately 2%. With our nationwide clinic base, we have economies of scale in marketing, in talent and in infrastructure. And using our proven protocols and standards, we are systematically expanding in areas of known demand. As a result, during the time of our consumer uncertainty The Joint is continuing to post positive comp rates. Turning to Slide 4. I'll review the summary of our financial highlights for Q3 2022 metrics compared to Q3 2021. Later, Jake will discuss our results in greater detail. System-wide sales grew to $110.4 million, increasing 18%. Our comp sales for clinics that have been open for at least full -- 13 full months grew 6%. Revenue increased 27%. Adjusted EBITDA was $3.1 million. And as of September 30, 2022, our unrestricted cash was $10.3 million compared to $9.4 million at June 30, 2022. Turning to Slide 5. During Q3 2022, we opened 38 clinics, up from 33 clinics in the prior year quarter. Regarding franchise clinics, during Q3 2022, we opened 33 and closed 2. Regarding change in ownership, corporate purchased 4 previously franchised clinics, 3 in North Carolina and 1 in Scottsdale, and sold 1 company managed clinic in California to a franchisee. Regarding greenfield clinics, we opened 5: 3 in California and 2 in our new market, Kansas City. Greenfields are performing well into 2022 with gross sales on par with our class of 2021. This is an important point that validates the strength of our new clinic launch strategy and the growing demand for chiropractic care. For the first 9 months of 2022, we opened 103 clinics, 91 franchised and 12 greenfield. This compares to 87 openings in the first 9 months of 2021 that consisted of 76 franchised and 11 greenfields. The net total purchase of previously franchised clinics was 7 and the closures were 3. Our low unit closure rate of less than 1% annually continues to lead the franchise community. At September 30, 2022, we had 805 clinics in operation, consisting of 690 franchise clinics and 115 company-owned or managed clinics, maintaining a portfolio mix of 86% franchise clinics and 14% corporate clinics. At quarter end, we also had 252 franchise licenses in active development compared to 283 at December 31, 2021. This metric continues to demonstrate the strength of our strong pipeline for franchise clinic openings and reflects the accelerated number of franchise openings. Subsequent to quarter end, we acquired 2 previously franchised clinics in North Carolina for approximately $2.2 million. We also opened 2 more greenfield clinics in Kansas City market. Additionally, we sold 1 company managed clinic in California to a franchisee. Our corporate portfolio now stands at 118 clinics as of November 30, 2022. Turning to Slide 6. In Q3 2022, we sold 12 franchise licenses compared to 44 in Q3 2021. For the first 9 months of 2022, 58 licenses were sold compared to 132 in the same period last year when COVID has led to the pent-up demand of our franchise licenses. Although the number of franchise sales is fewer than last year, we believe it is holding strong considering today's macroeconomic environment, including factors such as high inflation, higher interest rates and decreased bottom line that have been impacting our -- by rising costs. Further, while higher unemployment is known to be a driver of franchise sales, today, the U.S. has a historically low unemployment rate of around 3.5% to 3.7%. As of September 30, we had 19 regional developers who sold 62% of our franchise licenses year-to-date. Our aggregate 10-year minimum development schedule for the new RD territories established since 2017 was 642 clinics as of September 30. While this program continues to perform well under certain circumstances, we'll reacquire some of those RD rights. In October, we reduced RD count to 18 when we reacquired the right-to-develop franchises in the Philadelphia market. The net consideration for the transaction was $151,000. This was an undeveloped market with 2 clinics, and we believe we have the opportunity to develop another 30 sites. Turning to Slide 7. Let's review our marketing efforts. Although we continue to attract healthy numbers of new patient prospects to our clinics, our average number of new patients per clinic is down when compared to our record-breaking year 2021. One of the challenges we faced was last year, Google changed its algorithms which negatively impacted our organic search traffic. As a result, we've been aggressively adopting -- adapting our SEO strategy in 2022, which is beginning to pay dividends with positive website traffic growth in August and in September. Another challenge is the impact of inflation on consumer confidence. With the average age of our patient base is just 36.4 years, the majority have never lived through an era of high inflation. Today, the average American household is spending $445 more per month to buy the same goods and services that they did a year ago, according to CNBC. This is forcing consumers into financial trade-offs. Two years ago, we faced somewhat similar circumstances during the COVID-19 pandemic and related government shutdowns and restrictions. At that time, we responded with our essential health care services statement and positioned The Joint to survive and thrive despite the devastating impact to so much of the retail industry. We believe this positioning will continue to serve us well, while consumers make tough choices on where to allocate their discretionary spending. We responded to the lower new patient counts with robust testing of new market tactics, promotions, media channels and consumer messages. We continue to reinvest our marketing technology. This includes the launch of our new patient portal and an upgraded marketing automation platform planned for 2023. Additionally, our clinic local marketing spending has been robust, particularly for sponsorships of athletic programs in our communities. Our ability to form market co-ops caps distinguishes us from the single practitioners and small competitors as we leverage the power of our combined marketing dollars spent in those markets. According to the American Chiropractic Association, chiropractic care gained wide use among professional and amateur sports teams across the country. Studies have shown that chiropractic care can be linked to faster injury recovery, injury prevention, improved levels of strength and enhanced sports performance for athletes. According to consumer reports, it's estimated that 90% of all world-class athletes use chiropractic care to prevent injuries and increase their performance potential. It's notable that all NFL teams rely on doctors of chiropractic and various capacities and 77% of the athletic trainers have referred players to a car factor for evaluation or treatment. Finally, we're turning our attention to our annual holiday promotions, our Black Friday package sale in November our year-end membership promotion in December and January. Each year, these events grow in financial impact and franchisee participation. Our network is energized to make 2022 our best performance yet, and we look forward to reporting on the results. And with that, Jake, I'll turn it over to you.

Thank you, Peter. Turning to Slide 8. I'll review the financial results for [Q3 2020] compared to [Q3 2021]. System-wide sales for all clinics opened for any amount of time increased to $110.4 million, up 18%. System-wide comp sales for all clinics opened 13 months or more were 6%. System-wide comp sales for mature clinics opened 48 months or more were 2%. It's worth noting that both the franchise and corporate clinic cohorts comped positively across both time frames. . Revenue was $26.6 million, up $5.6 million or 27%. Company-owned or managed clinic revenue increased 36%, contributing $15.8 million. Franchise operations increased 15%, contributing $10.8 million. The increases represent continued growth in both the corporate portfolio and franchise base. On March 1, we implemented a price increase in approximately 75% of our clinics. However, existing patient memberships are grandfathered at their original price. Therefore, the revenue impact from our price adjustment will be gradual and incremental. At the end of the quarter, about 50% of our active members were on the new price structure. Cost of revenues was $2.5 million, up 8% over the same period last year, reflecting the increase in franchise clinics and the associated higher regional developer royalties and commissions. Selling and marketing expenses were $3.5 million, up 23% over the same period last year, driven by an increase in advertising fund expenditures from a larger franchise base and an increase in local marketing expenditures by our company-owned or managed clinics. Depreciation and amortization expenses increased compared to the prior year period, primarily due to the depreciation and amortization expenses associated with our continued greenfield development and acquired clinics. G&A expenses were $18.1 million compared to $12.8 million, up 41%, reflecting the cost to support total clinic and revenue growth and higher payroll to remain competitive in the tight labor market. Operating income was $500,000 compared to $1.3 million in Q3 2021. The Q3 2022 results reflected the compressed margins from continued greenfield developments, the aforementioned higher depreciation and amortization and higher G&A expenses. While greenfields compress the bottom line until they breakeven, they're an excellent use of capital as their sales accelerate in year 2 and beyond, significantly contributing to the bottom line and increasing our return on investment. Income tax benefit was $16,000 compared to $614,000 in Q3 2021. Net income was $491,000 or $0.03 per diluted share compared to net income of $1.9 million or $0.13 per diluted share in Q3 2021. Adjusted EBITDA was $3.1 million compared to $3.3 million for the same period last year. Franchise clinic adjusted EBITDA increased 25% to $5.4 million. Company-owned or managed clinic adjusted EBITDA was $1.7 million compared to Q3 of last year, decreased $1.1 million, reflecting the margin compression related to greenfield development and higher payroll expenses. Corporate expense as a component of adjusted EBITDA loss was $4 million, increasing $160,000 compared to Q3 2021. On to our balance sheet and cash flow review. At September 30, 2022, our unrestricted cash was $10.3 million compared to $19.5 million at December 31, 2021. During the first 9 months of the year, our investing activities of $14.9 million consisted of the acquisition of RD territory rights, franchise clinic acquisitions and greenfield development. These were partially offset by $5.7 million provided by operating activities. On to Slide 9. I'll review our results for the first 9 months of 2022 compared to the same period 2021. Revenue increased 26% to $74.1 million, and adjusted EBITDA was $7.5 million compared to $10.5 million in the prior year period. This reflects the compression of earnings by the influx of new corporate greenfield clinics and higher payroll expenses associated with the tight labor market. On to Slide 10 for a review of our guidance for 2022. We have tightened guidance, raising the lower end of our revenue expectations. We now expect revenue for the year to be between $100 million and $102 million compared to $80.9 million in 2021. We've also narrowed and modestly lowered adjusted EBITDA guidance to reflect the impact of the greenfield simulation on our bottom line and lower-than-expected same-store sales. Now we expect adjusted EBITDA to be between $11.5 million and $12.5 million compared to $12.6 million in 2021. We continue to expect franchise clinic openings to be between 110 and 130 compared to 110 in 2021, and we continue to expect to increase our company-owned or managed clinics by between 30 and 40 through a combination of greenfield openings and franchise clinic purchases compared to 32 in 2021. And with that, I'll turn the call back over to you, Peter.

Thanks, Jake. Turning to Slide 11. We have a remarkable growth opportunity ahead with a young patient base in an expanding chiropractic market. Yet in this environment of uncertainty, the business also faces challenges and critical work remains. For the remainder of 2022 and for 2023, we are and will continue to be focused on the following actions: attracting new patients and franchise prospects; attracting and developing talent, especially the doctors required to staff our clinics and grow our footprint; enhancing our IT platform and leveraging the power of our data; increasing our pace of build-out, including successfully penetrating underdeveloped and new markets; and finally, optimizing our clinic performance to support growth, profitability and lifetime patient value. We remain focused on driving long-term growth and stakeholder value. . Sarah, I'm ready to begin the Q&A.

[Operator Instructions] Our first question comes from Brooks O'Neil with Lake Street Capital Markets. Brooks O’Neil: I confess I got on a few minutes into your call, so if I ask something that you've already discussed, I can go back and read the transcript. You don't need to repeat yourself. But can you just talk a little bit about headwinds and tailwinds that you think might be affecting new patient starts?

Sure. And it's great to talk to you, Brooks. As we've talked about before, one of the headwinds that we've been facing was changing algorithms with Google, and it really impacted our organic growth search. We've spent a lot of time adapting our SEO strategy. And so if we look at our traffic, our web traffic, is that for the first time this year in August and September, we were outpacing the web traffic compared to the same period last year. So we feel that we are making some inroads on that new patient count just with those changes to that Google algorithm. . We have a very young patient base, as I said, it's 36.4 years old. And those younger people are not going to friends and families for recommendations for their medical services. They're doing that search online. And so they're going to Dr. Google, they're looking at reviews, they're doing that search. And so it's so important to be there. What we've seen now is that we -- about our new patient count that historically, we've seen about 40% of it comes through our digital marketing strategy. And right now, we have noted that 61% of our new patients at some point have touched our digital campaign, our digital strategy, our online. So you can see that's just increasingly important to us. And so when changes like what Google did can impact our new patient count. I think we also have a macroeconomic issue that has to be taken into consideration. And so you have increasing inflation, you have consumer confidence concerns. I don't know if we're going directly into a recession or when it will be or how deep or how long, but I think that's also impacting some of the performance on the clinics and we see it in our same-store sales. So I think there are some macroeconomic issues that are impacting that new patient count. There are some tactical issues on the digital side that are affecting. I think the tailwinds for us continue to be just the high performance of our clinics, especially the new greenfield that we've had. We're headed toward a record-breaking number of new openings this year. We're guiding the course between 110 to 130. We're expecting to add somewhere between 30 and 40 new clinics or clinics in our corporate portfolio, and that will be that mix of both corporate and our acquisitions in greenfields. But through the year, we've seen some really strong greenfield openings and getting to breakeven, which bodes well for number one, that our model continues to work; and number two, there's continued interest in chiropractic care. Brooks O’Neil: Absolutely. That's really helpful. And in fact, you just touched on the second thing, I just wanted to ask you a little bit about, do you have any metrics about the performance of new corporate stores in the portfolio this year versus years past? Or would you say you're continuing to open as strongly as you have in the past? Again, recognize there are some important and sort of uncontrollable headwinds out there in the market right now.

Yes. And I think, Brooks, we continue to get more and more sophisticated in how we create and use our grand opening strategy. And so when I look at it, just the overall portfolio that includes both franchise and corporate units in terms of their time to breakeven, I would say we're seeing them operating at least equal to 2021, and that's in that 6 to 9 months to break even. So very, very strong. When we break out corporate units, I would say we're even stronger compared to 2021. So what we're seeing is that, yes, there's all these headwinds out there that we're talking about. But when we're opening up those clinics and we're using our grand opening strategy, that we are seeing the high performance of those clinics as they get to breakeven. Brooks O’Neil: Fantastic. Keep up the great work. You're doing fantastic.

Thanks a lot. .

Our next question comes from George Kelly with ROTH Capital Partners. .

So maybe to start on the comp growth. I think in the prepared remarks, you commented that the comp growth is not sort of what you expected, I think, last time you offered guidance. So just curious, you just said that pricing is taking longer to kind of filter through the system or maybe the new patient stuff that you've talked about is -- the impact is lasting longer than expected. Or anything else to highlight just as far as your expectations for comp growth?

Yes. Thanks, George. As you touched on, I think -- as I think about the pace in which we're rolling on to the new price point, I would say we're at expectation, maybe a tick behind. But in my mind, that's not a material driver. As we look at the 3 core KPIs of this model, we have to attract new patients, convert on to our subscription or package and retain them as long as we can. Conversion has remained steady year-over-year, which 2021 was a banner year for us in terms of conversion. So we're still seeing strength in that metric. Attrition, we've actually seen favorability in that, which one could expect when you grandfather in pricing, maybe your patients are going to stick around a little bit longer. But we've actually seen that metric improve. But as we said, the metric where we're still seeing challenges is in those new patients. And so if you're not filling the funnel at quite the same rate while the numbers are still strong, that's going to be a headwind for your existing patient base. And that's really where we're seeing those numbers come in a little bit lower than expectation. As we talked about, the greenfields are still performing to my pro forma expectations on the top line. Those cost structures are increasing in terms of that time to breakeven, but it's still maintaining a strong pace, as Peter mentioned. But when you're talking about the existing base, I think you have to look at that new patient as a way that we can really start to move the needle.

Okay, okay. And then the second -- actually, a couple of more questions for you. So on the topic you were just talking about, the owned portfolio and the greenfield openings, et cetera. Is the legacy 4-wall margin of that owned base -- before you started doing greenfields, my math has it somewhere in the mid-30% EBITDA kind of range. And that's come in quite a bit, even excluding for greenfield openings. And so I guess the question is, I understand you're absorbing a lot higher labor costs and there's a bunch of things that been had with, but how long do you think it will take? I mean, I guess, it's a 2-part question. How long do you think it will take to recover or start to show margin improvement there? And the second one is do you think that, that previous kind of margin profile that you had on a 4-wall basis is achievable over the next couple of years? Or is it just kind of the model is so different now that it's unlikely to go back there?

Yes, a lot of questions rolled in there. I'll try to touch on them all. I think to start in terms of the margin expectation, and we have a chart in the investor deck that kind of takes it to a 5-year market maturity and that actual system sells against an estimated cost structure. And what that would show you on a 4-wall basis is we would expect somewhere around a 30% 4-wall margin. We have units that do more than that and we have some that are still marching to that number. But on average, that's what we would expect is kind of that low 30% mark on a 4-wall basis. Now as I think about with the increased labor pressures that we're seeing, if I roll through the benefits of the price increase over time, actually still get back to the same pro forma expectations at maturity. So I would say our 4-wall economics really remain unchanged as we continue to see the benefits of the price increase roll through. And that gives us a little bit of room in case there's additional labor pressures that we continue to see. But I would still expect over time to reach that 30% plus 4-wall margin. As you think about the corporate portfolio and when we would expect those margins to turn around, I think you have to put into context just how many greenfields that we've added in the last portion of time. I think if you look at the number of greenfield we did in the last 100 days of 2021, I think that number was 13. And then we've added another, what, 12 so far this year -- I'm sorry...

12 through the quarter.

12 through the quarter and 14 overall. So when you add those 2 together, most of them being in their first, call it, 13 months of operations, historically, that's a significant period of drag. If you look at it on an annualized basis, you're probably working through around $75,000 of losses in that first 12 months. Now if you roll forward to the next year, the sales averages for year 2 are going to increase around 58%. So my sales have a really significant jump from year 1 to year 2, and then you really flip from an expected $75,000 of losses to probably contributing $75,000 in that second year of operation. And so we've really taken on a lot of investment as it turns to greenfield. It's still an excellent pro forma ramp. It's a great use of capital for us, but it just takes time to work through that maturity curve.

And the thing I'd add to that, Jake, is that -- or to George, is that when you made the comment that have things changed because your models changed, and I would say the model hasn't changed. I mean, there's no question that we're seeing a higher cost of labor. So our labor line is definitely there. We're offsetting that by putting the price increase that we put in place in March. And that, as Jake talked about, will take time to be -- to have the full effect. But in terms of the fundamentals of the model, it's really it continues to be a relatively simple business. We're only offering that one service. As we go forward, we can certainly look at offering products and services outside of just pure chiropractic adjustments. But in terms of actual fundamental structure of the model is that it has not changed to date.

Our next question comes from Jeremy Hamblin with Craig-Hallum Capital Group.

So I want to kind of expand on the last point in terms of looking ahead a little bit towards the clinic growth for 2023. Wanted to get an understanding of kind of 2 things. First, how you expect the composition of that. Is it going to likely replicate what we saw in '22 in terms of greenfield development? Do you expect it to be higher or lower? And then the second part of the question is, look, it's clear that the support staff and clinic dock costs are higher, maybe quite a bit higher than they were a year ago. I want to think about the potential for margin recovery into next year. So first question is the composition of how you expect clinic growth to look next year? And then second one is really a question on cost and ability to recapture some of the EBITDA margin loss this year.

Yes, I'll take that first question and then turn it over to Jake. And I would say that when we think about -- obviously, we don't guide composition other than giving some very wide ranges in terms of as I think about '23 and beyond. As we said in the call that 86% of our system is franchised, 14% is corporate. While we don't set a specific number out there, I would say that you probably can expect to see that kind of same ratio as we look at '23 and beyond. Just as we continue to grow the market, we'd have to really fundamentally change our greenfield strategy if we're going to significantly increase that portion of ownership or number of greenfield in that portfolio. So as I think about '23 and going forward, I think our ratios will stay relatively the same and that we'll continue to our portfolio through greenfield at a moderate pace. We'll continue to focus on opportunistic acquisitions as we go through the year. And we'll, of course, be setting our guidance for 2023 when we do our fourth quarter and full year report out next probably in March.

And then I'll touch on the margin recovery. Jeremy, you're right. We have seen the DC costs continue to increase, and we have seen the wellness coordinator position, that hourly retail position, We've seen pressure there as well. And when that represents 45% of your cost at maturity, those are significant pressures in terms of the economics. Where I've seen the DC salary goes, because that's more the significant driver, we continue to see pressure there. But I have seen it taper. That's not me telling you that the labor market is not tight. I don't think also our franchisees would say that. But the rate of increase, I'd seen start to taper here recently. So not to say that we're not done taking on some of those labor pressures because we still are in a tight market, but I have seen the rate of acceleration start to taper a little bit there. In terms of overall margin recovery, that's really going to be driven by the maturation of the portfolio, all those greenfields coming through and being contributors. We've got a portfolio right now of 17 executed leases. So in terms of our continued investment in greenfields, we still very much believe in that strategy and we'll continue to develop those. But we have moderated that pace to kind of what we saw in the late periods of 2021. So as we moderate that greenfield pace and allow the existing ones to continue their maturity, I think you start to see those incremental improvements in margin again. So as far as time frame, again, it's all predicated on our level of investment. But we have tapered that greenfield pace from what we were doing at the tail end of 2021, and that will just allow those existing units to continue to mature. And when you've got so many of them that are just really completing the first year of operation, we're looking forward to their contributions in 2023.

Got it. And just to kind of piggyback on that one a little bit. Slide 14, the year-to-date segment results with the split out of the corporate clinics, how well do you think the corporate clinic performance represents what your franchisees are seeing kind of on a 4-wall basis? Are their business model like slightly more profitable because they have more maturity? Or how does it compare?

Well, they have a royalty structure. So their overall economics are going to be impacted by that. From a 4-wall basis, we would expect similar economics. You can triangulate against kind of what we see in the FDD year-over-year because we do collect those franchisee VP&Ls. If you look at the 2021 results from our latest FDD, I think they did a 4-wall number that was 30.8%. And again, that's a mature portfolio, kind of in that year 4, year 5 mark in terms of months in operation, and they're reaching that same potential. So I think that's a great representation of where the unit economics are and what they can be. As you look at our corporate margin right now, again, it's just being suppressed by the labor pressures without the full benefit of the price increase and all those young units that suppress as they continue to work through their maturity.

Got it. Okay. And then last one for me. In terms of -- your cash balance is down quite a bit, almost cut in half from where you were at the start of the year through the first 9 months. Quite a bit of that is due to some acquisition activity. But in terms of thinking of where you are on the balance sheet, is there flexibility limited in terms of what you might do on the acquisition side as we look ahead into 2023 because the cash balance is down? Or do you see that not really as any type of limiting factor in terms of what you might look to do?

Yes. I think cash on hand is one element of that. When you say moderate acquisition activity, I mean, we've done almost $15 million of investing activities so far in the first 9 months of the year, and that's been offset by $5.7 million of cash flow from operations. If you look at through the 6 months, I think our net cash provided by operating activities was around $1.5 million. So this is still a cash-generative business. We're choosing to reinvest that right now. And I think the other piece is, while we have the $10.3 million of cash on hand at the end of the quarter, we also have an additional $18 million of credit available through the line with JPMorgan. So as I think about it from an overall liquidity perspective, I'm thinking about that whole pool. And as I look out and model the potential uses of that capital, I'm not seeing any restrictive elements of that right now.

Our next question comes from Jeffrey Van Sinderen with B. Riley FBR.

Just looking towards 2023, realize it's early, and noting the macroeconomic backdrop. But just thinking relevant to attracting new patients, and I'm wondering how much do you think that the -- I realize you're now like kind of the 50-50. But how much do you think the price increases are serving as a headwind to attract the new patients? And then also, how are you planning to further evolve the marketing for next year? Wondering if you maybe shift the mix of -- I think you do quite a bit of performance digital. Maybe you can just touch on those items.

Yes. No, Jeff, thank you. To answer your question about the impact that pricing has on those new patients, as we've talked a lot about, of course, one of the tenets of this concept is affordability. And when we went in the past and we did that a full price increase in 2016 and some of the market adjustments in 2019, the impact we saw that our new patient counts and the key metrics of the business was relatively neutral or positive. As we look at this most recent increase, so we went -- our 3 tiers went from $59, $69, $79 to $69, $79, $89, I'd say that we did see, especially on the $89 number degradation a little bit in the new patient count. The majority of our system is on that $79 a month. And so that's the core. But we are very, very sensitive to price as it relates to those new patients. So I think that there's been some impact on that because this is also the first time when we did a price increase in this kind of macroeconomic environment that has so much uncertainty around it. I think as we -- your second question was really kind of what are the changes that you're doing of the activity to make sure that you're green and admitting new patients as you can. And again, there's really 3 sources of new patients for us. One is referral. And this is a patient who refer their friends and family to the doctor. And right now, about 30%, 35% of our new patient comes directly from that. And that's just as a point of delivering world-class service to your patients, and they tell the friends and family to come in. The faster-growing segment is that digital marketing campaign, and it's changing by the day. And I think that we can recognize the importance of it. We're putting more and more resources against it. Talked about in 2023, that we're going to put a platform in, that has a much more sophisticated automated marketing program, direct marketing to our patients. Looking to creating the patient portal that we've made changes in our micro sites and all these different activities to make sure that we are maximizing the SEO opportunity that's out there. We're doing all kinds of new testing of advertising platforms, both nationally and locally including TikTok, Yelp, next door conversational marketing, that we're doing a lot of lead nurturing just in terms of those theses that come in the door because there's more and more sophisticated software programs that we can use to manage those leads to bring those digital leads into close. And then we're also working in coaching and training our franchisees and their staff to be more effective as they're managing those leads. That third source of new patients is really coming from what I just call that grow marketing activities. And then we're still small box retail. So it's the coupons, it's the flyers, it's the science shows or it's the reaching out to the schools, the gyms, the hospitals, anything that's around that clinic because your core customers are going to be living, working and traveling in that, I would say, 5- to 15-minute radius around that clinic. So I think that we are continually evaluating and stretching and pushing because this whole digital marketing campaign is still critical to that younger patients who is our database. Right now, 45% of our patients are millennial, 16% are Gen Z. And these are people who are using online to make their consumer purchases. And that -- it's essential that we're effectively there where they are.

And I think you said -- did you say 60% of your new patients are touching the digital marketing?

Yes. And again, patient attribution is kind of tricky because how many points were you -- did you see it whether it's in a radio or a TV commercial or something -- an ad or something online? So we have a lot of different points that you can be exposed to the brand. And so it's always hard to say, okay, which one is that, that really tipped it over and you as a new patient opened that door. But what we can measure is that of our patient base, 61% of our patient base today touched us digitally before they opened up that door.

Okay. And then just sort of as a follow-on to that, I know you mentioned the new patient portal. Can you remind us the timing of when you're standing that up? And then I also wanted to kind of get a gauge you in terms of what you're experiencing with the new enterprise software system? What still needs to be done in the current stage there, if anything? Just if you could touch on those things.

Sure, absolutely. As it relates to the patient portal, it's going to be phased in and there'll be all kinds of key components behind it. But the initial work will probably be released in late Q1, early Q2 in terms of a patient portal. And then we'll be continually adding functionality to it as we go through the year. We're also putting in a platform where we can do that more automated marketing to the individual patients so you can go through your information, those people who are golfers or have migraines or whatever, so that you can literally market individually to them. And that's, again, just increasingly a more sophisticated marketing approach you're seeing all kinds of organizations utilize. In terms of the IT platform, we have certainly had some growing pains associated with it in terms of getting some enhancements put in place. The system we have now has benefits compared to the old system. It also has some more complexity. And so that we've been working through cleaning up some of those bugs and putting in those enhancements to make it more and more effective on that line level of our users. And so what I would tell you is that, that is an ongoing, never-ending process of continually refining and improving the platform that we use to run the business. .

[Operator Instructions] Our next question comes from Thomas McGovern with Maxum Group. .

A lot of my questions have already been answered very thoroughly, so I appreciate that as well. I just have a question going off of something other analysts asked about the breakdown of franchises versus corporate clinics. You guys said that it is currently and will remain about 86% franchise and 14% of corporate. And my question is, is that accounting for a potential recession? If the macro environment does continue to get more difficult to operate in, will that breakdown change potentially in an effort to conserve costs or just allocate resources differently?

Sure, sure. it's a great question. And the way I'd answer that if we truly grow into a recession, and a recession meaning that you among whatever else is going on, you have high unemployment. Historically, you see franchise sales increase. The only time that hasn't happened is in the Great Recession because during the Great Recession, there was absolutely no financing taking place. And so you saw really franchise growth just come to a screeching halt in that Great Recession. But any other recession, certainly in my career, is historically I would expect franchise sales to increase because people are being laid off, maybe they've got a little money, they're tired of being at the whim of an employer and so they start seeking out buying that franchise. And so I would expect if we truly go into recession, that you would expect that the interest in franchise sales to increase. Now wherever we are today, we've been averaging 3.5% to 3.7% unemployment. And so as long as you see that incredibly low unemployment rate, it's hard to imagine that, that's going to be a driver in people to buy franchises, In that ratio right now, as we are today, we're 86%, 14% I would say, as you just see the growth both on the franchise side and the measured growth of our corporate portfolio driven by greenfield and acquisitions, it's going to be hard just given the math that we have now to change those percentages to any great degree without a fundamental change in the strategy. And as we've talked about is that it's not our intent to fundamentally change strategy. We don't guide to a specific percentage. But as I said earlier in the call, is that if you look at 2023, we can reflect in '22 and expect a similar result.

This concludes our question-and-answer session. I would like to turn the conference back over to Peter Holt for any closing comments.

Before I close, I want to share a few comments. Earlier, I reviewed our marketing co-op sponsorship of athletic programs in their communities. Studies report chiropractic care provides natural preventive benefits that are vital to keeping the body balanced, flexible and functioning at its best, especially for athletes. I'd like to tell you about our patient, [Nicole], an amateur beach volleyball player. A few years ago, she hurt her back and was told she could never play competitive sports again. She was diagnosed with lupus, which really affected her joints, challenged her athletic activities and forced her to walk with a cane. After a few months of chiropractic care, Nicole return to the court. She knows while the volleyball is demanding and still affects it back, the joint enables her to enjoy frequent competition. To summarize Nicole's testimony, being able to play is a gift. I wouldn't be playing without chiropractic care. My joints in general gets so much relief with the necessary content maintenance. I go weekly, if not more, without fail. Thank you and stay well adjusted.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.