Ladies and gentlemen thank you for standing by and welcome to The Joint Corp. Q3 2020 Financial Results Conference Call. [Operator Instructions] As a reminder this conference call is being recorded. I would now like to turn the call over to Ms. Moriah Shilton. Thank you ma'am. Please go ahead.

Thank you operator. Good afternoon everyone. This is Moriah Shilton of LHA Investor Relations. On the call today; President and CEO, Peter Holt will review the third quarter and provide an update of the business. CFO, Jake Singleton will detail the financial results then Peter will close with a summary and open the call up for questions. Please note we are using a slide presentation that can be found at ir.thejoint.com/events. Today after the close of the market The Joint Corp. issued its financial results for the quarter ended September 30, 2020. If you do not already have a copy of this press release, it can be found in the Investor Relations section of the company's website. As provided on Slide 2, please be advised today's discussion includes forward-looking statements including statements concerning our strategy, future operations, future financial position and plans and objectives of management. Throughout today's discussion, we will present some important factors relating to our business that could affect these forward-looking statements. The forward-looking statements are made based on our current predictions, expectations, estimates and assumptions and are also subject to risks and uncertainties that may cause actual results to differ materially from the statements we make today. Factors that could contribute to these differences include, but are not limited to: the continuing impact of the COVID-19 outbreak on the economy and our operations, including temporary clinic closures, shortened business hours and reduced patient demand; our failure to develop or acquire company-owned or managed clinics as rapidly as we intend; our failure to profitably operate company-owned or managed clinics; and the other factors described in Risk Factors in our annual report on Form 10-K as filed with the SEC for the year ended December 31, 2019 as updated for any material changes described in any subsequently filed…

Thank you Moriah and I welcome everybody to the call. Our growth momentum once again is taking hold as reflected by our third quarter performance. Chiropractic care is an essential health care service which is the foundation of our business model's resiliency. I'd like to thank all of our doctors and staff for their service to our patients and thank our patients for their confidence in The Joint. We've seen so many companies negatively impacted by the pandemic and forced to rethink their business models. Here at The Joint, our core concept has remained unchanged outside of increased sanitization and cleanliness procedures that we implemented to protect our patients in staff. While we cannot predict the end of the pandemic what we've experienced is that our patients have continued to rely on their chiropractic care as essential to their health. This ability to serve patients and deliver performance continues to attract new investors. For them, I'm going to point out that The Joint is revolutionizing access to chiropractic care. We're 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 chiropractic care and attract new patients. We continue to open new clinics in a capital-light fashion with our hybrid model of franchise and corporate owner managed clinics. We're already the largest and most recognizable provider of chiropractic care in the country. Given the high level of fragmentation among chiropractic care providers, we have a significant opportunity to continue increasing our market share as we redefine and expand the market itself. I'd like to review our quarterly metrics and activities and then Jake Singleton our CFO will discuss the financial results in greater detail after which I'll…

Thank you, Peter. Turning to slide 9. As Peter indicated, our clinic performance continued to improve each month throughout the quarter. Comparing third quarter 2020 to third quarter 2019, system-wide sales for all clinics opened for any amount of time increased to $68.3 million up 21% year-over-year. In spite of the ongoing pandemic, system-wide comp sales for all clinics opened 13 months or more were 12% compared to 23% in the year-ago quarter. System-wide comp sales for mature clinics opened 48 months or more were 7%, compared to 17% in the year-ago quarter. Revenue was $15.4 million up $2.7 million or 21%. Company-owned or managed clinics contributed revenue of $8.4 million increasing 23% from the same period a year ago. Franchise operations contributed $7 million up 19%, compared to the same period last year. Increased revenue for both categories is due to the greater number of clinics and continued organic growth. Cost of revenues was $1.7 million up 20% over the same period last year reflecting the higher regional developer royalties and commissions. Selling and marketing expenses were $1.8 million, up 3% over the same period last year reflecting the timing of the advertising fund spend. General and administrative expenses were $9.4 million, compared to $8.3 million. The $1.1 million increase was primarily due to higher payroll and related expenses to support revenue growth and a greater number of clinics. For the quarter, we posted net income of $1.6 million or $0.11 per diluted share, compared to $617,000 or $0.04 per diluted share for the same period last year. We delivered record total adjusted EBITDA of $2.6 million, which increased 84% compared to the same period last year. Franchise clinic adjusted EBITDA increased 18% to $3.4 million. Company-owned or managed clinic adjusted EBITDA increased 46% to $1.9 million. Corporate expenses…

Thanks Jake. Turning to slide 12, nearly nine months into the pandemic, we've demonstrated the resilience of our business model under the most unexpected and trying times. The opportunity for growth is stronger than ever as we increase market share faster than the growth of the industry by offering patients a more affordable and convenient experience. Although chiropractic care market is expected to grow at a 1.4 CAGR over the next five years, annual spending on back pain in the U.S. is already as significant at $90 billion. Of that 18% or $16 billion is spent on chiropractic care. Further, the marketplace is highly fragmented with tens of thousands of individual practitioners which creates the opportunity for companies with scale and standard procedures to excel. Currently the Joint market share accounts for about 1% of the industry and we estimate all chains including ourselves account for only 3% of the market. This compares to dentistry where the DSOs are nearly 12% of the industry demonstrating a path to gain market share. There are multiple favorable market drivers which influence our industry's growth. First is the continuing pain epidemic facing this country with traditional medicine increasingly acknowledging the effectiveness of chiropractic such as the American College of Physicians and the Journal of American Medical Association citing chiropractic care as a part of that first line of therapy in lower back pain. Also as the tragic opioid crisis continues to plague this country and now the American Chiropractic Association studies show that patients who visit a chiropractor first have a 90% decreased odds of early or long-term opioid use. Another is the consumer shift towards health and wellness. A study from earlier this year from McKinsey & Company measured pandemic-driven changes in consumer behavior and predicts a rising and enduring interest in…

Thank you, sir. [Operator Instructions] The first question comes from the line of David Bain with ROTH Capital. Your line is now open.

Great. Thank you. First congratulations on continued execution. Very nicely done. Just looking at guide seems like EBITDA margin should be another record. I think margins are inferring around 20%. As we get to 1,000 stores at the end of 2023 unless we assume a larger mix of greenfields coming in after that point, could we think about a margin -- a normalized margin of 30%-plus at that point? And then just the uptick in store openings by year. Obviously, you're calling for 137 on average from kind of the 80 openings per average per annum to get to that point. Is there some sort of cadence? Is it back half loaded or is it sort of evenly -- is it going to be even as we open up these units going to 2023?

Yes, Dave great questions all of them. Thanks for that. We -- as you know we don't give forward-looking guidance as it relates to margins. As I look at those and how they expand over time, I'm looking at our two operating segments. We would say that from a corporate clinic perspective we expect the four-wall margins to reach 30%-plus over time. And obviously there's some outside the four-wall overhead that would kind of reduce that margin over time but we do expect that to lever. That's how we've developed that field overhead structure so that we'll lever with us over time. Our franchise segment is just under a 50% margin business for us. Until such time that we recapture a large part of that RD territory that will pretty much maintain that overall margin contribution. And then the last is the non-operating just corporate overhead which is something that we very carefully monitor over time. So, as it relates to the cadence of the openings, you're right, we've got our work cut out for us. We do expect that to accelerate over time just as our system has and as other franchise models that as they gain that traction and that brand awareness, we do expect that to accelerate overtime.

Okay. Great. And then my follow-up is just -- it's straightforward not bifurcated into three parts. The economic model. In terms of forward location costs, have they declined at all given strip retail of declines in general? I mean does it sort of grease the skids a bit for new franchises and potential greenfield openings?

Well that's what everybody is assuming especially as it relates to lease costs. I think the build-out costs, I don't see that changing much overtime. What we've noticed in some of the clinics we've been building in California have a little higher-than-average build-out cost just because of the conditions in the California market. I think that when we look at the lease costs is that you'd assume what this pandemic and impact it's having is that you would in fact see greater flexibility with the landlords. Challenging is that, first of all the places, we're going is still a very competitive site. It's that 1000 square feet in line anchored by the supermarket. We're going to the best commercial center, so we're not going to places that's lost or anchor and they're half empty and they'll give you the site. So it's still a little bit competitive. We think over time, we will see those costs coming down a little bit. But I think just overall as it relates to the leases, labor, build-out it's going to be pretty stable.

Okay. Great. Thank you so much.

Thanks for the congrats.

Your next question comes from the line of Jeremy Hamblin with Craig-Hallum.

Hi, guys. This is Ryan on for Jeremy. Congratulations on the quarter first and foremost. I just want to start as we spoke about last time, you guys are pretty successful with the new patient trial in June and were able to get a lot of some great exposure if you will from that promotion. But I'm wondering as several months have passed. What are you guys seeing in terms of retention and particularly as it relates to those new customers you had coming in during the summer months?

Yes, you're right. June was a great promotion. That was our free trial. August was our summer sale promotion where we're targeting the lapsed patients, which as we mentioned was also the most successful of that promotion that we've done. So we really are driving a high-quality patient and we're seeing record conversions in the clinics. The great thing and to answer your question is we're also seeing strength in our attrition numbers. So the patients that we're bringing on are staying on with us longer. So we are actually experiencing record numbers of active members per clinic across our system right now. So we're getting a high-quality patient through the door and they're staying with us which is a great trend for us.

Great. And then last for me. Can you talk a little bit about what you're seeing in terms of performance across geographies? Last time, I guess you actually had some pretty good news to share about performance in some of the geographies are hardest hit by COVID. I'm wondering has that stayed consistent or has it sort of fluctuated as time has gone by?

Yes it's actually improved. The stat we gave last quarter was we looked at Arizona, California, Texas and Florida which approximate about 50% of our system. Last quarter, our total system was 10.2% and those four regions had comps of 10.1%. When we did that same analysis as a system this time around we were at 11.7% and those four states represented comps of a little over 12%. So they've actually gotten better than the overall system average even in those kind of "hotspots." So again overall, we're not seeing a large disparity across geographies and we're still seeing strength in some of those hotspot type locations.

Great. That’s it for me. Congrats again, guys.

Thanks a lot, Ryan.

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

Hi, everyone. And let me add my congratulations. Multi-part question. Your comps are really strong maybe you can speak more to the trend in the monthly progression in Q3. Just curious around the August promotion, what you saw with the comps there? How you're thinking about Q4 comps? And any change to planned promotions for Q4 this year versus last year? And then also any more color you could give us on marketing plans, how they might evolve in the near-term given the recent surge in COVID and probable reluctance as you pointed out to go to the emergency room?

Yes. Great questions, Jeff and thanks for the congrats. And to talk about the marketing strategy for Q4 is that, no, we are not anticipating any major changes in our traditional two promotions that we do in the fourth quarter, Black Friday sale and then the Membership Sale in December. I would say that we are consistently as a system getting better and better in the execution of those two promotions. I think that we have more marketing dollars behind it to support it in this quarter. So I think we would expect to see continued improvement in performance as compared to Q4 last year on those promotions. And then that ties directly to your question on, we don't guide on comps about what we would expect in terms of impact on comps as it relates to the quarter because those promotions really can't have a huge influence. That what we have seen is from the last time we've talked in the quarter, looking at the key metrics that we use to run the business is that since the nadir when we -- in April when we hit the lowest numbers in terms of new patient counts and comp rates and the key metrics we look at, we've continually seen an improvement month-over-month pretty consistently as we finished out the year. Now where this pandemic goes and how deep it goes it becomes where it is today, and how long it's going to last. I mean, no one knows none of us knows that. All we can say is, so far in the first nine months of this is that our patients, obviously, see this essential to their health care and they are coming in at levels higher than they were doing a year ago the same period. And that our doctors in the middle of the pandemic see this as essential to their ability to provide service -- the treatment to their patients, because it would be great if you have patients who come in, but if your doctors feel unsafe or that it's unsafe for their patients they're not going to serve. And what's been really clear is that they are standing up whether they're treating our patients, patients have continued to come in the door.

Okay. Great. And then as a follow-up, can you elaborate a little bit more on what you're seeing in terms of company-owned unit performance versus franchise performance most recently? And then anything more you could tell us about plans to open corporate greenfield clinics next year?

Sure. The first part is how our clinics performed against the franchise system. Historically, if you look at age class comparatives, so we always look at their month in operation. When we do kind of like-for-like comparatives historically, the corporate stores have performed on par with the franchise network. What we've seen so far through the pandemic is that our corporate stores are rebounding a little bit quicker. So right now on some core metrics there they're kind of outpacing so we're seeing a little bit quicker rebound in the corporate performance. And I think you see that reflected in the segment margins this quarter. And the second part of the question was what again, Jeff?

Just wondering if there's any more you want to say at this point about plans to open corporate greenfield clinics next year.

Yeah. I put a little bit of commentary in the back end of my comments. We will significantly increase the pace of greenfield development, because we really pulled back on that investing activity here in 2020 just to bolster our liquidity position. I think we have the balance sheet now and we're ready to kind of get back into a more rapid pace of growth.

Okay. Fair enough. Thanks for taking my question and continued success..

Thanks, Jeff. Thanks for the support.

Your next question comes from the line of Brooks O'Neil with Lake Street Capital. Your line is now open.

Good afternoon guys. I confess I got on a little bit late, so if I ask you about something you commented on I apologize in advance.

No problem.

Just curious, I guess, I'm going to ask you three simple questions as opposed to three complex questions. Number one, would you describe traffic as back to normal? Number two, do you see any increase in franchise units for sale kind of as we've moved through this pandemic period? And number three, can you just comment on anything you're seeing about time to breakeven with some of the clinics you've been opening recently? Thank you very much.

Sure. To answer your first question in terms of is our traffic back to normal, I would say, it depends on what you're calling normal, because if normal for us for the last four years has been comps and as you know in like almost 25%. And if that's our normal, then the answer is no, we're not at comps at 25%. We reported comps for Q3 at 12%, but compared to Q2 where comps were negative 6%, we feel like we've made some great inroads there. So I think that if I compare our performance to last year same period, we've increased really across almost any metric that you measure. Do we have that same momentum that we saw building -- that we're just continuing to draw upon pre-pandemic? No, we're not quite there, but we are certainly headed in the right direction. Your second question that's looking at have we seen an increase in the number of clinics for sale is that it certainly was -- theoretically, we believe that that could be possible because of course with the pandemic there's going to be more financial pressure on our -- on all of the units and that there could be opportunities for franchisees who just say, you know what I just need to get out. I've got to do something else. And the reality of it is, is that no that I've not seen any increase in the number of clinics that are being sold. I don't know Jake if you've seen anything other than that.

No.

But I would say, it's on par or less the transfers that we would be expecting to see in a normal year. And the last comment or your last question is that we see any kind of impact on the time to breakeven. I think we've opened up 49 clinics through the first three quarters of this year. And quite frankly as we even talked in the last call, we are seeing some record-breaking times to breakeven like we had that Midland clinic that basically did $76,000 in sales in the first two months of operation, which for us is just it broke every -- shattered any record that we have. If I look consistently across those clinics that have broken even and that are operating in 2020 -- or open in 2020, I would say that we are seeing a higher level of performance or a shorter period of time to breakeven even in the middle of this pandemic than when I compare them to the same class of 2019. Okay. Brooks O’Neil: Wow, that's fantastic. That's incredible. Good for you. Keep it up.

Thanks a lot Brooks. Appreciate the support.

Your next question comes from the line of Max Rakhlenko with Cowen & Company. Your line is now open.

Hey, guys. Thanks a lot for taking my question. And again, congrats on the quarter. So just first, can you talk to the competitive environment you're seeing out there? Anything pointing to maybe accelerated competitor closures? And given your improved cash liquidity position just any thoughts on potential future M&A? And then we have a follow-up. Thank you.

Sure. In terms of the competitive environment, obviously, the thing that dominates our industry is the 40,000 independent practitioners. And what I would see is, what we've seen in this environment is that it's more anecdotal than any kind of industry stats that, I'm calling from. But we are seeing more of those clinics close, and some of the doctors coming from those clinics coming to us to either work in our clinic for additional hours, or shutting down their practice, just because they are not competing in this market. And you can just imagine, because it is a tough market, and that if you're not a part of a system that has all those – the support on how to get a PPP loan, and how to market during an uncertain time and how to make sure that you are marketing to your patients in this kind of environment, all these things that we do as a franchise system, if you're an independent practitioner and trying to come up with that all on your own you can imagine the difficulties that they would face. I would say that, competitively, we're continuing to see specifically in our own chain and increases in our numbers of new patients, increases in the number of times our patients are coming to use us, increases in the number of clinics that we're opening. So I see – I would say our – we're continuing to expand both in terms of organic growth, and in terms of new clinics in the market that's driving our sales. Your second question in terms of acquisitions is that, quite frankly, there are a handful of chains that are starting out that have, I don't know, somewhere between 5 and 20 units in a given market that are somewhat related to our model. So we're seeing a little bit of that. But nothing there that would be of the size or in a market that would justify an acquisition. So in terms of pure opportunities, as it relates to the industry and what mergers or what acquisitions would be available to us the reality of it is not a lot.

Got it understood. And then just separately, the new Greenfields, where do you plan for those openings to be located? Will they be concentrated in any regions? Just any more color would be great.

Sure. Yeah. The next year will be really a mix. We're going to continue to target the infill, where we already have corporate clinics, so mostly Southern California, Arizona and New Mexico. We've also got some territory now on the East Coast in terms of that South Carolina, Georgia area. So there will be some infill sprinkled almost across those regions. But we do have plans to expand into some other true Greenfield territory, as well. So it will be a mix of both.

Great. Thanks a lot, guys.

Thanks a lot, Max.

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

Thank you. Most of my questions have been asked and answered, but I just had a follow-up on the promotions. I know, a couple of people were asking about those. I know originally, when you went into – when we all went into the COVID situation you were offering some free promotions and you've offered some other promotions. As you gauge those, I'm sure, I know you track everything very well can you give us the percent of those customers that end up becoming a regular customer, whatever you define as a regular customer? They sign-up, they come back, they sign-up for a package. What percent of those sign up for it? And then if – has your marketing changed in light of COVID-19, how you go about trying to get out in front of the new customers or potential customers, or is that the strategy pretty much been the same in terms of marketing?

Well, to answer your question about the impact of the promotions and how does that affect, what we call conversion, well, we typically don't guide on that but we talked about for example that, summer promotion where we're offering the free adjustment consultation examination for any new patients. We talked in the call that, we had a 60% conversion rate for those new patients. So if they – those all the people who came in the door for that first time and had that experience, 60% of them converted to a member or a package. And that is for us the highest we've seen in the history of the company as a system. And when we measure conversion rates a broader term during the pandemic, I would say, again, one of the impacts we've seen from the pandemic is our conversion rate is higher than we've ever seen it across the board. And our thoughts are a part of what's driving that is that, that patient who is in fact coming in the door for the first time is, what I'd say is maybe a higher quality patient, or a patient who's – if you're concerned about pandemic I'm not sure, whether you want to go to a chiropractor or you're not sure of the experience. If you actually go outside your house and you do open that door you're committed. And so I think we're seeing that level of conversion that is like as I said, it's record-breaking for us as a system. We have not seen – and again, we're still a few months into this, we haven't seen those same patients dropping out of what we call the attrition at any – at a higher rate. In fact Jake said, earlier on the call is that, our attrition rate is either flatter or improving as we've measured it through the pandemic. So from those overall promotions, I would say that, it's been effective in bringing the new patients in. And as Jake said is, we're having record-breaking numbers of members per clinic across the network. We're at our highest numbers in the history of the company at this moment. Your second question is that...

Any changes planned...

Changes in our marketing strategy. And I would say, yes, there have been. And for example that in response to a lot of our members who froze instead of canceling, we've been doing special promotions for those frozen members to try to bring them back out of freezing and join as a membership -- reinstate their membership. The June promotion for providing a free consultation adjustment and examination as -- on a national promotion, we have never done before on a national basis. And so that again was a very clear change in our overall marketing strategy. If you were talking to our VP of Market and if you're on the call, he would tell you is we are making these changes in our marketing strategy, it's really focusing so much on safety and support because what we do know is that of all the metrics that face our business is the one that's been most impacted is that new patient count. And while we've seen it increase from where it was in April, it still isn't at those record numbers that we saw in 2019. And so we're really focused on understanding number one what's keeping them out of our clinics. And we think it's just that safety of COVID. And so a lot of the marketing both on our social media platforms is focusing on the sanitization the cleanliness of our clinics and the safety that you should be able to feel comfortable to come in.

Yes. The only thing I would add there Anthony is that when you look at the summer sale that was in August and you look at what we have upcoming in our Black Friday and our wellness plan promotion at the end of the year, those are bedrock promotions for us. So the core promotional activity with anything post June has really been things that we've done. Have we changed our messaging? Yes. But I think it's important to note that those core kind of bedrock promotions are unchanged for the back half of this year.

Unchanged. All right. So Jake or Peter maybe on the conversion, you said it's the highest ever at 50% for these promotions. What was the conversion rate when you were doing promotions in 2019 for example?

I think across the board for new patient conversion would be in the low -- in the upper 40s and then our overall conversion would be in the lower 40s. And today, our new patient conversion for that specific promotion as I said was 60%. And that our overall promotion -- our conversion so we're looking not just at new patients but existing patients who actually convert after they've been in for the first time is that's right now running over 50% as a network.

Okay, great. And then just lastly on the sanitation efforts. I mean, one of the things that always impressed me when I went to my first Joint clinic was the fact that yes indeed you could treat a patient from when they walk in the door treat -- they check-in, treat it and out the door in five minutes or so. And with the sanitation efforts now that have to happen between patients, how have you been able to implement that? Has that increased the time? And if so by how much? Does it increase it by a minute or two or can you talk a little bit about that?

Sure. And I don't have the metrics that where we've stated and said okay it's increased by 1.2 minutes, but I would say just generally, yes, is that now that we are sanitizing tables between patients, doctors are washing their hands between patients, that we're having people check in and then typically they'll go to their car and then we'll text or call them to come in when they know -- when it's time. So I would say there is definitely -- would be a little bit more time, whether it's one minute two minutes 30 seconds, but there would be more time that's going to require to treat that patient. As you know, so many of our clinics are nowhere near capacity. In fact, we don't even know what full capacity of our system is yet and we've talked about that a number of times. And so, we're -- what I would say across the board, we have not seen an impact on the treatment of the number of patients, specifically because of COVID, even though we are taking a little bit more time between patients to ensure that we're doing all of these procedures. I think in a busier clinic, we've talked about in some of those clinics that we may in fact have somebody hired at a lower level position that really is just focusing on cleanliness and sanitization so the doctor the wellness coordinator can stay focused on their primary role. So more to come, but what I would say is overall that there's been enough capacity in our system to not have an immediate impact on the fact that we're using these additional procedures as we treat our patients.

Okay. Great. Thanks a lot. Appreciate it.

Thanks, Anthony.

Thanks for the support.

[Operator Instructions] And I'm showing no further question at this time. Presenters please continue.

Charlie, thank you. And I want to thank all of you for your time today. Please note we plan to participate virtually later this month in the Craig-Hallum Alpha Select conference and the D.A. Davidson Annual Holiday Beauty and Wellness Bus Tour; and finally the Roth Deer Valley Conference in December. Typically, I'd like to end the call with a patient story. And today, I'm going to paraphrase a lengthy two paged single-spaced letter we received from a patient who states her doctor at The Joint not only changed her life but saved it. She wrote that after years of pain and scar tissue built up from multiple accidents she discovered The Joint and found pain relief. Further, after becoming increasingly more asthmatic later in life, an adjustment to her ribs dramatically reduced her breathing and improved her well-being. At one point, she experienced strange symptoms that she was ignoring. Her doctor chiropractic insisted that she see her primary care physician who diagnosed her with hypertension. A year later, the same chiropractor urged her to get a physical for a swollen lymph node and it turned out that she had a mass on her thyroid. In the end, I'm going to quote from the letter "Overall my doctor chiropractic has added so much value back to me my confidence and my health. I have personally recommended over 13 people to The Joint and wear your swag out in public. I will always take any and every opportunity to tell people about the amazing work done at The Joint and cannot thank you and your team enough." Thank you and stay well adjusted.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.