Hello, and welcome to the Joint Corp Second Quarter 2025 Financial Results Conference Call. Please note this event is being recorded. I would now like to turn the conference over to David Barnard with Alliance Advisors Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, everyone. This is David Barnard with Alliance Advisors Investor Relations. Joining us on the call today are President and CEO, Sanjiv Razdan; and CFO, Scott Bowman. Please note, we are using a slide presentation that can be found at ir.thejoint.com under Events. Today, after the close of the market, the Joint Corporation issued a press release about the quarter ended June 30, 2025. If you do not already have a copy of this press release, it can be found on the Investor Relations section of the company’s website. As provided on Slide 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. As announced on July 30, 2025, we intend to restate our previously issued financial statements for our 2024 annual report Form 10-K and our quarter ended Q1 2025 Form 10-Q due to material errors identified by management related to the original valuation methodology for the noncash impairment recorded for clinics held for sale within discontinued operations. From an income statement standpoint, the adjustments resulted in a decrease in net loss for 2024 and an increase in net income for the first quarter of 2025. These adjustments are not expected to have any impact on adjusted EBITDA for 2024 or the first quarter of 2025. The effect on the balance sheet will be an increase in the carrying value of assets held for sale due to the necessary change in the prior financial statements. As of the date of this filing, we are providing limited financial statements, including the income statement and adjusted EBITDA for the 3 months ended June 30, 2025 and 2024, respectively, and the unrestricted cash and cash balance as of June 30, 2025. Management uses EBITDA and adjusted EBITDA, which are non-GAAP financial measures. These are presented because they are important measures used by management to assess financial performance. Management believes they provide 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.

Thank you, David, and I welcome everyone to the call. Turning to Slide 4. Today, I'm excited to review our increasing momentum in becoming a pure-play franchisor and our pursuit of the Joint 2.0. We are strengthening our core, elevating our patient experience, and improving profitability ultimately to reignite growth. Building for the future, our initiatives to improve profitability include enhancing our brand campaign by pivoting from a general wellness to a more focused pain relief message to better target patient acquisition, strengthening our digital marketing to drive long-term system-wide sales, optimizing holistic pricing for affordability and patient value through dynamic revenue management, and upgrading our patient-facing technology, enriching our patients' experience and extending their lifetime value. Before I elaborate, for those of you who are new to the Joint, we are the largest franchisor of chiropractic care clinics. Our ongoing mission is to improve the quality of life through routine and affordable chiropractic care. Our big bold vision is to become America's most accessible health and wellness services company. I'll summarize our Q2 2025 financial results compared to Q2 2024, and Scott Bowman, our new CFO, will provide greater detail in a moment. System-wide sales were $129.6 million, up 2.6%. Comp sales for all clinics open for 13 months were up 1.4% for the quarter. Revenue from continuing operations increased by 5%, and consolidated adjusted EBITDA grew to $3.2 million, up 52% compared to Q2 2024. On June 30, 2025, unrestricted cash and equivalents reached $30 million. Let’s review our refranchising efforts. Turning to Slide 5. Momentum is increasing. Our corporate clinics are attracting investments from sophisticated multiunit franchisees, both existing and new to our system. This conveys confidence in our business model and our growth initiatives. We started Q2 2025 with 13% corporate clinics in our portfolio. During the quarter, we refranchised 37 clinics, reducing that to 8%. In Arizona and New Mexico, we sold 31 corporate clinics for an aggregate purchase price of $11.1 million to our largest franchisee, Joint Ventures. We are excited to expand our partnership with Joint Ventures to 96 clinics with 10 more committed over time. We received $8.3 million in cash and, as part of this deal, bought the regional developer rights to the Northwest region for $2.8 million. This transaction also reduced our annual royalties and commissions obligation, which in 2024 was $855,000. This territory consists of 46 existing franchise clinics and holds significant opportunities for growth with 30 sites planned for future clinic development. In Kansas City, we sold five corporate clinics, and we are all actively engaged in refranchising the balance of the corporate portfolio. Turning to Slide 6. Let’s review our long-term profitability improvement initiatives, starting with how we are enhancing our brand positioning and strengthening our digital marketing. In Q2, our comps were lower than expected. Even though attrition was on par with last year and conversions were better, the macroeconomic headwinds and lower new patient counts continued to impact us. Focusing on what we can control. We are working with our franchisees to increase investment in brand awareness to generate more demand and investing in our marketing infrastructure to improve search performance and drive consumers into the consideration set. Our market studies indicate that pain is the predominant trigger to see a chiropractor, and we know that about 80% of our new patients cite aches and pains as the reason for coming to the Joint. Leveraging this insight to drive long-term system-wide sales, we are pivoting from broad-based wellness-related communication to a sharper message of chiropractic care for pain relief. In July, we launched our compelling new creative brand awareness campaign, Life, Unpaused. This outreach educates prospects about how the Joint gets patients out of pain and back to doing what they love best. By focusing our content around pain, we expect to improve organic leads and new patient counts. Increasing brand awareness and implementing more precisely targeted marketing strategies will make our services more accessible and attract patients who are in pain and in need of chiropractic care. With this launch, we will be shifting our marketing spend to an earlier point in the sales funnel and teaching prospects in advance that chiropractic care can reduce pain and the Joint is an incredibly affordable pain relief option. Brand awareness campaigns may take longer to come to fruition, but tend to attract patients that stay longer. We are also investing in search engine optimization and solving for AI-related changes to search behavior. Both of these actions are intended to drive new patient counts, which in turn will help improve comps. Turning to Slide 7. Let's review our long-term profitability improvement initiatives, starting with dynamic revenue management. We are shifting our strategy to make more frequent, smaller price increases. As discussed previously, we must be intentional and balanced when reviewing price increases that will be implemented in stages. In July, we introduced a new Kickstart plan to enable our clinics to charge new patients for supplemental adjustments beyond the four covered by their wellness plans. The intent is to get them started strong and to stay strong on their treatment plans. We plan to continue implementing nominal price increases to optimize holistic pricing while balancing affordability and patient value. We are taking other measures to extend the length of time patients maintain their wellness plans. Turning to Slide 8. Part of our strategy to enrich our patient experience is by updating patient-facing technology. I'm excited to say we launched our mobile app beta in June. And based on strong outcomes in July, we made our mobile app generally available to patients. We are seeing typical pickup rates, which are gaining traction with approximately 10% of active patients using the app already. Our goal is to extend the lifetime value of our patients. So our next evolution of features will personalize information to our patients, such as details of their wellness plans, reminders about adjustments remaining in their usage period, etc. Future aspects will incorporate gamification, such as getting badges for adjustments, check-ins, or watching a video of the stretches that help with your condition. Now I would like to introduce Scott Bowman, our new CFO. As a business transformation and growth expert, Scott is a great fit for the Joint. He has over three decades of experience in finance, including serving as CFO at four companies, three of which were publicly traded. He brings deep expertise in capital markets, strategic planning, operations, and Investor Relations. We are pleased to have Scott on board as we drive ahead with our transition. Please go ahead, Scott.

Thanks, Sanjiv. I would like to start by saying that I'm honored to be part of the team, and I'm excited about the opportunities as we execute our multiphase strategy to reignite growth, introduce new revenue streams, and become America's most accessible health and wellness services company. Most immediately, I'm focused on completing our refranchising effort to become a pure-play franchisor and on executing our capital allocation strategy. We started in June on this strategy with the purchase of the redevelopment rights in the Northwest region and have established the infrastructure needed to execute our share repurchase program. Turning to Slide 10. Let's discuss our operating metrics. In the second quarter, system-wide sales were up 2.6%. Comp sales for all clinics opened 13 months were up 1.4%, and adjusted EBITDA for consolidated operations grew 52%. Turning to Slide 11. Let's discuss our clinics. We sold 13 franchise licenses in the second quarter compared to seven sold in the second quarter of last year. As Sanjiv noted, in July, we bought back the RD territory rights in the Northwest region, which reduced our RDs to 15, covering approximately 52% of the network. At June 30th, we had 152 franchise licenses in active development. In the second quarter, we refranchised 37 clinics from company-owned or managed to franchised. We opened seven franchise clinics and closed six, and we closed three company-owned or managed clinics. At June 30, 2025, our clinic count was 967, with 885 franchised or 92% of the portfolio. Turning to Slide 12; let's discuss our financials. I'll review continuing operations for the second quarter compared to the same period last year. Revenue grew 5% to $13.3 million, mainly due to the greater number of franchised clinics in operation. Cost of revenues was $2.8 million, which was consistent with the prior year. Selling and marketing expenses were also consistent with the prior year. Depreciation and amortization expenses increased 18% to $402,000, which was mainly due to the development of software that was made available for use in the first half of 2025. G&A expenses decreased 1% to $7.7 million as we make progress on our corporate cost reduction efforts related to refranchising. Income tax expense of $11,000 reflected an effective tax rate of negative 1%. Consolidated net income was $93,000 compared to a net loss of $3.6 million in the same period last year. Net loss from continuing operations improved $720,000 to $990,000, or $0.06 per basic share, from a net loss of $1.7 million, or $0.11 per basic share, in the same period last year. Adjusted EBITDA for consolidated operations improved $1.1 million, or 52%, to $3.2 million. For continuing operations, adjusted EBITDA improved $468,000 to $88,000. On Slide 13, I'll review our liquidity and stock repurchase plan. At the end of the second quarter, unrestricted cash was $29.8 million compared to $25.1 million at the end of last year. Proceeds from the sale of clinics totaled $11.2 million, while cash used to acquire the Northwest regional developer rights was $2.8 million. We maintain a line of credit with JPMorgan Chase for $20 million and had 0 funds drawn during the quarter. In June, the Board authorized a stock repurchase program under which the company may repurchase up to $5 million of our outstanding common stock through June 2027. Underscoring our commitment to disciplined capital allocation and delivering value to our stockholders, the buyback reflects the Board’s confidence in our long-term strategy, refranchising program, and our projected cash flow generation. On to Slide 14 for a review of 2025 guidance. In light of softer sales trends, coupled with macro headwinds, we are taking a balanced view for the remainder of the year and are revising our 2025 guidance. For system-wide sales, we now expect the range to be $530 million to $550 million compared to prior guidance of $550 million to $570 million. For comp sales, we now expect an increase in the low single-digit range compared to prior guidance of an increase in the mid-single-digit range. Through diligent overhead reduction, we are increasing our consolidated adjusted EBITDA guidance to be in the range of $10.8 million to $11.8 million versus prior guidance of $10 million to $11.5 million. New franchise clinic openings, excluding the impact of refranchised clinics, we now expect to range from 30 to 35, compared to 57 in 2024. Remember, as clinics shift from corporate-owned or managed to franchise, there will be a transformative financial impact. Our franchise royalties and fees will increase. We will continue to rationalize our unallocated G&A expenses, and we will increase our cash position as we sell the remainder of our corporate-owned or managed clinics. And with that, I'll turn the call back over to Sanjiv.

Thanks, Scott. Turning to Slide 16. When we place patients at the heart of everything we do, the business grows, profitability follows, and everyone wins. At the beginning of 2025, we laid out our multiyear strategy to strengthen our core, reignite growth, and improve both clinic and company-level profitability. To do that, we are fueling our growth flywheel. We are building our people capability and culture to support our clinics, our team, our franchisees, and our growth. We have strengthened leadership in franchise development, legal, operations, and patient experience and, most recently, in the finance function. Our team is dedicated to ensuring that the Joint offers the best patient experience possible. Our success will yield referrals, our most effective and cost-efficient patient acquisition tool, which will turbocharge sales and profits for franchisees and the company. And, in turn, reignite clinic network growth. Our team is executing our plan. And in approximately 12 months, we expect to enter the next phase of our evolution, Joint 3.0, when we will focus on capturing new revenue streams by creating additional sales channels and growing in new markets. Turning to Slide 17. Before we open for questions, I have a few updates and comments. We welcomed two new directors, increasing Board membership to eight. Sandi Karrmann, most recently Senior Vice President and Chief Human Resources Officer for Kimberly-Clark, brings over two decades of extensive experience with publicly traded health care companies and franchises, both in the U.S. and globally. Chris Grandpre, an operating partner with Mid-Ocean charged with targeting franchise consumer business for investment, brings over 30 years of experience leading multi-branded franchise companies and in M&A investment banking. Also, we will be conducting some non-deal roadshows. Please contact Alliance Advisors Investor Relations if you would like to connect. With that, operator, I am ready to begin Q&A.

Your first question comes from George Kelly from ROTH Capital.

The first one is just on the lowered comp guide. I was wondering if you could give more detail behind that change.

Yes, I can start off on that, George, and then I can hand it over to Sanjiv for any further comments. When we looked at the guide, we looked at a couple of things. Number one, we looked at our recent trends. And recent trends were a little bit softer, and so that had a part to play. As we look at that softness, it's mainly in new patients, right? And so as we look at our conversion rate, our conversion rate is actually up year-over-year, and attrition is in line with last year. When you couple that and look at our comparables from last year in the back half, especially in the fourth quarter, we have some tougher comparisons. That was a data point as well. Also, considering the macro headwinds that are out there, we're seeing weaker consumer sentiment that is getting a little better but is still coming off of a bottom. These were the factors that colored our decision on the guidance, and the main reason why we're seeing some softness in the quarter. But we are addressing those headwinds, and we're implementing a few things that we think, while not immediately beneficial, will help over time. First, we're shifting more of our marketing dollars into top-of-funnel brand awareness to capture more of those customers and cast a wider net. We also see some opportunity in SEO optimization. There are some tangible actions we can take and are starting to execute on that we believe will help the organic search component. Additionally, based on some survey work done, it appears that consumers are generally looking for value and affordability. While we offer great day-to-day value, some of our packages are priced higher. There’s significant value there, but from an affordability standpoint, there is a higher upfront cost. We're exploring options such as buy now, pay later to assist customers interested in longer-term packages.

Okay, that's helpful, thank you. And so it sounds like you're kind of backing off the planned broader pricing increase that was previously anticipated for the back half?

George, this is Sanjiv. I think part of our strategy remains what we are calling dynamic revenue management. We have already taken some pricing actions. Back in December of last year, we increased our walk-in price, which has overall helped increase our conversions and contribute to our comps. Also, in July, we initiated something we are calling the Kickstart plan, where patients signing up for a wellness plan can buy either 4, 6, or 8 incremental adjustments upfront to make sure they get the best care possible, but it also optimizes that revenue opportunity upfront for us. We will continue to work with our franchise community to optimize pricing in the back half of the year as well. We'll keep an eye on the market and ensure that we are not straying away from the affordability aspect of our value proposition.

Can you provide a breakdown of the EBITDA guidance by continuing versus discontinued operations? Additionally, regarding your expense structure in the first half, it appears that your selling and marketing expenses exceeded your ad fee collections, and while your G&A in Q2 was slightly down year-over-year, it remains at nearly record quarterly levels. How should we anticipate the second half of the year? Are you planning to become more aggressive following the recent refranchising transaction, or should we expect those two lines to stay elevated in the latter half of the year?

Right. So first off, we don’t typically split out continuing and discontinued in our guidance. Keep in mind, when you look at the results for discontinued ops, it's not entirely clear because there are accounting factors that distort that number. Number one is we can't record rent for those clinics held for sale, and we also don't include depreciation, which can distort that number a bit on discontinued ops. So I would just caution you against making any significant assumptions on that because we do have some accounting that distorts that a little bit. As we look at the G&A for the remainder of the year, we have some initiatives that have helped us so far. We think as we get further down the path on refranchising, we will see even more favorability there. We want to make sure we maintain a balance and not get ahead of ourselves. As we get closer to ending refranchising, we should see more benefits.

Your next question comes from Jeremy Hamblin from Craig-Hallum Capital Group.

I would like to delve deeper into the changes in the system's total sales and understand how much of the approximately 300 basis points change in same-store sales is attributed to traffic, including both new patient traffic and overall trends. Additionally, I want to discuss the impact of price increases and whether they might be causing some sticker shock, especially considering your comments on the challenges with new patient acquisition. Are you considering testing a potential price reduction to see its effects on the system or specific areas within the system?

I'll start off on the traffic piece, and then Sanjiv can chime in as well on the price increases. First off, on the traffic, it’s an interesting question. I see it as mainly a traffic problem when we think about new patients. Once we get the patients in the door, we really do a good job of converting. Our conversion rate is up year-over-year, while the attrition is consistent with last year. Therefore, the focus has to be on attracting new patients. That's why we are primarily focusing on our marketing effort right now—enhancing top-of-funnel approaches, but also beefing up our SEO to maximize our organic search capabilities. So that's the core of our strategy to get new patients in the door. Regarding the price increases, the sticker shock comment is valid, as we need to balance the affordability of our pricing. We are careful to remain within what we consider reasonable prices while still delivering good value. If we have an idea about pricing, we often test it before implementing it on a larger scale.

Yes, just to add to what Scott was saying, to remind you, our patients earn about $50,000 to $105,000 in annual household income. In times of economic uncertainty, any expenses or investments related to wellness can often be pulled back. That’s why we are pivoting our external messaging to a much sharper pain-oriented message. 80% of our existing patients come to us citing some aches and pains. So we are shifting our communication around this point and positioning the Joint as a solution for non-invasive holistic pain care. Furthermore, the last significant pricing increase we implemented was back in March of 2022. Since then, our value proposition only strengthened, with pricing remaining stable. However, we will continue to monitor the situation closely to determine how long we can maintain the same pricing. Since wellness plans and packages account for 80% of our sales, we are cautious but proactive. We’ll continue looking for opportunities to make incremental price adjustments without eroding our core value notion. As Scott mentioned earlier, we’re investing in SEO strategies related to the new AI-driven search behaviors and finding ways to work with our franchisees to promote our brand awareness for pain care. Testing buy now, pay later strategies is another avenue we are exploring, especially for packages offering substantial value. Overall, we feel quietly confident about our plans for the latter half of the year.

Got it. And then I want to explore a little bit of the deals, the refranchising, that you've done. So I think you said for Arizona and New Mexico, 31 units, $8.3 million that those were sold for. I think that would imply the other 6 locations realized about $2.9 million for those. I wanted to get a sense for kind of the sales volumes and the profitability of the collective of the 37 locations. Are those fairly typical? Are they slightly better locations, slightly worse locations? What kind of color can you share with us on that?

Yes, I can start on that. If you think about the 31 locations in Arizona and New Mexico, many of those locations are higher performers. Kansas City had five clinics that were lower performers. So there’s variability based on geographic location, volume, and profitability that influence the proceeds from the sale. Overall, the total proceeds for the sale of clinics was about $11.2 million. We used $2.8 million of that to buy back some RD territory rights in the Northwest. So, you can't necessarily extrapolate that number over the remaining clinics and derive a uniform figure. However, those clinics in Arizona and New Mexico being higher performers should give you some sense that they over-indexed a bit on the proceeds.

I see. So just clarifying, the total cash received for all of the 37 was about $8.3 million?

Yes, $8.3 million net. So we received a little over $11 million in proceeds and used about $2.8 million to buy back those RD territory rights in the Northwest.

Got it. All right. And then just a follow-up on the prior question around sales and marketing, right? So in terms of thinking about total sales and marketing costs in the second half of the year, it sounds like you're making some investment in that. So we would assume that, that might actually turn a little bit higher in the back half of the year. Is that a fair assumption?

It could be slightly higher. Part of that depends on the results we see. If we allocate dollars to upper funnel marketing and observe positive results, it may change our plan for more spending. So it will be somewhat variable based on the performance of the dollars we invest in upper funnel marketing.

To add to that, Jeremy, when we were sharing our remarks about shifting marketing investment dollars, working with our franchisees to activate brand awareness and promote more brand awareness, it was a matter of reallocating our investment from lower down the funnel to upper marketing efforts. So it's not signaling increased expenditure but rather shifting our existing spend to more effective areas.

Your next question comes from Nick Sherwood from Maxim Group.

Can you discuss the impact of the recent clinic sales on your back-office expenses? Should we anticipate any restructuring expenses in the near future? Also, what are some of the long-term savings you'll realize by moving those clinics from the corporate side to the franchise side?

Yes. So near term, we want to ensure a smooth transition for the franchises. We will likely continue to see some reduction in G&A because of that unallocated piece. Longer term, we can look for other areas of spend, including payroll, insurance, software, legal fees, and travel. There are quite a few line items where we see opportunities to tighten expenses over time as we transition.

Thank you for the detail. Regarding the dynamic revenue management system, are you experimenting with different price points in specific locations to better understand price elasticity of demand, and determine when to adjust prices in certain areas? Can you explain how you are testing prices within this dynamic revenue system?

Yes. Just to provide some context, traditionally, what the Joint has done is taken our prices for our wellness plans, which depend on the part of the country you're in. When we've taken historical pricing measures, it's typically been by increments of $10 upward. Back in March of 2022, that was our last significant price increase. Given the current consumer climate, we no longer have the ability to make substantial price increases. Therefore, we have to find alternate means to offset our input cost inflation at the clinic level. Our solution is to implement smaller, more frequent price increases over time without pushing new patients away. It’s critical for us to find ways of taking these nominal price increases without compromising our core value proposition. We iterate with our franchisees to shape, test, validate, and implement these adjustments. That’s our dynamic revenue management approach.

Your next question comes from Jeff Van Sinderen from B. Riley.

Sanjiv, I know you made a comment or you focused a little bit on pain management. And given that it seems like you're really in the pain management business as far as most of the customers that go to the Joint perceive you, how do you lean more into that role as a pain manager, maybe more comprehensively as an enterprise and as a pain management destination? Maybe you could just touch on the exploration of adding other products and services to the Joint and, I guess, where you are in contemplating actions you might take there?

Yes, Jeff, thank you for that question. I want to reiterate our mission, which is to improve the quality of life by providing routine and affordable chiropractic care. The truth is, most patients first come to a chiropractor due to some form of ache or pain, which is why we are adjusting our messaging and advertising to help consumers understand that we are a strong option for pain relief. Our focus is to shift our external communication towards pain relief while also guiding patients once they begin their journey with us toward a more wellness-focused philosophy through education and support offered by our doctors. Regarding adding products or services, we have a commitment to explore meaningful incremental opportunities that align with our operating model. Presently, we are focused on Joint 2.0, solidifying our core as a pure-play franchisor and reigniting growth while ensuring corporate efficiencies. We expect this phase to last roughly another 12 months, during which we may begin testing potential new revenue drivers related to services or products we currently do not offer.

Okay, fair enough. Just your latest thoughts on timing of completing the remaining corporate clinic refranchises. Can you remind us which RD rights remain to be reacquired at this juncture?

We have now refranchised about one-third of our corporate clinics, and we are actively engaged in refranchising the other two-thirds. Our intent is to exit 2025 as a pure-play franchisor; that is our priority. Regarding RDs, we have 15 left in our system, representing about 52% coverage down from 57%. Our ongoing discussions with our RDs will determine the best capital allocation strategies for shareholder value creation. We have no specific timelines, but if the deal is right, we may proceed when beneficial to Joint shareholders.

Thanks for taking my questions, I’ll take the rest offline.

There are no further questions at this time. I now hand the call back over to Sanjiv Razdan for any closing remarks.

Thank you, operator, and thank you all for joining us. I look forward to meeting you at conferences and non-deal roadshows. Have a good day, and know that at the Joint, we always have your back. Operator, over to you. Thank you.

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