Good afternoon. Thank you all for joining us. My name is Brian Nagel. I'm a Senior Equity Research Analyst here at Oppenheimer, covering consumer growth and e-commerce. This is our 25th Annual Oppenheimer Consumer Growth and E-commerce Conference. I appreciate all of your attendance. I'm pleased to have with me or with us for our next presenting company, The Joint, and two of the company's executives, CEO Sanjiv Razdan and CFO Jake Singleton. Gentlemen, thank you for joining us.
Thank you, Brian. Appreciate you having us here.
Absolutely.
We're going to structure this as an informal fireside chat where I ask questions and the management team of The Joint answers the questions. To the extent there are questions from the audience, just send them through the chat and I will make sure to work them into our conversation. I thought, gentlemen, I thought we'd start just for maybe investors listening that are not as familiar with The Joint, if you just want to talk, just kind of give an overview of the company and its strategic positioning of the organization.
Absolutely, Brian. Let me start by sharing that we go by The Joint Corporation and we do business as The Joint Chiropractic. We are a national chain of chiropractic clinics, very mission-driven. We were established in the year 1999, and our mission is to improve the quality of life through routine and affordable chiropractic care. We do that through the close to 1,000 clinics that we now have across 41 states across the U.S. What sets us apart is this very unique patient proposition that we have. You can come to The Joint without an appointment. We're open weekends. We're open evenings. All our locations are very retail, next to daily needs drivers. Your patient treatment plan is portable geographically. No matter where you go, you can be treated at any of our clinics. We're incredibly affordable relative to chiropractic care elsewhere.
What I mean by that is we are a recurring revenue model. 85% of our revenue comes through membership plans. The cost per adjustment that our patients pay is either lower than or no more than the copay that they might land up paying elsewhere at their regular chiropractor. We are a self-pay only, completely cash-based business. That proposition makes us super unique. It's so unique that we are larger than our top 10 competitors put together and then some. In fact, no other competitor has been able to replicate our model at any meaningful scale. The size of the business, so that you understand this, is over $20 billion. By that, I mean the chiropractic care business in the United States. Out of that $20+ billion business, we operate in the self-pay or cash-pay business, which is somewhere in that 45% of that market.
Let's call it $8.5 billion. There's another $12 billion that is reimbursable or insurance-based. Huge overall business size with secular wind. That's what the patient proposition is. In terms of the investor proposition for our franchisees, we're a predominantly franchise model. Our franchisees can open a clinic for as little as anywhere between $200,000-$250,000. Average clinic volumes are $600,000. A pretty respectable, a pretty handsome sales-to-investment ratio, which makes it very attractive for our franchisees. Yeah, that's a little bit of a really high-level overview about us.
That's very helpful. Your company has been a regular attendee at our conference. We appreciate that. I mean, one of the biggest shifts, as I researched, did my work ahead of this, is that you've changed to a franchisee model. You mentioned that, Sanjiv. Maybe you want to discuss that here and how, from a business standpoint, that shift to a franchisee model has evolved. Maybe some of that, Jake, you can jump in with some of the financial implications of that.
Absolutely, Brian. For context, I joined The Joint just over seven months ago. I took the opportunity to assess the situations, spoke to a wide variety of our stakeholders, understood the industry. What became very apparent to me is that we are best served by pivoting to a fully franchise model. We currently have 125 corporate clinics. We are in the process of selling all of them to other franchise operators. 93% of those corporate clinics are at the moment under active LOI. We are actively in the process of refranchising them. The thinking behind that, or the why, is essentially two things. One is that we believe that franchise operators are going to be able to do a better job than us of operating these clinics. We think they are going to be closer to the business. These 125 clinics are geographically dispersed.
We're breaking them up into about five bundles and then having distinct operators pick or selling these to regional operators who I think are going to be closer to these businesses, be able to run them, therefore more effectively. I think it'll help us run better clinics and get fresh capital into the system. These operators are going to want to grow over time. The second thing that it allows us to do as a corporation is to essentially completely restructure our overhead. As we get to a pure-play franchise model, it allows us to really reshape our overhead and emerge in a much more profitable way coming out of refranchising. Jake, I know you may want to add to some of that color.
I think that's the critical piece of the equation. If you've seen our financials recently, either our annual report from Q4, Q1, and then you'll see them presented with a discontinued operations presentation. We've taken a lot of that corporate segment and carved it out into that discontinued operations. Now you're starting to get the semblance of how the business will trend as we get to that pure-play franchise. I would say the things that may be missing in that historical look back is the influx of revenue. Last year, those corporate clinics did a little under $71 million of gross sales for those operating clinics. We won't get 100% of that pass-through, but we'll now get the royalty structure that comes from that. That historical look back is missing that revenue top side.
In addition, we'll continue to rationalize the G&A cost as we conclude these larger transactions. You will see that G&A profile come down quite a bit as well. What we've said is we expect as we go into 2026, it will be a more profitable company than we've been for the last three years. Last three years, we've kind of been in this $10 million, $11 million, $12 million adjusted EBITDA range. We think as we get into 2026 that we'll have the ability to do more profit than that.
How long is the transition going to take from here?
We believe that we shall be exiting 2025 as a pure-play franchisor. That is our intent. That is what we are working through. As we enter 2026, we have a high degree of confidence that we will be entering with a very different overhead profile.
Just as you look at the talk about who your typical franchisee is. Within your, you mentioned, Sanjiv, you have 1,000 locations at this point. Are there franchisees with multiple locations, or is it typical single operator, that kind of thing?
Yeah, this is the beauty of our model. At the end of last quarter, we had 969 locations. 90% of our franchisees are multi-clinic franchisees. That makes it quite exciting for us. 30% of our franchisees are doctors of chiropractic, which is great because these are folks who know the business, clearly build their own practices, and are deeply committed to our mission. The good news is 70% of our franchisees are actually not doctors of chiropractic. You do not need to be a doctor of chiropractic to be a franchisee. These are folks that are entrepreneurs that hire or employ doctors of chiropractic. There are several of our franchisees that have eight, 10, 15 clinics. Our largest franchisees have somewhere in the vicinity of 45-55 clinics. We have a very significant amount in that, I would say, 10-15 range. Broad spectrum franchise concept.
Going forward, I think it is our intent to continue to bring on franchisees that are multi-unit, multi-brand operators who are more sophisticated in terms of their operating philosophy and their ability and access to capital, whilst also continuing to encourage single or multi-unit doctors of chiropractic who might want to come and build a business with us. We will continue to have a two-pronged approach.
As a business, now with the new structure quickly taking shape, how should we think about the unit growth prospects for the company going forward?
Yeah. So Brian, when we assessed the business, or I certainly took a look at the business earlier this year, we are at 969, like I said, in our estimation, based on the data that we have available to us, we think there is a runway for 1,950 clinics in the United States alone. A lot of white space still to be built. Clearly, there is some work to be done that will allow us to unlock that growth. I think the single biggest thing that will drive that is even more profitable clinics. The stronger profitability we create, I think the more our franchisees are incented to grow and build these clinics. The operating model is quite simple. The single biggest cost at clinic level is cost of labor.
The best way for us to drive franchisee profitability is by pouring more and more revenue into the box. I'll give you some color to that. It takes, like I said, anywhere between as little as $200,000-$220,000-$250,000 at the altar to open a new clinic, depending on which part of the country you're in. Our average clinic volumes are roughly $600,000. At those volumes, franchisees are making EBITDA margins in the high teens. This is a pretty profitable clinic-level business. As we grow those volumes to a stronger number and get a new clinic opening to those mature sales faster, that's what we're working on. I think these clinics start to become even more compelling for franchisees. That's what we're working on.
Our revenue driving plan, if I pivot from here to share a little bit of that with you, Brian, what will make these clinics more profitable is very simple. We're looking at it in three ways. We have a plan to bring in new patients. We have a plan to extend the life of the patients with us, the lifetime value. And we have a plan to make sure that they're paying fair value or fair price, if you will. If that's okay, I'll sort of just give you a quick explanation of that. In terms of bringing new patients into our model, what we're doing is pivoting our external messaging or our advertising towards a pain-centric message. 80% of our patients come to us when they are in some kind of dealing with aches and pains. Our historic messaging to our patients has been around ongoing wellness.
Wellness is the core philosophy of chiropractic, but the trigger that brings them into the doors of The Joint Chiropractic is pain. We are pivoting on the messaging. Our messaging is going to be much more pain-focused, and therefore, we will have a sharper positioning externally around pain. Once they become patients, we shift that messaging around wellness and help them understand how using chiropractic care regularly is really important for your ongoing health and longevity. I think that's just one pivot that we're making. The second thing we're doing is amplifying that message by shifting our marketing dollar spend from bottom of the funnel to middle and top of the funnel. What that helps us do is build more brand awareness, therefore driving over time more organic leads into our clinics, which typically come at a much lower cost and bring in more new patients.
The third thing to bring in new patients is search engine optimization. We found, as I'm sure other businesses have, that the SEO landscape changes almost every six months. Instead of only Google that was used previously, people are now using TikTok or Reddit or Instagram as search engines. We are optimizing that for ourselves. Those are the three things: sharper message around pain, more middle and top of the funnel spend, and search engine optimization to bring new patients in. Once they're in, we are working on extending their lifetime value. We've just soft launched a new mobile app, which we've not had previously. We've got plans to improve what we're calling patient-facing technology. These tech innovations, like the app, what they allow us to do is to have over time a one-on-one relationship with our patients.
The average patient stays with us for about seven months. As we speak to our patients directly through the chat feature in the mobile app, we believe that we can share with them stretches that they should be doing at home, connect with them on treatment plans that their doctors laid out for us, send them nudges to come back to the clinic when their adjustments are due. By doing all of the above, even if we can extend the span of time they stay with the brand by a week, we believe that that is extremely meaningful to us. That is making the patients stay longer. The third component of how we are driving more revenue into our clinics is through dynamic revenue management. The last time we took meaningful pricing was in March of 2022.
There's been a significant inflation in our model since then, which we have not been able to offset through productivity or pricing. As a result, clinic-level margins have eroded. Our plan is to, in the balance of this year, take some pricing actions which are relevant and meaningful and at the right price point that our patients can afford. That, we believe, will also really help to alleviate some of the short-term profit pressure or profit erosion that has happened at clinic levels. Those are the three big drivers of revenue. I think the cost structure, other than that, is pretty stable. We are not seeing any ongoing labor inflation, and this will help us really strengthen those clinic economics.
That's very helpful. I know in other similar models I've studied, the question I want to ask is, do you have enough chiropractors out there? Is that a limiter to your growth?
Thankfully, we have not had that been a limiter to our growth. With that said, I think the chiropractic output from chiropractic schools in the U.S. has been fairly static. The annual output from chiropractic schools or the graduates, if I may call them that, is somewhere in that 10,600-11,300 chiropractors a year. There is definitely, and that number, that range has not changed for the last decade or so. We are quite uniquely poised to be an employer of choice, just given our scale and stature in the industry. Our model takes away from the chiropractor the things that they do not enjoy doing, for example, working with insurance companies or administration and tons of paperwork. We allow them to actually do stuff that they enjoy, in other words, spending the most time with their patients.
The average chiropractor at The Joint will do 50 adjustments per day. The average chiropractor in the U.S. will do 100 adjustments in the entire week. Chiropractors love serving patients, taking care of patients. They will do much more of that at The Joint, exponentially more than they might at a local practice. That is why we feel that has not been a challenge for us at the moment. We have also built a tremendous amount of bridges and relationships with all the large and influential chiropractic schools in the U.S. We have presence on their campuses. We work directly with those schools in a variety of different ways, including aids and grants and scholarships and just lunch and learns and preceptorships, which is the equivalent of an internship at a chiropractic school.
We're just working very collaboratively to make sure that our proposition is clear to chiropractic students and that we present the compelling opportunity that it is to come work for The Joint.
Sanjiv, you talked about the pricing adjustments. I know that's something you've discussed in your recent quarters. Maybe you can elaborate further on the adjustments you've made. Jake, if you want to jump in, how the financial implications for the company.
Yeah. Let's go back to the problem that we're having, right? Therefore, the solution will start to have more context. The cost of chiropractors and the reception staff that we have that we call wellness coordinators, that started spiking around the time of COVID. It had been on a steady trajectory. In 2020, 2021, we found that there was a significant inflation of their wages. As a result of that, as I was alluding to earlier, the unit-level EBITDA or clinic-level EBITDA was impacted. This was because our franchisees and us were neither able to offset that wage increase through pricing. We did not make an effort to do that. Neither were we able to find any productivity to offset those inflationary pressures. The question is, why were we not able to do pricing? I think we were caught in a paradigm.
Let me explain what the pricing model of The Joint is. 85% of our patients are on a membership plan or a recurring revenue plan. Depending on what part of the country you're in, based on the local demographics, cost per month is either $69, $79, or $89. The vast majority of our clinics are on the $79 per month Wellness Plan, which gets you four adjustments with your chiropractor every month. That's the construct of the model. You then have a couple of other price points, like a walk-in-only price point, which is $55 per adjustment, and an initial visit hook, which is $29, where you get a full exam and an adjustment for just $29 to make sure that we can get people into our funnel. Previously, when somebody was taking pricing at one of our clinics, they jumped 10 bucks.
From $69, you went up to $79 or $79- $89, which is very substantive. You have got to be incredibly thoughtful. We would do it maybe once every two or three years. What we are pivoting to now is a dynamic revenue management model where we are testing multiple price points. What I mean by that is, if you are at $79, we are testing a price point taking you from $79- $82 instead of taking you from $79- $89. We believe by taking pricing in $2, $3, $4 increments, I beg your pardon, it gives us the license to take pricing more frequently without becoming a burden on our patients and therefore essentially minimizing any impact of pricing to the demand, right? That is how we are thinking about it. We are literally in the process of either concluding some tests or initiating some others.
We believe that as a result of what we're learning, we will be able to take some thoughtful and purposeful pricing in the second half of the year. Jake, I'll turn that over to you.
Yeah. On our Q4 call, as we were putting out guidance for the year, it was a similar question asked in terms of what the contribution would be. We're estimating this year that it'll be around $10 million of incremental gross sales just through the influx of pricing actions. If you take last year, we did $530 million of system-wide gross sales, right? On a same-store basis, you're really adding somewhere between a point or two in terms of potential influential comps, right? As Sanjiv mentioned, a lot of those actions are just starting to come into play in the second half of the year, right? We haven't really seen too much of that tailwind because we haven't made some of those larger pricing actions. Those will go into effect in July. More to come on that space, but that was kind of our overall target.
As you're doing this, I wanted to ask a bigger question on the consumer too. This will kind of work together with that. The first question I'll ask more from a micro standpoint is, what type of elasticity have you seen as you've adjusted prices? Has that impacted demand? The bigger picture question I have, and I think you've discussed this in the past more, I'm asking for an update, is the susceptibility of The Joint to broader consumer issues, consumer-spending issues, probably?
I'm sorry. Start answering that, Jake, and you can jump in and add some more color. I think let's start right at the top. We are finding that more and more patients are embracing chiropractic care right at the top at a secular level. Last year alone, at The Joint, we brought in close to a million new patients into The Joint. 1/3 of those patients, so almost 350,000, were absolutely new to chiropractic itself, the profession. What we're finding is that there's secular trends towards embracing chiropractic care, which is consistent with what you may be seeing in popular culture, media, people talking about non-invasive healthcare options in terms of investing in modalities like chiropractic or professions like chiropractic, which are seen to be overall wellness drivers. With trends towards anti-aging, longevity, health, and wellness, I think we're benefiting from those secular trends.
I think I'd start there. The second thing is, as you now kind of get into 2025, right, and say, with everything that's happening in the marketplace and the consumer dynamic, how is that impacting us? We do think that the uncertainty in the consumer markets and the consumer dynamics is having some impact on our ability to bring in new patients in the short term. We're seeing some softening there. It's definitely having an impact. We don't think this is a long-term impact, but we certainly are seeing the impact of that, like I said, to our ability to bring in new patients. We are not seeing a drop-off of existing patients as a result of that. The patients that are already with us are continuing to stay with us at the same rate that they were previously. There is some impact.
The average patient that comes to us has a household income of somewhere between $50,000 and $105,000. They are in that susceptible range to chiropractic care. Therefore, there is a degree of, when they have uncertainty, new patients may run the risk of potentially delaying seeing a chiropractor till their pain becomes something that has to be treated. The good news is also, because most people come to us in pain, there is only so much and no more that you will delay seeing either a doctor or a chiropractor for your pain. Invariably, we find that it is relatively more inexpensive and more effective to see a chiropractor than it may be to go see your personal physician or however else people may choose to get their care.
Over time, I think we think that it is not a long-term risk to us, but we're certainly seeing some impact in the near term on new patient generation. Jake, anything you'd add to that?
No, I think you covered the high points. We are taking a pretty conservative testing approach, right, making sure that the pricing increments that we're trying to push out there, and especially how they fit in our pricing mix, right? We do not want to push people away from our recurring revenue products. So we are just being very mindful and thoughtful in the way that we are going about it before rolling it out to the wider system.
From a pricing standpoint, again, as we're talking about throughout the conversation, you are generally a lower-priced alternative, correct?
That is absolutely right. I think the average adjustment at The Joint is somewhere in the $20 range or early 20s, by all means. I think when we compare that with what our patients are paying elsewhere, the point of comparison becomes, what would they pay their local chiropractor? We're significantly lower than that. Oftentimes, we are lower than the copay that they may have for their chiropractic care. At worst, we're equivalent to the copay that they're paying. It is a very compelling proposition in terms of price value.
I know our time's going to run down here. So I did just want to conclude, and I guess this would probably be for you, Jake, just the capital needs of the business, maybe just talk about that, especially now with this transition going on to the franchise model.
Yeah. I think that's the next great question for us, right? If you look at our Q1 financials, we had $22 million of cash on the books, and we have no debt, right? Incredibly proud of the balance sheet that we have today. As we go through the refranchising effort, we expect proceeds to come in from the sale of those 120+ clinics that remain out there. With that combined, we were able to put forth a pretty robust capital allocation strategy, had some great conversations with the board. As some may have seen on Friday, we announced a $5 million stock repurchase program that'll go in place here very shortly. Continuing to make sure that we're returning value to shareholders.
I think it's a signal that we have confidence in our long-term growth strategies, our cash positions, and then how we're going to conclude these refranchising efforts. I think we feel good about it.
Gentlemen, I appreciate the time. Thank you for participating again. Congratulations on the ongoing efforts here.
Thank you so much for having us, Brian. Yeah, it was great to be here.
Thanks.
Bye now.