The Joint Corp - Earnings Call - Q2 2021
August 5, 2021
Transcript
Speaker 0
Good day and thank you for standing by. Welcome to The Joint Corporation Q2 twenty twenty one Financial Results Conference Call. At this time, all participants are in a listen only mode. At the speakers' remarks, there will be a question and answer session. Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your first speaker, Mr. David Bernard, LHA Investor Relations. Thank you. Please go ahead.
Speaker 1
Thank you, Robert. Good afternoon, everyone. This is David Barnard of LHA Investor Relations. On the call today, President and CEO, Peter Holt, will review our second quarter twenty twenty one performance metrics and provide an update on the business. CFO, Jake Singleton, will detail our financial results and guidance.
Then Peter will close with a summary and open the call for questions. Please note, we are using a slide presentation that can be found at https:ir.thejoint.com/events. Today after the close of market, The Joint Corporation issued its financial results for the quarter ended 06/30/2021. If you do not already have a copy of this press release, it can be found on the Investor Relations section of the company's website. As provided on Slide two, please be advised today's discussion includes forward looking statements, including statements concerning our strategy, future operations, future financial position and plans and objectives of management.
Throughout today's discussion, we will present some important factors relating to our business that could affect these forward looking statements. The forward looking statements are made based on our current predictions, expectations, estimates and assumptions and are subject to the risks and uncertainties that may cause actual results to differ materially from the statements we make today. Factors that could include could contribute to these differences include, but are not limited to, the continuing impact of the COVID-nineteen 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 ks as filed with the SEC for the year ended 12/31/2020, as updated or revised for any material changes described in any subsequently filed quarterly reports on Form 10 Q or other SEC filings. We anticipate filing our 06/30/2021, 10 Q on August 6. 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 transparent view of the company's underlying operating performance and operating trends than GAAP measures alone. Reconciliation of net income to EBITDA and adjusted EBITDA is presented in the press release.
The company defines EBITDA as net income or loss before net interest, tax expense, depreciation and amortization expenses. The company defines adjusted EBITDA as EBITDA before acquisition related expenses, bargain purchase gain, net gainloss on disposition or impairment and stock based compensation expenses. Turning to Slide three, it is my pleasure to turn the call over to Peter Holt.
Speaker 2
Thank you, David, and I welcome everybody to the call. The strength of our business model continues to deliver, and I'm delighted to inform you that we broke several records this quarter. More importantly, we expect it to continue to accelerate growth and to build upon our financial foundation. During the second quarter, we opened 41 clinics, including five Greenfield clinics. And in April, we achieved a significant milestone of opening our six hundredth clinic.
Additionally, we sold 63 franchise licenses during quarter. This metric supports our mid term goal to have 1,000 clinics in operation by the 2023 as well as our drive for longer term expansion. I'd like to pause and welcome our new investors. The Joint is revolutionizing access to chiropractic care. Our clinics are located in convenient retail settings.
We provide concierge style membership based services without the need for insurance or appointments with attractive pricing and convenient hours. Our growth strategy is to build our brand, increase awareness of the efficacy of chiropractic care, deliver an exceptional patient experience and open more clinics. We are already the largest, most recognizable provider of chiropractic care in the country. However, we only account for approximately 1% of this highly fragmented nearly $18,000,000,000 chiropractic care market. We have a significant opportunity to continue to increase our market share as we further refine and expand the market itself.
Turning to Slide four, I'd like to review a few highlights of our second quarter twenty twenty one results. In a moment, Jake will discuss our financial results in detail. We had a strong Q2 twenty twenty one. It was further enhanced by comparison to the Q2 twenty twenty, which is the nadir of the impact of the COVID-nineteen on our business. To provide context, I'll include sequential comparisons as well.
System wide sales grew to $87,800,000 increasing 64% compared to our Q2 twenty twenty and thirteen percent compared to Q1 twenty twenty one. Our comp sales for clinics that have been open for at least thirteen full months grew 53% compared to Q2 twenty twenty. And in Q1 twenty twenty one, thirteen month comp sales grew 21% compared to the same period prior year. Revenue grew 61% compared to Q2 twenty twenty and fifteen percent compared to Q1 twenty twenty one. Adjusted EBITDA increased $3,800,000 up 237% from Q2 twenty twenty and nine percent up from Q1 twenty twenty one.
And on 06/30/2021, our unrestricted cash was $18,800,000 compared to $20,600,000 at 12/31/2020. Turning to Slide five. I'd like to review our portfolio. Regarding clinics, during Q2, we opened a record breaking 41 clinics, 36 franchised and five greenfields, compared to twelve and one, respectively, in the same quarter last year. This brings our six month total to 54 clinics open compared to 30 in the 2020 and twenty nine in the first half of twenty nineteen.
Four of our greenfields were in a cluster of strongholds in Arizona, California Mexico. Our fifth greenfield in Virginia marks our first corporate clinic in a brand new market in over five years. This important milestone expands our presence in the Southeast and is supported by our continuous operational improvements. Most recently, we benefited from advancements in our grand opening program and investments in digital marketing. During the quarter, three of our franchise clinics and one greenfield opened in April achieved Go Elite status, which means they attracted over 400 patients who reported over 30,000 in sales in the first two months of operation.
On April 1, we acquired eight previously franchised clinics, which were immediately accretive to the bottom line. Two of the acquired clinics were in the Phoenix, Scottsdale market, expanding our reach in our headquarters region. Six of the acquired clinics were in North Carolina, made possible by the repurchase of the RD territory in that state, further broadening our corporate clinic presence in the Southeast. Once again, we did not close any clinics this quarter. In summary, at 06/30/2021, we had six thirty clinics in operation, consisting of five fifty five franchise clinics and 78 corporate owned or managed clinics.
Our portfolio mix shifted slightly with our corporate clinic representation increasing 1% to 12% of the total and our franchise clinics adjusting to 88%. At the quarter end, we had two eighty two signed agreements in some level of development. This compares to two sixty at 03/31/2021, and reflects the increased interest in our franchise system. Turning to Slide six. We're tracking to our midterm goal of 1,000 clinics opened by the end of twenty twenty three, and we're confident in our continued clinic expansion through our franchises and greenfield openings.
One natural extension of our customer base is to build upon our commitment to support the armed forces. We continue to honor our military by providing them discounts to our services across our clinics. In July, we announced our partnership with the Army and Air Force Exchange Service. We'll bring chiropractic care on base to better serve members of the entire military community. Our initial target clinic sites include Air Force bases in Phoenix, Arizona Tampa, Florida and Trenton, New Jersey.
The Exchange serves an eligible customer base of 33,000,000 active duty service members, their families, retirees and their families, along with disabled veterans and government civilians who work on the military installations. The Exchange has more than 4,900 facilities around the world. Turning to Slide seven. In the second quarter of twenty twenty one, we sold a record breaking 63 franchise licenses, bringing our six month sales to 89. This compares to eleven and thirty five franchise license sales for the second quarter and the first half of twenty twenty, respectively.
Our brand continues to attract sophisticated, well capitalized franchisees with proven track records. During the second quarter, our regional developers sold 87% of the franchise licenses, and they continue to accelerate our growth. At 06/30/2021, 70% of our clinics were supported by twenty one RDs, which covered 59% of the Metropolitan Statistical Areas or MSAs. In May, we elected to renew two RD agreements with continued growth opportunities in those areas. This increases our aggregate ten year minimum schedule for new RD territories established since 2017 to six ninety three clinics.
Now keep in mind that a portion of this clinic count is already opened, but still provides a large foundation to fuel our continued clinic expansion and sales growth. Turning to Slide eight. Let's discuss marketing. We continue to set monthly records for new patient acquisitions during Q2, with the best April, May and June months in our history. This reflects growing consumer confidence, the benefit of increased national awareness advertising and the strong marketing contributions of our regional co ops.
In May, we kicked off a new marketing campaign emphasizing the positive impact of chiropractic on good posture, particularly relevant was the rise of remote work and distance learning. The campaign was supported by 18 TV and radio interviews from media around the country, and we're pleased to drive over 14,000 unique visitors to our new posture website. In June, we launched a win back campaign directed to our inactive patients. This is our fourth consecutive year executing this direct marketing promotion, and I'm happy to report that the number of patients who reactivated their membership rose thirty two percent versus twenty twenty. Finally, we continue to reap the benefits of our new patient digital lead nurturing platform, which we rolled out in Q4 twenty twenty.
This technology enables our clinic teams to guide their digital leads through their initial journey to chiropractic. In Q2 twenty twenty one, our digital lead conversion reached an all time high, improving 38% compared to our performance in 2020. Turning to Slide nine. Let's review our initiative to improve our IT infrastructure. I'm pleased to announce that in July, we successfully launched AXIS one point zero, the first iteration of our new IT platform.
Thanks to the extraordinary efforts by our implementation team and our franchise community, we are now live nationwide. As a result, over six thirty clinics transitioned from our former homegrown IT platform to our new licensed CRM built to foster continuous improvement. We now move to the typical debugging phase that any IT transition of this magnitude must go through. Looking forward, we're preparing to unleash the power of our new CRM platform with future enhancements that include improved business intelligence, marketing automation, patient portal, mobile check-in and more. This first critical phase was a great accomplishment, and I'm incredibly grateful for the dedication and efforts of everyone in our network that helped this to make this a reality.
And with that, Jake, I'll turn it over to you.
Speaker 3
Thank you, Peter. And turning to Slide 10. As Peter stated, Q2 was a record breaking quarter. To provide context, I'll review sales from Q2 twenty nineteen as well as 2020 and 2021 to take into account the impact that the pandemic had in our business last year. Q2 system wide sales for all clinics opened for any amount of time increased to $87,800,000 up 64% year over year in 2021 compared to 2% in 2020 and '34 percent in 2019.
Q2 system wide comp sales for all clinics opened thirteen months or more were 53% in 2021 compared to a negative 6% in 2020 and a positive 25% in 2019. Q2 system wide comp sales for mature clinics opened forty eight months or more were 44% in 2021 compared to a negative 10% in 2020 and a positive 18% in 2019. When reviewing our operating statement, I typically provide color regarding our variances by line item. For Q2 twenty twenty one, all of our variances reflect both the increased number of franchises and company owned or managed clinics as well as a favorable comparison to Q2 twenty twenty. As such, I will only speak to additional factors.
Revenue was $20,200,000 up $7,600,000 or 61%. Company owned or managed clinics contributed revenue of $11,400,000 increasing 67% from the second quarter twenty twenty. Franchised operations contributed $8,800,000 up 53% compared to the same period last year. Cost of revenues was $2,000,000 up 49% over the same period last year. Selling and marketing expenses were $3,100,000 up 76% over the same period last year.
This reflects the larger franchise clinic base and the timing of the national marketing fund spend as well as an increase in local marketing expenditures by our company owned or managed clinics. G and A expenses were $11,600,000 compared to $8,500,000 G and A as a percent of revenue in Q2 twenty twenty one was 57%, down from 68% in Q2 twenty twenty. While we believe the Q2 twenty twenty one level is a good proxy for operating system, we believe G and A as a percent of revenue will increase over the next several quarters due to the opening of four greenfields at the June, the accelerated pace of greenfields opening in the latter half of the year and the related upfront expense of those openings. In addition, please note that our AXIS IT platform is now live and certain development costs and licensing costs will now be will no longer be capitalized and will now be reflected as a component of operating expense. Operating income was $2,000,000 compared to $259,000 in 2020.
Income tax benefit was $666,000 compared to an expense of $118,000 in the second quarter of twenty twenty. Income tax benefit was primarily driven by excess tax benefits from the exercise of stock options. Net income was $2,700,000 or $0.18 per diluted share compared to $116,000 or $01 per diluted share in the second quarter of twenty twenty. We delivered total adjusted EBITDA of $3,800,000 which increased 237% compared to the same period last year. Franchise clinic adjusted EBITDA increased 53% to 3,900,000 Company owned or managed clinic adjusted EBITDA increased 169% to $3,000,000 supported by the accretive acquisitions on April 1.
Corporate expense as a component of adjusted EBITDA loss increased 24% to $3,200,000 On to Slide 11 for a review of our financial results for the six months ended 06/30/2021 compared to the same period in 2020. Revenue was $37,800,000 up 44% compared to $26,200,000 in the same period of twenty twenty. Operating income was $4,000,000 up 296% compared to the same period in 2020. Net income was $5,000,000 compared to $931,000 in the first half of twenty twenty. And adjusted EBITDA was 7,200,000 up 160% compared to the $2,800,000 in the same period of 2020.
On to the balance sheet and the cash flow review. At 06/30/2021, our unrestricted cash was $18,500,000 compared to $17,800,000 at 03/31/2021 and $20,600,000 at 12/31/2020. During the first six months of 2021, net cash provided by operating activities was $9,000,000 which was offset by 8,900,000 of investing activities consisting of acquisitions, greenfield development and IT capital expenditures as well as the $2,700,000 repayment under the Paycheck Protection Program loan that we took out in March 2021 repaid in March. On to Slide 12 for a review of our guidance for the full year 2021. Based on the strength of our Q2 performance as well as our increased franchise openings and greenfield activity, we are raising all elements of our guidance.
We now expect revenue to be between $77,000,000 and $79,000,000 up from $37,500,000 to $77,500,000 The updated midpoint reflects a 33% increase compared to 2020. We now expect adjusted EBITDA to be between $12,500,000 and $13,500,000 up from $11,000,000 to $12,500,000 Please note this guidance includes the impact of a greater number of greenfields that will be more heavily weighted in the second half of the year. The updated midpoint reflects a 43% increase compared to 2020. We now expect franchise clinic openings to be between 9,110, up from 80 to 100. The updated midpoint reflects a 57% increase compared to the 70 in 2020.
We now expect company owned or managed clinics through a combination of both Greenfield openings and franchise clinic purchases to be between twenty five and thirty five, up from 20 to 30. The updated midpoint is 7.5 times greater than the four opened in 2020. With that, I'll now turn the call back over to you, Peter.
Speaker 2
Thank you, Jake. Turning to Slide 13. The numbers speak for themselves. I am so proud of our team who repeatedly identifies, develops and delivers on our growth initiatives and the franchise community who implements these programs. Our future is even brighter.
We have so much room in our business model to expand far beyond the midterm goal of the 1,000 clinics. Market trends support our industry growth. The June 2021 IVAS report estimates industry revenue to increase an annualized rate of 2.2% to $17,900,000,000 by the end of twenty twenty one. With our annualized revenue, we have approximately 1% market share, and there's plenty of opportunity to increase our patient base from existing chiropractic users alone. In addition, there's room to grow the overall market as only 50% of The U.
S. Population knows about chiropractic care. Notably, the nearly zero five million new patients who visited The Joint in 2020, twenty seven percent of them had never seen a chiropractor before. This increased from just sixteen percent in 2013, demonstrating our increasing ability to bring new people into the category and grow the number of chiropractic users. Given the macroeconomic climate and the industry dynamics in the June 2021, KENTLY Insights Chiropractic Care market research report, that's a mouthful, forecast industry revenue growth rate for the next five years to be at 5.4% per year.
The Joint consistently outperforms the industry. In fact, our system wide gross sales ten year CAGR of 70% dwarfs these rates. At the clinic level, KENTLY sites the average annual revenue per clinic in the industry is approximately $300,000 In 2020, The Joint's average clinic revenue was approximately $490,000 with our top performers seeing over $1,500,000 Our success reflects many key differentiators. We leverage knowledge and experience, helping us to create efficient operating models. We increasingly attract sophisticated franchisees, accelerating our national footprint.
We implement effective hiring and training practices to attract the finest doctors and utilize national and regional marketing programs to support our business and build our brand. In addition, we lead general public education efforts, which attracts patients who've never tried chiropractic care before. In fact, The Joint is the largest online publisher of chiropractic information in the world. Also, to educate doctors of chiropractic about The Joint, we continue to deepen our relationships with associations and the 16 accredited chiropractic schools in The United States. Most recently, we became the Life University's official athletic scoreboard sponsor, which increases our ability to engage its student body to provide internships and employment opportunities to our clinics.
It also complements our standing athletic sponsorships with schools such as the University of Houston, the University of Miami, the University of South Florida and most recently, Vanderbilt University. Relationships like these enable us to draw out connections between chiropractic and sports performance and exposes our brand to a wider audience. Overall, we continue to invest in the future. In fact, our decisions like increasing greenfield clinics that expand our market position and brand awareness focus on long term growth and are expected to impact our short term profitability. We are marching toward our goal of 1,000 clinics in operation by the end of twenty twenty three, and we expect that to be the tipping point that will ignite the next phase of accelerated national recognition and long term expansion.
I'd like to thank our entire system, our doctors, our wellness coordinators, our franchisees, regional developers and corporate staff for their dedication to our mission of improving quality of life for our patients. Robert, with that, I'm ready to begin the Q and A.
Speaker 0
Thank you. We'll have our first question coming from the line of Mr. George Kelly with ROTH Capital Partners. Your line is open.
Speaker 4
Hey, everybody. Thanks for taking my questions and congrats on a nice quarter.
Speaker 2
Thanks, George.
Speaker 4
So a few questions for you. First, maybe about the guidance you provided. When I play through my model and just try to back into what given for full year, it's a real kind of flattening of growth of same store sales growth in the back half. Can you talk to were there any kind of promotions in the second quarter or anything unique that won't be repeated in the back half of the year? Just anything you can talk to there?
Speaker 3
Sure. Yes, I think as I mentioned in that element of the guidance in the prepared remarks, George, I think the issue there is more so in terms of the weighting of our greenfield development. So as you know, any time we do a large amount of greenfield development, you're going to have a short term suppression on your earnings. And so when I look at the cadence and you noticed that we expanded our corporate clinic guidance as well, basically what we're signaling there is that a large portion of those greenfields are going to be back end weighted to the year. And so really what you're seeing there is that pipeline of greenfields that are going to kind of suppress the earnings in the second half of the year versus any other macro non recurring promotions or anything of that nature.
Speaker 2
I also think it's unrealistic to expect 53% comps through the rest of the year. That was obviously a pretty remarkable number for Q2 for this quarter. But as we know that that was also impacted by the very fact that in that last Q2 twenty twenty was the lowest point we had in our impact to the pandemic. If we're looking specifically at comps, we do expect that to decelerate compared to the performance of Q2.
Speaker 4
Okay, understood. And then next question for me, different topic. You talked about this surging new patient acquisition in the second quarter. And you mentioned digital lead conversion improving and a few other things. I was just wondering if you could dig into that more.
What exactly any kind of quantification around your new patient acquisition in the quarter would be helpful. I think you may have given something, but if you could repeat it. And then just exactly what in your view is really driving that?
Speaker 3
Yes, George. I think for me, the increased sophistication of our digital tactic is certainly a driving factor. But as I look at the strength of overall new patients in the quarter, to me there's a few things. One, I think we have to acknowledge that overall consumer sentiment in the second quarter was increased. So I think we have to acknowledge that we had some wind at our back as it relates to that kind of macro environment.
The second, I think we have increasing brand awareness in the scale of our system. And so we've always said that we're going to build through our storefronts. And so the greater scale and awareness marketing dollars that we have out there is continuing to aid that new patient acquisition. Next would probably be the sophistication of our co ops. We now have, I think, it's 37 co ops around the country and those local dollars that they're putting to work are a large contributing factor.
And then we continue to be more sophisticated in our digital tactics. So I think it's all those combined that are leading to those strong new patient figures.
Speaker 4
Okay, great. And then last question for me, just about the announcement from last week with the Army and Air Force Exchange Service. So what exactly does that relationship mean? Does it basically open up those facilities for you to start to scout for locations, you sort of get certified? And then and what do you think this sort of location TAM could be of that opportunity?
And that's all I had. Thank you.
Speaker 2
Sure. Thank you, George. And to answer that question is that, yes, we have signed an agreement. An agreement calls for those three clinics on the Air Force bases that I mentioned. There is opportunity to expand that.
While, yes, there's 4,900 facilities across the world that the contract really is what they do is that each base has to give an approval that they want, in fact, a chiropractic clinic to be on base. And then we work with the exchange to negotiate the term or the number of bases that we're adding to the contract. And so it's really incremental. So at the moment, we are committed to the three. We know there's opportunity that will continue to expand as the interest on other bases is realized, and we'll go through a formal approval process really base by base.
Speaker 0
Next question will be coming from the line of Jeremy Hamblin with Craig Hallum Capital. Your line is open.
Speaker 5
Thanks. And I'll add my congratulations on really impressive performance. I want to come back to the trends for a moment here in terms of understanding the guidance implications. Certainly can understand not making any assumptions around repeating the top line from Q2. But in terms of just putting some context behind expectations around maybe revenue at clinics versus Q1 that were kind of more modest growth still strong.
Is that kind of what you're building into your expectations here? Because it does imply a notable deceleration. Is there any color you can share here on kind of the first five weeks of performance?
Speaker 3
Sure. Yes. Mean, there's obviously a lot of factors that go into the back half estimates for this year and beyond. What we do expect is increased clinic counts and continued positive comp growth. So on the revenue side, we've got those as a typical trend.
So it still implies that we'll have sequential improvement in the revenues. I think you have to go back and then look at the overall earnings flow through. And so again, signaling that we've got a lot of greenfields that are going to come in, in the second half of the year and associated with those a lot of working capital burn. So we've got 19 leases that are already executed. We've got another 12 LOIs that are out there.
So we have continued confidence in our greenfield development. But with that, you have that short term suppression of earnings. So I think that's really the macro. The other thing is we're going to continue to be smart in the way that we do this. We want to make sure that we're appropriately resourced and have the infrastructure.
And so a lot of factors that go in there. We also mentioned the IT platform now moving to an element of G and A. So you've got a little bit increased cost there that will come through in the second half of the year and beyond. So a lot of those factors that are weighing in and I think you have to acknowledge that we've still got the COVID era and there's an element of uncertainty there. And so all of those things playing into those estimates in the forward guidance.
Speaker 5
So sequentially, you're still expecting revenues up. But could you answer the question on the quarter to date trends maybe on system wide comp performance?
Speaker 3
Yes. We won't comment on Q3 so far. We're excited about the Q2 results, and then we'll point to the forward guidance for the back half of the year.
Speaker 5
Okay. So then let me just follow-up on the point, understand the G and A ramp over the next couple of quarters here as you get more greenfields out there. I did want to understand though the selling and marketing costs, the timing of the national marketing fund spend, is an expectation that your sales and marketing costs on an absolute basis are likely to trend higher in Q3 and Q4 than what you just spent in Q2?
Speaker 3
Yes. I think the important part of Q2 is really that timing element, right? We were a little bit light in Q1, so we had some favorability there. Some of those costs rolled into Q2, and now you've seen some higher costs as it relates to Q2. Now at the end of the day, a lot of those costs for us, we expect to even out.
So yes, in a perfect world, we would have those perfectly spread out throughout the year. But there is an element of timing that just coincides to the tactics and the development, and where we're deploying those dollars. So I think largest thing I'll highlight there is Q2 did have that element of timing. We would expect again, the components of that line are largely the 2% that contributed into the national marketing fund, and we always try to spend that full pool of funds each year. And then the second is our local spend for our clinics.
Now we've got more clinics coming online. Each of those, we have a grand opening marketing cost associated to it. And so with that, we want to make sure they start on the right foot. And so you're going to see some additional sales and marketing that come through from those grand opening efforts as well. So Q2 kind of has a little bit excess in it as we were a little bit light in Q1.
That's a timing element. And then you've got those other factors to consider as we kind of move throughout the rest of the year.
Speaker 5
Okay. Great. And then just wanted to follow-up too on the access system. In terms of the implementation of that, one, Peter, I think you've mentioned that kind of normal fits and starts when you turn on a new CRM system. One, I wanted to just make sure there wasn't anything that you felt in the bugs and working that out that is impacting top line ability.
And two, Jake, I just wanted to make sure that I understood in terms of where that line item is likely to fall. Is that going to impact your G and A costs? Or where will the expense for that fall into it? I don't know if it's falling into that IT cost of revenues or another category.
Speaker 2
Okay. We'll let Jake answer that question. But to your question to me is that, do we believe that implementation of this new IT platform is going to impact top line sales? The answer is no. That do we believe that there is bugs that you're going to have to work through and challenges we're going to get through and learning that we're going to go through?
Absolutely. We spent a huge amount of time working with our franchise community, creating training programs so that they know how to use the system. This is not just simply a CRM system that's okay, that's managing leads with our patients. This is a system that we use as our POS system. We use it for all of our data analytics on the business.
It even helps with us in the patient flow at the clinic level. 100% of our system is on it and utilizing it. And so just given the size of our business and this conversion from our homegrown platform to this new CRM platform, it's just inevitable that you're going to have these cleanups and bugs that you try to minimize in the research and in the testing period and that we'll get through them. And so I would say that there's I have seen absolutely nothing that would suggest that there's going to be an impact on top line sales. We're describing this very clearly that this is the lift and shift.
We know that there's a lot of capacity that's built into this new platform that we're going to unleash over time. Right now, the way I look at it for the rest of the year is really focused on just getting everybody comfortable, working effectively, And then we can start really seeing what we can do to add the programs that I'd mentioned in my formal remarks. So Jake, for you? Sure.
Speaker 3
And then as where those costs will come through, it will be twofold. A portion of them will come through in the IT cost of revenue and that's the more generalized kind of web hosting costs, right? We've got a lot of patients, we've got a lot of data and therefore we got a lot of capacity that we need up in the cloud. So that will come through in the IT cost of revenue. And the second piece and really the licensing and a lot of the headcount and things like that, that will be in corporate overhead for us, so in the non operating segment.
And that's G and A.
Speaker 5
Great. Thanks. Thanks for the color, guys. And best wishes here on continuing to perform so strongly.
Speaker 2
Thanks, Jeremy.
Speaker 0
Our next question will be coming from the line of Jeff Van Sinderen with B. Riley. Your line is open.
Speaker 6
Hi, everyone. And let me add my congratulations. Just to follow-up a bit more on the new software implementation. By the way, great to hear that you've got it out there. Any sense of time frame for sort of the debugging phase?
And maybe any color on how franchisees are working with it so far? And I guess what you're seeing in your corporate clinics that are running it so far at this phase?
Speaker 2
Yes. I would say that, Jeff, we took we really did spend an enormous amount of time educating all of our users on how to use this new system because we knew we're going to a brand new system. We have kind of two parts to it. We have the front office a wellness coordinator that we have the back office where the doctors are using it to document all of the patients that they're visiting. And that the back office is probably closer to what our original platform was, but the front office is a brand new platform.
And so that we had this requirement that 100% of the users had to go through the train before we would start this process. And I am delighted to say that they did. So we our entire network has spent so much time and energy in helping to prepare for this to make this go as seamlessly as possible. And so what am I hearing? I think as so often happens in programs like this, I'm hearing a group of people who are really excited about all the new changes.
I'm hearing from a group of people who have concerns or some of the bugs that they've experienced. And I think that the vast majority is using it every day to service our patients. And so I would say from my perspective, this was a really remarkably pain free transition without any way minimizing the challenges you face and taking something as complex as we just went through. And it does take time to work them out because it's in that use that you find out some of those little bugs that have to be turned around and addressed. And so what my experience in other platforms like this is that you'll get at the big ones right upfront because they're obvious, and then it'll take over time where you'll see little things that you don't see initially that will come up, we'll do the hotfix, we'll fix it.
So that part of it's going to be ongoing and probably initially, first quarter, first half a lot, and then that's going to go down significantly. But then we have the other part of how we're going to be continually refining and improving the process because there's all kinds of ways we can improve the way that we designed it already. And so that ongoing continuous improvement will be a fundamental part of how we utilize this platform for its entirety.
Speaker 6
Okay, great. And then let me ask you this. Would you we would think that the new software improves efficiency, but also that it may improve customer experience, which might benefit customer retention. Can you speak more to that? Or I guess how you see benefits manifesting from the new software system?
Speaker 2
I think there's no question that there will be enormous benefit on the consumer side, on the patient side. But that's not quite here. That's, for example, when we roll out our mobile check-in. That's when we roll out the patient portal. That's when we roll out where you can be tracking your membership and how many patient visits you have left from your monthly membership.
And so those are not in place at this moment. But those are some of the features that are specifically patient forward facing that I absolutely believe will enhance the patient's experience. Again, we're just not there today, but we that's the steps that we're going to get to.
Speaker 6
Okay. And then would you anticipate any change in customer behavior with the Delta variant? Just obviously, were there still uncertainty out there about the pandemic or COVID? And then any change to your safety protocols as a result of Delta?
Speaker 2
It's such a great question for not just us, for everybody out there is what is ultimately going to be the impact of Delta variant on our lives, on our businesses. And really, the main thing I have to draw on is how did we experience the COVID to date. And what we experienced is that our clinics stayed open. We're an essential health care service and that our doctors continue to serve. And most importantly, our patients came into the clinic.
The impact we had was greatest on our new patient count, as we talked a lot about. As you heard in the call, that has recovered and in exceeding numbers that we've ever seen before. If this really blows up across this country, would I expect that to maybe have that same kind of impact on new patient count? I would believe, yes, I think so. Would I expect our patient base to continue to come in because they absolutely see this essential to their health care?
Absolutely. And so that's the best I have in terms of what do I expect to happen with the wherever we go with the Delta variant, which I think is a concern for all of us. And the second part of your question Safety protocols. Safety protocols. And what I would say is we were continually looking at that, but we have also maintained our safety protocols from the beginning.
So while I know there's states and communities that have, for example, removed the requirement to wear a mask that we are still requiring, not our patients. We always will follow whatever the directive is in the state or community that we're operating in. But as a network, all of our doctors, wellness coordinators, staff in the clinics are required to wear a mask. And that hasn't changed. And that was also guided by the CDC.
That was an issue we made. We're a healthcare service. And when the CDC came out with their guidelines is that they made it very clear that health care services still were required to wear masks. So we continue to follow that protocol. And so I would say that we have not in any way lessened our protocols as we go forward today.
And we'll continually look at them depending on how things are taking place as this pandemic continues to unfold. What we do know is it's improved and we saw that in the numbers in Q2. And we'll see where that takes us through the rest of the year.
Speaker 6
Right. Okay. Thanks for taking my questions and continued success.
Speaker 2
Thank you very much. Thanks for the support.
Speaker 0
Our next question will be coming from the line of Brooks O'Neil with Lake Street Capital. Your line is open.
Speaker 7
Hi, this is Michael Howe filling in for Brooks. My first question is in regards to the new IT platform. So when you think about the general business infrastructure, where do you need to invest to be able to scale to 1,000 clinics and beyond?
Speaker 2
Well, I think that the investment for the business if you're asking where do we need to invest to be able to achieve the clinical opening of 1,000 units by the end of twenty twenty three, I think it's pretty clear. It's going be in greenfields. We've made that very clear. We're accelerating our greenfields this year. That's a huge part of the investment that we make.
Do we expect that to continue to accelerate as we go forward between now and the end twenty twenty three? That's a real possibility. Obviously, this is about units. And so the other part of that is franchised. And so we'll continue to invest in our franchise community and making aware those people interested in buying a franchise and learning about The Joint and why this could be a good investment for their family and their lives.
And so we'll continue to invest in the franchise side of this. The other piece that really is fueling this business is that we have to continually improve the operations of the business, whether it's looking at it from an IT perspective, from an operations perspective, from a marketing perspective. So we have been continually investing more resources marketing department, more resources in our operations department, more resources in our IT department to support this accelerated growth. So those are the real buckets that we're going to make those investments in.
Speaker 7
Can you talk to the drivers here? And if we can expect to see more quarters with outsized growth in the corporate stores?
Speaker 3
Absolutely. Yes. We had five greenfields that opened up, a lot of them in the back half of Q2, but again signaling that we've got a lot of anticipated corporate store openings in the second half of the year. So that is very much going to come through and you'll see that acceleration and we increased that corporate clinic guidance as part of this release. So yes, think you'll definitely see that.
We have continued confidence and we're looking forward to increasing that pace.
Speaker 2
And we've added additional resources there. That's why on the last call we talked about hiring our new VP of Real Estate and Construction. And part of that was again to make sure that we're giving the full emphasis on that side of the business and we'll continue to reinvest.
Speaker 7
Okay. Thank you, guys. And then where do you feel that comps will normalize on the back half of the year? I know you guys had really strong Q2 comps.
Speaker 2
Well, not at 53%. Let's just be very clear. And Michael, think the way to look at that is that and then we don't guide on comps going forward. We don't guide it for the full year. But if you look at historically, let's say pre pandemic from 2016 to 2019 in that four year period, if you stack our comps, it was 99% year over year over year, almost 25% a year.
The pandemic, our comps for the full year were 9%. As we went into Q1, and I think that's a more of a rationalized quarter to compare to because most of that quarter was not impacted by COVID. Our Q1 twenty twenty one I conveyed the twenty twenty Q1 twenty twenty to Q1 twenty twenty one Q1 twenty twenty one was twenty one percent. And so I think that you could we use to extrapolate the number in Q2 for going forward? No.
Could I rely on Q1 to give me an indicator of what to expect if we're not taking account the impact of the pandemic? I think that's a reasonable assumption.
Speaker 7
Perfect. Thank you for taking my questions and congratulations on a great quarter.
Speaker 2
Thank you so much.
Speaker 0
Next question will be coming from the line of Anthony Vendetti with Maxim Group. Your line is open.
Speaker 8
Hi, this is Matt on for Anthony. I just had a question about your RDs. Obviously, you've had a lot of success with your regional developers in the past. And I think you mentioned they cover about 5059% of metropolitan areas. Do you have a plan for expanding that coverage area?
And how should we think about that?
Speaker 2
It's a great question. And as you know, I truly believe in the power and value of RD model to accelerate growth of a concept like this. I would say that we also are looking at certain markets. We don't mix RD markets with corporate development. And so that there are markets that we see as more interesting from a corporate perspective for growth.
But I would say that there are RD opportunities out there still with the market. But so if you go back a couple of years ago, we were selling 10 RDs in a year or eight RDs in a year. Do I expect that going forward? No. Are there certain markets that would make sense for us if we have the right RD partner that can accelerate the growth to the level that we expect?
You could yes, you could expect to see that happen, but not at the pace that we were in the last in those twenty seventeen, twenty eighteen years.
Speaker 8
Great. That's helpful. And then just one quick follow-up. Obviously, a pretty large expansion of the clinics in development over last year. I think it's at $2.82 at quarter end.
What's a good rule of thumb in terms of when we should expect a clinic in development to open? And maybe what percentage of your clinics in development you expect on a quarterly basis to be opened?
Speaker 2
Well, we don't guide on openings on a quarterly basis. We obviously guide it on an annualized basis. And so you can kind of extrapolate from that. And of that group of two eighty agreements that are signed and in some form of development, we do have a lot of multiunit operations. And so for example, if I just use a straight line average, if I think about opening up a clinic from first contact to actually opening their doors, that's probably about, let's say, a ten month process.
And then the bulk of that time gets used up in site selection and lease negotiation. And so that's the framework that I would expect a signed agreement to open, assuming it's just that one clinic. But let's say, for example, if I sold a five pack, and I would not expect that franchisee to open up all five clinics in that nine months. And we will put them on a time line so every one of those licenses has a time frame in which they're required to open, And we're working closely with the franchisees to make sure they're meeting those time lines. But so out of that $280,000,000 there's a lot of them are tied to an extended time line just because they're in multiunit contracts.
And so I don't have a percentage of, okay, of two eighty, how many of those should open? You can kind of do the math yourself and say, okay, if we said we had two sixty at the March excuse me, March. We had two eighty in Q2. We opened up 40 36 franchise units. So there's at least some numbers that give you some sense.
Speaker 8
Absolutely, very helpful. I'll hop back in the queue.
Speaker 0
And we don't have any further questions at this time. Peter, the floor is back yours.
Speaker 2
Thank you very much. Thank you all for your time today. This fall, we're going to present virtually at Lake Street's Best Ideas Growth Conference in September. And given that we signed a contract with the Army and Air Force Exchange Service in July, I thought it was very fitting to end today's call with a paraphrase of a very long thank you note that we got from a veteran that was very recently. And he wrote, I served in the Iraq War with the U.
S. Army from 2009 to 2010. I sustained a vast array of injuries during my deployment, which hindered me for a decade before I sought out chiropractic care. For years, struggled with reoccurring pain from head to my feet, resulting in many sleepless nights. Over the past few years, chiropractic care and adjustments have provided me with relief.
I had no clue what chiropractic care could do for me. I wish I'd known earlier, so I didn't suffer so much. My outlook has improved dramatically due to the amazing staff of doctors at The Joint Chiropractic. Thanking the doctors for their care I received just doesn't seem enough because it's doing their job. The Joint's doctors are giving me so much to look forward to in my life, and I could not keep going if I was not in their care.
Thank you and stay well adjusted.
Speaker 0
And this concludes today's call. Thank you all for your participation. You may now disconnect.