Good day, and welcome to The Joint Corp. First Quarter 2025 Financial Results Conference Call. To ask a question, you may press star then 1. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to David Barnard of Alliance Advisors Investor Relations. Please go ahead.

Thank you, Drew. Good afternoon, everyone. Again, this is David Barnard with Alliance Advisors Investor Relations. Joining us on the call today are President and CEO, Sanjeev Razdan, and CFO, Jake Singleton. We are using a slide presentation that can be found at investors.thejoint.com under the events section. Today, after the close of the market, The Joint Corp. issued its results for the quarter ended March 31, 2025. 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 that today's discussion includes forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts may be considered forward-looking statements. Although the company believes that the expectations and assumptions reflected in these forward-looking statements are reasonable, it can make no assurances that such expectations or assumptions will prove to have been correct. Actual results may differ materially from those expressed or implied in forward-looking statements due to various risks and uncertainties. As a result, we caution you against placing undue reliance on these forward-looking statements. For a discussion of the risks and uncertainties that could cause actual results to differ from those expressed or implied in the forward-looking statements, please review the risk factors detailed in the company's reports on Forms 10-K and 10-Q as well as other reports that the company files from time to time with the SEC. Finally, any forward-looking statements included in this earnings call are made only as of the date of this call, and we do not undertake any obligation to revise our results or publicly release any updates to these forward-looking statements in light of new information or future events. Results of operations of the corporate clients' business segment have been classified as discontinued operations for all periods discussed. Management uses EBITDA and adjusted EBITDA, which are nonfinancial measures. These are presented because they are important measures used by management to assess financial performance. 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, which includes contract termination costs, stock-based compensation expense, bargain purchase gain, and other specific operational expenses. Management also includes commonly discussed performance metrics. System-wide sales include revenues at all clinics, whether operated by the company or by franchisees. While franchised sales are not recorded as revenues by the company, management believes the information is important in understanding the company's financial performance. Now, I will turn the call over to Sanjeev Razdan.

Thank you, David, and I welcome everyone to the call. Turning to Slide 4, I'm excited to speak with you today to review the progress we are making. For those new to the call, our mission is to improve the quality of life through routine and affordable chiropractic care. After we execute our strategy to become a pure-play franchisor, grow sales, reduce overhead, and improve profitability, we will strive for our new big bold vision: to become America's most accessible health and wellness services company. As part of our transformation journey, in April, we hosted an incredibly productive franchisee spring convention during which we discussed next steps and continued to improve franchise relationships. Before I elaborate, I'll summarize our Q1 2025 financial results compared to Q1 2024. System-wide sales were $132.6 million, up 5%, demonstrating resilience in this economic environment. Comp sales for all clinics open thirteen months were 3% for the quarter and 4% in March. Revenue from continuing operations increased 7%. Adjusted EBITDA from continuing operations was $46,000 compared to $425,000 in Q1 2024. Jake will provide greater detail in a moment. Turning to slide five, I want to acknowledge the dynamic consumer environment that we're in. While we monitor the situation closely, we are pushing ahead with our transition plan. As unveiled on our March call, we have constructed a multiyear phased approach. The changes we're making increase the potency and flexibility of our model. To become a pure-play franchisor, we are refranchising. We have signed LOIs for 93% of our corporate clinics, and we are well into the due diligence phase for many. When we reach binding asset purchase agreements, we intend to make public announcements. In The Joint's two point o, we are focused on strengthening our core, reigniting growth, and improving clinic and company-level profitability. We will initiate dynamic revenue management, strengthen our digital marketing and promotional calendar, and upgrade our patient-facing technology. Turning to slide six, the franchisee spring convention was aptly named the Pulse Summit. Since I joined, we have been taking a pulse check of the business. At the summit, we reviewed The Joint's pulse with our franchisees, regional developers, and our employees. We seized the opportunity to reinvigorate our relationship with our franchisees to create momentum through collaboration, ensure we're working as one team, and identify ways to become stronger, bigger, and faster so we can care for more patients more effectively. And we must always remember that when patients stay at the center of our focus, the business grows, profitability follows, and everyone wins.

Thank you, Sanjeev. Let's discuss our operating metrics on Slide 12. When reviewing our quarterly results, I want to remind you of two factors. First, 2024 was a leap year, including an extra sales day in February compared to 2025. In February 2025, we conducted a promotion targeted at our existing non-wellness plan members that lowered the first month's membership rate to $45, impacting sales dollars while securing more patients for the medium term. In Q1 2025, system-wide sales were up 5%, as Sanjeev mentioned, showing resilience while consumer sentiment is wavering. Comp sales for all clinics open thirteen months were 3% in Q1 2025, increasing to 4% in March 2025. Comp sales for mature clinics opened forty-eight months were down 2%. Turning to slide 13, let's discuss our clinics. As previously indicated, we expect franchise license sales to be impacted by our refranchising strategy. We sold nine licenses in Q1 2025 compared to 15 in Q1 2024. During Q1, we had 16 regional developers covering approximately 56% of the network, and we had 46 franchise licenses in active development. In Q1 2025, we opened five franchise clinics, franchised two corporate clinics, and closed one corporate clinic. As of March 31, 2025, we had 969 clinics, of which 847 or 87% are franchise clinics. Turning to slide 14, let's discuss our financials. As discussed in March, 2025 will be a year of transition as we conclude the refranchising efforts and record the company-owned or managed clinics as discontinued operations. Please note, we have not yet experienced the financial benefit from our corporate clinic revenues transitioning to franchise royalties and fees, nor have we yet fully reduced our G&A expenses. We are critically focused on reducing G&A, which will shed more overhead than what is currently reported in our continuing operations. This will improve the bottom line in the coming years. In 2026, we expect to grow net new clinic openings, system-wide sales, comp sales, and adjusted EBITDA. Now, I'll review continuing operations for Q1 2025 compared to Q1 2024. Revenue reached $13.1 million compared to $12.2 million, increasing 7% due to the greater number of franchise clinics in operation and offsetting the effects of the 2024 leap year and the 2025 February promotion. Cost of revenues was $3 million, up 10% over the same period last year, reflecting higher regional developer royalties and commissions and the greater number of franchise clinics in operation. Selling and marketing expenses were $3.5 million compared to $2.2 million. The increase reflects the cost related to carrying two marketing agencies while ensuring a smooth transition to our new team, engaged to strengthen our digital marketing strategy. Depreciation and amortization expenses increased 10% compared to the prior year period due to depreciation expenses related to the development of internal-use software deployed in 2024. G&A expenses were $6.9 million or 53% of revenue compared to $7.3 million or 60% of revenue in the same period last year, reflecting lower payroll and stock-based compensation.

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.

Hello, everyone. Sanjeev, I wonder if you can start maybe or Jake, whoever's got the info. Maybe speak about the new patient ad metrics and retention metrics and trends around those that you're seeing lately.

Yeah, Jeff, I'll take that one. We've made reference to the overall consumer sentiment, and I think we are seeing that reflected in our new patient volumes. When we look at the gross number of new patient leads that we're getting, those have been affected. So we are critically focused on those marketing strategies that Sanjeev alluded to. From a retention perspective, we're holding on to our patients at a similar rate that we always have, so that metric is holding up well for us.

Okay. Great. And then as we're thinking about you becoming a pure franchise business, and I don't know if you're ready to share this or not, but I know you mentioned in your prepared comments that you'll become more profitable. Just wondering if there are any metrics that you're prepared to share around that? How much you might remove from overhead? What level of margins you think are feasible? Is it level of margins of similar companies? Just wondering if there's anything new to add on that.

Yeah, I don't think we're ready to provide a forward guide on that yet, Jeff. As we look at last year's adjusted EBITDA on a consolidated basis, we did about $11.4 million of adjusted EBITDA. As we reach the coming years, you've seen our guide for '25, but as we think about 2026, as that pure-play franchisor, we do expect profitability both on a gross dollars and on a margin basis as a percentage to be higher than we've seen historically. The way we accomplish that is by shedding necessary G&A, and so that's where our critical focus will be. So as we get closer to announcing some of these refranchising deals as they reach those asset purchase agreements, we'll be able to give a better sense for where we're going in the future.

And given that, I think you said 90 some-odd percent are basically sort of in the due diligence process. I think that was what you said. What do you think the time frame is to be through the refranchising process at this point just based on the pace that it's been going so far?

Jeff, we have 93% of the remaining corporate clinics are now under LOI, and most of them are in the process of due diligence. It is our intent to exit 2025 as a pure-play franchisor, and we'd hope that we can accelerate this process as much as we possibly can even intra-year. But that is the timeline that we're working towards.

Great. Thanks for taking my questions. I'll take the rest offline.

The next question comes from George Kelly with ROTH Capital Partners. Please go ahead.

Hey, everybody. Thanks for taking my questions. Excuse me. Maybe just to start with a follow-up from the prior question. Has the refranchising process slowed at all just with some of the macro noise? It's been a pretty crazy last six weeks. I had thought that coming out of the last quarter, the goal was for most of it to be complete sometime in February. Maybe I misremembered that, but just curious if things have slipped at all.

Hey, Jordan. We are not seeing any meaningful slowdown of the refranchising process. It's the nature of this in terms of due diligence, lease reassignments, etcetera, that it's very difficult to put a firm timeline to that. But we're not seeing any slowdown to the process and definitely not seeing any connection between our process of refranchising and the macroeconomics.

Okay. That's great. And then the second topic I wanted to cover is just going back to your comments about comp growth. I guess the two specific questions are, can you share what comps were in April? And then secondly, can you disclose quarterly franchise versus owned comp performance?

Yeah, we won't give an April number at this point. We did see a slight uptick from February into March. February had the leap year in the promo that I mentioned. But we're back to 4% by March. So those are the figures that we gave there. What was the second part of your question there, George? If you could give Q1 franchise versus owned comps. Yeah. As of right now, because 87% of our clinics are franchise clinics, their comp relatively mirrors the consolidated comp. The corporate clinic comp is positive, but it does trail the franchise comp for the period.

Okay. And then last question for me. Well, I guess two last quick ones. Dynamic pricing, I understand it sounds like you want to take a measured approach. How much of a tilt, like, how much, just all in if you look at the pricing opportunity? I know it's gonna range by geography and, you know, it's maybe not easy to just put a number to. But is this a high single-digit opportunity for pricing? Or where do you see it all kind of shaking out when it's open, implemented?

Here's what I can say. We're exploring, as I tried to give a sense in our prepared remarks, really every single lever in our pricing model. In the current climate, we just want to be thoughtful and test the various iterations. Make sure that whatever we scale nationally, is something that helps us strike that balance between affordability and optimizing for price. I'm not sure that we provided guidance on what the pricing impact is on our overall numbers. But it certainly has the capacity to be double-digit in terms of dollar value in millions to add to our total system-wide sales.

Yeah. And from a timing perspective, for a $500 million system, that's like a low at least a low single-digit. Am I thinking about that right?

Correct. From a timing perspective, really the only wholesale increase that we've pushed to the full network to date is an increase to our single-visit pricing. So that's only about 4% of our gross sales. The rest that are in test now, you won't really see the impacts of those until the second half of the year as we conclude the evaluation of those test markets and then roll those out to the full system. Some of that will be backloaded, but that is factored into the full-year guide.

So that double-digit millions, 10 million plus is just a partial year. That's the impact for the full year, but it's really just based on mostly partial year pricing.

That's correct.

Okay. Thank you. And then, I guess, one last one. Selling and marketing expense, I understand you were paying two different agencies in the quarter. 3 and a half million, I think, was the line. Correct. When do you expect that to normalize? And what kind of range should we expect when you're down to one agency?

Yeah, I definitely wouldn't use Q1 as the run rate figure for that. We have a lot of front-loaded cost. I think you'll see a similar burden for Q2 as we continue that kind of dual transitioned approach. By Q3, you'll start to see that more normalized. And then by Q4, get a better sense for overall run rate.

The next question comes from Jeremy Hamblin with Craig Hallum Capital Group. Please go ahead.

Thanks for taking the questions. I want to come back and revisit the same-store sales guide for a second here. As we look ahead, I think your compares are a little bit tougher in the second half of the year. Maybe I'm thinking about 5% in the second half of '24 versus a lower single digit in the first half of the year. I mean, have you seen a meaningful uptick over the last five or six weeks that's providing some confidence in that mid-single-digit guide? Or is there another factor, maybe the pricing that is playing into the mid-single-digit guide? Because, obviously, it would imply a pretty healthy acceleration from run rate current run rates.

Yeah, the guide is probably more so predicated on some of those dynamic revenue management kind of pricing increases in the second half of the year. You're right, the comp rollovers get a little tougher with a 6% comp in Q4 of 2024. So it's largely predicated on the pricing initiative. That factor into that full-year guide.

Got it. And just in terms of rolling out the dynamic pricing and kind of testing around that, it sounds fluid, but how long do you think it might take to refine, given that it's a new process for you? Is it a quarter? Is it a couple of quarters? I mean, obviously, it's an ongoing process overall, but can you share any more insight?

Jeremy, clearly, by the nature of its name, it's ongoing. And also because a lot of our plans, like, for example, if you go into a membership plan, there's a minimum purchase requirement of two months. So to understand the impact of some of the things that we're trying to pull, I think at the bare minimum, we're talking two to three months to understand the impact of test sales at the very least. So just think about it in that way. Anything we test, the earliest we can get a read on is in that sort of time frame, particularly as it relates to our wellness plans and packages.

And because we're looking at the full pricing structure, we just have to be mindful that the changes to certain parts of our pricing mix have a tail impact on other elements of our pricing. It does take some time to evaluate to make sure that we're not only evaluating that core piece of the pricing mix that you've put into test, but also how it affects conversions to other elements of our pricing structure. I wouldn't describe it as fluid. I'd describe it more as strategic to make sure that we're understanding the full range of impacts and making sure that it's best for the system before rolling it up.

Understood. And do you sense that in the current environment, you're having clients that are looking more at kind of the monthly membership model versus the June '55 for one package type promo that you're looking at?

Yeah. I mean, we still see approximately 85% of our gross sales coming in the form of our monthly recurring products. So that's always the vast majority of our revenue. As we think about things like a single-visit pricing or a package pricing, we have to be very careful of how that impacts the overall wellness. We aren't seeing defection away from those core recurring products. In fact, we're trying to do the opposite. Encourage people to move into those recurring products that better fit their treatment plans and ongoing care.

Got it. Okay. And then I just have one last thing. The spring convention that you did with franchisees, what was the cost of that, and what line item did it flow through? G&A or was some of that allocated to sales and marketing?

Yeah, that full burden comes through the sales and marketing line. We did slightly scale back the convention this year in terms of the number of days that we typically do. So it's not the same level of cost impact that you see when we do our every other year full national conference agenda. But that did impact the second quarter sales and marketing line as well.

Okay. Can you call out what the cost was?

I don't have that off the top of my head, Jeremy. In a given year, with the full-scale agenda, some of that pass-through is as much as half a million. This was a much smaller production, so it was south of that.

Got it. Alright. Thanks so much for taking the questions, and best wishes.

Thank you.

The next question comes from Jeremy Perlman with Maxim Group. Please go ahead.

Thank you for taking my question. Can you help us connect the dots between the reported comp sales, which were up 3% for clinics open at least thirteen months, but then clinics open at least forty-eight months were down 2%? Why do you think that is? And are there specific strategies you are planning to implement for the more mature clinics to help them get back to comps sales growth?

Yeah, Jeremy. That's a typical spread we've seen over the last five to six quarters in terms of that mature comp versus the system comp. So no real widening in terms of that gap. That's been consistent for us. We're always looking at ways to continue strengthening all clinics within our system. So a number of the operational strategies and marketing tactics will certainly be geared towards that existing patient or existing clinic profile as well.

Okay. Thank you. And then you mentioned in one of the questions that the guide for your system-wide sales and your comp sales for 2025 was underpinned by dynamic revenue pricing. Are there other assumptions behind the guide? Is that a best-case scenario? Considering the macroeconomic risks and consumer sentiment that you talked about on the call, could it affect higher prices? Is that baked into the guide, or could it cause you to pull back a little bit?

Well, let me start, and then, Jake can add to this. Dynamic revenue management is one of a few different strategies that I'd outlined which go into driving our comp sales growth. Just to recap, we are looking at promotional activity that we feel is stronger than what we've done before. In the second half of the year, we are being much more pointed in our external communications. I've referenced that 74% of our patients cite pain of some kind when they come to us, so our external messaging is going to be single-mindedly focused on pain as we transition into the back half of the year, which will help us get more patients into the funnel. The third thing we're doing is stronger digital marketing. That's the new agency we brought in, and so that you understand specifically what that does, it allows us to do much better media planning and buying so that all our clinics are buying media in a way that's relevant for their specific patient demographic and psychographics, including those mature clinics. Then we referenced patient-facing technology where expecting that our mobile app, our first ever, will be in app stores by June 30th. Which, while it does not drive comps, we believe over a period of time, it helps to drive patient engagement and usage and therefore lifetime value. And then finally, clearly, of the dynamics that we anticipate helping our comps is dynamic revenue management because we have not taken any meaningful pricing since March of 2022 and which we are working through and do expect to take some pricing in 2025. So, hopefully, that gives you a sense of what is underpinning our assumptions on comp sales.

Thank you very much for that.

This concludes our question and answer session. I would like to turn the conference back over to Sanjeev Razdan for any closing remarks.

Thank you, David, and thank you all for joining us. I look forward to getting to know you at conferences and non-deal roadshows. Have a really good day, and know that at The Joint, we always have your back.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.