The Joint Corp - Earnings Call - Q3 2020

Transcript

Speaker 0

Ladies and gentlemen, thank you for standing by and welcome to The Joynk Corp. Q3 twenty twenty Financial Results Conference Call. At this time, all participants are in listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder this conference call is being recorded.

I would now like to turn the call over to Ms. Moriah Shelton. Thank you ma'am. Please go ahead.

Speaker 1

Thank you, operator. Good afternoon, everyone. This is Moriah Shulton 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 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 final financial results for the quarter ended 09/30/2020. 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 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 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-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 December 3139, as updated for any material changes described in any subsequently filed quarterly reports on Form 10 Q, as they may be revised or updated in our subsequent filings, including the one we anticipate filing on November 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. They are presented because they are important measures used by management to assess financial performance. Management believes they provide a more transparent view of the company's underlying operating performance and operating trends than GAAP measures alone.

Reconciliation of net income to EBITDA and adjusted EBITDA is presented in the press release. The company defines EBITDA as net income or loss before net interest, tax expense, depreciation and amortization expenses. The company defines adjusted EBITDA as EBITDA before acquisition related expenses, bargain purchase gain, net gain or loss on disposition or impairment and stock based compensation expenses. Turning to Slide three, and it is my pleasure to turn the call over to Peter Holt.

Speaker 2

Thank you, Mariah, 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, core concept has remained unchanged outside of increased sanitization and cleanliness procedures that we implemented to protect our patients and 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 franchised and corporate owned or 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 comment on the market and open the call for questions. Turning to Slide four, we reported solid financial results for and our metrics improved month each month throughout the quarter. Today, I'll compare third quarter twenty twenty to third quarter twenty nineteen. System wide sales reached $68,300,000 up 21%.

Comp sales for clinics that have been open for at least thirteen full months were up 12%. Revenue grew 21%. Adjusted EBITDA increased to $2,600,000 making it the strongest quarter in the company's history since going public, up 84%. And our unrestricted cash rose to $18,300,000 at 09/30/2020 compared to the $14,600,000 at 06/30/2020, driven primarily from the increase in cash flow from operations. Turning to Slide five, let's review our portfolio.

During the quarter, our new clinics primarily expanded into markets where we already have a footprint, including Texas, Florida, Georgia, North Carolina and California. We opened one greenfield in the Los Angeles area and 21 new franchise clinics nationwide. We also closed one franchise clinic. This quarter, we opened 22 new clinics equal to the third quarter twenty nineteen and compared to 13 in the second quarter twenty twenty. At 09/30/2020, we had five sixty clinics in operation.

The composition at quarter end was four ninety seven franchised clinics and 63 company owned or managed clinics for a mix of 89% franchised and 11% corporate. Turning to Slide six, for any franchise system to be selling franchises in this business climate is remarkable. In the third quarter of twenty twenty, we sold 30 franchise licenses compared to twenty eight third quarter twenty nineteen and eleven in the second quarter twenty twenty. Year to date, we've sold 65 new franchise licenses. Once again, we thank our sales team for their dedication to sourcing great franchise candidates.

We continue to believe that achieving this level of sales in this current environment is a powerful indicator of our positive long term outlook for our business. By expanding our reach, our regional developers or RDs continue to accelerate our growth. During the quarter, they were responsible for 80% of our franchise sales. In August, we welcomed our twenty third regional developer who purchased the territorial rights Wisconsin and a portion of Illinois. This new RD was a former wealth management executive and has been a successful multiunit franchisee of The Joint since 2014.

The territory has a minimum ten year development requirement of 19 new franchise clinics. In aggregate, the total ten year minimum development schedule for the new RD territories established since 2017 comes to four seventy five clinics. This large foundation of clinic commitment bodes well for our continued clinic expansion and sales growth. We remain on track to achieve our goal of opening 1,000 clinics by the end of twenty twenty three. Our strong license sales set the stage for increased future franchise clinic openings.

Additionally, we plan to augment this expansion by opening new corporate greenfields, all of which increases our revenue, scale and brand recognition. Turning to slide seven, during the initial months of the pandemic, our brand messaging featured a strong emphasis on safety and support. We were in frequent communication with patients and staff about The Joint and what we're doing to reduce the risk of COVID-nineteen in our clinics. We had also had a content focused on tips and recommendations for maintaining a healthy lifestyle while positioning chiropractic care as an essential healthcare service. In Q3, we built upon the foundation with a message of reclaim your routine.

This message of empowerment coincided with our third annual summer sale promotion in August, which targeted lapsed patients of The Joint with a special membership incentive. This was our most successful summer sale promotion to date, which resulted in record number of new patient conversions per clinic and record number of total active members per clinic. As we close out 2020, we'll continue to promote the benefits of routine chiropractic care during the pandemic. Last month, we asked our patients to send us their personal testimonials on how chiropractic has improved their health and received thousands of submissions over social media. Some of these patients will be featured in our future campaign as we continue to grow awareness of the efficacy of chiropractic care.

In November and December, we'll hold our annual Black Friday sale and our year end membership promotion. Over the years, these campaigns have delivered strong or significant value to our patients and driven strong incremental sales for our clinics. Turning to slide eight, let's review AXIS, our new IT platform. AXIS will provide us improved point of sale systems, financial systems, business intelligence, marketing automation, patient feedback capabilities, among many other new features. As those who follow us may recall, we've nearly completed the development and started testing access prior to COVID-nineteen.

We then paused the rollout to focus on helping our franchise community respond to the impact of the pandemic. In the third quarter, we returned our attention to Access. As we prepare for the final rollout, it is critical that the new platform is fully tested and that every franchisee is prepared and trained for acceptance of this new system. As we complete this critical project, we will not jeopardize it by rushing or shortcutting the process to meet an artificial timeline. It's now anticipated that the AXIS rollout will be complete in the first half of twenty twenty one.

And with that, Jake, I'll turn it over to you.

Speaker 3

Thank you, Peter. Turning to Slide nine. As Peter indicated, our clinic performance continued to improve each month throughout the quarter. Comparing third quarter twenty twenty to third quarter twenty nineteen, system wide sales for all clinics open for any amount of time increased to $68,300,000 up 21% year over year. In spite of the ongoing pandemic, systemwide comp sales for all clinics opened thirteen months or more were 12% compared to 23% in the year ago quarter.

System wide comp sales for mature clinics opened forty eight months or more were 7% compared to 17% in the year ago quarter. Revenue was $15,400,000 up $2,700,000 or 21 percent. Company owned or managed clinics contributed revenue of $8,400,000 increasing 23% from the same period a year ago. Franchise operations contributed $7,000,000 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 $1,700,000 up 20% over the same period last year, reflecting the higher regional developer royalties and commissions. Selling and marketing expense were $1,800,000 up 3% over the same period last year, reflecting the timing of the advertising fund spend. General and administrative expenses were $9,400,000 compared to $8,300,000 The $1,100,000 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 $1,600,000 or $0.11 per diluted share compared to $617,000 or $04 per diluted share for the same period last year. We delivered record total adjusted EBITDA of $2,600,000 which increased 84% compared to the same period last year.

Franchise clinic adjusted EBITDA increased 18% to $3,400,000 Company owned or managed clinic adjusted EBITDA increased 46% to $1,900,000 Corporate expenses as a component of adjusted EBITDA decreased 2% to $2,700,000 reflecting our cost control efforts. Turning to Slide 10. For the nine months ended 09/30/2020, revenue was $41,600,000 increasing 20% compared to $34,600,000 in the same period of 2019, reflecting a greater number of clinics and increased gross sales at both franchised and company owned or managed clinics, which was partially offset by the negative impact of the pandemic during the second quarter. Net income was $2,500,000 or $0.17 per diluted share, up 25% compared to $2,000,000 or $0.14 per diluted share in the first nine months of twenty nineteen. Adjusted EBITDA was $5,400,000 up 33% compared to $4,100,000 in the first September of twenty nineteen.

At 09/30/2020, we had $18,300,000 in unrestricted cash compared to $8,500,000 at December 3139. During the nine months ended 09/30/2020, cash inflows from operating activities were $6,900,000 and cash inflows from financing activities were $5,100,000 which were offset by cash outflows related to capital expenditures totaling $2,200,000 With our bolstered balance sheet, we plan to accelerate the number of greenfield openings. The increase in new greenfield clinics will compress near term operating margins and earnings until the greenfields reach breakeven. However, the short term impact is well worth the long term benefit. In the meantime, we will continue to evaluate opportunistic accretive acquisitions of franchise clinics that could offset the initial financial impact of greenfield development.

To Slide 11 to review guidance. Based on our nine month financial results and our expectations for the rest of the year, we have reestablished guidance for 2020. We plan to provide 2021 guidance when we deliver our fourth quarter results. For 2020, we expect revenue to be between $58,000,000 and $59,000,000 compared to $48,500,000 in 2019. Adjusted EBITDA to be between 8,500,000.0 and $9,000,000 compared to 6,200,000 in 2019.

Franchise clinic openings to be between sixty five and seventy two compared to 71 in 2019 and new company owned or managed clinics through a combination of both greenfields and acquisitions of franchise clinics to be between four and seven compared to 13 in 2019. The reestablished 2020 clinic opening guidance reflects the lower rate of openings during the second quarter due to the pandemic. However, we believe there is pent up demand that will fuel openings in the 2020 and into 2021. Therefore, we continue to believe we will achieve our goal of opening 1,000 clinics by the end of twenty twenty three. I will now turn the

Speaker 4

call back over to you, Peter.

Speaker 2

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 a significant at $90,000,000,000 Of that 18% or $16,000,000,000 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 ninety percent decreased odds of early or long term opioid use. Another is the consumer shift toward health and wellness. A study from earlier this year from McKinsey and Company measured pandemic driven changes in consumer behavior and predicts a rising and enduring interest in pursuing health and well-being.

Even the impact of the pandemic itself is a market driver as patients report that they're choosing chiropractic care to avoid the emergency room and as more people work from home slouched on the couch, they're turning to chiropractic for pain relief. The key to tap into these trends is to overcome the lingering safety concerns of COVID-nineteen as well as to address the unfamiliarity with chiropractic care by so many Americans. To accomplish this, we continue to emphasize education to consumers about the efficacy of chiropractic. So also reinforce our enhanced sanitization procedures with our patients. And as the largest online publisher of information on chiropractic care, we continue to grow awareness of The Joint in chiropractic among the general public.

Our comparative scale gives us the voice to help people understand how routine and affordable chiropractic care can improve their quality of life. Our mission is to make chiropractic accessible to everyone. Traditional providers typically serve the baby boomer population who have insurance coverage. Whereas The Joint attracts a broader demographic that prefers convenient, affordable service without the hassles of insurance, our patient base continues to edge younger with the median age just 37 years old compared to 39 two years ago. In fact, today fifty five percent of our patients were born after 1980.

This has implications on the tactics and technologies we pursue to reach this vital segment of the population. As depicted on Slide 13, these efforts drive our expansion and illustrate why our system wide sales CAGR over the last nine years is seventy seven percent. In closing, I would like to once again express my deepest appreciation to all the Joint Chiropractic teams who have continued to selflessly serve during this pandemic. Their dedication to our mission is humbling. To our franchise community, to our RDs, to our corporate team and to our joint colleagues across the country, I thank you.

You truly are making a difference in all the lives that we touch. Charlie, I'm ready to begin the Q and A.

Speaker 0

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

Speaker 5

Great. Thank you. First, congratulations on continued execution. Very nicely done. Just looking at guide, it seems like EBITDA margin should be another record.

I think margins inferring around 20%. As we get to 1,000 stores at the end of twenty twenty three, unless we assume a larger mix of greenfields coming in after that point, can we think about a margin, a normalized margin of 30 plus percent 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 into 2023?

Speaker 3

Yes. Dave, great questions, all of them. Thanks for

Speaker 4

that. As

Speaker 3

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 will 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 over time.

Speaker 5

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 declines in general? I mean, does it sort of grease the skids a bit for new franchises and potential greenfield openings?

Speaker 2

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 over time. What we've noticed is some of the clinics we've been building in California have a little higher than average build out costs just because of the conditions in the California market. I think that when we look at the lease costs is that you'd assume with 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 side.

It's 1,000 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 their 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 leases, labor, build out, it's going be pretty stable.

Speaker 5

Great. Thanks so much.

Speaker 2

Thanks lot, Dave. Thanks for the congrats. Your

Speaker 0

next question comes from the line of Jeremy Hamblin with Craig Hallum. Your line is now open.

Speaker 6

Hey 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 were 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?

Speaker 3

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 our, you know, 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.

Speaker 6

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 since some of the geographies are hardest hit by COVID. I'm wondering, has that stayed consistent?

Or is it sort of fluctuated as time has gone by?

Speaker 3

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 quote unquote 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.

Speaker 6

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

Speaker 2

Hey, thanks a lot, Brian.

Speaker 0

Your next question comes from the line of Riley. Your line is now open.

Speaker 4

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 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?

Speaker 2

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, the 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 have a huge influence. That what we have seen is from the last time we've talked on a quarter looking at the key metrics that we use to run the business is that since our 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 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 healthcare and they are coming in at levels higher than they were doing a year ago, 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'd 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.

Speaker 4

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 franchised performance most recently? And then anything more you could tell us about plans to open corporate Greenfield clinics next year?

Speaker 3

Sure. The first part is how clinics perform against the franchise system. Historically, if you look at age class comparative, so we always look at, you know, 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, you know, on some 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?

Speaker 4

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

Speaker 3

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

Speaker 4

Okay, fair enough. Thanks for taking my questions and continued success.

Speaker 3

Thanks, Jeff.

Speaker 2

Thanks for the support.

Speaker 0

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

Speaker 3

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.

Speaker 2

Not a problem.

Speaker 3

I'm 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.

Speaker 2

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. 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 of the pandemic, there's going be more financial pressure on all of the units and that there could be opportunities for franchisees who would just say, you know what, I just need to get out, I've got to do something else. And the reality of it is that no, that I've not seen any increase in the number of those clinics that are being sold.

I don't know, Jacob, you've seen anything other than that but I would say it's on par or less the transfers that we would be expecting to see in a normal year. And that last comment or your last question is that we've any kind 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 consistently across those clinics that are broken even and are operating in 2020 or opened in 2021, 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.

Correct.

Speaker 3

Wow, that's fantastic. That's incredible. Good for you. Keep it up. Thank you very much.

Speaker 2

Thanks a lot, Brooks. Appreciate the support.

Speaker 0

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

Speaker 7

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 and liquidity position, just any thoughts on potential future M and A?

And then we have a follow-up. Thank you.

Speaker 2

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 clinics for additional hours or shutting down their practice because they're not competing in this market. 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 PPE 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, can imagine the difficulties that they would face.

I would say that competitively we're continuing to see specifically in our own chain increases in our numbers of new patients, increases in the number of times our patients are coming in to use us, increases in the number of clinics that we're opening. So I would say we're continuing to expand both in terms of organic growth and in terms of new clinics in the market that's driving ourselves. Your second question in terms of acquisitions is that quite frankly there are a handful of chains are starting out that have, I don't know, somewhere between five and twenty 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 a 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.

Speaker 7

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

Speaker 3

Sure. Yes, 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.

Speaker 7

Great. Thanks a

Speaker 6

lot guys.

Speaker 2

Thanks a lot Max.

Speaker 0

Your next question comes from the line of Anthony Benedetti with Maxim Group. Your line is now open.

Speaker 4

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 has your marketing changed in light of COVID-nineteen? How you go about trying to get out in front of the new customers or potential customers? Is that strategy pretty much been the same in terms of marketing?

Speaker 2

Well, to answer your question about the impact of the promotions and how does that affect what we'd call conversion, while 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 patient, we talked in the call that we had a sixty percent conversion rate for those new patients. So if they those all the people came in the door for that first time and had that experience, sixty percent 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 in 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 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 and 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 or 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 highest numbers in the history of the company at this moment. Second question is that any changes planned? Changes in our marketing strategy. And I would say, yes, there have been.

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 Marketing, if you're on the call, he would tell you as we're making these changes in our marketing strategy, it's really focusing so much on safety and support. And so what we do know is that of all the metrics that faced our business is the one that's been most impacted is that new patient count.

And while we've seen it increase that 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. So 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.

Speaker 3

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.

Speaker 2

Unchanged. All right. So J.

Speaker 4

K. 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?

Speaker 2

I think across the board for new patient conversion would be in the upper 40s. Then our overall conversion would be in the lower 40s. And today, our new patient conversion for that specific promotion, as I said, was sixty percent. 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. That's right now running over 50% as a network.

Okay,

Speaker 4

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?

Speaker 2

Sure. And I don't have the metrics that where we've studied and said, it's increased by 1.2. 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 it's time. So I would say there has there's definitely would be a little bit more time, whether it's a minute, two minutes, thirty 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 what I would say across the board, we have not seen an impact on the treating 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 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.

Speaker 4

Okay, great. Thanks a lot. Appreciate it.

Speaker 3

Thanks Anthony.

Speaker 2

Thanks for the support.

Speaker 0

And I'm showing no further questions at this time. Presenters, please continue.

Speaker 2

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 Ross Deer Valley Conference in December.

Typically, I like to end the call with a patient story. And today I'm going to paraphrase a lengthy two page 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 wheezing and improved her well-being. At one point, she experienced strange symptoms that she was ignoring.

Her doctor of 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 nodes, and it turned out that she had a mass on her thyroid. In the end, I'm gonna quote from the letter, quote, Overall, 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.

End of quote. Thank you and stay well adjusted.

Speaker 0

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