The Joint Corp. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021; unaudited. The Joint franchises, supports, owns, operates, and manages chiropractic clinics in the United States.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $20.22 million | $12.59 million | $37.77 million | $26.23 million |
| Operating income | $2.03 million | $0.26 million | $4.01 million | $1.01 million |
| Net income | $2.68 million | $0.12 million | $5.00 million | $0.93 million |
| Diluted EPS | $0.18 | $0.01 | $0.34 | $0.06 |
| Adjusted EBITDA | $3.76 million | $1.11 million | $7.22 million | $2.77 million |
- Q2 revenue increased 60.6%; six-month revenue increased 44.0%. Implied operating margin was 10.1% in Q2 and 10.6% for the half, versus 2.1% and 3.9% in the comparable periods. Implied net margin was 13.3% and 13.2%, respectively.
- Q2 net income included a $666,000 income-tax benefit; the six-month period included a $1.03 million tax benefit, primarily from excess tax benefits on stock-option exercises. Thus, net income growth exceeded pretax-income growth.
- Operating cash flow was $9.01 million for the half, versus $3.04 million a year earlier. Investing used $8.88 million, including clinic acquisitions, equipment purchases, and reacquired regional developer rights. Financing used $2.12 million, including repayment of the PPP loan and treasury-stock purchases. Cash, cash equivalents, and restricted cash fell $1.99 million to $18.83 million.
- At June 30, cash and cash equivalents were $18.52 million; current assets were $24.20 million and current liabilities $22.01 million. Credit Agreement debt was $2.0 million, classified as current; the $2.0 million PPP loan had been repaid. The company reported $5.5 million available under its development line of credit and compliance with covenants. Operating lease liabilities totaled $17.90 million.
- Total assets were $78.06 million, compared with $65.73 million at year-end 2020. The company reported $26.92 million in total equity and a $15.47 million accumulated deficit.
Material changes and operating trends
- At quarter-end, the system had 633 clinics: 555 franchised and 78 company-owned or managed, versus 539 total clinics a year earlier. Q2 added 36 franchised openings; the six-month period added 48 franchised openings and six company greenfields. The company also acquired eight operating franchises in Arizona and North Carolina in April.
- Q2 comparable sales at clinics open at least 13 months rose 53%; mature clinics open at least 48 months rose 44%. System-wide sales increased 64% in Q2 and 45% for the half. These comparisons were against periods affected by pandemic-related disruption in 2020.
- Company-owned or managed clinic revenue rose 66.7% in Q2 and 47.7% for the half; royalty revenue rose 63.1% and 44.6%, respectively. Clinic growth, higher sales, and recovery from the 2020 downturn contributed.
- Expenses also increased: Q2 selling and marketing rose 75.6%, depreciation and amortization 108.1%, and general and administrative expense 36.0%. Management said Q2 G&A was 57% of revenue versus 68% a year earlier, but cautioned this leverage was not expected to continue as greenfield openings accelerated.
Outlook, risks, and unusual items
- Management’s 2021 outlook was revenue of $77–79 million and adjusted EBITDA of $12.5–13.5 million; 90–110 franchised openings; and a net increase of 25–35 company-owned or managed clinics. These were expectations, not guarantees.
- Management described the business as healthy and resilient but warned COVID-19 could still affect patient visits, spending, and results; further restrictions or renewed disruption remained possible. The filing did not provide a specific quantified COVID-19 sensitivity.
- Six-month results included an approximately $0.1 million noncash impairment of clinic lease assets. Acquisition purchase-price allocation for the Arizona clinics remained preliminary. New leases expected to add approximately $1.6 million of right-of-use assets and liabilities were to commence in the second half of 2021.
- Legal and regulatory risks include challenges to the franchise management model, corporate-practice-of-chiropractic restrictions, and potential expanded joint-employer liability. Washington regulators had closed two of three chiropractor investigations concerning alleged fee-splitting; one investigation remained outstanding. The company said ordinary-course litigation was not expected to have a material adverse effect.
- The company expected to become a large accelerated filer and cease qualifying as a smaller reporting company effective December 31, 2021, increasing reporting and compliance requirements, including auditor attestation of internal control in its 2021 Form 10-K.
Important facts for investors to verify
- Whether sales growth and comparable-sales gains persist after the unusually weak Q2 2020 comparison, and how clinic openings affect same-store trends.
- Progress against the 2021 revenue, adjusted EBITDA, and clinic-opening outlook, including the costs and returns of company-operated expansion.
- The sustainability of operating cash generation after acquisitions, capital spending, and lease commitments; also monitor credit-facility maturity and covenant compliance.
- The effect of tax benefits from option exercises on reported net income and EPS relative to underlying operating performance.
- Resolution of the remaining Washington investigation and developments in joint-employer and chiropractic-practice regulation.