THE JOINT CORP.

(JYNT)
  Report
Real-time Estimate Cboe BZX  -  01:53 2022-08-10 pm EDT
22.36 USD   +11.08%
08/08JOINT : Q2 22 Investor Presentation
PU
08/05JOINT : Q2 22 Investor Presentation
PU
08/05Maxim Upgrades The Joint to Buy From Hold, Sets $36 Price Target
MT
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisions 
SummaryMost relevantAll NewsAnalyst Reco.Other languagesPress ReleasesOfficial PublicationsSector newsMarketScreener Strategies

JOINT CORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

03/14/2022 | 05:44am EDT
The following discussion and analysis of the results of operations and financial
condition of The Joint Corp. for the years ended December 31, 2021 and 2020
should be read in conjunction with the consolidated financial statements and the
notes thereto, and other financial information contained elsewhere in this Form
10-K.

Overview

Our principal business is to develop, own, operate, support and manage chiropractic clinics through franchising and regional developers and through direct ownership and management arrangements throughout the United States.


We seek to be the leading provider of chiropractic care in the markets we serve
and to become the most recognized brand in our industry through the rapid and
focused expansion of chiropractic clinics in key markets throughout North
America and potentially abroad. We saw over 807,000 new patients in 2021,
despite the continued pandemic, with approximately 36% of those new patients
visiting a chiropractor for the first time. We are not only increasing our
percentage of market share, but are expanding the chiropractic market.

Key Performance Measures. We receive monthly performance reports from our system
and our clinics which include key performance indicators per clinic, including
gross sales, comparable same-store sales growth, or "Comp Sales," number of new
patients, conversion percentage, and member attrition. In addition, we review
monthly reporting related to system-wide sales, clinic openings, clinic license
sales, and various earnings metrics in the aggregate and per clinic. We believe
these indicators provide us with useful data with which to measure our
performance and to measure our franchisees' and clinics' performance.
System-wide Comp Sales include the sales from both company-owned or managed
clinics and franchised clinics that in each case have been open at least 13 full
months and exclude any clinics that have closed. While franchised sales are not
recorded as revenues by us, management believes the information is important in
understanding the overall brand's financial performance, because these sales are
the basis on which we calculate and record royalty fees and are indicative of
the financial health of the franchisee base.

Key Clinic Development Trends.  As of December 31, 2021, we and our franchisees
operated or managed 706 clinics, of which 610 were operated or managed by
franchisees and 96 were operated as company-owned or managed clinics. Of the 96
company-owned or managed clinics, 43 were constructed and developed by us, and
53 were acquired from franchisees.

Our current strategy is to grow through the sale and development of additional
franchises and continue to expand our corporate clinic portfolio within
clustered locations. The number of franchise licenses sold for the year ended
December 31, 2021 was 156, compared with 121 and 126 licenses for the years
ended December 31, 2020 and 2019, respectively. We ended 2021 with 22 regional
developers who were responsible for 81% of the 156 licenses sold during the
year. This strong result
                                       31

--------------------------------------------------------------------------------

Table of Contents

reflects the power of the regional developer program to accelerate the number of clinics sold, and eventually opened, across the country.


In addition, we believe that we can accelerate the development of, and revenue
generation from, company-owned or managed clinics through the accelerated
development of greenfield clinics and the further selective acquisition of
existing franchised clinics. We will seek to acquire existing franchised clinics
that meet our criteria for demographics, site attractiveness, proximity to other
clinics and additional suitability factors.

We believe that The Joint has a sound concept, which was further validated
through its resiliency during the pandemic and will benefit from the fundamental
changes taking place in the manner in which Americans access chiropractic care
and their growing interest in seeking effective, affordable natural solutions
for general wellness. These trends join with the preference we have seen among
chiropractic doctors to reject the insurance-based model to produce a
combination that benefits the consumer and the service provider alike. We
believe that these forces create an important opportunity to accelerate the
growth of our network.

COVID-19 Pandemic Update


The COVID-19 pandemic and related governmental control measures severely
disrupted our business during the second quarter of 2020. During this period, we
experienced a significant reduction in patient traffic and spending trends. With
the easing to varying degrees of restrictive public health orders in May 2020,
patient traffic recovered substantially throughout the year, following a low
point in April 2020. For the remainder of 2020, steadily improving key metrics,
including gross sales, Comp Sales, patient traffic, and new patient conversion
rate, drove our 2020 full year operating income to an all-time high.

The U.S. economy continued on a path to recovery in the first half of 2021 with
millions of Americans receiving the COVID-19 vaccine and the easing of
government-imposed restrictions. During the second half of 2021, however, the
U.S. saw a resurgence in COVID-19 cases, particularly as a result of a new
variant of COVID-19. As mentioned in our results of operations, our business has
remained healthy and resilient despite the ongoing pandemic.

While our business continued to show strong year on year growth in revenues, the
COVID-19 outbreak continues to be fluid, and the extent to which the pandemic
will impact our business remains uncertain. Our 2020 revenue and earnings were
negatively impacted compared to our pre-COVID-19 pandemic expectations, and the
pandemic may have a negative impact on our revenue and net income in 2022.
Public health officials and medical professionals have warned that the
resurgence of COVID-19 cases may continue, particularly if vaccination rates do
not increase or if additional potent variants emerge, which may impact the
general economic recovery. The ongoing economic impacts and health concerns
associated with the pandemic may continue to affect patient behavior and
spending levels and could result in reduced visits and patient spending trends
that adversely impact our financial position and results of operations. In
addition, the impact of the COVID-19 pandemic depends on factors beyond our
knowledge or control, including new or more restrictive stay-at-home orders and
other new or revised public health requirements recommended or imposed by
federal, state and local authorities. Until the COVID-19 pandemic has been
resolved as a public health crisis, it retains the potential to cause further
and more severe disruption of global and national economies.

In spite of these challenges, and other factors, which may individually or in
combination slow the recovery from the COVID-19 pandemic-induced disruptions, we
believe we are well-positioned to operate effectively through the present
environment, as we continue to conduct business as usual with modifications to
employee travel and employee work locations, and with our new sanitary and
safety measures in our clinics. We will continue to actively monitor the
situation and may take further actions that alter our business operations as may
be required by federal, state, or local authorities, or that we determine are in
the best interests of our employees and patients.

Significant Events and/or Recent Developments

We continue to deliver on our strategic initiatives and to progress toward sustained profitability.

For the year ended December 31, 2021:

•Comp Sales of clinics that have been open for at least 13 full months increased 29%.

•Comp Sales for mature clinics open 48 months or more increased 23%.

                                       32

--------------------------------------------------------------------------------

Table of Contents

•System-wide sales for all clinics open for any amount of time grew 39% to $361.1 million.


We saw over 807,000 new patients in 2021, compared with 584,000 new patients in
2020, with approximately 36% of those new patients having never been to a
chiropractor before. We are not only increasing our percentage of market share,
but expanding the chiropractic market. These factors, along with continued
leverage of our operating expenses, drove improvement in our bottom line.

On January 1, 2021, we entered into an agreement under which we repurchased the
right to develop franchises in various counties in Georgia. The total
consideration for the transaction was $1,388,700. We carried a deferred revenue
balance associated with this transaction of $35,679, representing the fee
collected upon the execution of the regional developer agreement. We accounted
for the termination of development rights associated with unsold or undeveloped
franchises as a cancellation, and the associated deferred revenue was netted
against the aggregate purchase price. We recognized the net amount of $1,353,021
as reacquired development rights in January 2021, which is amortized over the
remaining original contract period of approximately 13 months at the time of the
purchase.

On March 4, 2021, we elected to repay the full principal and accrued interest on the PPP loan of approximately $2.7 million from JPMorgan Chase Bank, N.A. without prepayment penalty, in accordance with the terms of the PPP loan.


On April 1, 2021, we entered into an Asset and Franchise Purchase Agreement
under which we repurchased from the seller
two operating franchises in Phoenix, Arizona. We operate the franchises as
company-owned clinics. The total purchase price for the transaction was
$1,925,000, less $29,417 of net deferred revenue, resulting in total purchase
consideration of $1,895,583.

On April 1, 2021, we entered into an Asset and Franchise Purchase Agreement
under which we repurchased from the seller six operating franchises in North
Carolina. We operate the franchises as company-managed clinics. The total
purchase price for the transaction was $2,568,028, less $58,441 of net deferred
revenue, resulting in total purchase consideration of $2,509,587.

On November 1, 2021, we entered into an Asset and Franchise Purchase Agreement
under which we repurchased from the seller four operating franchises in North
Carolina. We operate the franchises as company-managed clinics. The total
purchase price for the transaction was $1,284,212, less $46,681 of net deferred
revenue resulting in total purchase consideration of $1,225,426.

For the year ended December 31, 2021, we constructed and developed 20 new corporate clinics.


Because our public float (the market value of our common shares held by
non-affiliates) was greater than $700 million as of June 30, 2021, we became a
large accelerated filer and no longer qualify as a "smaller reporting company,"
as defined in the Exchange Act. Compliance with the "large accelerated filer"
filing requirements begins with this Annual Report on Form 10-K, which now
includes an attestation by our independent registered public accounting firm as
to the effectiveness of our internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act of 2002. Compliance with increased
disclosure obligations due to the change in our smaller reporting company status
will begin with our quarterly report for the three-month period ending March 31,
2022. These additional disclosure obligations will include, but not be limited
to, fuller and more detailed disclosures regarding executive compensation and
three years (instead of two years) of audited income, cash flow and
stockholders' equity statements. Compliance with additional filing and
disclosure requirements will increase our costs and demands on management.


2022 Full Year Outlook


•We expect our revenues to be between $102 million and $106 million, compared to
$80.9 million in 2021.
•We expect our adjusted EBITDA to be between $15 million and $17 million,
compared to $12.6 million in 2021.
•We expect franchised clinic openings to be between 110 and 130, compared to 110
in 2021.
•We expect Company-owned or managed clinics, through a combination of both
greenfields and buybacks, to increase by between 30 and 40, compared to 32 in
2021.

We believe we are well positioned to achieve our goal to have 1,000 clinics by
the end of 2023 due to, among other things, our resilient business model,
planned new clinic openings and expansion of company-owned or managed clinics,
and current
                                       33
--------------------------------------------------------------------------------
  Table of Contents
positive economic trends. However, the long-term impact of COVID-19 on our
operational and financial performance will depend on certain developments
including the duration, spread, severity, and trajectory of the virus. These
potential developments are uncertain and cannot be predicted, and as such, the
extent to which COVID-19 will impact our business, operations, financial
condition and results of operations over the long term is unknown.

Factors Affecting Our Performance


Our operating results may fluctuate significantly as a result of a variety of
factors, including the timing of new clinic sales, openings, and closures and
related expenses, the markets in which our clinics operate, general economic
conditions, consumer confidence in the economy, consumer preferences,
competitive factors, and disease epidemics and other health-related concerns,
such as the current COVID-19 outbreak.

Significant Accounting Polices and Estimates


The preparation of consolidated financial statements requires us to make
estimates and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements, and the
reported amounts of revenues and expenses during the reporting period. We base
our accounting estimates on historical experience and other factors that we
believe to be reasonable under the circumstances. Actual results could differ
from those estimates.  We have discussed the development and selection of
significant accounting policies and estimates with our Audit Committee.

Intangible Assets


Intangible assets consist primarily of re-acquired franchise and regional
developer rights and customer relationships. We amortize the fair value of
re-acquired franchise rights over the remaining contractual terms of the
re-acquired franchise rights at the time of the acquisition, which range from
one to nine years. In the case of regional developer rights, we amortize the
acquired regional developer rights over the remaining contractual terms at the
time of the acquisition, which range from two to seven years. The fair value of
customer relationships is amortized over their estimated useful life which
ranges from two to four years.

Goodwill


Goodwill consists of the excess of the purchase price over the fair value of
tangible and identifiable intangible assets acquired in the acquisitions of
franchises treated as a business combination under U.S. GAAP. Goodwill and
intangible assets deemed to have indefinite lives are not amortized but are
subject to annual impairment tests. As required, we perform an annual impairment
test of goodwill as of the first day of the fourth quarter or more frequently if
events or circumstances change that would more likely than not reduce the fair
value of a reporting unit below its carrying value. No impairments of goodwill
were recorded for the years ended December 31, 2021 and 2020.

Long-Lived Assets


We review our long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recovered. We look primarily to estimated undiscounted future cash flows in its
assessment of whether or not long-lived assets are recoverable. During the year
ended December 31, 2021, certain operating lease right-of-use assets related to
closed clinics with a total carrying amount of $0.5 million were written down to
their fair value of $0.4 million. As a result, we recorded a noncash impairment
loss of approximately $0.1 million during the year ended December 31, 2021. No
impairments of long-lived assets were recorded for the year ended December 31,
2020.

Stock-Based Compensation

We account for share-based payments by recognizing compensation expense based
upon the estimated fair value of the awards on the date of grant. We determine
the estimated grant-date fair value of restricted shares using the closing price
on the date of the grant and the grant-date fair value of stock options using
the Black-Scholes-Merton model. In order to calculate the fair value of the
options, certain assumptions are made regarding the components of the model,
including risk-free interest rate, volatility, expected dividend yield and
expected option life. Changes to the assumptions could cause significant
adjustments to the valuation. We recognize compensation costs ratably over the
period of service using the straight-line method. Forfeitures are estimated
based on historical and forecasted turnover, which is approximately 5%.

Revenue Recognition

                                       34

--------------------------------------------------------------------------------

Table of Contents


We generate revenue primarily through our company-owned and managed clinics and
through royalties, franchise fees, advertising fund contributions, IT related
income and computer software fees from our franchisees.

Revenues from Company-Owned or Managed Clinics. We earn revenue from clinics
that we own and operate or manage throughout the United States.  In those states
where we own and operate the clinic, revenues are recognized when services are
performed. We offer a variety of membership and wellness packages which feature
discounted pricing as compared with our single-visit pricing.  Amounts collected
in advance for membership and wellness packages are recorded as deferred revenue
and recognized when the service is performed. Any unused visits associated with
monthly memberships are recognized on a month-to-month basis. We recognize a
contract liability (or a deferred revenue liability) related to the prepaid
treatment plans for which we have an ongoing performance obligation. We
recognize this contract liability, and recognize revenue, as the patient
consumes his or her visits related to the package and we perform the services.
If we determine that it is not subject to unclaimed property laws for the
portion of wellness package that we do not expect to be redeemed (referred to as
"breakage") then we recognize breakage revenue in proportion to the pattern of
exercised rights by the patient.

Royalties and Advertising Fund Revenue. We collect royalties from our
franchisees, as stipulated in the franchise agreement, equal to 7% of gross
sales and a marketing and advertising fee currently equal to 2% of gross sales.
Royalties, including franchisee contributions to advertising funds, are
calculated as a percentage of clinic sales over the term of the franchise
agreement. The revenue accounting standard provides an exception for the
recognition of sales-based royalties promised in exchange for a license (which
generally requires a reporting entity to estimate the amount of variable
consideration to which it will be entitled in the transaction price). The
franchise agreement royalties, inclusive of advertising fund contributions,
represent sales-based royalties that are related entirely to our performance
obligation under the franchise agreement and are recognized as franchisee clinic
level sales occur. Royalties and marketing and advertising fees are collected
bi-monthly two working days after each sales period has ended.

Franchise Fees. We require the entire non-refundable initial franchise fee to be
paid upon execution of a franchise agreement, which typically has an initial
term of ten years. Initial franchise fees are recognized ratably on a
straight-line basis over the term of the franchise agreement. Our services under
the franchise agreement include training of franchisees and staff, site
selection, construction/vendor management and ongoing operations support. We
provide no financing to franchisees and offer no guarantees on their behalf. The
services we provide are highly interrelated with the franchise license and as
such are considered to represent a single performance obligation.

Software Fees. We collect a monthly fee from our franchisees for use of our proprietary chiropractic software, computer support, and internet services support. These fees are recognized ratably on a straight-line basis over the term of the respective franchise agreement.


Regional Developer Fees. We have a regional developer program where regional
developers are granted an exclusive geographical territory and commit to a
minimum development obligation within that defined territory. Regional developer
fees are non-refundable and are recognized as revenue ratably on a straight-line
basis over the term of the regional developer agreement, which is considered to
begin upon the execution of the agreement. Our services under regional developer
agreements include site selection, grand opening support for the clinics, sales
support for identification of qualified franchisees, general operational support
and marketing support to advertise for ownership opportunities. The services we
provide are highly interrelated with the development of the territory and the
resulting franchise licenses sold by the regional developer and as such are
considered to represent a single performance obligation. In addition, we pay
regional developers fees which are funded by the initial franchise fees
collected from franchisees upon the sale of franchises within their exclusive
geographical territory and a royalty of 3% of sales generated by franchised
clinics in their exclusive geographical territory. Fees related to the sale of
franchises within their exclusive geographical territory are initially deferred
as deferred franchise costs and are recognized as an expense in franchise cost
of revenues when the respective revenue is recognized, which is generally over
the term of the related franchise agreement. Royalties of 3% of gross sales
generated by franchised clinics in their regions are also recognized as
franchise cost of revenues as franchisee clinic level sales occur, which is
funded by the 7% royalties we collect from the franchisees in their regions.
Certain regional developer agreements result in the regional developer acquiring
the rights to existing royalty streams from clinics already open in the
respective territory. In those instances, the revenue associated from the sale
of the royalty stream is recognized over the remaining life of the respective
franchise agreements.

Leases

The accounting guidance for leases requires lessees to recognize a right-of-use
("ROU") asset and a lease liability in the balance sheet for most leases. The
lease liability is measured at the present value of the fixed lease payments
over the lease term
                                       35

--------------------------------------------------------------------------------

Table of Contents


and the ROU asset is measured at the lease liability amount, adjusted for lease
prepayments, lease incentives received and the lessee's initial direct costs.
Certain leases include one or more renewal options, generally for the same
period as the initial term of the lease. The exercise of lease renewal options
is generally at our sole discretion and, as such, we typically determine that
exercise of these renewal options is not reasonably certain. As a result, we do
not include the renewal option period in the expected lease term and the
associated lease payments are not included in the measurement of the
right-of-use asset and lease liability. When available, we use the rate implicit
in the lease to discount lease payments; however, the rate implicit in the lease
is not readily determinable for substantially all of our leases. In such cases,
we estimate our incremental borrowing rate as the interest rate we would pay to
borrow an amount equal to the lease payments over a similar term, with similar
collateral as in the lease, and in a similar economic environment. We estimate
these rates using available evidence such as rates imposed by third-party
lenders in recent financings or observable risk-free interest rate and credit
spreads for commercial debt of a similar duration, with credit spreads
correlating to our estimated creditworthiness.

For operating leases that include rent holidays and rent escalation clauses, we
recognize lease expense on a straight-line basis over the lease term from the
date it takes possession of the leased property. Pre-opening costs are recorded
as incurred in general and administrative expenses. Variable lease payments,
such as percentage rentals based on location sales, periodic adjustments for
inflation, reimbursement of real estate taxes, any variable common area
maintenance and any other variable costs associated with the leased property are
expensed as incurred and are also included in general and administrative
expenses on the consolidated income statements.

Income Taxes


We recognize deferred tax assets and liabilities for both the expected impact of
differences between the financial statement amount and the tax basis of assets
and liabilities and for the expected future tax benefit to be derived from tax
losses and tax credit carryforwards.

We record a valuation allowance against deferred tax assets when it is
considered more likely than not that all or a portion of our deferred tax assets
will not be realized. In making this determination, we are required to give
significant weight to evidence that can be objectively verified. It is generally
difficult to conclude that a valuation allowance is not needed when there is
significant negative evidence, such as cumulative losses in recent years.
Forecasts of future taxable income are considered to be less objective than past
results. Therefore, cumulative losses weigh heavily in the overall assessment.

In addition to considering forecasts of future taxable income, we are also
required to evaluate and quantify other possible sources of taxable income in
order to assess the realization of our deferred tax assets, namely the reversal
of existing temporary differences, the carry back of losses and credits as
allowed under current tax law, and the implementation of tax planning
strategies. Evaluating and quantifying these amounts involves significant
judgments. Each source of income must be evaluated based on all positive and
negative evidence; this evaluation involves assumptions about future activity.
The actual realization of deferred tax assets may differ from the amounts we
have recorded.

In 2019, we continued to maintain a full valuation allowance on the deferred tax
assets, due to cumulative losses as of December 31, 2019. As of December 31,
2020, we recorded an income tax benefit of $7.8 million primarily due to the
reduction in the valuation allowance. The valuation allowance was reduced
because the weight of evidence regarding the future realizability of the
deferred tax assets had become predominately positive and realization of the
deferred tax assets was more likely than not. The positive evidence considered
in our assessment of the realizability of the deferred tax assets included the
generation of significant positive cumulative income for the three-year period
ended December 31, 2020 and projections of future taxable income. Based on our
earnings performance trend and expected continued profitability, management
determined it was more likely than not that all of our deferred tax assets would
be realized. The negative evidence considered included historical loss in 2017,
marginal pre-tax income generated in 2018, and general economic uncertainties
related to the impact of the pandemic. However, management has concluded that
positive evidence outweighed this negative evidence.

Significant judgment is also required in evaluating our uncertain tax positions.
We establish accruals for uncertain tax positions when we believe that the full
amount of the associated tax benefit may not be realized. If we prevail in
matters for which accruals have been established previously or pay amounts in
excess of reserves, there could be an effect on our income tax provisions in the
period in which such determination is made.

We regularly assess the tax risk of our tax return filing positions, and we have
not identified any material uncertain tax positions as of December 31, 2021 and
2020, respectively.

Loss Contingencies
                                       36

--------------------------------------------------------------------------------

Table of Contents


Accounting Standards Codification 450, Contingencies ("ASC 450"), governs the
disclosure of loss contingencies and accrual of loss contingencies in respect of
litigation and other claims. We record an accrual for a potential loss when it
is probable that a loss will occur and the amount of the loss can be reasonably
estimated. When the reasonable estimate of the potential loss is within a range
of amounts, the minimum of the range of potential loss is accrued, unless a
higher amount within the range is a better estimate than any other amount within
the range. Moreover, even if an accrual is not required, we provide additional
disclosure related to litigation and other claims when it is reasonably possible
(i.e., more than remote) that the outcomes of such litigation and other claims
include potential material adverse impacts on us. Legal costs to be incurred in
connection with a loss contingency are expensed as such costs are incurred.

Results of Operations


The following discussion and analysis of our financial results encompasses our
consolidated results and results of our two business segments: Corporate Clinics
and Franchise Operations.

Total Revenues

Components of revenues for the year ended December 31, 2021, as compared to the year ended December 31, 2020, were as follows:

                                                        Year Ended
                                                       December 31,                      Change from          Percent Change
                                                2021                  2020               Prior Year           from Prior Year
Revenues:
Revenues from company-owned or managed
clinics                                    $ 44,348,234          $ 31,757,207          $ 12,591,027                    39.6  %
Royalty fees                                 22,062,989            15,886,051             6,176,938                    38.9  %
Franchise fees                                2,659,097             2,100,800               558,297                    26.6  %
Advertising fund revenue                      6,298,924             4,506,413             1,792,511                    39.8  %
Software fees                                 3,383,856             2,694,520               689,336                    25.6  %
Regional developer fees                         848,640               876,804               (28,164)                   (3.2) %
Other revenues                                1,257,913               861,181               396,732                    46.1  %
Total revenues                             $ 80,859,653          $ 58,682,976          $ 22,176,677                    37.8  %

The reasons for the significant changes in our components of total revenues were as follows:


Consolidated Results

•Total revenues increased by $22.2 million, primarily due to the continued
expansion and revenue growth of our franchise base, continued same-store sales
growth and expansion of our corporate-owned or managed clinics portfolio, and
the negative impact of the pandemic during the second quarter of 2020 relative
to the same quarter of 2021, which decline was reflected in total revenues for
the year ended 2020.

Corporate Clinics

•Revenues from company-owned or managed clinics increased, primarily due to
improved same-store sales growth, as well as due to the expansion of our
corporate-owned or managed clinics portfolio and the negative impact of the
same-store sale decline due to the pandemic in the second quarter of 2020
relative to the same quarter of 2021, which decline was included in the revenues
for company-owned or managed clinics for the year ended 2020.

Franchise Operations


•Royalty fees and advertising fund revenue increased due to an increase in the
number of franchised clinics in operation during 2021, along with continued
sales growth in existing franchised clinics and the negative impact of the
same-store sale decline due to the pandemic in the second quarter of 2020
relative to the same quarter of 2021, which decline is included in the revenues
for franchised clinics for the year ended 2020. As of December 31, 2021, and
2020, there were 610 and 515 franchised clinics in operation, respectively.
                                       37

--------------------------------------------------------------------------------

Table of Contents


•Franchise fees increased due to an increase in executed franchise agreements,
as these fees are recognized ratably over the term of the respective franchise
agreement. For the year ended December 31, 2021, there were executed franchise
license sales or letters-of-intent for 156 franchise licenses, compared to 121
for the year ended December 31, 2020.

•Software fees revenue increased due to an increase in our franchised clinic base and the related revenue recognition over the term of the franchise agreement as described above.


•Other revenues primarily consisted of merchant income associated with credit
card transactions.

Cost of Revenues

                             Year Ended December 31,              Change from      Percent Change
                          2021                       2020         Prior

Year from Prior Year

  Cost of Revenues    8,513,777                   6,507,468      $ 2,006,309                30.8  %


For the year ended December 31, 2021, as compared with the year ended
December 31, 2020, the total cost of revenues increased due to an increase in
regional developer royalties and sales commissions of $1.3 million and due to an
increase in website hosting costs of $0.7 million.

Selling and Marketing Expenses

                                                      Year Ended December 31,                      Change from          Percent Change
                                                 2021                            2020               Prior Year          from Prior Year
     Selling and Marketing Expenses            11,424,416                      7,804,420          $ 3,619,996                    46.4  %


Selling and marketing expenses increased $3.6 million for the year ended December 31, 2021, as compared to the year ended December 31, 2020, driven by an increase in advertising fund expenditures from a larger franchise base and increased local marketing expenditures by the company-owned or managed clinics.

Depreciation and Amortization Expenses


                                                        Year Ended December 31,                     Change from          Percent Change
                                                   2021                           2020               Prior Year          from Prior Year
  Depreciation and Amortization Expenses         6,088,947                      2,734,462          $ 3,354,485                   122.7  %


Depreciation and amortization expenses increased for the year ended December 31,
2021, as compared to the year ended December 31, 2020, primarily due to: (i) the
development rights reacquired in December 2020 and January 2021 for a total net
consideration of $2.4 million, which are amortized over the remaining original
contract periods of approximately 13 to 25 months, (ii) amortization of
intangibles related to the 2021 clinic acquisitions, (iii) depreciation expenses
associated with the expansion of our corporate-owned or managed clinics
portfolio in 2020 and 2021, and (iv) depreciation expenses associated with the
new IT platform used by clinics for operations and for the management of
operations, which went live in July 2021.

General and Administrative Expenses


                                                           Year Ended December 31,                       Change from          Percent Change
                                                     2021                            2020                Prior Year           from Prior Year
    General and Administrative Expenses            49,453,305                      36,195,817          $ 13,257,488                    36.6  %


                                       38

--------------------------------------------------------------------------------

Table of Contents


General and administrative expenses increased during the year ended December 31,
2021, compared to the year ended December 31, 2020, primarily due to the
increases in the following to support continued clinic count and revenue growth
in both operating segments: (i) payroll and related expenses of $8.5 million,
(ii) general overhead and administrative expenses of $3.6 million, (iii)
professional and advisory fees of $0.9 million, and (iv) software and
maintenance expense of $0.3 million. General and administrative expenses for the
year ended December 31, 2021 also included a non-recurring net expense of $0.5
million related to a settlement of a legal claim. As a percentage of revenue,
general and administrative expenses during the year ended December 31, 2021 and
2020 were 61% and 62%, respectively. General and administrative expenses as a
percentage of revenue improved modestly compared to the prior year as the
improved leverage from the increase in revenue was partially offset by the costs
associated with greenfields clinics opened during 2021. During 2021, we opened
20 greenfield clinics compared with three greenfield clinics in the prior year
period.

Income from Operations

                                                                   Year Ended December 31,                    Change from          Percent Change
                                                              2021                          2020               Prior Year         from Prior Year
                Income from Operations                      5,352,419                     5,492,130          $  (139,711)                  (2.5) %


Consolidated Results

Consolidated income from operations decreased by $0.1 million for the year ended
December 31, 2021 compared to the year ended December 31, 2020, as the improved
operating income in the franchise operations segment was more than offset by
increased expenses in the corporate clinics and the unallocated corporate
segments discussed below. In addition, consolidated income from operations for
the year ended 2020 included the negative impact of the same-store sale decline
during the second quarter of 2020 due to the pandemic as discussed above, which
is reflected in the consolidated income from operations for the year ended 2021
relative to the prior year period.

Corporate Clinics


Our corporate clinics segment had income from operations of $4.4 million for the
year ended December 31, 2021, a decrease of $0.1 million compared to income from
operations of $4.5 million for the year ended December 31, 2020. This decrease
was primarily due to:

•An increase in revenues of $12.6 million from company-owned or managed clinics
primarily due to improved same-store growth, as well as the expansion of our
corporate-owned or managed clinics portfolio; more than offset by

•A $12.7 million increase in operating expenses primarily driven by the
increases in: (i) payroll-related expenses due to a higher head count to support
the expansion of our corporate clinics portfolio of $5.9 million, (ii)
depreciation and amortization expense related to the reacquired development
rights, 2021 acquisitions, expansion of our corporate-owned or managed clinics
portfolio in 2020 and 2021, and new software discussed above of $2.9 million,
(iii) selling and marketing expenses due to increased local marketing
expenditures by the company-owned or managed clinics of $1.8 million, and (iv)
general overhead and administrative expenses associated with the expansion of
our corporate-owned or managed clinics portfolio in 2021 of $2.1 million.

Franchise Operations


Our franchise operations segment had income from operations of $16.7 million for
the year ended December 31, 2021, an increase of $4.1 million, compared to
income from operations of $12.6 million for the year ended December 31, 2020.
This increase was primarily due to:

•An increase of $9.6 million in total revenues due to an increase in the number
of franchised clinics in operation along with continued sales growth in existing
franchised clinics; partially offset by

•An increase of $5.4 million in total expenses primarily driven by the increases
in: (i) cost of revenue due to an increase in regional developer royalties and
sales commissions and website hosting costs of $2.0 million, (ii)
                                       39

--------------------------------------------------------------------------------

Table of Contents


selling and marketing expenses resulting from a larger franchise base of $1.9
million, (iii) payroll-related expenses due to a higher head count to support a
larger franchise base of $1.0 million, and (iv) higher depreciation expense
related to the new software discussed above of $0.3 million.

Unallocated Corporate


Unallocated corporate expenses for the year ended December 31, 2021 increased by
$4.2 million compared to the prior year period, primarily due to support
continued clinic count and revenue growth in both operating segments. The $4.2
million increase is primarily driven by the increases in: (i) payroll-related
expenses of $1.5 million, (ii) professional and advisory fees of $1.0 million,
(iii) general overhead and administrative expenses of $1.3 million, and (iv)
maintenance expenses for our new software discussed above of $0.3 million.
General and administrative expenses for the year ended December 31, 2021 also
included a non-recurring net expense of $0.5 million related to a settlement of
a legal claim and $0.3 million related to a recognition of certain contingent
liabilities.

Like many industries, we are experiencing wage growth in our chiropractic and
wellness coordinator labor. These increasing labor costs could have an impact to
our profitability, and may result in price increases to offset the impact of
this tight labor market.

Income Tax Benefit

                                                             Year Ended December 31,                      Change from          Percent Change
                                                       2021                            2020                Prior Year          from Prior Year
              Income tax benefit                     (1,293,229)                     (7,754,662)         $ 6,461,433                   (83.3) %


For the years ended December 31, 2021 and 2020, the effective tax rates were
(24.5)% and (143.3)%, respectively. The fluctuation in the effective rate was
primarily attributable to the reversal of the valuation allowance on deferred
tax assets on December 31, 2020 and stock-based compensation. Please see Note 9,
"Income Taxes" in the Notes to consolidated financial statements included in
Item 8 of this report for further discussion.
Non-GAAP Financial Measures

The table below reconciles net income to Adjusted EBITDA for the years ended
December 31, 2021 and 2020.

                                                    Year Ended December 31,
                                                    2021              2020
Non-GAAP Financial Data:
Net income                                      $ 6,575,770      $ 13,167,314
Net interest                                         69,878            79,478
Depreciation and amortization expense             6,088,947         2,734,462
Income tax benefit                               (1,293,229)       (7,754,662)
EBITDA                                           11,441,366         8,226,592
Stock compensation expense                        1,056,015           885,975
Acquisition related expenses                         68,716            

41,716

Net loss (gain) on disposition or impairment 26,789 (51,321) Adjusted EBITDA

                                 $  12,592,886    $    9,102,962



Adjusted EBITDA consists of net income before interest, income taxes,
depreciation and amortization, acquisition related expenses, stock-based
compensation expense, bargain purchase gain, and (gain) loss on disposition or
impairment. We have provided Adjusted EBITDA because it is a non-GAAP measure of
financial performance commonly used for comparing companies in our industry. You
should not consider Adjusted EBITDA as a substitute for operating profit as an
indicator of our operating performance or as an alternative to cash flows from
operating activities as a measure of liquidity. We may calculate Adjusted EBITDA
differently from other companies.
                                       40

--------------------------------------------------------------------------------

Table of Contents


We believe that the use of Adjusted EBITDA provides an additional tool for
investors to use in evaluating ongoing operating results and trends and in
comparing our financial measures with other outpatient medical clinics, which
may present similar non-GAAP financial measures to investors. In addition, you
should be aware when evaluating Adjusted EBITDA, in the future we may incur
expenses similar to those excluded when calculating these measures. Our
presentation of these measures should not be construed as an inference that our
future results will be unaffected by unusual or non-recurring items. Our
computation of Adjusted EBITDA may not be comparable to other similarly titled
measures computed by other companies, because all companies do not calculate
Adjusted EBITDA in the same manner.

Our management does not consider Adjusted EBITDA in isolation or as an
alternative to financial measures determined in accordance with GAAP. The
principal limitation of Adjusted EBITDA is that it excludes significant expenses
and income that are required by GAAP to be recorded in our financial statements.
Some of these limitations are:

a.Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

b.Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

c.Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debts;

d.Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;

e.Adjusted EBITDA does not reflect the bargain purchase gain, which represents the excess of the fair value of net assets acquired over the purchase consideration; and


f.Adjusted EBITDA does not reflect the (gain) loss on disposition or impairment,
which represents the impairment of assets as of the reporting date. We do not
consider this to be indicative of our ongoing operations.

Because of these limitations, Adjusted EBITDA should not be considered in
isolation or as a substitute for performance measures calculated in accordance
with GAAP. We compensate for these limitations by relying primarily on our GAAP
results and using Adjusted EBITDA only supplementally. You should review the
reconciliation of net income to Adjusted EBITDA above and not rely on any single
financial measure to evaluate our business.

Liquidity and Capital Resources

Sources of Liquidity


As of December 31, 2021, we had cash and short-term bank deposits of $19.5
million. We generated $15.2 million of cash flow from operating activities in
the year ended December 31, 2021. While the ongoing COVID-19 pandemic creates
potential liquidity risks, as discussed further below, we believe that our
existing cash and cash equivalents, our anticipated cash flows from operations,
and amounts available under our development line of credit will be sufficient to
fund our anticipated operating and investment needs for at least the next twelve
months.

While the unprecedented public health and governmental efforts to contain the
spread of COVID-19 have created uncertainty as to general economic conditions
for 2022 and beyond, as of the date of this report, we believe we have adequate
capital resources and sufficient access to external financing sources to satisfy
our current and reasonably anticipated requirements to conduct our operations,
fund capital expenditure investments, and meet other needs in the ordinary
course of our business. For 2022, we expect to use or redeploy our cash
resources to support our business within the context of prevailing market
conditions, which, given the ongoing uncertainty surrounding the COVID-19
pandemic, could rapidly and materially deteriorate or otherwise change. Our
long-term capital requirements, primarily for acquisitions and other corporate
initiatives, could be dependent on our ability to access additional funds
through the debt and/or equity markets. From time to time, we consider and
evaluate transactions related to our portfolio and capital structure, including
debt financings, equity issuances, purchases and sales of assets, and other
transactions. Due to the ongoing COVID-19 pandemic, the levels of our cash flows
from operations for 2022 may be impacted. There can be no assurance that we will
be able to generate sufficient cash flows or obtain the capital necessary to
meet our short and long-term capital requirements.

Analysis of Cash Flows

                                       41

--------------------------------------------------------------------------------

Table of Contents


Net cash provided by operating activities was $15.2 million for the year ended
December 31, 2021, compared to net cash provided by operating activities of
$11.2 million for the year ended December 31, 2020. The increase was primarily
attributable to an increase in revenue over the prior year period, which was
partially offset by an increase in operating expenses over the prior year
period.

Net cash used in investing activities was $14.1 million and $4.6 million during
the years ended December 31, 2021 and 2020, respectively. For the year ended
December 31, 2021, this included clinic acquisitions for $5.8 million, purchases
of property and equipment for $7.0 million, and reacquisition and termination of
regional developer rights for $1.4 million. For the year ended December 31,
2020, this included clinic acquisitions for $0.5 million, purchases of property
and equipment for $3.2 million, and reacquisition and termination of regional
developer rights for $1.0 million.

Net cash (used in) provided by financing activities was $(2.0) million and $5.6
million during the years ended December 31, 2021 and 2020, respectively. For the
year ended December 31, 2021, this included repayment of the PPP loan of $2.7
million and purchases of treasury stock for $0.7 million, which were partially
offset by the proceeds from the exercise of stock options of $1.5 million. For
the year ended December 31, 2020, this included proceeds from: (i) the credit
facility, net of related fees of $1.9 million, (ii) the loan under the CARES Act
Paycheck Protection Program of $2.7 million, and (iii) the exercise of stock
options of $1.0 million.

The following table summarizes our material contractual obligations at December 31, 2021 and the effect that such obligations are expected to have on our liquidity and cash flows in future periods:

Material Contractual Cash Requirements

                                                                                     Payments Due by Fiscal Year
                             Total                  2022                  2023                  2024                  2025                  2026                 Thereafter
Operating leases       $   24,066,811             5,461,181             4,804,873             4,289,146             3,852,159             2,002,135             3,657,317


Recent Accounting Pronouncements


Please see Note 1, "Nature of Operations and Summary of Significant Accounting
Policies" in the Notes to consolidated financial statements included in Item 8
of this report for information regarding recently issued accounting
pronouncements that may impact our financial statements.


Off-Balance Sheet Arrangements


During the year ended December 31, 2021, we did not have any relationships with
unconsolidated organizations or financial partnerships, such as structured
finance or special purpose entities that were established for the purpose of
facilitating off-balance sheet arrangements.

© Edgar Online, source Glimpses

All news about THE JOINT CORP.
08/08JOINT : Q2 22 Investor Presentation
PU
08/05JOINT : Q2 22 Investor Presentation
PU
08/05Maxim Upgrades The Joint to Buy From Hold, Sets $36 Price Target
MT
08/05JOINT CORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF ..
AQ
08/05B. Riley Upgrades Joint to Buy from Neutral After Higher-than-Expected Q2 Sales, AEBITD..
MT
08/04TRANSCRIPT : The Joint Corp., Q2 2022 Earnings Call, Aug 04, 2022
CI
08/04JOINT : Reports Second Quarter 2022 Financial Results - Form 8-K
PU
08/04JOINT : Q2 22 Results Presentation
PU
08/04Earnings Flash (JYNT) THE JOINT CORPORATION Reports Q2 Revenue $25.1M
MT
08/04JOINT CORP : Results of Operations and Financial Condition, Regulation FD Disclosure, Fina..
AQ
More news
Analyst Recommendations on THE JOINT CORP.
More recommendations