Earnings Call Transcript - JYNT Q2 2022

Operator, Operator

Welcome to The Joint Corp.’s Second Quarter 2022 Financial Results Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to David Barnard with LHA Investor Relations. Please go ahead.

David Barnard, Investor Relations

Thank you, Victoria. Good afternoon, everyone. This is David Barnard of LHA Investor Relations. On the call today, President and CEO, Peter Holt will review our second quarter 2022 performance metrics and provide an update on the business. CFO, Jake Singleton, will detail our financial results and guidance. Then Peter will close with a summary and open the call for questions. Please note, we are using a slide presentation that can be found at our Investor Relations website. Today, after the close of the market, The Joint Corporation issued its financial results for the quarter ended June 30, 2022. 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, please be advised that 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; inflation exacerbated by COVID-19 and the current war in Ukraine; 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; our inability to identify and recruit enough qualified chiropractors and other personnel to staff our clinics due in part to the nationwide labor shortage; short-selling strategies and negative opinions posted on the Internet, which could drive down the market price of our common stock and resulting class action lawsuits; or failure to remediate the current or future material weaknesses in our internal controls, which could negatively impact our ability to accurately report our financial results or prevent fraud, among other factors described in our filings with the SEC, including in the section entitled Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2021. 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. 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. 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, net gain or loss on disposition or impairment and stock-based compensation 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 franchise sales are not recorded as revenues by the company, management believes the information is important in understanding the company’s financial performance because these sales are the basis on which the company calculates and records royalty fees and are indicative of the financial health of the franchise base. Comp sales include the revenues from both company-owned or managed clinics and franchise clinics that have been open at least 13 full months and exclude any clinics that have closed. Turning to Slide 3. It is now my pleasure to turn the call over to Peter Holt.

Peter Holt, President and CEO

Thank you, David, and I welcome everybody to the call. During the second quarter of 2022, our growth momentum continued. Before I go into greater detail, I’d like to welcome our new and returning investors in addition to our existing shareholders. As you know, The Joint is revolutionizing access to chiropractic care by providing affordable concierge-style, membership-based service in a convenient retail setting. We’ve had a huge addressable market in both size and opportunity. First, The Joint accounts for only 2% of nearly $18 billion spent annually in the United States on chiropractic care. Next, our system provides the most robust environment for chiropractic clinics to excel financially, demonstrated by our research comparing average collections of independent practices to average sales of our clinics in our network. In addition to our strong unit economics, our hybrid business model continues to position us for long-term growth. Our corporate clinics will drive long-term bottom line improvement. Our franchisees will continue to fuel our expansion in a capital-light fashion. As we increase our scale and presence, bringing us closer to our interim goal of 1,000 clinics, our national brand awareness also increases, adding further momentum to our expansion. That said, it’s important to reiterate our commitment to responsible growth, which means our highest priority remains maintaining our high standards in providing quality patient care. To that end, we closely monitor clinic performance. As discussed during our Q1 2022 earnings call, with a large influx of greenfield openings in late 2021, coupled now with managing a portfolio of over 100 units, we experienced a temporary negative impact on our corporate clinic portfolio, and we took swift action. We’ve sharpened our focus on supporting our doctors of chiropractic and our wellness coordinators. And we’ve strengthened our oversight of our corporate units. As a result, we delivered improved Q2 2022 clinic performance compared to Q1 2022. Turning to Slide 4. I’d like to review our financial highlights for Q2 2022 metrics compared to Q2 2021. Jake will discuss our results in greater detail in a moment. System-wide sales grew to $106 million, increasing 21%. Our comp sales for clinics that have been opened for at least 13 full months grew to 8%. Revenue increased 24%, adjusted EBITDA was $2.6 million. And at the end of June 30, 2022, our unrestricted cash was $9.4 million, compared to $19.5 million on December 31, 2021, reflecting our strategy of investing in our corporate clinic portfolio as well as our acquisition of regional developer territory rights. Turning to Slide 5. Again, Q2 performance improved compared to Q1 2022. It also compared well to Q2 2021, especially when taking into consideration that that quarter delivered record-breaking performance due to an exceptional rebound from COVID and captures pent-up demand in both clinic openings and franchise license sales. Regarding clinic expansion, during Q2 2022, we opened 34 clinics, up from 31 clinics in Q1 2022. Of the 34 opened in Q2, three were greenfield clinics and 31 were franchise clinics. Also, during Q2, one franchise clinic closed compared to none in Q2 2021. The Joint continues to have very low clinic closure rates as less than 1% annually. In Q2, consistent with our growth strategy, we opened three greenfield clinics in Arizona, Virginia, and New Mexico, which have increased our presence in existing corporate clusters. Year-to-date in 2022, we opened 65 clinics, 58 franchises and seven greenfields. This compares to 54 openings in the first six months of 2021 that consisted of 48 franchises and six greenfields. Also in May, we acquired four previously franchised clinics. Our multi-unit franchisee with clinics in both Arizona and California wanted to consolidate their clinic ownership to California, thus creating the opportunity for us to buy their high-performing, mature clinics in Arizona. This expanded our headquarters region cluster to 24, easily incorporated into the portfolio. These clinics improved our corporate clinic operating margin and were immediately accretive to our bottom line. The purchase price of $5.8 million reflected the strength of these clinics and was in line with previous acquisition valuations. In summary, at June 30, 2022, we had 769 clinics in operation, consisting of 662 franchise clinics and 107 company-owned or managed clinics, maintaining a portfolio mix of 14% corporate clinics to 86% franchise clinics. At the end of the quarter, we also had 270 franchise licenses in active development compared to 283 on December 31, 2021. This metric continues to demonstrate the strong pipeline for franchise clinic openings and reflects both the accelerated number of franchise openings as well as ongoing increased interest in our franchise system. Subsequent to quarter-end, we completed several more transactions that built upon our clustered location strategy. We acquired three previously franchised clinics in North Carolina and one clinic in Scottsdale, Arizona. We also opened one greenfield clinic in California and our first two greenfield clinics in Kansas City, which is a new market for us where we expect to expand to at least five clinics in a relatively short period. This increased our corporate portfolio to 114 clinics as of August 4, 2022. Turning to Slide 6. In Q2 2022, we sold 24 franchise licenses, up from 22 licenses in Q1 2022 compared to 63 in Q2 2021. Year-to-date, 2022, 46 licenses were sold, 67% by regional developers. This compares to 89 licenses sold in the first six months of 2021. As of June 30, we had 19 regional developers supporting 67% of our franchise clinics. Their territories covered 55% of the metropolitan statistical areas, or MSAs. The aggregate 10-year minimum development schedule for our new regional developer territories established since 2017 was 640 clinics as of June 30. Keep in mind that a portion of this clinic count is already opened, but the remaining unopened clinics still provide a large foundation to fuel our continued clinic expansion and sales growth. Our regional developer program continues to deliver accelerated expansion. However, under certain circumstances and when territories mature, we’ll acquire regional developer territories. In April, we purchased the rights for Northern California for $2.4 million. Our model indicates that the region has a potential for 75 clinics. Already, 20 franchise clinics are in operation and 36 sold licenses are in active development. This leaves room for another 19 sites for future corporate or franchise clinic development. In May, we hosted our National Franchise Conference with the theme Align 2022. During this well-attended event, we aligned our strategies and tactics, celebrated our successes and culture, shared our latest research, listened to inspiring industry and business visionaries and continued developing the future leaders of our growing chiropractic movement. There were multiple noteworthy takeaways and I’ll share some of the compelling research that we reviewed during that event. Turning to Slide 7. According to FRANdata, which analyzes the franchise landscape of approximately 3,500 franchise businesses in the United States, today, only 4.9% have more than 500 units. Even more notably, only 94 brands, approximately 2.7%, have grown to over 1,000 units and benefit from the significant brand awareness that creates. According to the 2022 essential guide of pricing business and franchises, The Joint is an elite franchise system. And based on the analysis of the franchise unit sales price, our clinics garner higher valuations in the majority of franchise concepts, further enhancing the attractiveness of our franchise offering. Turning to Slide 8. We also evaluated data from the Annual Chiropractic Economic Compensation Survey comparing two alternatives available to chiropractic, becoming an independent practice or joining our franchise concept. According to the survey, the average independent practitioner collected about $264,000 per clinic in 2021. By comparison, in 2021, the average gross sales per clinic of The Joint was 2.3 times greater at almost $600,000. Further, the study from 2017 to 2022 shows independent clinics' billings decreased 14% and collections decreased 11%, while the average gross sales per Joint clinic grew 76%. Turning to Slide 9. During our national conference, we were also presenting awards to our high-performing clinics. The number of 2021 Bronze, Silver, Gold, Platinum and Diamond Honorees grew markedly over 2020. In 2021, 308 clinics achieved sales greater than $550,000 or up 82% from the 169 clinics of 2020. That included 41 Platinum clinics with over $1 million in sales, more than four times higher than the nine platinum clinics in 2020. Finally, in 2021, we doubled our diamond category as a second clinic achieved a remarkable milestone of over $1.5 million in sales for the year. This volume increase continues to attract more sophisticated franchisees and the positive cycle repeats itself. It also illustrates that our clinics have more room to expand their patient base, creating additional clinic value as well as overall enterprise value. Turning to Slide 10. Let’s review our marketing efforts. In Q2, we continued to leverage our growing scale and resources by investing in brand building and lead generation at the national, regional, and local levels. This tier approach provides clinics with a degree of marketing support and sophistication that is unprecedented in chiropractic. It also enables us to test tactics before they’re added to the toolkit for individual clinics. Nationally, we’re consistent advertisers in multiple digital marketing platforms. Regionally, we made many of our co-ops invest in broadcast media and sports sponsorships such as our June announcements with the North Fork Tide, a Minor League Baseball team. And locally, our clinics nurture prospects within their own trade areas by utilizing our proven local marketing tactics. This support, combined with the power of our data from millions of patient transactions, provides clinics with a significant competitive advantage in attracting new patients, another facet in the development and management of our online marketing strategy, which is essential for reaching millennial and Gen Z consumers seeking solutions for pain relief. One challenge we navigate is adapting to Google’s frequent changes in their search algorithms, which can impact our online visibility. Such a change occurred in late 2021 and continued to negatively impact our organic search traffic into Q2. While our new patient acquisition remains exceptionally high compared to historic levels, we’ve been implementing changes to our search engine optimization activities across the network. As a result, our July online traffic improved, indicating our new patient acquisition pipeline is increasing. In June, we executed our annual summer sale direct marketing promotion, where we targeted lapsed patients with a limited-time offer to restart their membership with The Joint. We achieved the highest number of conversions per clinic and our highest-ever conversion rate in the promotion's five-year history. The success of the summer sale once again demonstrates the potential growth in marketing through our own database as well as the progression of our digital marketing tactics, which we expect to leverage further by harnessing the power of our data enterprise initiative. And with that, Jake, I’ll turn it over to you.

Jake Singleton, CFO

Thank you, Peter. Turning to Slide 11, I'll review the financial results for Q2 2022 compared to Q2 2021, which, as Peter mentioned, was a record-breaking quarter, benefiting from demand built up during the early part of the pandemic. System-wide sales for all clinics opened for any amount of time increased to $106 million, up 21%. System-wide comp sales for all clinics opened 13 months or more were 8%. System-wide comp sales for mature clinics opened 48 months or more were 3%. It’s worth noting that both the franchise and corporate clinic cohorts comped positively, and we look forward to growth as the impact of our price increase continues to come into effect. Revenue was $25.1 million, up $4.8 million or 24%. Company-owned or managed clinic revenue increased 27%, contributing $14.5 million. Franchise operations increased 20%, contributing $10.6 million. The increases represent growth in both the corporate portfolio and the franchise base. On March 1, we implemented a price increase in the majority of our clinics. However, existing patient memberships are currently grandfathered at their original price. Therefore, the revenue impact from the price adjustment will be gradual and incremental. Cost of revenues was $2.4 million, up 19% over the same period last year, reflecting the increase in franchise clinics, the associated higher regional developer royalties and commissions and higher website hosting costs related to the new IT platform. Selling and marketing expenses were $3.8 million, up 23% over the same period last year driven by an increase in advertising fund expenditures from a larger franchise base and an increase in local marketing expenditures by the company-owned or managed clinics. Depreciation and amortization expenses increased compared to the prior year period, primarily due to the depreciation expenses associated with our new IT platform and continued greenfield development. G&A expenses were $16.5 million compared to $11.6 million, up 42%, reflecting the cost to support total clinic and revenue growth, greater IT expenses; higher payroll, including the increase in salaries for DCs, which began in the latter half of 2021, and for wellness coordinators, which continued through the second quarter of 2022. All these remain competitive in the tight labor market. As noted previously, our pace of greenfield openings will increase G&A as a percentage of revenue over the next several quarters and will also compress earnings. As a result, we reported an operating income of $473,000, which reflects the compressed margins from accelerated greenfield development, the aforementioned higher depreciation and higher G&A expenses. This compares to $2 million in Q2 2021. Income tax expense was $109,000 compared to a benefit of $666,000 in Q2 2021. Net income was $345,000 or $0.02 per diluted share compared to net income of $2.7 million or $0.18 per diluted share in Q2 of 2021. Adjusted EBITDA was $2.6 million compared to $3.8 million for the same period last year. Franchise clinic adjusted EBITDA increased 13% to $4.4 million. Company-owned or managed clinic adjusted EBITDA was $1.8 million. While the Q2 2022 margin for corporate clinics has improved over Q1 2022 compared to Q2 of last year, decreased $1.2 million, reflecting the margin compression related to the greenfield development and higher payroll expenses. Corporate expense as a component of adjusted EBITDA loss was $3.6 million, increasing $433,000 compared to Q2 2021. On to our balance sheet and cash flow review. At June 30, 2022, our unrestricted cash was $9.4 million compared to $19.5 million at December 31, 2021. During the first half of the year, our investing activities of $11.4 million consisted of the acquisition of RD territory rights, franchise clinic acquisitions and continued greenfield developments, which were partially offset by $1.5 million provided by operating activities. On to Slide 12. I’ll review our results for the first six months of 2022 compared to the same period in 2021. Revenue increased 26% to $47.5 million and adjusted EBITDA was $4.4 million compared to $7.2 million in the prior year period, reflecting the compression of earnings by the influx of new corporate greenfield clinics and higher payroll expenses associated with the tight labor market. On to Slide 13. We are reaffirming all elements of our guidance for 2022. We continue to expect revenue to be between $98 million and $102 million. The midpoint is up 24% compared to the $80.9 million in 2021. We continue to expect adjusted EBITDA to be between $12 million and $14 million compared to $12.6 million in 2021. We continue to expect franchise clinic openings to be between 110 and 130 compared to 110 in 2021. We continue to expect to increase our company-owned or managed clinics by between 30 and 40 through a combination of greenfield openings and franchise clinic purchases. This compares to 32 in 2021. And with that, I’ll turn the call back over to you, Peter.

Peter Holt, President and CEO

Thanks, Jake. Turning to Slide 14. As noted, our hybrid business model has supported our long-term growth through various market cycles and our momentum continues as demonstrated by our performance. Even though we’re all experiencing macroeconomic issues outside of our control, we continue to focus on what we can manage. And for 2022, our three enterprise initiatives are to forge a chiropractic dream, harness the power of our data and accelerate the pace of our clinic growth. With an eye for long-term benefits, we are implementing these independent programs simultaneously. First, we want to become the career path of choice for DCs while we’re improving our team members’ experience by enhancing their culture and providing training and benefits and increased compensation. Forging a chiropractic dream will help us differentiate ourselves as an employer in a very tight labor market. We’re distributing new recruitment materials and evangelizing our system. Our team is also deepening our relationships with chiropractic universities and associations to educate current and future DCs. To date, we are excited about the reception and inroads we’re making in this crucial area. Next, we want to make sure our information is more accessible and actionable by decision-makers by harnessing the power of our data. This includes the development of a data warehouse to enable more real-time, self-serve reporting capabilities at the corporate office and in the field. This also includes advancements in marketing automation and the development of our mobile app for direct patient engagement. Finally, we want to increase our long-term return on investment for franchisees, employees, and shareholders by accelerating the pace of our clinic growth. As emphasized in my earlier comments, we are committed to responsible growth and closely monitoring the system to ensure we uphold our clinic performance standards. In our clinic development timeline, yet we can implement tactics to support this expansion by shortening our clinical development timeline, enhancing regional support, evaluating nontraditional site options, including rural, urban, micro, military and even international locations, and increasing national brand awareness. Turning to Slide 15. I’m confident in our ability to drive long-term growth and stakeholder value. Victoria, I’m ready to turn it over for Q&A.

Operator, Operator

Thank you. We will now begin the question-and-answer session. The first question comes from Jeremy Hamblin with Craig Capital. Please go ahead.

Jeremy Hamblin, Analyst

Thanks for taking the question. So I wanted to start with a comment you made about kind of Google search traffic data and improvement on your algorithms and your working with the changes in their service. I think you noted that you saw an improvement in inbound traffic into your website over the last several months. How would you characterize that? Would you say maybe March was kind of a low point in that? You’ve seen continuous improvement? Or are you seeing something more specific to the last 30 to 45 days?

Peter Holt, President and CEO

Well, when we look – Jeremy, thank you for the question. And we all know how important our digital marketing campaign is to our new patient count. And as we talked about in the last quarter, we can identify at least 63% of our new patients at some point touch our digital marketing campaign. So it’s obviously really critical for us as we go forward. And we did, as we talked about in Q1, is with the algorithmic change. We saw a drop, particularly in our organic search of new patients. And so we have made adjustments to how we are managing that process, literally at the line level so that we’re upgrading our microsites. We’re enhancing the bios of our doctors. We’re implementing strategies to increase our standing when a patient or potential patient is doing their search. And so in July, we noticed significant improvement. We were probably down compared to last year by around 20%, but when we look at July, we really saw that significantly increase. We haven’t hit where we were last year but believe that the changes we’re making, working through our franchise system, are resulting in an increase in that digital lead generation.

Jeremy Hamblin, Analyst

Okay. Great. That’s helpful. Understanding the kind of margins here, right? In G&A costs that are higher, sales and marketing costs that are higher, some of the acquisitions that you’ve made over the last four or five months. One – I think you noted or how you characterized it on the call was that it would be several quarters in which you would see margin headwind and G&A deleverage. With the benefit now of being more than halfway through 2022, do you have a better sense of when you think that inflection or that headwind might kind of bottom out and you start to see margins or in particular, G&A start to inflect positively and gain some leverage?

Jake Singleton, CFO

Yes. Another good question, Jeremy. I think it’s really dependent on the cadence of our greenfield development. When you put in 13, 14 clinics in the last 100 days of 2021, you’re going to have a very significant suppression in the quarters where they’re still in their working capital loss period. So I think it’s somewhat dependent on the pace of our greenfield development. I think you’ve seen in the first couple of quarters that that pace has softened from what we saw at the back half of 2021. And in turn, you're seeing the clinics continue to mature, and you're seeing those margins expand, exactly kind of what we would expect as they go on to mature and reach those breakeven points. So the potential nature would be dependent on the pace of development. We’re going to continue to invest in greenfields, but I don't know if we’ll get back to that pace. But again, that’s really what drives the compression. Also, in terms of where you might see that bottom out, Q2 is a good example of when the pace moderates, you can see margin expansion start to come back.

Jeremy Hamblin, Analyst

But getting to your $12 million to $14 million of adjusted EBITDA guidance for the year would imply that you’re going to generate at least $7.5 million and up to nearly $10 million in adjusted EBITDA in the back half of the year, which would require margin improvement in the back half of the year. So in terms of just giving us a little bit of confidence around that, presumably, you would see some sort of inflection here in the back half of the year. Is that a fair assumption?

Jake Singleton, CFO

Yes, some tailwinds that you’ll see in the second half of the year are the continued benefits of our price increase. The more new patients that roll onto that higher price point will certainly have an advantage for us. And then also the fourth quarter are two of our heaviest promotions, which really help boost from a franchise margin perspective, which is just a natural reoccurring phenomenon for us in our promotional calendar. So I think those two things with our dual strategy – we're going to continue to invest in greenfield, and we’re going to continue to target accretive acquisitions, the same that we have always done. So I think all those factors are taken into account when reaffirming that guidance for the year.

Jeremy Hamblin, Analyst

Last one for me then. You’re just looking ahead even a little bit further, you did 32 company-operated last year; you’re looking for 30 to 40 this year. Is that probably a fair number to think about as you look towards 2023? Or is there something where there’s going to be a meaningful change, either up or down to that range that you’ve been in now for the last couple of years?

Jake Singleton, CFO

Yes. As of right now, we see nothing that changes our strategy. We’ll continue to invest in unit growth, and we’re still seeing the clinics ramp strong and contribute strong as they mature. While we don’t provide any forward guidance for 2023 at this point, we’re not seeing anything that would cause us to deviate from our strategy.

Jeremy Hamblin, Analyst

Got it. Thanks so much for answering the question. Best wishes.

Jake Singleton, CFO

Thanks, Jeremy.

Operator, Operator

Next question comes from Jeff Van Sinderen with B. Riley. Please go ahead.

Jeff Van Sinderen, Analyst

Hi, everyone. I guess, one thing I wanted to start with, is there any more color you can give us on sort of the underlying KPIs around new customers, retention, average size of packages purchased? I guess, plans to improve those metrics in the second half? Obviously, Q4, you do run a big promo. And overall, the impact around your thinking or overall impact from a slower consumer discretionary environment in general?

Jake Singleton, CFO

I’ll start, Jeff, and Peter, you can layer on. As I think about three of our core metrics, new patients, conversion, and attrition, as we look at the phenomenon through the second quarter, again, we mentioned it in the script, new patients continue to be strong, although they’re lower than we saw during Q2 2021. So I think we’ve got a bit of a headwind as it relates to the new patients. And while they’re still healthy, it’s down year-over-year. As I look at the other two metrics, we’re seeing favorable conversion, and we’re seeing favorable attrition. So those two are trending well for us in the second quarter and are core items we monitor in terms of the unit's health and how we’re growing our active member base. The price increase that came into effect on March 1 has been measured over several months. Similar to our last increases, those KPIs are holding up for us. We mentioned the Google changes, and we’re seeing those SEO and organic search numbers continue to rebound, which should help our new patient traffic moving forward. We're looking for our clinic teams to continue to execute and keep those conversion and attrition metrics strong.

Peter Holt, President and CEO

No, I think that’s absolutely right. To answer your question about the impact of slowing consumer confidence or recession is, if we think about it, as you can see in our continued performance of the quarter, it doesn’t feel like it’s impacting us in any measurable degree. If we truly go into recession, I believe the management of pain becomes a higher priority than purchasing frozen yogurt or getting a cup of coffee. We saw that in the pandemic; our patients saw their healthcare as essential through chiropractic care. Regarding potential recession impacts, I feel reassured by our performance. Affordability remains crucial to our brand, and while some families may tighten their belts, we may also see more interest from higher-income families who find our services appealing. Overall, our services are core to our patients' health.

Jeff Van Sinderen, Analyst

All good points. I wanted to circle back if you could to the level of improvement that you’re seeing in the corporate-owned clinics, performance metrics there versus maybe franchise performance. I’m wondering if we’ve gotten back to where the corporate clinics are performing above the franchise clinics? What other initiatives do you have planned to improve corporate-owned performance?

Peter Holt, President and CEO

Absolutely. We want the whole system to perform well. When I look at the three metrics we mentioned—new patient counts, conversion and attrition—our corporate portfolio outperformed the franchise portfolio. However, when comparing comp sales, our corporate portfolio is still underperforming relative to the franchise. This difference is mainly due to the age of our overall portfolio compared to the franchise system. I believe the changes we've made in the last six months aimed at improving our onboarding, training, and supporting our employees will continue to show improved performance at the clinic level.

Jeff Van Sinderen, Analyst

If I can just squeeze in one more, any thoughts on anticipated corporate clinics, greenfield openings? When do you anticipate year-over-year inflection in EBITDA for the whole company?

Jake Singleton, CFO

The inflection in EBITDA for the consolidated company depends on the continued greenfield development. This model consistently sees time to ramp, and we will continue to invest in these new markets. The early losses associated with greenfield development will persist, and the inflection point will come when we slow down development and let these clinics mature. We still expect those same margins we've seen in the past, so it really comes down to how quickly we develop and manage costs.

Jeff Van Sinderen, Analyst

Okay. Fair enough. Thanks for taking my questions, and best of luck with the rest of the quarter.

Jake Singleton, CFO

Thanks, Jeff.

Operator, Operator

Next question comes from Brooks O’Neil with Lake Street Capital. Please go ahead.

Brooks O’Neil, Analyst

Thank you. Good afternoon. You guys always provide such comprehensive information. We really appreciate it out here. I guess one piece that I’m not sure I heard or probably missed in your conversation is the breakeven that you’re seeing with these new corporate stores. It’s one of the most notable and positive things about your performance. How is it going?

Jake Singleton, CFO

We continue to see similar performance that we talked about in the first quarter. The top line is performing to expectation. We have a great grand opening marketing plan in place. Our operational execution in the early months is really strong. The top line performance is there, and we’re attracting strong interest in the early months of these clinics. The wage pressure has increased our time to breakeven by maybe one month or two months. If the top line is still performing strongly, our pro forma model still looks similar in long-term margin potential.

Brooks O’Neil, Analyst

I’m glad to hear that. You’re really pleased to see it as well. But let me ask one more. Comp store sales growth has delivered outstanding results, but they are lower than historically. What’s going on there? What should we expect over the next quarters or year?

Peter Holt, President and CEO

We don’t guide on our comps. You’re right. If we look at Q2 with 8%, if I were any other company, they’d be wildly happy about it. For us, it does feel less favorable. Put context on this; Q2 2021 was a record quarter. We’re measuring performance against one of the strongest quarters in the company's history. Even in that case, you’re seeing growth in nearly every metric, which gives us confidence in our momentum. We believe the price increase will support positive comps for the rest of the year, and our ongoing efforts to attract new patients will further fuel growth.

Brooks O’Neil, Analyst

Great. Thank you for taking my questions.

Peter Holt, President and CEO

Thank you.

Operator, Operator

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

George Kelly, Analyst

Hi everybody, thanks for taking my questions. I wanted to revisit one of the last questions that you answered about the ramp. Could you quantify just how many months is it at this point looking at these recent openings going back over the last few quarters? When is the breakeven? Is it still around six months? What is the amount, if you could quantify that, that’s invested until breakeven?

Jake Singleton, CFO

Yes. Historically, we were seeing around a six-month timeframe. Now, with the additional costs, you’re probably looking at a seven to eight-month timeframe. So that’s the one to two-month slide I was talking about. We're currently incurring around $25,000 per month in losses initially, but now that’s probably $27,000 to $30,000. So looking at an annualized basis, you’re looking at somewhere around $75,000.

George Kelly, Analyst

Great. Then I wanted to follow-up on pricing. You’re really not seeing much of a negative impact from the pricing increase as far as on transactions or volume. I mean, why should I not read into the commentary about new patients being a little weaker and think that there’s been pressure from pricing? Is there a way for you to kind of isolate pricing when you were testing?

Peter Holt, President and CEO

Yes, there is. We’ve looked at metrics surrounding previous national price increases. When we’ve analyzed the metrics, we found them either neutral or positive to the business. The analysis we’ve conducted since the price increase on March 1, shows that our attrition is actually improving, and our conversion is improving. When we talk about new patient counts being down, I think it is more reflective of the algorithmic change with Google than patients deciding against their memberships due to price. That data indicates we're still doing well.

George Kelly, Analyst

Last question for me is on your wellness coordinators and other employees that – chiropractors and regional managers. It’s been discussed a lot about turnover and retaining employees. Is it feeling more stable? Or is it still tough?

Peter Holt, President and CEO

This market is tough. I’ve never seen an environment that is so employee-centric. We have seen improvement, though. Our changes with DCs to adjust their compensation have seen a drop in turnover rates, showing stabilization. We're continuing to see improvements, although we want to keep pushing the turnover rates down further. We’re also a bit slower on wellness coordinators, but there has been a significant improvement since where we were in Q4 2021.

George Kelly, Analyst

Okay. Thank you.

Operator, Operator

Next question comes from Anthony Vendetti with Maxim Group. Please go ahead.

Anthony Vendetti, Analyst

Thank you. Yes. So in this current environment, whether we’re in a recession or we might enter one, you didn’t have any issues at all during COVID. If we were to go into a recession, have you done any studies or do you have any data to show what you anticipate the impact to be on your centers?

Peter Holt, President and CEO

This company has never actually gone through a recession, so I don’t have firsthand experience to draw from. It's hard to predict what we might experience if we face another recession. The pandemic may provide a snapshot of consumer behavior regarding essential services. The resilience of this concept during COVID gives me comfort that proactive healthcare will remain a priority. Our services offer a critical health benefit, regardless of economic conditions. While some families may tighten their spending, I believe our services may attract higher-income families who are seeking affordable, essential health care. Overall, I think we’re well-positioned.

Anthony Vendetti, Analyst

If it were to happen and you did see some pullback, how much flexibility do you have to pull back on the greenfield? Would it take months to do that because it’s months in the planning session?

Peter Holt, President and CEO

If we go into recession and need to preserve cash, one of the first things is acquisitions, which is discretionary and can be halted quickly. Greenfields have a longer timeline due to site selection, lease negotiations, building the clinic, etc. However, at each stage, we can pause and not incur costs. We previously slowed down greenfield development in 2020 when the pandemic hit and were able to quickly minimize expenses. We are also capital-generative, as shown in our operating activities, which positions us well against unexpected challenges.

Anthony Vendetti, Analyst

Okay, great. And then just maybe one last question for Jake. The gross margin was a shade over 90%. Is that a good base to operate off of or will it fluctuate?

Jake Singleton, CFO

I think it’s fairly representative. Most of our clinic-level costs are in G&A. The cost of revenue for us on a consolidated basis is predictable. We continue to see web hosting costs as our platform scales, adding to overall data usage, but I believe this percentage is stable.

Anthony Vendetti, Analyst

Excellent. Thanks. I’ll jump back in the queue. Thank you.

Operator, Operator

Thank you. This concludes our question-and-answer session. I would like to turn the conference back to Peter Holt for any closing remarks.

Peter Holt, President and CEO

I want to thank everybody for their time today. Before I close, I’ll share a few comments from an expanding franchisee who was named our Joint Rookie of the Year Award in 2021. He owns multiple businesses, including several franchise concepts in real estate brokerage. After he and his wife visited the first Joint clinic, they decided immediately to buy a franchise. He stated that Joint aligns with my vision of health and wellness. It’s a straightforward business model, and the management was easily available to address all of my questions, making the process very quick. He’s set to open his first clinic in March of 2021, amidst the pandemic, and faced external setbacks. Nonetheless, the franchisee cited proactive support from The Joint team as crucial in pushing ahead. He also noted that The Joint concept is highly scalable and easy to set up due to the support system. He’s preparing to open his second clinic in the fall of 2022 and his third in 2023. Thank you and stay well adjusted.

Operator, Operator

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