Good day, ladies and gentlemen and welcome to The Joint Corporation's First Quarter 2019 Preliminary Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Kirsten Chapman, LHA Investor Relations. You may begin.

Thank you, Tiffany. Good afternoon, everyone. This is Kirsten Chapman of LHA Investor Relations. Welcome to The Joint Corp First Quarter 2019 Preliminary Results Conference Call. Today, President and CEO, Peter Holt will review our operating metrics and our growth strategy. CFO, Jake Singleton will discuss our first quarter 2019 preliminary financial performance and Peter will close with our long-term vision and open the call for questions. Please note, we are using a slide presentation that can be found at ir.thejoint.com events. Today, after the close of market, The Joint issued its preliminary audited financial results for the quarter ended March 31, 2019. If you do not already have a copy of the 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 those forward-looking statements. The forward-looking statements are made based on 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. 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 market price of our stock. Finally, we're 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. Please note, in those states which require a licensed doctor of chiropractic and then the entity that offers chiropractic…

Thank you, Kirsten. And thank you all for joining us. I'm delighted to speak with you today and pleased to report our continued forward momentum including seven quarter, consecutive quarters of positive adjusted EBITDA. We've moved beyond stabilizing the business and now are driving accelerated growth and profitability. We remain focused on delivering the key initiatives that drive the company's success, executing our franchise development and regional development strategies, accelerating expansion of our corporate clinic portfolio within clustered locations, improving corporate clinic performance, increasing new patient counts, stabilizing and improving the security of our IT platform, increasing cash and strengthening our balance sheet, achieving positive GAAP net income and increasing shareholder value. As a result, we've delivered one of the strongest quarters to date. I'll review the key metrics for Q1 2019 compared to the same period last year. We sold 30 franchise licenses compared to 16 in Q1 2018. We opened 12 new franchise clinics and two company owned managed -- company owned or managed greenfield for a total of 14 units compared to seven franchise and no corporate openings in Q1 2018. Turning to Slide 4, gross system wide sales grew 32% quarter-over-quarter. System wide comp sales or same store retail sales of clinics that have been opened for at least 13 months increased 25%. Our bottom line continues to improve reflecting sustainable profitability. Once again in this quarter, we've achieved positive GAAP net income of $1 million. And adjusted EBITDA was positive for the seventh consecutive quarter at $1.5 million. Further, our unrestricted cash and cash equivalents were what $8.1 million at March 31, 2019 compared to $8,7 million on December 31, 2018. Our strengthened balance sheet supports our expansion strategy. Before we get into the details, I'd like to welcome our newer investors and provide some…

Thank you, Peter. Before I review our preliminary financial results, I'd like to address an accounting adjustment we made regarding a portion of our corporately managed clinics. Certain states require a licensed doctor of chiropractic to own the entity that offers chiropractic services. In those states, we enter into a management agreement with a professional corporation or PC which is licensed in that state to provide chiropractic services. The Joint Corp provides management services to the PC and in turn the PC pays a fixed management fee each month. Historically, we recognize these management fees and the period in which they were received. Net of certain expenses incurred by the PC to provide patient care. While these expenses lowered our GAAP revenues. They also reduced our general and administrative expenses. To increase transparency into our operating results and to align with ASC A10 which addresses the consolidation of variable interest entities. We will now consolidate the full operations of the PCs. This will result in increases to our revenue and G&A expenses by an identical amount and will have no impact on our bottom line except in instances where the PC has sold treatment packages and wellness plans. We will now defer packaging plan revenue for clinics in PC states and will recognize revenue when patients use their visits. The company has previously consolidated its clinic operations in non-P.C. states such as Arizona, New Mexico and deferred revenue around packages and plans in those states and they are already reflected in our financial statements. Therefore, these adjustments are isolated to the managed clinics and PC states. These adjustments will have no impact to cash flows. Based on our preliminary analysis, the recording of all accumulated deferred revenue and one adjustment would result in a material change to the current period…

Thanks, Jake. Turning to Slide 14, according to a recent study carried out by the Yale School of Medicine at Yale University, patients who have experienced -- who visited a chiropractor for musculoskeletal pain and associated conditions are 49% less likely to be issued and to receive an opioid prescription when compared to their counterparts who sought help from other health care providers. This bodes well for our nation and for our marketing opportunity as we work to address this increasing need for drug free solutions to help solve the opioid obesity and pain epidemics. Turning to Slide 15, overall our hybrid model for franchise and company-owned or managed clinics enables us to expand in a capital light fashion. Our enhanced marketing is generating sales growth rates that lead the range for small box retail and franchise concepts and our greater operating efficiency is increasing operating leverage. These improvements are being amplified by the growing market opportunity, as we build our national brand and scale our clinics. We expect the momentum to continue to increase and to deliver value to shareholders. Before I'd open it to Q&A, I'd like to share some events in May and June. On May 23, we'll be presenting at the B. Riley 20th Annual FBR Institutional Investor Conference in Beverly Hills. On May 29, we will be at the Craig Hallum 16th Annual Institutional Investor Conference in Minneapolis and on May 31,we'll hold our own annual meeting of shareholders here in Scottsdale. And finally, on June 3, we're excited to host our first Investor and Analyst Day also here in Scottsdale. For more details, please contact our LHA Investor Relations. Finally, I'd like to thank our franchise community, our RDs, our employees for their remarkable contributions to the health and growth of this company. This progress would not be possible without their commitment and hard work. Tiffany, I'm ready to begin the Q&A.

[Operator Instructions] And our first question comes from Brooks O'Neil with Lake Street Capital. Please proceed.

Thank you and good afternoon, guys. Congratulations on the continued progress.

Brooks, thank you very much.

So I'd like to just confirm, I know you probably said this once, Jake and I think, Kirsten said it once as well but these accounting adjustments really do not reflect any material fundamental change in the business or the business dynamics right?

I think you got it, Brooks. The core momentum of this business is exactly the same. This is an accounting entry to consolidate these but the largest impact is really neutral to the bottom line. So I think you have it right.

Well quite frankly, we talked about it. Brooks, it that actually gives greater transparency on our corporate clinic performance because now that we are consolidating the PCs into the overall portfolio whereas before, we would see a suppression in revenue and a suppression in expenses. Now that all flows through and so you'll see that much more clearly.

Well, I think that's good. Let me just ask you a -- somewhat different question, is, I have heard sort of anecdotally that there may have been some gradual, let's call it strengthening although I'm not meaning to guessed any dispersions on your store franchisee community but it sounds to me like perhaps, you've had success attracting some perhaps larger deeper pocketed more experienced franchisees, who are interested and capable of opening a greater number of units and controlling them over time. Can you just give us any color on a, whether that's accurate and b, whether you know what's going on.

Brooks, I think that's a fair reflection of the quality of franchisees that are being drawn into this network. Absolutely. That we are still having more of our existing franchisees who are buying new clinics. So I think of the 60 clinics that we had, I want to save 40% of them were from existing franchisees but we are also attracting those newer franchisees and for example there has been a -- two of the sales that comes to mind is that they existing Planet Smoothie excuse me Planet Fitness franchises that already have a very sophisticated number of units in their territory. They're sold out, they're looking for additional ways to invest and leverage the overhead they have in place to support the franchisees they have in that territory. And that we have two of whom, who have just signed to a couple of multi-unit agreements in Florida. And I think if you were to talk to our VP of Sales, he would absolutely reaffirm that he's seen a higher quality of franchisee with more experience coming in as we see these franchise sales accelerating.

That's great. I think that's a huge deal and I'm -- I continue to be really excited about the development you're doing. So congratulations, keep up the good work.

Thank you very much.

[Operator Instructions]. Our next question comes from Mike Malouf with Craig-Hallum. Please proceed.

Great. Thanks for taking my questions.

Mike, how are you doing?

I'm doing well. Can you talk a little bit about as far as the percent of package and packages that run through the P&L. Just give us a sense of that.

Absolutely. So historically, 79% of our revenues are generated from the wellness plans. So that continues to be the overarching majority of our gross sales. The packages come in depending on the period somewhere between 10% and 12% of gross sales and the rest is made up of those walk in visits.

And then a question, overall. You've had a lot of exposure here of turning around the system and my congrats to. Well done for you and your entire team. When you take a look at competition though now are you seeing any resurgence there either it's from maybe perhaps some smaller chains that are trying to emulate you or perhaps some reinvigorated mom and pops out there. Love some color on that. Thanks.

Mike, that's such a great question and as you look at the only real national franchised chiropractic chain out there, it's called Health Source. Is that quite frankly, they have been shrinking in size in -- overall their portfolio compared to our growing in size and part of that is that they are still a traditional insurance-based model. It's more of a shared services so they've been attracting existing chiropractic clinics they convert into their system and clearly for whatever reason that those clinics aren't staying with them as they've gone forward. You're right to note that we are being or how do I say this. There's a lot of franchise owners out there that are trying to replicate our experience. And so I was looking at one recently in Texas, where if you go to their website and look at the clinic and the memberships and packages they're offering, the only difference there, they don't -- you don't see your name on it. I was at a IFA National Conference in February and I was moderating the panel and this young man came up to me and he said, hey I've got this chiropractic chain of six clinics in Connecticut and what can you do to help me. And so I told him, he should learn more about franchisee. But yes, we will continue to spot our competitors. I haven't seen anybody out there that has any significant momentum and we do careful scans on a regular basis of just keeping our pulse on the marketplace. At this point, we have such a strong first mover advantage that it's going to be hard for anybody to catch up to us in this specific model that we're working but we always have to be thoughtful.

Great, appreciate it. Thanks.

[Operator Instructions]. And with that, this concludes our Q&A session for today. I'd like to turn the call back over to CEO, Peter Holt for closing remarks.

Thank you, Tiffany and thank you all for your interest. As you know, we've been sharing patient testimonials on these calls and today, I want to tell you a very personal experience I recently had in one of our clinics, three years ago, we implemented an annual clinic visitation day program, where we closed down our corporate headquarters and send the entire staff to the field to work for a full day in the clinics. The experience gives our corporate team a greater insight into the day to day operations of our clinics and a deeper understanding of the impact that we're having on the patients that we serve. During my visit to a clinic in the Phoenix area, I was sitting at the wellness coordinator desk when a woman in severe pain walked in. She explained that she'd thrown her back out four days ago while she was sitting on the couch and nothing was making it better. Her pain level had reached 11 on a scale of 1 to 10. Out of desperation, she came to The Joint, having never been to a chiropractor before and she had very little understanding of how chiropractic care works and quite frankly was very scared. And but she couldn't pain -- couldn't bear the pain for any longer. After examination consultation and adjustment the treatment she received lowered her pain to a two on that scale, greatly relieved of her pain, she hugged the doctor and claimed, she was a miracle worker. It was incredible to witness her transformation in person. It's experiences like these that validate the life-changing care that The Joint is providing to patients across the country. Thank you and stay well adjusted.

Ladies and gentlemen. Thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone, have a great day.