Joint Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 4, 2023

Key Takeaways

  • Q1 financial performance strong: System-wide sales rose 17%, comp sales increased 8%, revenue jumped 27% to $28.5 M, adjusted EBITDA improved to $2 M, and unrestricted cash grew to $14.8 M.
  • Clinic expansion pipeline robust: Opened 33 new locations (29 franchises, 4 greenfields) in Q1, ending with 870 total clinics and 218 franchise licenses in active development.
  • Marketing & patient acquisition: Social media campaigns and new digital and guerrilla tactics boosted engagement (e.g., 15 K Instagram contest entries) and drove March new patient volumes 19% above the prior three-month average.
  • Reiterated full-year guidance: Expecting 2023 revenue of $123 M–$128 M (versus $101.9 M in 2022) and adjusted EBITDA of $12.5 M–$14 M (versus $11.5 M).
  • Long-term growth strategy: Focused on maturing greenfield clinics, expanding doctor recruitment through educational outreach, leveraging data-driven marketing, and targeting a network of 1,000 clinics (2,000 long term) amid a sizable chiropractic market opportunity.
AI Generated. May Contain Errors.
Earnings Conference Call
Joint Q1 2023
00:00 / 00:00

There are 8 speakers on the call.

Operator

Good day, and welcome to the 1st the Joint Corp First Quarter 2023 Financial Results Conference Call. 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 Please go ahead.

Speaker 1

Thank you, Dave.

Speaker 2

Good afternoon, everyone. This is David Barnard of LHA Investor Relations. On the call today, President and CEO, Peter Holt, will review our Q1 2023 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.

Speaker 2

Please note we are using a slide presentation that can be found at httpsir. Thejoint dot com slash events. Today, after the close of the market, The Joint Corporation issued its financial results for the quarter ended March 31, 2023. If you do not already have a copy of this press release, can be found in the Investor Relations section of the company's website. As provided on Slide 2, please be advised today's discussion is forward looking statements, Including statements concerning our strategy, future operations, future financial positions and plans and objectives of management.

Speaker 2

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, our inability to identify and recruit enough qualified chiropractors and other personnel to staff our clinics, Due in part to the nationwide labor shortage and an increase in operating expenses due to measures we may need to take to address such shortage, Inflation exasperated by COVID-nineteen and the current war in Ukraine, which has increased our costs and which otherwise could negatively impact our business, The potential for further disruption to our operations and the unpredictable impact on our business of the COVID-nineteen outbreaks of other contagious diseases, 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 Short selling strategies and negative opinions posted on the Internet, which could drive down the market price of our common stock and result in class action lawsuits, our failure mediate future material weaknesses and our internal control over financial reporting, which could negatively impact our ability to accurately report our financial results to prevent are in the range of 8% to 9% and other factors described in our filings with the SEC, including the section entitled Risk Factors in will report on Form 10 ks for the year ended December 31, 2022, filed with the SEC on March 10, 2023, and subsequently filed current and quarterly reports.

Speaker 2

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 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. TREMIT uses EBITDA and adjusted 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.

Speaker 2

Reconciliation of net income to EBITDA and adjusted EBITDA is presented in the press release. The company defines EBITDA Net income or loss before net interest, tax expense, depreciation and amortization expenses. The company defines adjusted EBITDA as EBITDA before 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, And are indicative of the financial health of the franchisee base.

Speaker 2

Comp sales include revenues from both company owned or managed clinics and franchise clinics Turning to Slide 3, it's Now my pleasure to turn the call over to Peter Holt.

Speaker 3

Thank you, David, and I welcome everybody to the call. As we noted in March, we entered 2023 with a fortified foundation to support our clinics as well as our long term clinic expansion and financial growth. Today, I'm pleased to report on Q1 2023, we performed well during the continued economic uncertainty and expect our robust underlying clinic model and unit For those investors who are new to the company, the joint is revolutionizing access to chiropractic care are providing affordable concierge style membership based services in convenient retail settings. Turning to Slide 4, let's review our financial metrics for the first quarter 2023 compared to Q1 2022. System wide sales grew 17%.

Speaker 3

Comp sales for clinics have been open for at least 13 full months increased 8%. Revenue grew 27%. Adjusted EBITDA improved to $2,000,000 And on March 31, 2023, our unrestricted cash was $14,800,000 compared to $9,700,000 on December 31, 2022. Turning to Slide 5, I'll discuss our clinic metrics. During Q1 2023, we opened 33 clinics, 29 franchised in 4 Greenfields.

Speaker 3

This compares to 31 clinics, 27 for Greenfields in Q1 2022. Our Greenfield strategy is to locate clinic sites Where they'll capture pent up demand in new markets where they can rapidly build a solid presence. This quarter, we augmented existing clinic clusters in California, Georgia, Missouri and North Carolina. As previously stated, in 2023, we are focusing on supporting our existing greenfield clinic portfolio as it matures and moderating our pace of new greenfield openings. In the Q1 of 2023, we closed 1 franchise clinic, which will be relocated.

Speaker 3

That compares to closing 1 franchise clinic in the Q1 of 2022. Once again, our closure rate is one of the lowest have a great day to day basis. In summary, at March 31, 2023, we had 8 70 clinics The portfolio mix remained 85% franchisedclinics and 15% company owned or managed clinics. At quarter end, we had 218 franchise licenses in active development, which is a solid pipeline for our future franchise clinic opening. Subsequent to quarter end, in April, we opened 1 greenfield clinic at Fort Dix in New Jersey.

Speaker 3

This is our 4th location opened in conjunction with the Army and Air Force Exchange Turning to Slide 6, in Q1 2023, we sold 17 franchise licenses, Which is the same number as Q4 2022 and compared to 22 licenses sold in Q1 2022. This past quarter, existing franchisees bought approximately 59% of our new licenses. This means that even in certain environments, those that are intimately involved in our network are reinvesting in the brand. This is a powerful indicator of the strength of our business model, Demonstrating the health and viability of our franchise system. On March 31, our RD count remained 18 with our aggregate 10 year minimum development schedule for the new RD territories established since 2017 at 6 26 clinics.

Speaker 3

Turning to Slide 7, let's review our marketing efforts. New patient acquisition continues to be a focus. For Q1 of 2023, the average number of new patients for clinic was down approximately 7% from the same quarter a year ago. To further improve new patient leads and conversions, our marketing team has invested in paid channel maximization and new paid digital tactics As well as prioritizing non digital approaches such as Gorilla marketing. We've created multiple learning modules In February, we held our annual Love the Joint social media campaign and giveaway, where 12 lucky winners received a gift of 1 year of free chiropractic care.

Speaker 3

During this promotion, we saw significant increases in our overall engagement in the Joint's national Instagram account, where we gained almost 15,000 entries and comments and have more than 20,000 likes and attracted over 13,000 new followers. In March, we held our new patient contest. This event incentivized clinic teams to promote the joint $29 new patient offer via signage, referral cards and local business partnerships and community events. For March, the network increased new patients over 19% compared to the prior 3 month average. In terms of our digital efforts, in March, we also launched a test to capture leads through a chat technology as well as leverage enhanced doctor of chiropractic Profiles on an online medical site as a new source for new patient leads.

Speaker 3

For the quarter, organic traffic to the site increased 14% year over year. As a part of our PR effort, we continue to focus on the education and benefits of chiropractic care and generate brand awareness about the joint. Our PR strategies are reaching new highs and in Q1 alone, we surpassed $1,000,000,000 in earned editorial impressions. And with that, Jake, I'll turn it over to you. Thank you, Peter.

Speaker 4

Turning to Slide 8. I'll review the financial results for Q1 2023 compared to Q1 2022. System wide sales for all clinics open for any amount of time increased to $115,400,000 up 17%. System wide comp sales for all clinics opened 13 months or more increased 8%. System wide comp sales for mature clinics open 48 months or more increased 1%.

Speaker 4

Revenue was $28,500,000 up $6,000,000 or 27%. Company owned or managed clinic revenue increased 36%, contributing $17,100,000 Revenue from franchise operations increased 15%, contributing $11,300,000 The increases represent continued growth in both the corporate portfolio and franchise base. Cost of revenues was $2,600,000 up 13% over the same period last year, reflecting the associated higher regional developer royalties and commissions. Selling and marketing expenses were $4,200,000 up 27% over the same period Driven by an increase in advertising fund expenditures from a larger franchise base, an increase in local marketing expenditures by the company owned or managed clinics and the timing of our National Marketing Fund spend. Depreciation and amortization expenses increased $713,000 are up 44% compared to the prior year period, primarily due to the increase in the number of greenfield clinics developed and franchise clinics acquired.

Speaker 4

G and A expenses were $19,900,000 compared to $15,400,000 up 30%. Reflecting the cost to support the increased clinic count, revenue growth and higher payroll to remain competitive in the tight labor market. Operating loss was $678,000 compared to a loss of $176,000 in Q1 2022, Mostly driven by the previously mentioned higher depreciation and amortization expenses. Other income was $3,800,000 reflecting the receipt of Including the impact of the employee retention credits was $842,000 compared to $13,000 in Q1 of 2022. Net income was $2,300,000 or 0 point are in the range of $1,000 or $0.01 per diluted share in Q1 of 2022.

Speaker 4

Adjusted EBITDA was $2,000,000 compared to $1,800,000 in the same period last year. Franchise clinic adjusted EBITDA increased 6% to $4,800,000 Company owned or managed clinic adjusted EBITDA increased 68 percent to $1,600,000 reflecting the maturation of our clinics in the corporate greenfield As well as our concentrated effort to optimize labor. Corporate expense as a component of adjusted EBITDA was $4,400,000 are up $671,000 or 15% higher than Q1 2022. Onto a review of our balance sheet and cash flow. At March 31, 2023, our unrestricted cash was $14,800,000 compared to $9,700,000 at December 31, 2022.

Speaker 4

This reflects $6,000,000 in cash flow from operations, which included the receipt of the employee retention credits of 3.9 These were net of $1,200,000 of investment in opening greenfield clinics and upgrading existing clinics. Also, we continue to have access to additional cash through our line of credit with JPMorgan Chase. To date, we've drawn 2,000,000 have an additional $18,000,000 available. On to slide 9, we are reiterating our guidance for 2023. We continue to expect to grow revenue to between $123,000,000 $128,000,000 compared to $101,900,000 in 2022.

Speaker 4

We continue to expect adjusted EBITDA to be between $12,500,000 $14,000,000 compared to $11,500,000 in 2022. We continue to expect franchise clinic openings to be between 101120 compared to 121 in 2022. Please note, historically, guidance for company owned or managed clinic openings included a combination of both greenfields and acquisitions. While we continue to acquire previously franchised clinics, these transactions are opportunistic and are no longer included in our guidance. For Greenfield Clinic openings, we continue to expect to open between 8 12 compared to 16 in 2022.

Speaker 4

And with that, I'll turn the call back over to you, Peter.

Speaker 3

Thanks, Jake. Turning to Slide 10. While managing today's uncertain economic conditions, including inflation and wage pressure, We remain focused on what we can control and continue to execute programs to improve performance and drive long term growth. We continue to methodically implement our multiyear corporate initiatives. To forge the chiropractic dream, over the past several years, we've been increasing our educational outreach efforts with associations and schools of chiropractic to drive awareness and support recruitment.

Speaker 3

As our relationships with these institutions continue to improve, These endeavors are being felt across the network nationwide. In fact, we have more interest than ever from doctors in these recent graduating classes, and we're attracting new doctors To harness the power of our data, we've launched our business intelligence and analytical reporting tool, We're shortly launching in our automated marketing program. This will reach existing lapsed and potential patients to ensure that we send To accelerate the pace of our clinic growth, we remain focused on our franchise sales In addition to opening greenfield clinics, as reported this quarter, we continue to increase the number of our clinics opened year over year. Our network is well positioned for expansion as the economy improves. Frankly, with only 16% of Americans using chiropractic care in the last 12 months In spending $19,500,000,000 on it annually, the chiropractic patient need is growing and our market opportunity is considerable.

Speaker 3

Based on our current patient demographics, we are approaching our near term target of 1,000 clinics and are well positioned for a longer term goal of 2,000 clinics. We will expand our network and potential base by developing rural, urban and possibly international clinic models. We will broaden our long term market potential. We are committed to capturing a greater share and growing the overall market. And with that, Dave, I'm ready to begin the Q and A.

Operator

We will now begin the question and answer session. Our first question comes from Jeremy Hamblin with Craig Hallum Capital Group. Please go ahead.

Speaker 5

Thanks so much for taking the questions. Wanted to start by asking about the sales and marketing. It was up about $900,000 sequentially from Q4 and about that same amount on a year over year basis. You noted there was a change in the timing of the national marketing fund spend. Wanted to see if you could provide a little bit more detail On what that was and how it may impact the rest of the year, if there's any other kind of timing differences that we should expect looking forward?

Speaker 4

Yes, Jeremy, great question. And I would say the majority of that is just the increase Of the collections from the increased clinic count, there is a chunk of that, that is really just timing quarter to quarter, right? So it depends on The timing of certain campaigns or when we're pushing collateral out to the clinics. And so I would categorize that as just a slight front loading in Q1, But we expect that to normalize as we continue on. So there's really no kind of one time items to call out there.

Speaker 4

I think it's just a slight quarter over quarter timing variance.

Speaker 5

Got it. Okay. And then, also wanted to just get a little bit more color on the net employee retention credits, which I believe, was like $3,900,000 I think I don't know if that's related back to like FICA credits from COVID still, which is similar to what we've seen in the past with other businesses, but wanted to just see if you could provide a little bit of color on that as well.

Speaker 4

Sure. Yes. And it is related to some of the Jobs Act's credits that were made available. Our qualification did was for periods in the 1st 2 quarters of 2021. And so really the timing of both the application and then are processing through the IRS.

Speaker 4

So we just happened to receive the funds in the Q1 of 2023, which kind of triggered our particular recognition.

Speaker 5

Got it. And if we back that out, that's about the EPS on a normalized basis would be like a $0.04 per share loss or so?

Speaker 4

That's about right. Yes. It's really that net 3.9 percent we recorded that in other income. So adjusted EBITDA neutral, but it does have that boost to net income.

Speaker 5

Got it. And then Last question I wanted to before I hop out of the queue, I wanted to just get an understanding in terms of what you're seeing for clinic performance, Corporate versus franchise, it looked like you saw a nice little step forward here On the company operated clinics, like if we're thinking about it on a, let's call it, revenue per average clinic basis, Whereas you saw maybe a little bit of a step down overall maybe in the franchisee performance that are at least certainly in the royalties that you earned from that basis. I just wanted to get a sense in terms of what you're seeing company operated versus franchise performance?

Speaker 4

Yes. I think in both cases, it's reflecting some of the youth within our system. So our corporate With the number of clinic additions we've made over the last 2 years, I think we're going to have a natural leg up on the overall system average Just based on our younger greenfield clinics continuing their maturation. Again, when you're talking about overall growth, we added another are in the quarter. And so again, if you're using that end of quarter number as your final denominator there, That's going to kind of decrease the revenue on a per clinic basis.

Speaker 4

So we still posted same store sales of 8 are in the system and again not a huge disparity there between corporate and franchise performance. So we're still pleased with the organic growth of the units. But as you look at the denominators and the number of new clinics we have coming into the system, I think you could get some fluctuation there on a revenue per clinic basis.

Speaker 3

And what I'd add to that, Jeremy, is that historically, what's been interesting and unusual for a franchise system is that our corporate portfolio has operated parallel or equal to or slightly better than our franchise segment. And that we saw that change a little bit in as we're coming into the end of 2021 and that we made some corrections. And so if you look at kind of the overall performance of 'twenty two, particularly by the end of the year in 'twenty two, we got our corporate are operating equal or better to our franchise portfolio. So we have seen kind of that dip that we went through. We have some changes in those operations and we're now seeing that come back.

Speaker 3

And so when you look at some of the key metrics, whether we're talking about conversion or focused on is our new patient count and that we're seeing our new our franchisees have a higher new patient per clinic per month than the corporate portfolio at the moment.

Speaker 5

Got it. That's great color. Just one more, if I could sneak in here. In terms of thinking about kind of the mature store comps, You're seeing just like a little bit of degradation there. And I wanted to get a sense In terms of that price increase that you took last March, what percentage of your patients are on a legacy pricing plan at this point in time.

Speaker 4

Yes. We continue to see about a 5% shift per quarter of our active members moving on to That new price point, I think as I look at the legacy mix now, I think we're trending About 35% of our system is still on some legacy price point, the majority of those being on The pricing won tier ago, but because we have an existing current policy to grandfather in active members at their sign up rate, we do have are below that last year, but the majority are once a year ago or now on the higher price point.

Speaker 3

Yes, and we talked about that before and that group that's been there for a long time is probably around 15%. We don't see that moving much over time.

Speaker 5

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

Speaker 3

Thank you very much.

Operator

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

Speaker 6

Hi, everyone, and congratulations. It's great to see the 8% comp. Multi part question there, if you can bear with me. But wanted to ask a little bit more on the patient retention, attrition, new patient add metrics. I guess any more color you can share around that?

Speaker 6

What do you think will drive the new patient adds back up? And then maybe also how are you throwing in terms of the Google search and location elements that I know were there were some changes there. And then, any change you're seeing In terms of influencing new patient adds given the macro backdrop and then would it make sense to promote more on price To get new patient adds? But I know a lot there, I apologize.

Speaker 3

I'm going to try to remember all of those Components, I mean, and what you're really saying is, I really focus on Jeff is, of course, new patient counts, so are we. And if you look at the in terms of where do our new patients counts come from, there are really 3 sources as we talked about before. Number 1, referral. Are just it's existing patients who refer their friends and family to come in and use the services of our clinic. And that's in all medical professions, that's probably the number one The digital marketing campaign is essentially a part of our new patient count.

Speaker 3

So right now, We can track today that roughly 63% of our new patients have touched us digitally, and so which where we can measure. And Increasingly more important to us and that's when we really saw that change in algorithm with Google where the Vicinity became a higher rating or are a higher metric to push you up in the SEO search and that we did make a series of changes to address that. Some of them we can't because if it's vicinity is vicinity. And so if you've got 3 clinics in front of you wherever that patient who's doing that search is, that's going to change that But what we can do is get really focused on optimizing our micro sites and Making sure that we've got backlinks, we've got videos and updated photographs, which again helps very much in your ranking. And we've been working very closely with franchisees to make sure they're doing that really critical effort.

Speaker 3

That we're also one of the changes was that in the old days before the algorithmic changes that A lot of weight was given to your overall publishing on the Internet. And we continue to this day are the largest to make sure that we're able to grab that attention when you're getting that search and being on the top of that list. And so We're also looking at different methodologies that we haven't used before. So we've got a campaign now where TikTok is where we have a program that just actually launched on March May 1. So we'll see the results of that.

Speaker 3

We're also launching at the end of this are in the process of making sure that we're doing now is that those patients that are touching our website or their existing patients or lapsed Patients, we can automatically direct to them specific messaging so that again, we're getting that right message to the right person at the right time in their patient journey. And so more to come on the results of that program, but we're really excited to see that launch at the end of this month. And so these are some of the key factors or key activities that we're doing to ensure that we're increasing that patient count. Then the other last bucket of new patients for us is what I'll call that gorilla marketing. It's that sign thrower.

Speaker 3

It's the coupon drop. It's an outreach to the gym or around that clinic that they're aware that you're there when they need that relief from pain. So those are just I Hope I kind of caught most of your questions as it relates to the new patient count, but that's what we're doing to make sure we're addressing this critical issue for the organization.

Speaker 6

Okay. That's really helpful. And then any color you can give us if there are any changes you're seeing in underlying trends so far in Q2, Maybe that you're seeing versus Q1 or Q2 last year, just any other color here since the quarter ended?

Speaker 3

We typically obviously don't comment on upcoming quarters because you will get to that in about 3 months. But what I'd say is for all of us is that we're in a time of kind of economic uncertainty. And I don't know, know we're not in a recession, but there's a lot of concern about it. We've got the bank failures that are spooking everybody and that and so I think for all of us, we're trying to figure out what comes next in the Q2 or the Q3 or the Q4. And so what we're really focused on, Jeff, It's all the things that we can control.

Speaker 3

And so all the activities associated with new patient count, making sure that we're as effective as possible in One of our key metrics, which is conversion, conversion new patients to our membership. And so for last year, 84% of our sales were new membership. And so we're really happy we're seeing, for example, for the quarter is our new pace our conversion rate is running over 50%, Which is a very, very high number for us. We're really excited about that. The other metric that we really pay attention to is that attrition rate.

Speaker 3

So how long do they stay with us? When do they And so we've seen that attrition rate continue to stay very low or to improve. And so those are the things that we can really focus

Speaker 6

What did you think, I mean, just as a follow-up to that, Peter, what do you think that, I mean, let's just say we do go into recession, maybe high probability that we People still are not going to want to live with pain even in a recession. When you think they'd prioritize getting that pain handled?

Speaker 3

Absolutely. And then again, we haven't really as a system ever gone through a full recession, but I follow that logic, Jeff, is that as people are tightening their belts and making decisions, it feels like they're going to be more willing to give up that cup of coffee or that frozen yogurt Then pain relief. I think another thing that we think about as we go through whatever this economic uncertainty is going to be is that right now Our ideal family income is between $50,000 $105,000 And so That is not the high end person who is our typical customer or patient. And so what that means is very When we go into those markets where you have a really high income per capita is that we're quite frankly too inexpensive for them. No, no, no.

Speaker 3

My son is going to have $125 adjustment, not a $29 adjustment. But I think as that economic churn filters to a greater part of the economy and more people are in fact changing those decisions or trying to be more thoughtful in their spend. I think you are going to see the top of that funnel open up a little bit and say, well, how bad can that $29 adjustment be? And so We'll see that, but I do think that there is a real opportunity for the upper end of that funnel open up a little bit as the bottom of that funnel as it relates to Thank you very much.

Operator

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

Speaker 7

Hey, everybody. Thanks for taking my questions. So maybe to start with a couple on the Own segment. Just curious on the profitability there. How much visibility do you have?

Speaker 7

It seems Like the whole plan of the maturation of these new stores and everything, The margin improvement has been kind of spotty, another quarter of I would call kind of mixed. It looks like there was negative operating income in that segment So I guess, 2 part question is, what is the visibility like there for the rest of the year? And aside from the maturation of These new clinics, what else can you do to drive margin in that business?

Speaker 4

Yes. Good questions, George. We have clear visibility down to the individual clinic level and we're going through a lot of efforts with a key focus on trying to maintain and drive sequential improvement in that profitability. And so that's really the expectation. We're still in a period where we have a lot of young units in that portfolio, and they're still working through their growth curves.

Speaker 4

And so with that, you're still going to have the margin suppression. But as we look throughout the remainder of the year, I am going to be looking for sequential improvement in that segment. We mentioned it in the transcript. We're also kind of looking at our labor optimization and trying to make sure that we have the correct staffing levels given our volumes to make are very pleased with the 50% or more of your unit level cost depending on age, that's a critical component that we're staying focused on because that's a real way that we can control within each of the units themselves. So it's a critical focus of ours.

Speaker 4

We're going to continue to work with our operators and continue to drive that. But again, as the clinics mature, we're looking for that sequential improvement quarter over quarter.

Speaker 7

Okay. And then second question, same kind of topic, but if we stripped out the new clinics and just You talked about your legacy owned business. Is the 4 wall margin on that store base, Has that stabilized? Or is that still seeing labor pressure and it still is compressing a bit?

Speaker 4

I think we are starting to see some stabilization there. As I look at 4 wall margin numbers for my mature base, and I'll call that Greater than 4 years, we're still doing that mid-twenty percent four wall margin, which again Factors in the labor pressures that we've seen over the last 2 years and I've seen it kind of settle in there. We just released our franchise disclosure document for 2023. And I think as you look at the P and Ls that were submitted by our franchisees, I think they put up a 4 wall margin in the high 20 percent. As I look at the 358 P and Ls we collected as part of that item 19 exercise.

Speaker 4

So We're still seeing overall holding power for our units even at maturity and still putting off that strong four wall Margin potential that we've always talked about. So the good news is, I think we are starting to see some of the labor pressures start to plateau a little bit. And so I'm encouraged by that. We just have to continue to focus on driving the same top line growth to those clinics.

Speaker 7

Okay. That's helpful. And then last one. Back to the new patient discussion, I'm still a little unclear exactly sort of what the issue is there. And I guess just to be more specific, are there any kind of competitive issues that you see that have arisen, people become more challenging that you're facing in certain markets or anything or anything else you can isolate just That's impacting new patients.

Speaker 3

Sure, George. And I'll take that. I'm going to answer your second question First is that are we seeing an impact of competitive markets on clinic performance or new patient counts. And what I would say is that I have never worked for franchise system that has a higher or greater first mover advantage than this one. And yes, we are seeing Increasingly some competitors are still very small and very localized.

Speaker 3

And so if I look at it as an overall basis, I would answer no. I don't think that's been a factor influencing the performance of the clinics. If we look at a specific market where, let's say, a chain has Presence in the Chicago market or in the specific Atlanta market, then sure, there's definitely going to be some competitors there. And we are seeing them grow. I mean, so I'm not seeing them are there, but I'm surprised on how slow they're growing.

Speaker 3

And that, yes, over time, I would expect them to have impact on the overall market, but I think there's so much potential for the market itself. I think that's our biggest opportunity is to grow the market. To answer your question on the kind of the new patient count of what's driving that is that what there There's no question that as digital marketing campaign becomes more and more important in our new patient drive, that we really did see that impact with Google when they change the algorithm because the majority of our online patients were driven by the SEO search. Now we have both paid and organic search. Our paid search continues to perform well.

Speaker 3

We're seeing a close rate of that, that's been continued to stay strong. So that's working for us, but that's been a smaller portion of those leads that are coming online towards us. It's organic search that was the greater portion of those new patients. And so we are seeing recovery from the changes that Google made. This wasn't the first time that Google made changes in their algorithm and it won't be the last.

Speaker 3

And so that we're just as you're continually focusing on making those changes so that we can maximize the opportunity specifically in that digital realm, are only becoming more and more critical for us in terms of that new patient drive.

Speaker 7

Thank you.

Operator

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

Speaker 1

Yes, thanks. So first, I guess, on the patient volumes, you mentioned, Peter, that And I think you've mentioned this in past calls as well that patients are more likely to forego the cup of coffee Or something else than their joint treatment. Do you still feel that's The case because they may have to forego the cup of coffee and the joint treatment with inflation, higher interest rates. So I'm just wondering, Is your data up to date with what's been transpiring over the last Couple of months, has any of that changed? And if so, how?

Speaker 3

Well, it's a great question, Anthony. And the challenge is, I don't have a lot of data in the sense that this company we formed in 2010. We've never gone through recession other than the quick dip in the COVID period, which I'm not sure would So we have yet to really go through a traditional recession as an organization so that I could give you data on And what I would say as well is that I know we are in this time of economic certainly and there's a lot of people out there that believe a recession is imminent, but at least in the terms of the traditional measurement of that, And one of them being a high unemployment rate, we're not there yet. And so when we look at, okay, what impact If we talk about the full year for last 2022, we had an overall 9% increase in comps and that was kind of that year of Because that gives us a sense of what's going on in the clinic level. If we look at Q1 2023, we had an 8% comp rate, Which again gives an indication that they're still coming into the clinic, using our services In this environment of whatever is influencing the decisions they're making as consumers.

Speaker 3

And you're right, and it's more anecdotal than data When we think about what people choices that they're going to make with their discretionary income and it really is a belief The pain relief is going to take a greater weight than some of these other More optional choices that we make as people start tightening their belt. Pain is a huge issue and it's not going away. And that's why I think again, one of the drivers of the success of this concept is just how effective it is in helping people manage that pain and stay out of pain.

Speaker 1

Yes. No, fair point. Just last question on the digital marketing initiatives. I know you measure things very closely. Just can you talk about for do you have this measurement where As you're spending dollars on digital marketing, which platforms What's working better?

Speaker 1

How have you transitioned from one to another? And do you feel like in this environment you have to spend more to get the same type of patient interaction than eventual conversion?

Speaker 3

Really a great question and there's no quite that short answer is yes. Our whole digital are in the market and strategy is evolving by the day. Just thinking a few years ago, TikTok wasn't even a word that we'd be talking about. And now it's have 1,000,000,000 users and all kinds of issues around it, but it seems to be effective way of marketing for us. And so that's where we're putting more And before, I'd say in terms of the overall spend, and you see that in the P and L, it's not so much that we are increasing the overall marketing spend, But what we're doing is reallocating that into those sources where we see having a greater impact.

Speaker 3

So one of the trends that we're seeing is our spend on meta, Which at one point was kind of being pulled back and that's really where we didn't think our customers were. We've been doing some more work with that. We've been increasing some of the are allocating more of the spend toward Meta and that we are quite frankly seeing some really positive results of that. And so going forward in the next quarter or 2, we're going to continue to see an increase on that meta spend and maybe less on the YouTube spend, which we do a lot. And so we're constantly evaluating where are those leads coming from.

Speaker 3

And that's the power of marketing today. When I first got into my career and I've never been in the marketing discipline, but you do this spend and you had no idea what impact it would have. And I told you, I do radio or I do my TV and hopefully get a 2% return on whatever. Well, in this day and age, everything is measurable. And that's where that Automated marketing, I think, can be so essential in terms of making sure we're getting that right message to that right patient at the right time and then measuring its impact.

Speaker 3

We can change that message on the fly almost and say, okay, is this message more effective than that message? Do that AB test in a very short period of time and continually be refining the effectiveness Of that project or of that platform or whatever we're using. Overarchally, what I would say to you These activities are only more and more important as it relates to our digital marketing campaign because look at who's our customer and we've talked about this before. Our customer is not the older person who's looking to get out of pain and using their insurance. The median age of our 1,600,000 patients or active patients were 37.6 years old.

Speaker 3

We're almost equally between male and female, 45% are millennials, 16% are Gen Z and growing. And so when they're looking for their alternative from pain and trying to figure out where do I go to address it, they're online. They're doing that search. They're putting in chiropractor near me, close to home, paying relief. And so that's why I think this will continually be are more and more important because that's actually where all of our patients are.

Speaker 1

Okay, great. Thanks, Peter. I really appreciate that. I'll hop back in the queue.

Operator

I would like to turn the conference over to Peter Holt for any closing remarks.

Speaker 3

Thank you. Before I close, I want to note We will hold our Annual Meeting of Stockholders on May 25 here in Scottsdale, Arizona, and we'll also present and conduct meetings at the B. Riley Securities Investor Conference on May 24 in in the virtual Oppenheimer Consumer Growth and E Commerce Conference on June 13. Finally, as we're constantly receiving patient testimonials, in this spring, an athlete and parent managing several ailments caught our attention. So Miriam from California wrote us and said, I can't say enough about these healers.

Speaker 3

I have significant and severe chronic spine injuries, have a healthy life that demands a high level of activity and energy output daily. The joint doctors have been treating me for over a year now along with my son who's 5. These magical masters help me bring my body back in alignment, so it's not an agonizing pain and limiting my demanding life. They are always immensely kind and playful with my little one and never mind me bringing them in or rush me. I'm very picky about my care team and I promise you won't be With my new breast cancer diagnosis, I'm even more vigilant about self care

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