The Joint (NASDAQ:JYNT) Q3 2020 Earnings Call

0:01 Ladies and gentlemen, thank you for standing by and welcome to the Joint Corp. Q3 2020 Financial Results Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press a star, then zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to turn the call over to Ms. Mariah Shelton. Thank you, ma'am. Please go ahead. Thank you, Operator. Good afternoon, everyone. This is Mariah Shilton of LHA Investor Relations. On the call today, President and CEO Peter Holt will review the third quarter and provide an update of the business.

0:46 CFO Jake Singleton will detail the financial results. Then Peter will close with a summary and open the call for questions. Please note we are using a slide presentation that can be found at ir.thejoint.com forward slash events. Today, after the close of the market, the Joint Corp. issued its final financial results for the quarter ended September 30, 2020. If you did not already have a copy of this press release, it can be found in the Investor Relations section of the company's website. As provided on slide two, please be advised today's discussion includes forward-looking statements, including statements concerning our strategy, future operations, future financial position, and plans and objectives of management.

1:34 For today's discussion, we will present some important factors relating to our business that could affect these forward-looking statements. The forward-looking statements are made based on our current predictions, expectations, estimates, and assumptions, and are also subject to risks and uncertainties that may cause actual results to differ materially from the statements we make today. Factors that could contribute to these differences include, but are not limited to, the continuing impact of the COVID-19 outbreak on the economy and our operations, including temporary clinic closures, shortened business hours, and reduced patient demand, our failure to develop or acquire company-owned or managed clinics as rapidly as we intend, our failure to profitably operate company-owned or managed clinics, and the other factors described in risk factors in our annual report on Form 10-K as filed with the SEC for the year ended December 31, 2019, as updated for any material changes described in any subsequently filed quarterly reports on Form 10-Q, as any revised or updated in our subsequent filings, including the one we anticipate filing on November 6th.

2:42 As a result, we caution you against placing undue reliance on these forward-looking statements and encourage you to review our filings with the SEC for a discussion of these factors and other risks that may affect our future results or the market price of our stock. Finally, we are not obligating ourselves to revise our results or publicly release any updates to these forward-looking statements in light of new information or future events. Management uses EBITDA and adjusted EBITDA, which are non-GAAP financial measures. They are presented because they are important measures used by management to assess financial performance. Management believes they provide a more transparent view of the company's underlying operating performance and operating trends than GAAP measures alone. Reconciliation of net income to EBITDA and adjusted EBITDA is presented in the press release. The company defines EBITDA as net income or loss before net interest, tax expense, Appreciation and Amortization Expenses.

3:39 The company defines adjusted EBITDA as EBITDA before acquisition-related expenses, bargain purchase gain, net gain or loss on disposition or impairment, and stock-based compensation expenses. Turning to slide three, and it is my pleasure to turn the call over to Peter Holt. Thank you, Mariah, and I welcome everybody to the call. Our growth momentum once again is taking hold as reflected by our third quarter performance. Chiropractic care is an essential health care service, which is the foundation of our business model's resiliency. I'd like to thank all of our doctors and staff for their service to our patients and thank our patients for their confidence in the joint. We've seen so many companies negatively impacted by the pandemic and forced to rethink their business models.

4:25 Here at the joint, our core concept has remained unchanged, outside of increased standardization and cleanliness procedures that we implemented to protect our patients and staff. While we cannot predict the end of the pandemic, what we've experienced is that our patients have continued to rely on their chiropractic care as essential to their health. This ability to serve patients and deliver performance continues to attract new investors. For them, I'm going to point out that the joint is revolutionizing access to chiropractic care. We're located in convenient retail settings. We provide concierge-style membership-based services without the need for insurance or appointments with attractive pricing and convenient hours. Our growth strategy is to build our brand, increase awareness of chiropractic care, and attract new patients. We continue to open new clinics in a capitalized fashion with our hybrid model of franchise and corporate owner managed clinics.

5:18 We're already the largest and most recognizable provider of chiropractic care in the country. Given the high level of fragmentation among chiropractic care providers, we have a significant opportunity to continue increasing our market share as we redefine and expand the market itself. I'd like to review our quarterly metrics and activities, and then Jake Singleton, our CFO, will discuss the financial results in greater detail, after which I'll comment on the market and open the call for questions. Turning to slide four, we reported solid financial results in our metrics improved each month throughout the quarter. Today, I'll compare third quarter 2020 to third quarter 2019. System-wide sales reached 68.3 million, up 21%.

6:06 Comp sales for clinics that have been open for at least 13 full months were up 12%. Revenue grew 21%. Adjusted EBITDA increased to $2.6 million, making it the strongest quarter in the company's history since going public, up 84%. And our unrestricted cash rose to $18.3 million at September 30, 2020, compared to the $14.6 million at June 30, 2020, Driven primarily from the increase in cash flow from operations. Turning to slide five, let's review our portfolio. During the quarter, our new clinics primarily expanded into markets where we already have a footprint, including Texas, Florida, Georgia, North Carolina, and California.

6:51 We opened one greenfield in the Los Angeles area and 21 new franchise clinics nationwide. We also closed one franchise clinic. This quarter, we opened 22 new clinics equal to the third quarter 2019 and compared to 13 in the second quarter 2020. At September 30, 2020, we had 560 clinics in operation. The composition of quarter end was 497 franchise clinics and 63 company-owner managed clinics for a mix of 89% franchise and 11% corporate. Turning to slide six, for any franchise system to be selling franchises in this business climate is remarkable.

7:36 In the third quarter of 2020, we sold 30 franchise licenses, compared to 28 third quarter 2019 and 11 in the second quarter 2020. Year-to-date, we've sold 65 new franchise licenses. Once again, we thank our sales team for their dedication to sourcing great franchise candidates. We continue to believe that achieving this level of sales in this current environment is a powerful indicator of our positive long-term outlook for our business. By expanding our reach, our regional developers, or RDs, continue to accelerate our growth. During the quarter, they were responsible for 80% of our franchise sales. In August, we welcomed our 23rd regional developer who purchased the territorial rights of the state of Wisconsin and a portion of Illinois.

8:24 This new RD was a former wealth management executive and has been a successful multi-unit franchisee of the joint since 2014. The territory has a minimum 10-year development requirement of 19 new franchise clinics. In aggregate, the total 10-year minimum development schedule for the new RD territories established since 2017 comes to 475 clinics. This large foundation of clinic commitment bodes well for our continued clinic expansion and sales growth. We remain on track to achieve our goal of opening a thousand clinics by the end of 2023. Our strong licensed sales set the stage for increased future franchise clinic openings. Additionally, we plan to augment this expansion by opening new corporate greenfields, all of which increases our revenue, scale, and brand recognition.

9:19 Turning to slide seven, during the initial months of the pandemic, our brand messaging featured a strong emphasis on safety and support. We were in frequent communication with patients and staff about the joint and what we're doing to reduce the risk of COVID-19 in our clinics. We had also had a content focused on tips and recommendations for maintaining a healthy lifestyle while positioning chiropractic care as an essential healthcare service. In Q3, we built upon the foundation with a message of reclaim your routine. This message of empowerment coincided with our third annual summer sale promotion in August, which targeted lapsed patients of the joint with a special membership incentive. This was our most successful summer sale promotion to date, which resulted in record number of new patient conversions per clinic and record number of total active members per clinic.

10:12 As we close out 2020, we'll continue to promote the benefits of routine chiropractic care during the pandemic. Last month, we asked our patients to send us their personal testimonials on how chiropractic has improved their health and received thousands of submissions over social media. Some of these patients will be featured in our future campaigns as we continue to grow awareness of the efficacy of chiropractic care. In November and December, we'll hold our annual Black Friday sell and our year-end membership promotion. Over the years, these campaigns have delivered strong or significant value to our patients and driven strong incremental sales for our clinics. Turning to slide eight, let's review Axis, our new IT platform. Axis will provide us improved point of sale systems, financial systems, business intelligence, marketing automation, patient feedback capabilities among many other new features.

11:06 As those who follow us may recall, we've nearly completed the development and start testing Axis prior to COVID-19. We then paused the rollout to focus on helping our franchise community respond to the impact of the pandemic. In the third quarter, we returned our attention to access. As we prepare for the final rollout, it is critical that the new platform is fully tested and that every franchisee is prepared and trained for acceptance of this new system. As we complete this critical project, we will not jeopardize it by rushing or shortcutting the process to meet an artificial timeline. It's now anticipated that the access rollout will be complete in the first half of 2021. And with that, Jake, I'll turn it over to you. Thank you, Peter. Turning to slide nine. As Peter indicated, our clinic performance continued to improve each month throughout the quarter.

11:59 Comparing third quarter 2020 to third quarter 2019, system-wide sales for all clinics open for any amount of time increased to $68.3 million. Up 21% year-over-year. In spite of the ongoing pandemic, system-wide comp sales for all clinics opened 13 months or more, or 12%, compared to 23% in the year-ago quarter. System-wide comp sales for mature clinics opened 48 months or more, or 7%, compared to 17% in the year-ago quarter. Revenue was $15.4 million, up $2.7 million, or 21%. Company-owned or managed clinics contributed revenue of $8.4 million, increasing 23% from the same period a year ago. Franchise operations contributed $7 million, up 19% compared to the same period last year.

12:54 Increased revenue for both categories is due to the greater number of clinics and continued organic growth. Cost of revenues was $1.7 million, up 20% over the same period last year. Reflecting the higher regional developer royalties and commissions. Selling and marketing expenses were $1.8 million, up 3% over the same period last year, reflecting the timing of the advertising fund spend. General and administrative expenses were $9.4 million compared to $8.3 million. The $1.1 million increase was primarily due to higher payroll and related expenses to support revenue growth and a greater number of clinics. For the quarter, we posted net income of $1.6 million, or 11 cents per diluted share, compared to $617,000, or 4 cents per diluted share, for the same period last year.

13:50 We delivered record total adjusted EBITDA of $2.6 million, which increased 84% compared to the same period last year. Franchise clinic adjusted EBITDA increased 18% to $3.4 million. Company-owned or managed clinic adjusted EBITDA increased 46% to $1.9 million. Corporate expenses as a component of adjusted EBITDA decreased 2% to $2.7 million, reflecting our cost control efforts. Turning to slide 10, for the nine months ended September 30th, 2020, revenue was $41.6 million, increasing 20% compared to $34.6 million in the same period of 2019. reflecting a greater number of clinics and increased growth sales at both franchise and company-owned or managed clinics, which was partially offset by the negative impact of the pandemic during the second quarter.

14:46 Net income was $2.5 million, or 17 cents per diluted share, up 25% compared to $2 million, or 14 cents per diluted share, in the first nine months of 2019. Adjusted EBITDA was $5.4 million, up 33%, Thank you for joining us today. which were offset by cash outflows related to capital expenditures totaling $2.2 million.

15:36 With our bolstered balance sheet, we plan to accelerate the number of greenfield openings. The increase in new greenfield clinics will compress near-term operating margins and earnings until the greenfields reach break-even. However, this short-term impact is well worth the long-term benefit. In the meantime, we will continue to evaluate opportunistic accretive acquisitions of franchise clinics that could offset the initial financial impact of greenfield development. On to slide 11 to review guidance. Based on our nine-month financial results and our expectations for the rest of the year, we have reestablished guidance for 2020. We plan to provide 2021 guidance when we deliver our fourth quarter results. For 2020, we expect revenue to be between $58 and $59 million compared to $48.5 million in 2019.

16:28 adjusted EBITDA to be between $8.5 and $9 million compared to $6.2 million in 2019. Franchise clinic openings to be between 65 and 72 compared to 71 in 2019. And new company-owned or managed clinics through a combination of both greenfields and acquisitions of franchise clinics to be between 4 and 7 compared to 13 in 2019. The reestablished 2020 clinic opening guidance reflects the lower rate of openings during the second quarter due to the pandemic. However, we believe there is pent up demand that will fuel openings in the fourth quarter of 2020 and into 2021. Therefore, we continue to believe we will achieve our goal of opening a thousand clinics by the end of 2023.

17:16 I will now turn the call back over to you, Peter. Thanks, Jake. Turning to slide 12, nearly nine months into the pandemic, we've demonstrated the resilience of our business model under the most unexpected and trying times. The opportunity for growth is stronger than ever as we increase market share faster than the growth of the industry by offering patients a more affordable and convenient experience. Although chiropractic care market is expected to grow at a 1.4 CAGR over the next five years, annual spending on back pain in the U.S. is already as significant at $90 billion. of that 18% or $16 billion is spent on chiropractic care. Further, the marketplace is highly fragmented with tens of thousands of individual practitioners, which creates the opportunity for companies with scale and standard procedures to excel.

18:06 Currently, the joint market share accounts for about 1% of the industry, and we estimate all chains, including ourselves, account for only 3% of the market. This compares to dentistry, where the DSOs are nearly 12% of the industry, demonstrating a path to gain market share. There are multiple favorable market drivers which influence our industry's growth. First is the continuing pain epidemic facing this country, with traditional medicine increasingly acknowledging the effectiveness of chiropractic, such as the American College of Physicians and the Journal of American Medical Association citing chiropractic care as a part of that first line of therapy in lower back pain. Also, the tragic opioid crisis continues to plague this country. And now the American Chiropractic Association studies show that patients who visit a chiropractor first have a 90% decreased odds of early or long-term opioid use.

19:00 Another is the consumer shift toward health and wellness. A study from earlier this year from McKinsey & Company measured pandemic-driven changes in consumer behavior and predicts a rising and enduring interest in pursuing health and well-being. Even the impact of the pandemic itself is a market driver. As patients report that they're choosing chiropractic care to avoid the emergency room, and as more people work from home slouched on the couch, they're turning to chiropractic for pain relief. The key to tap into these trends is to overcome the lingering safety concerns of COVID-19, as well as to address the unfamiliarity with chiropractic care by so many Americans. To accomplish this, we continue to emphasize education to consumers about the efficacy of chiropractic.

19:45 We'll also reinforce our enhanced sanitization procedures with our patients. And as the largest online publisher of information on chiropractic care, we continue to grow awareness of the joint in chiropractic among the general public. Our comparative scale gives us a voice to help people understand how routine and affordable chiropractic care can improve their quality of life. Our mission is to make chiropractic accessible to everyone. Traditional providers typically serve the baby boomer population who have insurance coverage, whereas the joint attracts a broader demographic that prefers convenient, affordable service without the hassles of insurance. Our patient base continues to edge younger, with the median age just 37 years old compared to 39 two years ago.

20:31 In fact, today, 55% of our patients were born after 1980. This has implications on the tactics and technologies we pursue to reach this vital segment of the population. As depicted on slide 13, these efforts drive our expansion and illustrate why our system-wide sales CAGR over the last nine years is 77%. In closing, I would like to once again express my deepest appreciation to all the joint chiropractic teams who have continued to selflessly serve during this pandemic. Their dedication to our mission is humbling. To our franchise community, to our RDs, to our corporate team, and to our joint colleagues across the country, I thank you. You truly are making a difference in all the lives that we touch.

21:19 Charlie, I'm ready to begin the Q&A. Thank you, sir. Ladies and gentlemen, if you have a question at this time, please press star then the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, Press the pound key. Please limit your question to one question and one follow-up. Again, that's store one to ask a question. The first question comes from the line of David Bain with Roth Capital. Your line is now open. Great. Thank you. First, congratulations on continued execution. Very nicely done. Just looking at Guide. Seems like EBITDA margins should be another record. I think margins are inferring around 20%. As we get to 1,000 stores at the end of 23, unless we assume a larger mix of greenfields coming in after that point, can we think about a normalized margin of 30-plus percent at that point, and then just the uptick in store openings by year?

22:23 You know, obviously you're calling for, you know, 137 on average from kind of the 80 openings per average per annum, you know, to get to that point. Is there some sort of cadence? Is it back half loaded or is it sort of evenly, is it going to be even as we open up these units going to 23? Yeah, Dave, great questions, all of them. Thanks for that. As you know, we don't give forward-looking guidance as it relates to margins. You know, as I look at those and how they expand over time, you know, I'm looking at our two operating segments. You know, we would say that from a corporate clinic perspective, we expect the four-wall margins to reach 30% plus over time.

23:11 And obviously, there's some outside the four-wall overheads. That would kind of reduce that margin over time, but we do expect that to lever. That's how we've developed that field overhead structure so that we'll lever with us over time. Our franchise segment is just under a 50% margin business for us. Until such time that we recapture a large part of that RD territory, that will pretty much maintain that overall margin contribution. And then the last is the non-operating just corporate overhead, which is something that we very carefully monitor over time. So as it relates to the cadence of the openings, you're right. We've got our work cut out for us. We do expect that to accelerate over time, just as our system has and as other franchise models, that as they gain that traction and that brand awareness, we do expect that to accelerate over time.

24:05 Okay, great. And then my follow-up is just it's straightforward, not bifurcated into three parts. The economic model. The economic model. In terms of forward location costs, have they declined at all given strip retail declines in general? I mean, does it sort of grease the skids a bit for new franchises and potential greenfield openings? Well, that's what everybody is assuming, especially as it relates to lease costs. I think the build-out costs, I don't see that changing much over time. What we've noticed is some of the clinics we've been building in California have a little higher than average build-out costs just because of the conditions in the California market. I think that when we look at the lease costs is that you'd assume with this pandemic and the impact it's having is that you would, in fact, see greater flexibility with the landlords.

24:58 The challenging is that, first of all, the places we're going is still a very competitive site. It's at 1,000 square feet in line anchored by the supermarket. We're going to the best commercial centers, so we're not going to places that's lost their anchor and they're half empty and they'll give you the site. So it's still a little bit competitive. We think over time we will see those costs coming down a little bit. But I think just overall, as it relates to leases, labor, build-out, it's going to be pretty stable. Okay. Okay, great. Thanks so much. Thanks a lot, Dave. Thanks for the congrats. Thanks. Your next question comes from the line of Jeremy Hamblin with Craig Helm. Your line is now open. Hey, guys. This is Ryan. I'm for Jeremy. Congratulations on the quarter, first and foremost.

25:47 I just want to start, you know, as we spoke about last time, you guys were pretty successful with the new patient trial in June and were able to get a lot of some great, you know, exposure, if you will. But I'm wondering, you know, as several months have passed, what are you guys seeing in terms of retention? And, you know, particularly as it relates to those new customers you had coming in during the summer months? Yeah, you're right. June was a great promotion. That was our free trial. August was our summer sale promotion where we're targeting the lapsed patients, which, as we mentioned, was also the most successful of that promotion that we've done. So we really are driving a high-quality patient, and we're seeing record conversions in the clinics. The great thing, and to answer your question, is we're also seeing strength in our attrition numbers. So the patients that we're bringing on are staying on with us longer, so we are actually experiencing record numbers of active members per clinic across our system right now. So we're getting a high-quality patient through the door, and they're staying with us, which is a great trend for us.

26:54 Great. And then last for me, can you talk a little bit about what you're seeing in terms of performance across geographies? Last time, I guess, you actually had some pretty good news to share about performance in some of the geographies that are hardest hit by COVID. I'm wondering, you know, has that stayed consistent or is it, you know, sort of fluctuated as time has gone by? Yeah, it's actually improved. The stat we gave last quarter was we looked at Arizona, California, Texas, and Florida. which approximate about 50% of our system. Last quarter our total system was 10.2% and those four regions had comps of 10.1%. When we did that same analysis as a system this time around we were at 11.7 and those four states represented comps of a little over 12%.

27:44 So they've actually gotten better than the overall system average even in those kind of quote unquote hot spots. So again overall we're not seeing A large disparity across geographies, and we're still seeing strength in some of those hotspot-type locations. Great. That's it for me. Congrats again, guys. Hey, thanks a lot, Ryan. Your next question comes from the line of Jeff Van Sinderen with B Reilly. Your line is now open. Hi, everyone, and let me add my congratulations. Multi-part question. Your comps are really strong. Your comps are really strong. Maybe you can speak more to the trend in the monthly progression in Q3. Just curious around the August promotion, what you saw with comps there, how you're thinking about Q4 comps, and any change to plan promotions for Q4 this year versus last year. And then also any more color you could give us on marketing plans, how they might evolve in the near term given the recent surge in COVID and probable reluctance, as you pointed out, to go to the emergency room.

28:49 Great questions, Jeff, and thanks for the congrats. And to talk about the marketing strategy for Q4 is that, no, we are not anticipating any major changes in our traditional two promotions that we do in the fourth quarter, the Black Friday sale and then the membership sale in December. I would say that we are consistently, as a system, getting better and better in the execution of those two promotions. I think that we have more marking dollars behind it to support it in this quarter, so I think we would expect to see continued improvement in performance as compared to Q4 last year on those promotions. And then that ties directly to your question on, even though we don't guide on comps, about what we would expect in terms of impact on comps as it relates to the quarter, because those promotions really can have a huge influence.

29:39 that what we have seen is from the last time we've talked on the quarter looking at the key metrics that we use to run the business is that since the nadir in April when we hit the lowest numbers in terms of new patient counts and comp rates and the key metrics we look at, we've continually seen an improvement month over month pretty consistently as we've finished out the year. Where this pandemic goes and how deep it becomes where it is today and how long it's going to last, I mean, none of us knows that. All we can say is so far in the first nine months of this is that our patients obviously see this essential to their health care and they are coming in at levels higher than they were doing a year ago, the same period.

30:29 And that our doctors in the middle of the pandemic see this as essential to their ability to provide service, you know, the treatment to their patients. Because it would be great if you have patients who come in, but if your doctors feel unsafe or that it's unsafe for their patients, they're not going to serve. And what's been really clear is that they are standing up and they're treating our patients, and our patients have continued to come in the door. Okay, great. And then as a follow-up, can you elaborate a little bit more on what you're seeing in terms of company-owned unit performance versus franchised performance most recently? And then anything more you could tell us about plans to open corporate greenfield clinics next year? Sure. The first part is how our clinics perform against the franchise system.

31:17 Historically, if you look at age class comparatives, so we always look at their month in operation, when we do kind of like-for-like comparatives, historically the corporate stores have performed on par with the franchise network. What we've seen so far through the pandemic is that Our corporate stores are rebounding a little bit quicker. So right now, you know, on some core metrics there, they're kind of outpacing. So we're seeing a little bit quicker rebound in the corporate performance. And I think you see that reflected in the segment margins this quarter. And the second part of the question was what again, Jeff? I'm just wondering if there's any more you want to say at this point about plans to open corporate greenfield clinics next year.

32:03 Yeah, I put a little bit of commentary in the back end of my comments. You know, we will significantly increase the pace of greenfield development. You know, because we really pulled back on that investing activity here in 2020 just to bolster our liquidity position, you know, I think we have the balance sheet now and we're ready to kind of get back into a more rapid pace of growth. Okay, fair enough. Thanks for taking my questions and continued success. Thanks, Jeff. Thanks for the support. Your next question comes from the line at Brooks O'Neill with Lake Street Capsule. Your line is now open. Good afternoon, guys. I confess I got on a little bit late, so if I ask you about something you commented on, I apologize in advance. No problem. I'm curious. I guess I'm going to ask you three simple questions as opposed to three complex questions. Number one, would you describe traffic as back to normal?

33:01 Number two, do you see any increase in franchise units for sale kind of as we've moved through this pandemic period? And number three, can you just comment on anything you're seeing about time to break even with some of the clinics you've been opening recently? Thank you very much. Sure. To answer your first question in terms of is our traffic back to normal, I would say it depends on what you're calling normal. Because if normal for us for the last four years has been comps, as you know, in like almost 25%. And if that's our normal, then the answer is no, we're not at comps at 25%. We reported comps for Q3 at 12%. But compared to Q2 where comps were negative 6%, we feel like we've made some great inroads there.

33:52 So I think that if I compare our performance to last year's same period, we've increased, you know, really across almost any metric that you measure. Do we have that same momentum that we saw building, you know, that we're just continuing to draw upon pre-pandemic? No, we're not quite there, but we are certainly headed in the right direction. Your second question that's looking at have we seen an increase in the number of clinics for sale is that it certainly was, theoretically, we believe that that could be possible because, of course, with the pandemic, there's going to be more financial pressure on our All of the units, and that there could be opportunities for franchisees who would just say, you know what, I just need to get out. I've got to do something else. And the reality of it is that no, that I've not seen any increase in the number of clinics that are being sold.

34:42 I don't know, Jacob, if you've seen anything other than that, but I would say it's on par or less, the transfers that we would be expecting to see in a normal year. And that last comment, or your last question, is have we seen any kind of impact on the time to break even? I think we've opened up 49 clinics through the first three quarters of this year. And quite frankly, as we even talked in the last call, we were seeing some record-breaking times to break even. Like we had that Midland Clinic that basically did $76,000 in sales in the first two months of operation, which for us is just, it broke everything. If I look consistently across those clinics that are operating in 2020 or open in 2020, I would say that we are seeing a higher level of performance or a shorter period of time to break even, even in the middle of this pandemic, than when I compare them to the same class of 2019.

35:41 Correct. Wow. That's fantastic. That's incredible. Good for you. Keep it up. Thank you very much. Thanks a lot, Brooks. Appreciate the support. Your next question comes from the line of Max Reflanko with Cohen and Company. Your line is now open. Hey, guys. Thanks a lot for taking my question. And, again, congrats on the quarter. So just first, can you talk to the competitive environment you're seeing out there? Anything pointing to, you know, maybe accelerated competitor closures and, you know, given your Improved cash and liquidity position. Just any thoughts on potential future M&A, and then we have a follow-up. Thank you. Sure. In terms of the competitive environment, obviously the thing that dominates our industry is the 40,000 independent practitioners.

36:32 And what I would see is what we've seen in this environment is that it's more anecdotal than any kind of industry stats that I'm calling from, but we are seeing more of those clinics close. and some of the doctors coming from those clinics coming to us to either work in our clinics for additional hours or shutting down their practice just because they're not competing in this market. And you can just imagine, because it is a tough market, and that if you're not a part of a system that has all the support on how to get a PPE loan and how to market during an uncertain time and how to make sure that you are marketing to your patients in this kind of environment, all these things that we do as a franchise system If you're an independent practitioner and trying to come up with that all on your own, you can imagine the difficulties that they would face.

37:19 I would say that competitively, we're continuing to see specifically in our own chain increases in our numbers of new patients, increases in the number of times our patients are coming in to use us, increases in the number of clinics that we're opening. So I would say we're continuing to expand both in terms of organic growth and in terms of new clinics in the market that's driving our sales. Your second question in terms of acquisitions is that, quite frankly, there are a handful of chains that are starting out that have, I don't know, somewhere between 5 and 20 units in a given market that are somewhat related to our model. So we're seeing a little bit of that. But nothing there that would be of a size or in a market that would justify an acquisition.

38:09 So in terms of pure opportunities as it relates to the industry and what mergers or what acquisitions would be available to us, the reality of it is not a lot. Got it. Understood. And then just separately, the new Greenfields, what do you plan for those openings to be located in? Will they be concentrated in any regions? Just any more color would be great. Sure. Yeah, the next year will be really a mix. We're going to continue to target the infill where we already have corporate clinics, so mostly Southern California, Arizona, and New Mexico. We've also got some territory now on the East Coast in terms of that South Carolina, Georgia area. So there will be some infill sprinkled almost across those regions.

38:56 But we do have plans to expand into some other true greenfield territory as well. So it'll be a mix of both. Great. Thanks a lot, guys. Thanks a lot, Max. Once again, if you would like to ask a question, please press star 1 on your tall 7 keypad. Your next question comes from the line of Anthony Vendetti with Maximum Group. Your line is now open. Thank you. Most of my questions have been asked and answered, but I just had a follow-up on the promotions. I know a couple people were asking about those. I know originally when you went into – when we all went into the COVID situation, you were offering some free promotions and you offered some other promotions.

39:45 As you gauge those, I'm sure I know you track everything very well. Can you give us the percent of those customers that end up becoming a regular customer, whatever you define as a regular customer? They sign up, they come back, they sign up for a package. What percent of those sign up for it? And then has your marketing changed in light of COVID-19, how you go about trying to get out in front of the new customers or potential customers, or is that different? The strategy has pretty much been the same in terms of marketing. Well, to answer your question about the impact of the promotions and how did that affect what we call conversion, well, we typically don't guide on that, but we talked about, for example, that summer promotion where we're offering the free adjustment consultation examination for any new patient. We talked on the call that we had a 60% conversion rate for those new patients. So if all the people came in the door For that first time and had that experience, 60% of them converted to a member or a package.

40:54 And that is, for us, the highest we've seen in the history of the company as a system. And when we measure conversion rates in a broader term during the pandemic, I would say, again, one of the impacts we've seen from the pandemic is our conversion rate is higher than we've ever seen it across the board. And our thoughts are part of what's driving that is that that patient who is in fact coming in the door for the first time is what I'd say is maybe a higher quality patient or a patient who's, if you're concerned about pandemic and not sure whether you want to go to a chiropractor or you're not sure of the experience, if you actually go outside your house and you do open that door, you're committed. And so I think we're seeing that level of conversion that is, like I said, it's record-breaking for us as a system.

41:39 We have not seen, and again, we're still a few months into this, we haven't seen those same patients dropping out of what we call the attrition at a higher rate. In fact, Jake said earlier on the call is that our attrition rate is either flatter or improving as we've measured it through the pandemic. So from those overall promotions, I would say that it's been effective in bringing the new patients in. And as Jake said, we're having record-breaking numbers of members per clinic across the network. We're at highest numbers in the history of the company at this moment. Your second question is that... Any changes planned? Oh, changes in our marketing strategy. And I would say... Yes, there have been. For example, that in response to a lot of our members who froze instead of canceling, we've been doing special promotions for those frozen members to try to bring them back out of freezing and join as a membership, you know, reinstate their membership.

42:40 The June promotion for providing a free consultation, adjustment, and examination on a national promotion we have never done before on a national basis. And so that, again, was a very clear change in our overall marketing strategy. If you were talking to our VP of marketing, if you were on the call, he would tell you as we were making these changes in our marketing strategy, it's really focusing so much on safety and support. Because what we do know is that of all the metrics that face our business, the one that's been most impacted is that new patient count. And while we've seen it increase from where it was in April, it still isn't at those record numbers that we saw in 2019. And so we're really focused on understanding, number one, what's keeping them out of our clinics. And we think it's just that safety of COVID.

43:29 And so a lot of the marketing, both on our social media platforms, is focusing on the sanitization, the cleanliness of our clinics, and the safety that you should be able to feel comfortable to come in. Yeah, the only thing I would add there, Anthony, is that when you look at the summer sale that was in August, And you look at what we have upcoming in our Black Friday and our wellness plan promotion at the end of the year, those are bedrock promotions for us. So the core promotional activity with anything post-June has really been things that we've done. Have we changed our messaging? Yes. But I think it's important to note that those core kind of bedrock promotions are unchanged for the back half of this year. Unchanged. All right, so Jake or Peter, maybe on the conversion, you said it's the highest ever at 50% for these promotions.

44:18 What was the conversion rate when you were doing promotions in 2019, for example? I think across the board for a new patient conversion would be in the upper 40s. And then our overall conversion would be in the lower 40s. And today, our new patient conversion for that specific promotion, as I said, was 60%. And that our overall promotion, our conversion, so we're looking not just at new patients, but existing patients who actually convert after they've been in for the first time, is that's right now running over 50% as a network. Okay, great. And then just lastly on the sanitation efforts, I mean, one of the things that always impressed me when I went to my first joint clinic was was the fact that, yes, indeed, you could treat a patient from when they walk in the door, they check in, treated, and out the door in five minutes or so.

45:16 And with the sanitation efforts now that have to happen between patients, how have you been able to implement that? Has that increased the time? And if so, by how much? Does it increase it by a minute or two? Can you talk a little bit about that? Sure, and I don't have the metrics where we set it and said, okay, it's increased by 1.2 minutes, but I would say just generally, yes, is that now that we are sanitizing tables between patients, doctors are washing their hands between patients, that we're having people check in, and then typically they'll go to their car, and then we'll text or call them to come in when it's time. So I would say... There definitely would be a little bit more time, whether it's a minute, two minutes, 30 seconds, but there would be more time that's going to require to treat that patient.

46:08 As you know, so many of our clinics are nowhere near capacity. In fact, we don't even know what full capacity of our system is yet, and we've talked about that a number of times. And so, What I would say across the board, we have not seen an impact on the treating of the number of patients, specifically because of COVID, even though we are taking a little bit more time between patients to ensure that we're doing all these procedures. I think in a busier clinic, we've talked about in some of those clinics that we may, in fact, have somebody hired at a lower-level position that really is just focusing on, Thanks, Anthony. Thanks for the support. Once again, if you would like to ask a question, please press the star 1 on your telephone keypad.

47:22 Again, you may ask a question by pressing star 1 on your telephone keypad. And I'm showing no further questions at this time. Presenters, please continue. Charlie, thank you. And I want to thank all of you for your time today. Please note, we plan to participate virtually later this month in the Craig Hallam Alpha Select Conference and the D.A. Davidson Annual Holiday Beauty and Wellness Bus Tour, and finally, the Roth Deer Valley Conference in December. Typically, I like to end the call with a patient's story. And today, I'm going to paraphrase a lengthy, two-page, single-spaced letter we received from a patient who states her doctor at the joint not only changed her life, but saved it. She wrote that after years of pain and scar tissue built up from multiple accidents, she discovered the joint and found pain relief.

48:12 Further, after becoming increasingly more asthmatic later in life, an adjustment to her ribs dramatically reduced her wheezing and improved her well-being. At one point, she experienced strange symptoms that she was ignoring. Her doctor of chiropractic insisted that she see her primary care physician who diagnosed her with hypertension. A year later, the same chiropractor urged her to get a physical for swollen lymph nodes, and it turned out that she had a mass on her thyroid. In the end, I'm going to quote from the letter, quote, Overall, my doctor chiropractic has added so much value back to me, my confidence, and my health. I have personally recommended over 13 people to the joint and wear your swag out in public. I will always take any and every opportunity to tell people about the amazing work done at the joint and cannot thank you and your team enough.

48:59 End of quote. Thank you and stay well, Justin. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.