The Joint Corp. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are to Q1 2020 unless noted. The Joint franchises, supports, and operates or manages chiropractic clinics. Results are unaudited.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $17.55 million | $13.64 million | +28.6% |
| Operating income | $1.97 million | $0.75 million | +161.7% |
| Net income | $2.31 million | $0.81 million | +$1.50 million |
| Diluted EPS | $0.16 | $0.06 | +$0.10 |
| Adjusted EBITDA (non-GAAP) | $3.46 million | $1.66 million | +108.5% |
| Operating cash flow | $2.27 million | $1.47 million | +$0.80 million |
Operating margin was approximately 11.2%, up from 5.5%. Net margin was approximately 13.2%, versus 6.0%; Q1 2021 net income included a $364,148 income tax benefit, primarily reflecting excess tax benefits from stock-option exercises. Adjusted EBITDA margin was approximately 19.7%, versus 12.2%.
Revenue growth reflected both company-owned or managed clinics (+29.8%) and franchise operations. Royalty fees rose 28.3%, advertising fund revenue 30.0%, and franchise fees 35.6%. Comparable sales increased 21% for clinics open at least 13 months and 14% for mature clinics open at least 48 months; system-wide sales increased 28%.
Balance sheet, liquidity and cash flow
- At March 31, cash and cash equivalents were $17.83 million, plus $0.17 million restricted cash; total assets were $66.91 million and stockholders’ equity was $23.31 million.
- Cash, cash equivalents and restricted cash declined $2.81 million during the quarter to $18.01 million. Operating cash flow of $2.27 million was more than offset by $2.34 million of investing outflows and $2.74 million of financing outflows.
- Investing outflows included $0.95 million for property and equipment and $1.39 million to reacquire and terminate Georgia regional developer rights. Financing outflows included repayment of the approximately $2.73 million PPP loan and $0.62 million of treasury-stock purchases.
- The $2.0 million revolver balance remained outstanding; its stated interest rate was 2.25%. The company reported $5.5 million of available capacity under its development line of credit and compliance with credit-agreement covenants. The PPP loan was fully repaid in March 2021.
- Operating lease liabilities totaled $15.37 million and finance lease liabilities $0.19 million. Management stated that cash, expected operating cash flows and available credit were sufficient for anticipated needs for at least 12 months, while noting pandemic-related uncertainty.
Changes, outlook and notable items
- The network reached 592 operating clinics: 527 franchised and 65 company-owned or managed, compared with 530 total clinics a year earlier. The company reported 26 franchise licenses sold in Q1, with regional developers responsible for 81%.
- Management’s 2021 outlook was revenue of $73.5–$77.5 million, Adjusted EBITDA of $11.0–$12.5 million, 80–100 franchised clinic openings, and a net increase of 20–30 company-owned or managed clinics.
- On January 1, the company reacquired Georgia development rights for $1.39 million; the net recognized intangible asset was $1.35 million and is amortized over approximately 13 months. Higher amortization contributed to the 78.8% increase in depreciation and amortization expense.
- The company recorded an approximately $0.1 million noncash impairment on lease assets associated with closed clinics. On April 1, after quarter-end, it agreed to acquire two Phoenix franchises and six North Carolina franchises for total consideration of approximately $4.45 million after deferred-revenue adjustments.
- Management described the business as healthy and resilient, but warned that COVID-19 could still affect patient visits, spending, revenue and earnings. It also cautioned that improved general and administrative expense leverage may not continue as greenfield clinics open.
- Risks include clinic-development and acquisition execution, competition, recruiting chiropractors, information-system and data-security risks, and potential changes to corporate-practice and joint-employer rules. Washington authorities closed two of three chiropractor investigations involving allegations of fee-splitting; one investigation remained outstanding. The filing states that ordinary-course litigation is not expected to have a material adverse effect.
Important facts for investors to verify
- Whether clinic openings, same-store sales and franchisee sales sustain the growth assumed in the 2021 outlook, particularly as pandemic effects evolve.
- Cash use and financing needs for planned greenfield development and acquisitions, including the post-quarter Phoenix and North Carolina purchases.
- The effect of clinic expansion, lease commitments and reacquired development-right amortization on margins and cash flow.
- Credit-facility availability, covenant compliance and the company’s ability to fund growth while managing its outstanding revolver debt.
- Developments in the remaining Washington investigation and proposed or evolving joint-employer and corporate-practice rules.