JOINT Corp Q3 FY2020 Earnings Call

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

Thank you operator. Good afternoon everyone. This is Moriah Shilton of LHA Investor Relations. On the call today; President and CEO, Peter Holt will review the third quarter and provide an update of the business. CFO, Jake Singleton will detail the financial results then Peter will close with a summary and open the call up for questions. Please note we are using a slide presentation that can be found at ir.thejoint.com/events. Today after the close of the market, The Joint Corp. issued its financial results for the quarter ended September 30, 2020. If you do not already have a copy of this press release, it can be found in the Investor Relations section of the company's website. As provided on Slide 2, please be advised today's discussion includes forward-looking statements including statements concerning our strategy, future operations, future financial position and plans and objectives of management. Throughout today's discussion, we will present some important factors relating to our business that could affect these forward-looking statements. The forward-looking statements are made based on our current predictions, expectations, estimates and assumptions and are also subject to risks and uncertainties that may cause actual results to differ materially from the statements we make today. Factors that could contribute to these differences include, but are not limited to: the continuing impact of the COVID-19 outbreak on the economy and our operations, including temporary clinic closures, shortened business hours and reduced patient demand; our failure to develop or acquire company-owned or managed clinics as rapidly as we intend; our failure to profitably operate company-owned or managed clinics; and the other factors described in Risk Factors in our annual report on Form 10-K as filed with the SEC for the year ended December 31, 2019 as updated for any material changes described in any subsequently filed quarterly reports. 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 3 and it is my pleasure to turn the call over to Peter Holt.

Thank you, Moriah, and welcome to everyone on the call. Our growth momentum is evident in our third quarter performance. Chiropractic care is a vital health service that underpins our business model's strength. I appreciate all our doctors and staff for their dedication to our patients, as well as our patients for their trust in The Joint. Many companies have struggled during the pandemic and have had to reconsider their business models. At The Joint, our core concept has stayed consistent, aside from enhanced sanitization and cleanliness measures to safeguard our patients and staff. Although we cannot foresee the end of the pandemic, we've seen that patients continue to view their chiropractic care as essential to their health. Our ability to serve patients and deliver results is attracting new investors. For their benefit, I want to highlight that The Joint is transforming access to chiropractic care. We are situated in convenient retail locations and offer membership-based concierge-style services without requiring insurance or appointments, all at competitive pricing and flexible hours. Our growth strategy focuses on building our brand, raising awareness of chiropractic care, and drawing in new patients. We are opening new clinics in a capital-efficient manner using our hybrid model of franchise and corporate-managed clinics. We are already the largest and most recognized provider of chiropractic care in the nation. Given the fragmentation in the chiropractic care market, we have a significant opportunity to grow our market share while redefining and expanding the overall market. I will now go over our quarterly metrics and activities, after which Jake Singleton, our CFO, will provide a more detailed discussion of our financial results, followed by my comments on the market and a Q&A session. Regarding our financial results for the third quarter, we saw steady improvements month-over-month. In comparison to the third quarter of 2019, system-wide sales reached $68.3 million, reflecting a 21% increase. Comparable sales for clinics open for at least 13 months rose by 12%. Revenue grew by 21%, and adjusted EBITDA reached $2.6 million, marking the strongest quarter in our company's history since going public, which is an 84% rise. Our unrestricted cash increased to $18.3 million as of September 30, 2020, up from $14.6 million at the end of June 2020, primarily due to enhanced cash flow from operations. During the quarter, we primarily expanded into markets where we already have a presence, including Texas, Florida, Georgia, North Carolina, and California. We opened one new clinic in the Los Angeles area and 21 franchise clinics nationwide while closing one franchise clinic. This quarter, we opened 22 new clinics, matching the total from the third quarter of 2019 and improving from 13 in the second quarter of 2020. As of September 30, 2020, we had 560 clinics operating, comprising 497 franchise clinics and 63 company-owned or managed clinics, resulting in a distribution of 89% franchise and 11% corporate. Selling franchises under the current business climate is remarkable. In the third quarter of 2020, we sold 30 franchise licenses, up from 28 in the same quarter last year and 11 in the second quarter of this year. Year-to-date, we have sold 65 new franchise licenses. We commend our sales team for their commitment to attracting strong franchise candidates. Achieving this level of sales amid the current environment is a positive sign for our long-term outlook. Our regional developers have accelerated our growth, contributing to 80% of our franchise sales this quarter. In August, we welcomed our 23rd regional developer who secured territorial rights in Wisconsin and part of Illinois. This individual was previously a wealth management executive and has been a successful multi-unit franchisee with The Joint since 2014. This new regional developer has a minimum 10-year development commitment for 19 new franchise clinics. The total 10-year development schedule for the new regional developer territories established since 2017 adds up to 475 clinics, providing a strong foundation for our continued expansion and sales growth. We are on track to reach our goal of opening 1,000 clinics by the end of 2023. Strong license sales are paving the way for increased future franchise openings, and we plan to complement this growth with new corporate Greenfields, all of which will enhance our revenue, scale, and brand recognition. In the initial months of the pandemic, we focused our brand messaging on safety and support, consistently updating our patients and staff on the measures we were implementing to minimize COVID-19 risks in our clinics. We also shared tips for maintaining a healthy lifestyle while reinforcing that chiropractic care is an essential health service. In Q3, we expanded on this foundation with a message of reclaiming routine, coinciding with our third annual summer sale promotion in August, aimed at re-engaging lapsed patients with a special membership offer. This promotion was our most successful to date, yielding a record number of new patient conversions and total active members per clinic. As we approach the end of 2020, we will continue to highlight the importance of routine chiropractic care during the pandemic. Last month, we invited our patients to share testimonials about how chiropractic care has enhanced their health, receiving thousands of submissions via social media. Some of these testimonials will feature in our upcoming campaigns as we work to raise awareness of chiropractic care's benefits. In November and December, we will conduct our annual Black Friday sale and year-end membership promotion, which have historically provided significant value to our patients and driven strong incremental sales for our clinics. Let’s discuss Axis, our new IT platform, which will enhance our point-of-sale systems, financial operations, business intelligence, marketing automation, patient feedback, and many other features. As noted previously, we were nearing the completion of development and began testing Axis before COVID-19, after which we paused the rollout to assist our franchise community in managing the pandemic's impact. In the third quarter, we refocused on Axis. It is essential to fully test the new platform and ensure franchisees are prepared and trained for its implementation. We will not compromise the quality of this project by rushing it to meet an arbitrary deadline. We now anticipate the Axis rollout will be completed in the first half of 2021. With that, I will hand it over to you, Jake.

Thank you, Peter. Turning to slide 9. As Peter indicated, our clinic performance continued to improve each month throughout the quarter. Comparing third quarter 2020 to third quarter 2019, system-wide sales for all clinics opened for any amount of time increased to $68.3 million, up 21% year-over-year. In spite of the ongoing pandemic, system-wide comp sales for all clinics opened for 13 months or more were 12% compared to 23% in the year-ago quarter. System-wide comp sales for mature clinics opened 48 months or more were 7%, compared to 17% in the year-ago quarter. Revenue was $15.4 million, up $2.7 million or 21%. Company-owned or managed clinics contributed revenue of $8.4 million, increasing 23% from the same period a year ago. Franchise operations contributed $7 million, up 19%, compared to the same period last year. Increased revenue for both categories is due to the greater number of clinics and continued organic growth. Cost of revenues was $1.7 million, up 20% over the same period last year reflecting the higher regional developer royalties and commissions. Selling and marketing expenses were $1.8 million, up 3% over the same period last year reflecting the timing of the advertising fund spend. General and administrative expenses were $9.4 million, compared to $8.3 million. The $1.1 million increase was primarily due to higher payroll and related expenses to support revenue growth and a greater number of clinics. For the quarter, we posted net income of $1.6 million or $0.11 per diluted share, compared to $617,000 or $0.04 per diluted share for the same period last year. We delivered record total adjusted EBITDA of $2.6 million, which increased 84% compared to the same period last year. Franchise clinic adjusted EBITDA increased 18% to $3.4 million. Company-owned or managed clinic adjusted EBITDA increased 46% to $1.9 million. Corporate expenses as a component of adjusted EBITDA decreased 2% to $2.7 million reflecting our cost control efforts. Turning to slide 10. For the nine months ended September 30, 2020, revenue was $41.6 million increasing 20% compared to $34.6 million in the same period of 2019, reflecting a greater number of clinics and increased gross sales at both franchise and company-owned or managed clinics, which was partially offset by the negative impact of the pandemic during the second quarter. Net income was $2.5 million or $0.17 per diluted share, up 25% compared to $2 million or $0.14 per diluted share in the first nine months of 2019. Adjusted EBITDA was $5.4 million, up 33% compared to $4.1 million in the first nine months of 2019. At September 30, 2020 we had $18.3 million in unrestricted cash compared to $8.5 million at December 31, 2019. During the nine months ended September 30, 2020 cash inflows from operating activities were $6.9 million and cash inflows from financing activities were $5.1 million, which were offset by cash outflows related to capital expenditures totaling $2.2 million. 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. On 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 million and $59 million compared to $48.5 million in 2019; adjusted EBITDA to be between $8.5 million and $9 million compared to $6.2 million in 2019; franchise clinic openings to be between 65 and 72 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 fourth quarter of 2020 and into 2021. Therefore we continue to believe we will achieve our goal of opening 1,000 clinics by the end of 2023. I will now turn the call back over to you Peter.

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 the 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 significant at $90 billion. Of that, 18% or $16 billion is spent on chiropractic care. Further, the marketplace is highly fragmented with tens of thousands of individual practitioners which creates the opportunity for companies with scale and standard procedures to excel. Currently, The Joint market share accounts for about 1% of the industry and we estimate all chains, including ourselves, account for only 3% of the market. This compares to dentistry where the DSOs are nearly 12% of the industry demonstrating a path to gain market share. There are multiple favorable market drivers which influence our industry's growth. First is the continuing pain epidemic facing this country with traditional medicine increasingly acknowledging the effectiveness of chiropractic such as the American College of Physicians and the Journal of the 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, now the American Chiropractic Association studies show that patients who visit a chiropractor first have a 90% decreased odds of early or long-term opioid use. Another is the consumer shift towards health and wellness. A study from earlier this year from McKinsey & Company measured pandemic-driven changes in consumer behavior and predicts a rising and enduring interest in 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 and slouch on the couch, they're turning to chiropractic for pain relief. The key to tapping into these trends is to overcome the lingering safety concerns of COVID-19 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. We also reinforced 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 and 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 55% 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 77%. 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 RD, 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&A.

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

Thank you, and congratulations on the continued execution. It looks like EBITDA margin is set to reach another record, with margins around 20%. As we approach 1,000 stores by the end of 2023, unless we anticipate a larger influx of new stores after that, can we expect a normalized margin of over 30%? Also, regarding the projected increase in store openings, you're suggesting an average of 137, up from about 80 openings per year to reach that target. Is there a specific pattern to this increase? Will the openings be more concentrated in the latter part of the year or will it be more balanced as new units are opened throughout 2023?

Yes, Dave, great questions. Thanks for that. As you know, we don't provide forward-looking guidance regarding margins. When I consider their potential expansion over time, I'm focusing on our two operating segments. From a corporate clinic perspective, we anticipate that the four-wall margins will exceed 30% in the long run. Although there is some external overhead that could reduce that margin, we expect it to improve as we have structured our field overhead to support that growth. Our franchise segment currently operates with margins just under 50%. Until we restore a significant portion of that RD territory, we expect that overall margin contribution to remain stable. Additionally, we closely monitor our non-operating corporate overhead. Regarding the timing of openings, you’re correct that we have a significant task ahead. We foresee an acceleration in openings over time, similar to our system’s performance and as seen in other franchise models that are gaining traction and brand recognition.

Okay, great. For my follow-up, it's straightforward and not divided into three parts. Regarding the economic model, have forward location costs decreased at all due to the general decline in strip retail? Does this perhaps facilitate new franchises and potential greenfield openings?

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

Okay. Great. Thank you so much.

Thanks for the congrats.

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

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

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

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

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

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

Thanks a lot, Ryan.

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

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

Yes, great questions, Jeff, and thank you for the congratulations. Regarding our marketing strategy for the fourth quarter, we do not expect any significant changes to our traditional two promotions, which are the Black Friday sale and the Membership Sale in December. I'm pleased to report that we are increasingly improving the execution of these promotions. This quarter, we are allocating more marketing dollars to support them, and we anticipate continued performance improvements compared to last year’s fourth quarter. As for your inquiry about comps, we do not provide specific guidance on what we expect in terms of their impact for the quarter, as these promotions don’t typically have a huge effect. However, since our last update in the quarter, we have observed steady month-over-month improvements in key metrics, particularly since we hit our lowest point in April regarding new patient counts and comp rates. So far this year, our patients view our services as essential to their healthcare, coming in at levels higher than the same period last year. Additionally, our doctors understand the importance of their role in providing treatment, and there has been a clear commitment from them to continue serving patients, even amid the pandemic.

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

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

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

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

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

Thanks, Jeff. Thanks for the support.

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

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

No problem.

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

To answer your first question about whether our traffic is back to normal, it depends on how you define normal. If normal for us over the last four years has been comparable sales growth around 25%, then no, we are not at that level as we reported comparable sales for Q3 at 12%. However, this is an improvement from Q2, where comparable sales were negative 6%, so we feel we’re making progress. When comparing our performance to the same period last year, we’ve seen growth in nearly every metric. While we haven't regained the momentum we had pre-pandemic, we are definitely moving in the right direction. Regarding your second question about an increase in clinics for sale, we believe it’s theoretically possible due to financial pressures from the pandemic, which might lead some franchisees to sell. However, I haven't noticed an increase in the number of clinics being sold. I'm not sure if you have additional insights on that, Jake.

No.

I would say the transfers we are experiencing are on par with or less than what we would typically expect in a normal year. Regarding the impact on the time to breakeven, we have opened 49 clinics in the first three quarters of this year. As mentioned in the last call, we are seeing record-breaking times to breakeven, such as the Midland clinic, which generated $76,000 in sales within its first two months of operation, surpassing any previous records we have. Looking at those clinics that have achieved breakeven and opened in 2020, I can confidently say they are performing at a higher level and reaching breakeven more quickly, even amid the pandemic, compared to the same group from 2019.

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

Thanks a lot Brooks. Appreciate the support.

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

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

Sure. In terms of the competitive environment, obviously, the thing that dominates our industry is the 40,000 independent practitioners. And what I would see is, what we've seen in this environment is that it's more anecdotal than any kind of industry stats that, I'm calling from. But we are seeing more of those clinics close, and some of the doctors coming from those clinics coming to us to either work in our clinic for additional hours, or shutting down their practice, just because they are not competing in this market. And you can just imagine, because it is a tough market, and that if you're not a part of a system that has all those – the support on how to get a PPP loan, and how to market during an uncertain time and how to make sure that you are marketing to your patients in this kind of environment, all these things that we do as a franchise system, if you're an independent practitioner struggling on your own, you can imagine the difficulties they would face. I would say that, competitively, we're continuing to see specifically in our own chain an increase in our numbers of new patients, increases in the number of times our patients are coming to us, increases in the number of clinics that we're opening. So I see – 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 our sales.

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

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

Great. Thanks a lot, guys.

Thanks a lot, Max.

Your next question comes from Anthony Vendetti with Maxim Group. Your line is now open.

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

To address your question about the effect of promotions on conversion rates, we usually don't provide specific guidance on that. However, we previously mentioned a summer promotion offering a free adjustment consultation for new patients, which resulted in a 60% conversion rate for those individuals. This means that of all the newcomers who experienced this offer, 60% went on to become members or purchase a package. This is the highest conversion rate we've recorded in the company's history. Additionally, during the pandemic, our overall conversion rates have been higher than ever. We've observed that new patients seeking care now may be of higher quality. Those who come in during these times show a strong commitment to receiving treatment. Consequently, we've experienced record-breaking conversion levels. Furthermore, we have not seen an increase in patient attrition; in fact, our attrition rates are either stable or improving as we've assessed them throughout the pandemic. Overall, our promotions have effectively attracted new patients, and as previously mentioned, we are reaching record member numbers per clinic across the network. Regarding changes to our marketing strategy, there have indeed been updates. In response to many of our members who chose to freeze their memberships instead of canceling, we have implemented special promotions to encourage these members to reactivate their memberships. For instance, our June promotion, which includes free consultations and examinations on a national level, represents a significant shift in our marketing approach. Our Vice President of Marketing would confirm that we are adapting our strategy to focus heavily on safety and support. One of the key metrics impacting our business has been the new patient count, which, while improving from its April lows, still hasn’t reached the record levels we experienced in 2019. We aim to understand what factors are keeping potential patients away from our clinics, with safety concerns related to COVID being a primary factor. Our marketing efforts, particularly on social media, are emphasizing the cleanliness and sanitization of our clinics, assuring potential patients that they can feel comfortable visiting us.

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

Unchanged. All right. So Jake or Peter maybe on the conversion, you said it's the highest ever at 60% for these promotions. What was the conversion rate when you were doing promotions in 2019 for example?

I believe that our new patient conversion rate is in the low to mid-40s, with overall conversion around the low 40s as well. Currently, the new patient conversion for our specific promotion is at 60%. Additionally, when we consider our overall conversion, which includes existing patients who return after their initial visit, we are currently seeing a rate of over 50% across the network.

Okay, great. Lastly, regarding the sanitation efforts, I was really impressed during my first visit to a Joint clinic, as patients could be treated within about five minutes from check-in to treatment to checkout. Considering the sanitation procedures that now need to be followed between patients, how have you managed to implement those? Has that extended the time required for the process? If so, by how much? Is it an additional minute or two? Could you elaborate on that?

Sure. I don’t have the specific metrics on how much the time has increased, but generally, yes, we are sanitizing tables between patients and doctors are washing their hands between visits. Patients check in and usually wait in their cars until we text or call them when it’s time to come in. Therefore, there will be a little extra time involved, possibly a minute or two or even 30 seconds, but it does require more time to treat each patient. Many of our clinics are still not at full capacity, and we don’t yet know what that capacity is. We have discussed this multiple times. Overall, we have not seen an impact on the number of patients treated specifically due to COVID, even though we’re taking more time between patients to follow these procedures. In busier clinics, we might hire additional staff to focus on cleanliness and sanitization, allowing doctors and wellness coordinators to concentrate on their primary responsibilities. So, to sum up, our system has enough capacity to manage the additional procedures without an immediate impact on patient treatment.

Okay. Great. Thanks a lot. Appreciate it.

Thanks, Anthony.

Thanks for the support.

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