JOINT Corp. — Q3 2021 Form 10-Q
Business context and period: Unaudited results for the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods. The Joint operates and franchises chiropractic clinics. At quarter-end, it had 666 clinics: 583 franchised and 83 company-owned or managed. It also reported 252 clinic licenses sold but not yet developed.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $21.0 million | $15.4 million | $58.8 million | $41.6 million |
| Operating income | $1.34 million | $1.71 million | $5.35 million | $2.72 million |
| Net income | $1.94 million | $1.60 million | $6.94 million | $2.53 million |
| Diluted EPS | $0.13 | $0.11 | $0.46 | $0.17 |
| Adjusted EBITDA | $3.30 million | $2.63 million | $10.51 million | $5.40 million |
- Revenue grew 36.2% in Q3 and 41.1% year to date. Company-clinic revenue rose 38.4% in Q3; royalty revenue rose 37.0%. Growth reflected clinic expansion and higher sales, as well as the comparison with pandemic-affected 2020.
- Q3 operating income fell 21.5% despite revenue growth, as higher clinic, marketing, IT, payroll and corporate expenses more than offset revenue gains. Operating margin was approximately 6.4%, versus 11.1% a year earlier. Nine-month operating margin improved to approximately 9.1% from 6.5%.
- Net income included an income tax benefit of $614,000 in Q3 2021, compared with tax expense of $76,000 in Q3 2020. The filing attributes the 2021 negative effective tax rate primarily to excess tax benefits from stock-option exercises. The tax benefit materially supported reported earnings.
- Operating cash flow was $12.5 million for the first nine months, versus $6.9 million in 2020. Investing cash use was $11.3 million, including clinic acquisitions, property and equipment, and reacquired regional developer rights. Financing cash use was $2.0 million, including repayment of the PPP loan and treasury-stock purchases.
Balance sheet and liquidity
- At September 30, cash and cash equivalents were $19.5 million, with $0.45 million of restricted cash. Total current assets were $25.5 million and current liabilities $21.5 million.
- Credit Agreement debt was $2.0 million, all current; the company reported covenant compliance. The $2.7 million PPP loan was repaid in March 2021. The company also had $5.5 million available under its development credit line.
- Operating lease liabilities totaled $18.9 million, in addition to $0.16 million of finance lease liabilities. Management said available cash, expected operating cash flow and credit-line capacity should cover anticipated operating and investment needs for at least 12 months.
- Shareholders’ equity was $29.0 million; total equity including non-controlling interest was $29.1 million. Total assets were $81.0 million.
Material changes, outlook and risks
- Comparable sales increased 27% for clinics open at least 13 months and 21% for mature clinics open at least 48 months in Q3. System-wide sales grew 37% in Q3 and 42% for the first nine months.
- Year-to-date development included 76 franchised clinic openings and 11 company-owned or managed greenfields. The company acquired two Arizona and six North Carolina clinics and repurchased Georgia regional development rights. After quarter-end, it agreed to acquire four additional North Carolina clinics for net consideration of approximately $1.24 million, subject to post-closing adjustments.
- Full-year 2021 outlook: revenue of $80–$81 million; adjusted EBITDA of $13–$14 million; 105–115 franchised openings; and a net increase of 25–35 company-owned or managed clinics. These are management expectations, not guarantees.
- Management described the business as resilient and expected year-on-year momentum to continue, but cautioned that COVID-19 resurgence, patient behavior and spending, and possible public-health restrictions could adversely affect results. The filing also cites labor shortages that may constrain hiring and openings; franchise-model and joint-employer legal uncertainty; cybersecurity and data-privacy exposure; competition; and clinic-development and acquisition risks.
- Q3 included a $0.1 million noncash impairment charge for lease assets related to closed clinics during the nine-month period. The company also disclosed an immaterial prior-period correction to deferred revenue and related balances. Management reported disclosure controls effective as of September 30, 2021.
Investor verification priorities
- Assess whether clinic openings, comparable sales and system-wide sales support the full-year revenue and adjusted EBITDA outlook, and distinguish system-wide sales from revenue recognized by the company.
- Review Q3 expense growth and operating-margin pressure, including expected spending for newly opened and planned clinics, and the contribution of the tax benefit to net income.
- Monitor acquisition spending, lease commitments, credit-line usage and cash conversion against management’s liquidity expectations.
- Track labor availability, COVID-19 effects, regulatory developments affecting the franchise/management model, and any progress or outcome in the remaining Washington investigation.