The Joint Corp. (NASDAQ: JYNT) — Q3 2022 Form 10-Q
Business context and period. The Joint franchises, owns, operates and manages chiropractic clinics. This unaudited report covers the three and nine months ended September 30, 2022, compared with the same periods in 2021. At quarter-end, the system had 805 clinics: 690 franchised and 115 company-owned or managed.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $26.60 million | $20.99 million | $74.10 million | $58.76 million |
| Operating income | $0.50 million | $1.34 million | $0.80 million | $5.35 million |
| Net income | $0.49 million | $1.94 million | $0.63 million | $6.94 million |
| Diluted EPS | $0.03 | $0.13 | $0.04 | $0.46 |
| Adjusted EBITDA | $3.13 million | $3.30 million | $7.55 million | $10.51 million |
- Revenue increased 26.7% in Q3 and 26.1% for the nine-month period. Company clinic revenue rose 36.1% and 32.0%, respectively; royalty revenue rose 15.6% and 20.3%.
- Profitability weakened despite revenue growth: operating margin was approximately 1.9% in Q3 versus 6.4% a year earlier, and approximately 1.1% for nine months versus 9.1%. Higher expenses, particularly payroll, contributed; the prior-year comparison also included substantially larger income tax benefits.
- Operating cash flow was $5.68 million for nine months, down from $12.45 million. Investing used $14.94 million, including $8.0 million for clinic acquisitions, $4.3 million for property and equipment, and $2.7 million for regional developer rights. Cash, cash equivalents and restricted cash declined $8.94 million to $10.97 million; unrestricted cash was $10.27 million.
- At September 30, current assets were $18.92 million and current liabilities $21.64 million (approximate current ratio 0.87). The company reported $2.0 million drawn under its credit facility and stated approximately $18 million of revolver capacity was available. It was in compliance with covenants. Operating and finance lease liabilities totaled approximately $22.49 million, in addition to the credit-facility debt.
Changes, outlook and notable items
- Company-owned or managed clinics increased to 115 from 83 a year earlier; franchised clinics increased to 690 from 583. Q3 comparable sales rose 6% for clinics open at least 13 months and 2% for mature clinics open at least 48 months; system-wide sales grew 18%.
- Management’s 2022 outlook was revenue of $100–$102 million, adjusted EBITDA of $11.5–$12.5 million, 110–130 franchised clinic openings, and a net increase of 30–40 company-owned or managed clinics. These are forward-looking estimates, not guarantees.
- Management cited wage inflation, labor availability, higher interest rates, economic uncertainty and potentially lower discretionary patient spending. It also noted ongoing uncertainty from COVID-19 and the war in Ukraine.
- Q3 and nine-month results included an approximately $250,000 noncash impairment of a closed clinic’s lease right-of-use asset and a $60,580 loss adjustment on clinics held for sale. Arizona and North Carolina clinic acquisitions increased goodwill and intangible assets; purchase-price allocation for the Arizona acquisition remained subject to finalization.
- In October 2022, the company applied for an approximately $4.7 million Employee Retention Credit. Approval, eligibility, timing and amount were uncertain as of the filing.
- Management reported disclosure controls were ineffective at September 30, 2022 because of previously identified material weaknesses, including control design, segregation of duties, complex accounting, revenue recognition and leases. Remediation was underway but was not yet considered complete.
Investor verification priorities
- Check subsequent results against the 2022 revenue and adjusted EBITDA outlook, and assess the drivers of margin and cash-flow declines.
- Review labor-cost trends, company-clinic profitability and whether clinic growth is translating into sustainable operating leverage.
- Confirm revolver availability, covenant compliance, liquidity needs and lease commitments as acquisitions and clinic openings continue.
- Track remediation and testing of the material weaknesses, including any future updates on disclosure-control effectiveness.
- Verify the status and accounting treatment of the $4.7 million ERC application, acquisition purchase-price allocations, and clinic sales completed after quarter-end.