2023-03-14 03:02:00 ET
Summary
- The Joint Corp. has shown positive results under a very demanding macro environment. Both customer engagement metrics and store sales are growing.
- Over time, JYNT is strengthening its digital capabilities, potentially enhancing its competitive edge in the long run. There are lots of new initiatives going on.
- While the sales and gross margin are expected to remain stable in 2023, the EBITDA margin may be affected by labor and cost headwinds.
The Joint Corp. ( JYNT ) released its 2022 Q4 results last week. The company has sustained its momentum and achieved favorable results. Its system-wide sales increased by 18% to reach $120 million, which is consistent with the growth rate from the previous quarter. Additionally, the comparable sales for clinics that have been open for more than 13 months continued to grow, this time by 8%, surpassing the 6% growth rate seen in Q3. The total revenue of the company surged by 26% to $27.8 million, with revenue from company-owned or managed clinics contributing $16.5 million, a remarkable increase of 39%. Franchise operations also showed a growth of 10%, contributing $11.3 million to the total revenue. These positive results demonstrate JYNT's strong performance and its ability to drive growth through effective management and expansion strategies.
It is my belief that JYNT has once again demonstrated the resilience of its business model. Despite the prevailing negative macro trends, JYNT continues to experience high growth rates. In particular, JYNT's owned and managed clinics are exhibiting accelerated growth, although the growth of franchise stores has slowed somewhat. This development serves as evidence that JYNT's strategy of acquiring the best quality stores is effective since they possess data on the workings of each location. By leveraging this data, JYNT is able to optimize its growth strategy and maintain its momentum even in challenging market conditions.
JYNT has maintained its high level of profitability with a strong gross margin rate of 90.65%, which is particularly noteworthy given that the company operates in the retail industry. The operating margin has also improved, rising from 2.88% to 4.78%. Although G&A costs did increase by 20.8%, this was a slower rate of growth compared to the previous quarter, where the increase was 36%.
JYNT starts to build its tech and data advantage
JYNT has been making strategic moves in its business operations, particularly in automating its processes and collecting data from its customers. Many of these customers are entirely new to chiropractic care, and JYNT recognized the importance of leveraging technology to provide them with a seamless experience. In the third quarter of 2021 , JYNT launched its IT platform Axis 1.0, which is a licensed and scalable CRM platform. This platform allows JYNT to offer mobile check-ins, patient portals, and individualized marketing to its customers. Chiropractic care is a medical service that requires a high level of personal interaction, which presents a valuable opportunity for JYNT to collect data from its customers. Especially with its large national network and scale, JYNT is well-positioned to get lots of value out of its customer data. In 2021 Q3, JYNT has launched its own tech platform, and the CEO said:
We see the creation of a data warehouse that really allows us to utilize this extraordinary value of the data that we're collecting. Everything is being more and more inspired by the technology that drives our business and how we make consumer choices.
During this quarter , the CEO shared the company's vision on the importance of harnessing the power of data to drive business growth. JYNT launched the first version of its intelligent business intelligence and analytical reporting tool, which will provide insights and actionable recommendations to help clients make data-driven decisions. The company also plans to create an automated marketing program and launch a patient portal later in the year.
In my opinion, JYNT is truly leading the pack in terms of its technological advancements. Especially as a brick-and-mortar retailer, it is quite uncommon for a company in this industry to prioritize and invest in technology. With a tech expert on its board of directors and the recent hiring of a new CTO in 2022, it appears that JYNT is even more committed to further improving its tech capabilities.
Outlook and Risk in 2023
The management of JYNT expects revenue to be between $123M and $128M, representing a 20% increase. However, adjusted EBITDA is expected to decline in comparison to the previous quarter, with estimates ranging from $12.5M to $14M. This decline is attributed to the company's cost headwinds, which have been a significant challenge. During the Q4 call , it was revealed that most clinics have 40-45% of their cost covering labor, and require around $30K monthly costs, compared to $25K in the past. JYNT has experienced a high turnover rate of doctors, which was 56% in 2021. For 2022, JYNT has to elevate compensation costs for the company to improve turnover rate down to 34%. While this is definitely a good development for stability, it will inevitably impact margins.
JYNT's ongoing investment in people, technology, and new market expansions is a clear indication that the company is still in a fast transformation phase. While developing new capabilities is generally a good thing, it is also possible that many of these investments may fail or have poor returns. JYNT has been successful in controlling its expenses so far, but it remains unclear what the company's real earnings power is, which creates more uncertainty for investors.
Moreover, JYNT is facing a challenging environment with headwinds on licenses sold and clinics in active development (chart below). It is very evident that JYNT is struggling to attract investment due to the current macroeconomic environment. Many potential investors are exercising caution in the face of factors such as labor, costs, and interest rates, making it difficult for JYNT to expand its franchise base.
Lastly, JYNT has implemented some of its price increases during 2022 Q4, with 56% of members (compared to 50% in Q3) shifting to its new price plan. The company plans to introduce future price increases for the remaining 50% of customers in 2023. However, it is uncertain whether the new pricing strategy will impact customer loyalty. Typically, 25% of customers return to JYNT stores after six months. Despite a decent growth rate in Q4, the full impact of the new price plan on customer retention is not yet known and may not be fully reflected in the current quarter. Future quarters may show a reduction in customer growth rate due to this uncertainty.
Bottom Line
JYNT is still executing its strategy well and the Q4 results showed lots of confidence in the company's capabilities to handle external stress. Afterall, this is a stock with $256M enterprise value and $120M expected revenue. It grows at 20% YOY rate with a 90% gross margin. We also see little share dilutions in the last couple years with a very small debt load. I think it offers very decent long-term value for investors.
For further details see:
The Joint Corp. Q4 Earnings: Resilience Amidst Macroeconomic Headwinds