10-K: The Joint Corp. Reports 2023 Financial Results, Focuses on Franchise Growth

The Joint Corp. reports a 12% increase in system-wide sales to $488 million and a 4% increase in comparable store sales for 2023, while shifting focus to franchise development.

Summary

• The Joint Corp. reported system-wide sales of $488 million in 2023, a 12% increase from $435 million in 2022.
• The company delivered over 13.6 million patient visits in 2023, up from 12.2 million in the previous year.
• Comparable same-store sales grew by 4% in 2023, while mature clinics open for more than 48 months saw a 1% decrease.
• The company opened 114 new clinics in 2023, including 104 franchised and 10 company-owned or managed locations.
• The Joint Corp. is shifting its strategy to focus on franchise development and plans to re-franchise or sell the majority of its company-owned or managed clinics.
• The company sold 55 franchise licenses in 2023, compared to 75 in 2022.
• The company had 935 clinics in operation as of December 31, 2023, with 800 franchised and 135 company-owned or managed.
• The company's average price per adjustment was approximately $36 as of December 31, 2023, which is about 45% lower than the industry average.
• The company had 17 regional developers who were responsible for 51% of the 55 licenses sold during the year.

Sentiment

Score: 5

Explanation: The document presents a mixed picture. While there is strong revenue growth and expansion, there are also significant challenges related to profitability, internal controls, and regulatory risks. The shift to franchise development is a positive strategic move, but the company's financial performance and the presence of material weaknesses in internal controls temper the overall sentiment.

Positives

• The Joint Corp. experienced a 12% increase in system-wide sales, indicating strong growth.
• The company attracted a significant number of new patients, with 36% being new to chiropractic care, suggesting market expansion.
• The company's focus on franchise development is expected to drive long-term growth.
• The company's average price per adjustment is significantly lower than the industry average, making it more accessible to consumers.
• The company has a large network of clinics, with 935 locations in operation as of December 31, 2023.

Negatives

• Mature clinics open for more than 48 months saw a 1% decrease in comparable sales.
• The company's net loss for 2023 was $9.75 million.
• The company has identified material weaknesses in its internal controls over financial reporting, although these have been remediated as of December 31, 2023.
• The company is facing challenges related to labor shortages and inflation, which may impact profitability.
• The company is subject to various legal and regulatory risks, including those related to the corporate practice of chiropractic and joint employer rules.

Risks

• The company faces risks related to labor shortages, which may limit growth and increase operating expenses.
• Inflation may lead to increased labor costs and reduced discretionary spending, negatively impacting the business.
• The company's business model is subject to state regulations on the corporate practice of chiropractic, which could be challenged.
• New federal regulations and state laws regarding joint employer responsibility could increase the company's liability for employment law violations by franchisees.
• The company's IT security systems may be breached, leading to civil liability and reputational damage.
• The company's reliance on franchisees exposes it to risks including loss of royalty revenue and harm to its brand.
• The company may not be able to maintain effective internal control over financial reporting, which could negatively impact its ability to accurately report financial results.
• The company's level of debt could impair its financial condition and ability to operate.
• The company's balance sheet includes intangible assets and goodwill, which could result in impairment charges.
• The company's increased reliance on sources of revenue other than from company-owned or managed clinics exposes it to risks including the loss of revenue and reduction of working capital.

Future Outlook

The company expects 2024 to be a volatile macroeconomic environment and plans to focus on franchise development, re-franchising company-owned clinics, and leveraging its technology and support infrastructure. The company believes it has adequate capital resources and sufficient access to external financing sources to satisfy its current and reasonably anticipated requirements for funds to conduct its operations and meet other needs in the ordinary course of its business.

Management Comments

• Our mission is to improve quality of life through routine and affordable chiropractic care.
• We seek to be the leading provider of chiropractic care in the markets we serve and to become the most recognized brand in our industry.
• We strive to accomplish our mission by making quality care readily available and affordable in a retail setting.
• Our future growth strategy will focus on accelerating the development of our franchise base through the sale of additional franchises and through the continued support of our robust regional developer network.
• Our goal is not only to capture a significant share of the existing market but also to expand the market for chiropractic care.

Industry Context

The Joint Corp. operates in the fragmented chiropractic industry, which is characterized by a large number of independent practitioners. The company's cash-based, non-insurance model differentiates it from traditional practices. The company is the largest chiropractic franchisor in the United States, and its growth is driven by the increasing acceptance of chiropractic care and the demand for convenient and affordable wellness solutions.

Comparison to Industry Standards

• The Joint Corp.'s average price per adjustment of $36 is approximately 45% lower than the industry average of $65, according to Chiropractic Economics.
• The company's clinics see an average of 305 patient visits per week, compared to the industry average of 155 patients per week for non-multidisciplinary or integrated practices, according to a 2023 Chiropractic Economics survey.
• The company attracted an average of 1,021 new patients per clinic in 2023, compared to the industry average of 380 new patients per year for traditional insurance-based non-multidisciplinary or integrated practices, according to a 2023 Chiropractic Economics survey.
• The Joint Corp.'s chiropractic brand is approximately six times larger than the next largest chiropractic chain, as of December 31, 2023.

Related Party Transactions

• The company sold franchise licenses to family members and business partners of a board member, Jefferson Gramm.

Stakeholder Impact

• Shareholders may be concerned about the company's net loss and the material weaknesses in internal controls.
• Franchisees may benefit from the company's focus on franchise development and support.
• Employees may be affected by the company's efforts to control costs and improve efficiencies.
• Patients may benefit from the company's affordable and convenient chiropractic services.

Next Steps

• The company plans to re-franchise or sell the majority of its company-owned or managed clinics.
• The company will continue to support its franchisees and regional developers to open clinics and to achieve sustainable performance.
• The company expects to drive greater efficiencies across its operations, development, and marketing programs.
• The company will continue to consider introducing selected and complementary branded products and related additional services.
• The company will continue to monitor and update its cybersecurity programs.

Key Dates

Keywords

chiropractic, franchise, healthcare, wellness, system-wide sales, comparable sales, clinic, regional developer, patient visits, internal controls