The Joint Corp. (NASDAQ: JYNT) — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are with FY 2020. This is an annual report, not a standalone fourth-quarter filing.
Business context
The Joint develops, franchises, owns, operates and manages cash-based chiropractic clinics. At year-end, its network had 706 operating clinics across 37 states: 610 franchised and 96 company-owned or managed. It also reported 245 sold-but-undeveloped licenses and 38 letters of intent. System-wide sales were $361.1 million, up 39%; these sales include franchisee sales and are not the Company’s GAAP revenue.
Financial performance and liquidity
| Metric | FY 2021 | FY 2020 | Change |
|---|---|---|---|
| Revenue | $80.9 million | $58.7 million | +37.8% |
| Income from operations | $5.4 million | $5.5 million | -2.5% |
| Net income | $6.6 million | $13.2 million | -50.1% |
| Diluted EPS | $0.44 | $0.90 | Lower |
| Adjusted EBITDA | $12.6 million | $9.1 million | +38.3% |
| Cash from operating activities | $15.2 million | $11.2 million | +36.2% |
Net income fell chiefly because FY 2020 included a substantial income tax benefit from releasing a deferred-tax valuation allowance; the 2021 tax benefit was smaller. Operating income was nearly unchanged despite revenue growth. General and administrative expense rose 36.6% to $49.5 million, while depreciation and amortization more than doubled to $6.1 million. G&A was 61% of revenue versus 62% in 2020. Adjusted EBITDA is a non-GAAP measure and should not be treated as cash flow or GAAP operating profit.
Company-owned or managed clinic revenue increased 39.6% to $44.3 million. Franchise operations revenue, including royalties, franchise, advertising and software fees, was $36.5 million versus $26.9 million. Franchise operations segment operating income rose to $16.7 million from $12.6 million; corporate clinic segment operating income was $4.4 million versus $4.5 million.
Operating cash flow was $15.2 million; investing activities used $14.1 million, including $5.8 million for clinic acquisitions, $7.0 million for property and equipment, and $1.4 million for regional developer rights. Financing activities used $2.0 million, including repayment of the $2.7 million PPP loan. Year-end cash and cash equivalents were $19.5 million. Total assets were $85.5 million and total equity was $29.6 million.
Debt included $2.0 million outstanding under the credit agreement at year-end; the Company reported compliance with its covenants. Operating lease liabilities totaled $21.5 million. In February 2022, the credit facility was amended: the revolver increased from $2 million to $20 million, with a further $30 million uncommitted amount, and the $5.5 million development line was terminated. The amended facility matures in February 2027.
Material changes and unusual items
- Comparable same-store sales increased 29% in 2021 for clinics open at least 13 months; mature clinics open at least 48 months recorded 23% growth.
- The network added 110 franchised clinics and 20 company-developed clinics; the Company acquired 12 operating franchises. It ended the year with 127 more operating clinics than in 2020.
- The Company recorded a $750,000 settlement liability for an employee claim and a $250,000 insurance recovery, for a net $500,000 expense in 2021. The claim settled in February 2022.
- A $0.1 million noncash impairment was recorded on right-of-use assets for closed clinics. No goodwill impairment was reported.
- The 2020 balance sheet was revised for errors in deferred revenue, software-fee revenue and package breakage revenue; management characterized the errors as immaterial.
Outlook, commentary and risks
For 2022, management projected revenue of $102 million–$106 million and adjusted EBITDA of $15 million–$17 million. It expected 110–130 franchised clinic openings and a 30–40 increase in company-owned or managed clinics. The Company maintained its goal of 1,000 clinics by the end of 2023. These are forward-looking expectations, not guarantees.
Management described the business as resilient during the pandemic, while cautioning that COVID-19, variants, public-health measures and changes in patient spending could affect results. It also cited labor shortages and wage growth as constraints on hiring, clinic hours, new openings and profitability. Other significant risks include franchisee performance, competition, site availability and lease commitments, and state regulation of the corporate practice of chiropractic and fee-sharing. Changes to joint-employer rules could increase potential labor liabilities associated with franchisees.
Financial reporting control concern: Management concluded internal control over financial reporting was ineffective at December 31, 2021, and the auditor issued an adverse opinion on those controls. Identified material weaknesses covered risk assessment and scoping, segregation of duties and financial-system access, complex accounting, and revenue recognition and leases. Management expected remediation during 2022, but it would require effective operation and testing of controls. The auditor issued an unqualified opinion on the financial statements.
Important facts for investors to verify
- Whether 2022 revenue, adjusted EBITDA and clinic-opening targets were achieved, and how same-store sales and clinic-level profitability developed.
- Progress in recruiting chiropractors and other personnel, and whether labor costs or shorter operating hours constrained growth.
- Whether the Company remediated the reported material weaknesses and whether subsequent filings show effective controls.
- Terms, borrowing and covenant capacity under the February 2022 amended credit facility, alongside cash needs for acquisitions and clinic development.
- Developments in state chiropractic-practice regulation, franchise-related joint-employer rules, COVID-19 impacts and the employee settlement or other contingencies.