Business Overview and Detailed History:
Founded in 2010, The Joint Corp. was established with the primary goal of franchising and developing chiropractic clinics, selling regional developer rights, supporting franchised clinic operations, and managing corporate-owned clinics throughout the United States. The company’s journey has been marked by rapid expansion and strategic growth initiatives.
In its early years, The Joint focused on aggressively expanding its franchise model across the country. This growth was facilitated by the company’s regional developer program, which granted exclusive geographical territories to developers who committed to meeting minimum development obligations. By the end of 2021, this strategy had proven highly successful, with The Joint boasting an impressive 712 franchised clinics in operation.
However, the company faced challenges in the following years. In 2022 and 2023, The Joint experienced a significant decline in the number of franchise licenses sold and new clinics opened, with only 75 and 104 openings respectively. This slowdown was attributed to a combination of factors, including unfavorable global economic conditions, labor shortages, and inflationary pressures.
In response to these challenges, The Joint initiated a strategic shift in 2023, implementing a plan to re-franchise or sell the majority of its company-owned or managed clinics. This move was designed to leverage the company’s strengths in building and supporting a franchise model, with the aim of driving long-term growth for both franchisees and the company itself.
Throughout its history, The Joint has received recognition for its performance and growth. The company has been consistently ranked on the Franchise Times Top 400 list for over five years, showcasing the value and opportunity of its chiropractic care franchise concept. In 2024, The Joint’s position on this prestigious list improved significantly, moving up 18 spots to reach position 150 in the top 200.
As of September 30, 2024, The Joint’s network had grown to 963 clinics, with 838 of these being franchised locations. This expansion represents a remarkable journey from a single clinic in 2010 to a nationwide presence spanning 41 states, the District of Columbia, and Puerto Rico.
Financial Performance and Ratios:
The Joint’s financial performance has been a testament to the success of its business model. As of the latest reported quarter ended September 30, 2024, the company generated revenue of $30.2 million, representing a 2% year-over-year increase. This growth was driven by a robust performance in the franchise operations segment, with royalty fees and advertising fund revenue increasing by 10% and 9.6%, respectively.
The company’s profitability, however, has been impacted by various factors, including the ongoing refranchising efforts and the challenges posed by macroeconomic headwinds. For the third quarter of 2024, The Joint reported a net loss of $3.2 million, or $0.21 per share, primarily due to a $3.8 million loss on disposition or impairment related to the refranchising strategy.
For the most recent fiscal year (2023), The Joint reported revenue of $117.70 million, with a net loss of $9.75 million. Operating cash flow for 2023 was $14.68 million, while free cash flow stood at $9.68 million. In the most recent quarter (Q3 2024), the company generated $3.45 million in operating cash flow and $3.20 million in free cash flow.
The Joint operates predominantly in the United States, with clinics in 41 states, the District of Columbia, and Puerto Rico. As a small-cap company, it does not have significant international operations. The chiropractic industry in which The Joint operates has shown a compound annual growth rate (CAGR) of approximately 4-5% over the past 5 years, driven by increased consumer demand for alternative, non-invasive healthcare solutions and a shift towards preventative care.
Liquidity:
Despite these near-term headwinds, The Joint’s financial position remains strong, with $20.7 million in unrestricted cash and access to a $20 million revolving credit facility as of September 30, 2024. The company’s current ratio, a measure of its short-term liquidity, stood at 1.44, indicating a healthy ability to meet its short-term obligations. The quick ratio also stood at 1.44, further emphasizing the company’s strong liquidity position.
The Joint’s return on assets (ROA) and return on equity (ROE) for the latest reported quarter were -21.18% and -71.30%, respectively, reflecting the impact of the net loss on the company’s profitability metrics. However, the company’s asset turnover ratio of 1.52 suggests an efficient utilization of its asset base to generate revenue.
Notably, The Joint maintains a debt-to-equity ratio of 0 as of September 30, 2024, indicating a conservative approach to leverage. The company has a $20 million credit line available through a Credit Agreement with JPMorgan Chase, maturing in February 2027, providing additional financial flexibility if needed.
Guidance and Outlook:
For the full year 2024, The Joint has provided the following guidance:
Looking ahead to 2025, The Joint believes the consumer market will improve, yet franchise license sales and clinic openings are likely to be less than 2024 as they work through the impact of their refranchising efforts and the economic headwinds over the last two years.
The company’s guidance reflects the ongoing challenges posed by consumer headwinds, which have impacted its clinic economics. However, The Joint remains focused on executing its refranchising strategy, strengthening its franchise operations, and enhancing the patient experience to drive long-term growth and profitability.
Risks and Challenges:
While The Joint has established a strong market position, the company faces several risks and challenges that investors should consider:
Regulatory Environment: As a healthcare provider, The Joint operates in a heavily regulated industry, and changes in regulations or interpretations of the corporate practice of chiropractic could potentially disrupt its business model.
Competition: The chiropractic industry is highly competitive, with numerous well-established independent providers. The Joint’s ability to maintain its market share and continue its growth trajectory will depend on its ability to differentiate its services and remain a preferred choice for consumers.
Refranchising Execution: The success of The Joint’s refranchising strategy, which aims to transition the majority of company-owned or managed clinics to franchisees, will be critical in driving long-term profitability and shareholder value.
Cybersecurity and Data Privacy: As a technology-enabled healthcare provider, The Joint is exposed to risks related to cybersecurity breaches and data privacy, which could harm its reputation and financial performance.
Despite these challenges, The Joint’s strong brand recognition, innovative service model, and experienced management team position the company well to navigate the evolving landscape and capitalize on the growing demand for accessible chiropractic care.
Management Changes:
In October 2024, The Joint experienced a significant leadership change with the resignation of Peter D. Holt as CEO and from the Board of Directors. Sanjiv Razdan was appointed as the new President and CEO, bringing fresh perspectives to the company’s strategic direction.
Operating Segments:
The Joint Corp. operates through two main business segments:
Franchise Operations Segment: This segment consists of the operating activities of the franchise business unit. As of September 30, 2024, the franchise system had 838 clinics in operation. Royalty fees and advertising fund revenue, which are the primary revenue streams for this segment, increased by 10.2% and 9.6% respectively for the three months ended September 30, 2024, compared to the prior year period. This increase was driven by the growing number of franchised clinics in operation during the current period, along with continued sales growth in the existing franchised clinics. For the nine months ended September 30, 2024, royalty fees and advertising fund revenue increased by 10.0% and 10.1% respectively compared to the prior year period, following the same trends.
In addition to these two operating segments, The Joint has a non-operating Corporate segment that develops and implements strategic initiatives and provides administrative support functions for the two operating segments.
Conclusion:
The Joint Corp. has established itself as the leading provider of chiropractic care in the United States, leveraging its franchise model to drive rapid expansion and cement its position as the industry’s category leader. While the company faces near-term headwinds, its focus on improving clinic economics, enhancing the patient experience, and executing its refranchising strategy positions it well for long-term growth and value creation. The company’s strong financial position, with zero debt and ample liquidity, provides a solid foundation for navigating challenges and pursuing growth opportunities. As The Joint continues to revolutionize the way consumers access chiropractic care, it remains a compelling investment opportunity for those seeking exposure to the healthcare services sector.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.