The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto as of and for the year endedDecember 31, 2021 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year endedDecember 2021 .
Forward-Looking Statements
This Quarterly Report on Form 10-Q, especially in this Management's Discussion
and Analysis or MD&A, contains forward-looking statements and information within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, ("the Exchange
Act"), which are subject to the "safe harbor" created by those sections. These
forward-looking statements include, but are not limited to, statements
concerning our strategy, future operations, future financial position, future
revenues, projected costs, prospects and plans and objectives of management; and
accounting estimates and the impact of new or recently issued accounting
pronouncements. The words "anticipates," "believes," "estimates," "expects,"
"intends," "may," "plans," "projects," "will," "should," "could," "predicts,"
"potential,"
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"continue," "would" and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements contain
these identifying words. We may not actually achieve the plans, intentions or
expectations disclosed in our forward-looking statements and you should not
place undue reliance on our forward-looking statements. Actual results or events
could differ materially from the plans, intentions and expectations disclosed in
the forward-looking statements that we make. The forward-looking statements are
applicable only as of the date on which they are made, and we do not assume any
obligation to update any forward-looking statements. All forward-looking
statements in this Form 10-Q are made based on our current expectations,
forecasts, estimates and assumptions, and involve risks, uncertainties and other
factors that could cause results or events to differ materially from those
expressed in the forward-looking statements. In evaluating these statements, you
should specifically consider various factors, uncertainties and risks that could
affect our future results or operations as described from time to time in our
SEC reports, including those risks outlined under "Risk Factors" which are
contained in Part I, Item 1A of our Form 10-K for the year ended December 31,
2021 and in Part II, Item 1A of this Form 10-Q. These factors, uncertainties and
risks may cause our actual results to differ materially from any forward-looking
statement set forth in this Form 10-Q. You should carefully consider these risks
and uncertainties and other information contained in the reports we file with or
furnish to the SEC before making any investment decision with respect to our
securities. All forward-looking statements attributable to us or persons acting
on our behalf are expressly qualified in their entirety by this cautionary
statement. Some of the important factors contained in Part I, Item 1A of our
Form 10-K for the year ended December 31, 2021 and in Part II, Item 1A of this
Form 10-Q that could cause our actual results to differ materially from those
projected in any forward-looking statements include, but are not limited to, the
following:
•major public health concerns, including the outbreak of epidemic or pandemic
contagious disease, may adversely affect revenue at our clinics and disrupt
financial markets, adversely affecting our stock price;
•the impact of the COVID-19 pandemic on the economy and our operations,
including the measures taken by governmental authorities to address it, may
precipitate or exacerbate other risks and/or uncertainties;
•inflation, exacerbated by COVID-19 and the current war in
War”), has led to increased labor costs and interest rates and may lead to
reduced discretionary spending, all of which may negatively impact our business;
•we may not be able to successfully implement our growth strategy if we or our
franchisees are unable to locate and secure appropriate sites for clinic
locations, obtain favorable lease terms, and attract patients to our clinics;
•we have limited experience operating company-owned or managed clinics in those geographic areas where we currently have few or no clinics, and we may not be able to duplicate the success of some of our franchisees;
•we may not be able to acquire operating clinics from existing franchisees or
develop company-owned or managed clinics on attractive terms;
•we may not be able to identify, recruit and train enough qualified
chiropractors and other personnel to staff our clinics, particularly in light of
the current nationwide labor shortage, which might limit our ability to
implement our growth strategy;
•short-selling strategies and negative opinions posted on the internet may drive
down the market price of our common stock and could result in class action
lawsuits;
•we may fail to remediate the current or future material weaknesses in our internal controls over financial reporting or may otherwise be unable to maintain an effective system of internal control over financial reporting, which might negatively impact our ability to accurately report our financial results, prevent fraud, or maintain investor confidence;
•we may fail to successfully design and maintain our proprietary and third-party
management information systems or implement new systems;
•we may fail to properly maintain the integrity of our data or to strategically
implement, upgrade or consolidate existing information systems;
• franchised clinic acquisitions that we make could disrupt our business and
harm our financial condition if we cannot continue their operational success or
successfully integrate them;
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•we may not be able to continue to sell franchises to qualified franchisees, and
our franchisees may not succeed in developing profitable territories and
clinics;
•new clinics may not reach the point of profitability, and we may not be able to
maintain or improve revenues and franchise fees from existing franchised
clinics;
•the chiropractic industry is highly competitive, with many well-established independent competitors, which could prevent us from increasing our market share or result in reduction in our market share; •state administrative actions and rulings regarding the corporate practice of chiropractic and federal and state laws and regulations regarding joint employer responsibility may jeopardize our business model; •negative publicity or damage to our reputation, which could arise from concerns expressed by opponents of chiropractic and by chiropractors operating under traditional service models, could adversely impact our operations and financial position; •our IT security systems may be breached, and we may face civil liability and public perception of our security measures could be diminished, either of which would negatively affect our ability to attract and retain patients; and
•legislation, regulations, as well as new medical procedures and techniques,
could reduce or eliminate our competitive advantages.
Overview
Our principal business is to develop, own, operate, support and manage
chiropractic clinics through direct ownership, management arrangements,
franchising and regional developers throughout
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 throughoutNorth America and potentially abroad. 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 membership attrition. In addition, we review monthly reporting related to system-wide sales, clinic openings, clinic license sales, adjusted EBITDA, 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. 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. System-wide sales include sales at all clinics, whether operated by us or by franchisees. 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. 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. There was no bargain purchase gain for the three and nine months endedSeptember 30, 2022 and 2021. Key Clinic Development Trends. As ofSeptember 30, 2022 , we and our franchisees operated or managed 805 clinics, of which 690 were operated or managed by franchisees and 115 were operated as company-owned or managed clinics. Of the 115 company-owned or managed clinics, 54 were constructed and developed by us, and 61 were acquired from franchisees. Our current strategy is to grow through the sale and development of additional franchises, build upon our regional developer strategy, and continue to expand our corporate clinic portfolio within clustered locations. The number of franchise licenses sold for the year endedDecember 31, 2021 was 156, compared with 121 and 126 licenses for the years endedDecember 31, 2020 and 2019, respectively. We ended the first nine months of 2022 with 19 regional developers who were responsible for 62{194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6} of the 58 licenses sold during the period. This strong result reflects the power of the regional developer program to accelerate the number of clinics sold, and eventually opened, across the country. 32
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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 units 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. During the quarter endedSeptember 30, 2022 , we opened five greenfield clinics, and as ofSeptember 30, 2022 , we executed 8 leases for future greenfield clinic locations for further greenfield expansion. 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.
Recent Events and COVID-19 Update
Recent events that may impact our business include unfavorable global economic or political conditions, such as the ongoing COVID-19 pandemic, the Ukraine War, and inflation and other cost increases. We anticipate that the remainder of 2022 will continue to be a volatile macroeconomic environment. As of the date of this Quarterly Report, we have not experienced a significant negative impact on our revenues and profitability due to the direct impact of the COVID-19 pandemic. However, there still remains uncertainty around the pandemic, its effect on labor or other macroeconomic factors, the severity and duration of the pandemic, the continued availability and effectiveness of vaccines and actions taken by government authorities, including restrictions, laws or regulations, and other third parties in response to the pandemic. The primary inflationary factor affecting our operations is labor costs. In the fourth quarter of 2021 and the first nine months of 2022, company-owned or managed clinics were negatively impacted by wage increases, which increased our general and administrative expenses. Further, should we fail to continue to increase our wages competitively in response to increasing wage rates, the quality of our workforce could decline, causing our patient service to suffer. We expect elevated levels of cost inflation to persist for the remainder of 2022. While we anticipate that these headwinds will be partially mitigated by pricing actions taken in response to inflation, there can be no assurance that we will be able to continue to do so in the future. A continued increase in labor costs could have an adverse effect on our operating costs, financial condition and results of operations. Also, the Ukraine War and the sanctions imposed onRussia in response to this conflict have increased global economic and political uncertainty. In addition, the increase in interest rates and the expectation that interest rates will continue to rise may adversely affect patients' financial conditions, resulting in reduced spending on our services. While the impact of these factors continues to remain uncertain, we will continue to evaluate the extent to which these factors will impact our business, financial condition, or results of operations. These and other uncertainties with respect to these recent events could result in changes to our current expectations. 33
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Other Significant Events and/or Recent Developments
For the three months ended
period:
•Comp Sales of clinics that have been open for at least 13 full months increased
6{194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}.
•Comp Sales for mature clinics open 48 months or more increased 2{194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}.
•System-wide sales for all clinics open for any amount of time grew 18{194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}.
OnOctober 24, 2022 , we entered into an Asset and Franchise Purchase Agreement under which we repurchased from the seller an operating franchise inNorth Carolina . We operate the franchise as a company-managed clinic. The total purchase price for the transaction was$1,400,000 , less$9,262 of net deferred revenue, resulting in total purchase consideration of$1,390,738 . OnOctober 12, 2022 , we entered into an agreement under which we repurchased the right to develop franchises in various counties in thePhiladelphia area. The total consideration for the transaction was$225,000 . We carried a deferred revenue balance associated with this transaction of$73,757 , representing the unrecognized 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$151,243 as reacquired development rights onOctober 12, 2022 , which is amortized over the remaining original contract period of approximately 4.2 years. OnOctober 13, 2022 , we entered into an Asset and Franchise Purchase Agreement under which we repurchased from the seller one operating franchise inNorth Carolina . We operate the franchise as a company-managed clinic. The total purchase price for the transaction was$772,000 , less$5,108 of net deferred revenue, resulting in total purchase consideration of$766,892 . OnJuly 29, 2022 , we entered into an Asset and Franchise Purchase Agreements under which we repurchased from the sellers three operating franchises inNorth Carolina . We operate the franchises as company-managed clinics. The total purchase price for the transaction was$1,317,312 , less$31,647 of net deferred revenue, resulting in total purchase consideration of$1,285,665 . Based on the terms of the purchase agreement, the acquisition has been treated as an asset purchase. OnJuly 5, 2022 , we entered into an Asset and Franchise Purchase Agreement under which we repurchased from the seller an operating franchise inArizona . We operate the franchise as a company-owned clinic. The total purchase price for the transaction was$1,205,667 , less$13,241 of net deferred revenue, resulting in total purchase consideration of$1,192,426 . Based on the terms of the purchase agreement, the acquisition has been treated as a business combination underU.S. GAAP using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired will be recorded as goodwill. OnMay 19, 2022 , we entered into an Asset and Franchise Purchase Agreement under which we repurchased from the seller four operating franchises inArizona . We operate the franchises as company-owned clinics. The total purchase price for the transaction was$5,761,256 , less$70,484 of net deferred revenue, resulting in total purchase consideration of$5,690,772 . Based on the terms of the purchase agreement, the acquisition has been treated as a business combination. OnApril 1, 2022 , we entered into an agreement under which we repurchased the right to develop franchises in various counties inCalifornia . The total consideration for the transaction was$2,400,000 . We carried a deferred revenue balance associated with this transaction of$357,721 , representing the unrecognized 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$2,042,279 as reacquired development rights onApril 1, 2022 , which is amortized over the remaining original contract period of approximately 5.3 years. OnMarch 18, 2022 , we entered into an agreement under which we repurchased the right to develop franchises in various counties inNew Jersey . The total consideration for the transaction was$250,000 . We carried a deferred revenue balance associated with this transaction of$95,197 , representing the unrecognized 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$154,803 as reacquired development rights onMarch 18, 2022 , which is amortized over the remaining original contract period of approximately 5.5 years. 34
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OnFebruary 28, 2022 , we entered into an amendment to our Credit Facilities (as amended, the "2022 Credit Facility") with the Lender. Under the 2022 Credit Facility, the Revolver increased to$20,000,000 (from$2,000,000 ), the portion of the Revolver available for letters of credit increased to$5,000,000 (from$1,000,000 ), the uncommitted additional amount increased to$30,000,000 (from$2,500,000 ) and the developmental line of credit of$5,500,000 was terminated. The Revolver will be used for working capital needs, general corporate purposes and for acquisitions, development and capital improvement uses.
For the three months ended
new corporate clinics.
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2022 Full Year Outlook
•We now expect our revenues to be between$100 million and$102 million , compared to$80.9 million in 2021. •We now expect our adjusted EBITDA to be between$11.5 million and$12.5 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 continue our rapid clinic expansion due to, among other things, our resilient business model, planned new clinic openings and expansion of company-owned or managed clinics. However, the long-term impact of COVID-19, increased global economic uncertainty, and the increase in interest rates and the expectation that interest rates will continue to rise, may adversely affect patients' financial conditions, resulting in reduced spending on our services. Rising interest rates would also make it more expensive for a potential franchisee to finance a transaction. These and other uncertainties with respect to these recent events could result in changes to our current expectations.
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, closures, markets in which they are contained and related expenses, general economic conditions, cost inflation, labor shortages, 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
There were no changes in our significant accounting policies and estimates
during the nine months ended
“Significant Accounting Policies and Estimates” in our Annual Report on Form
10-K for the year ended
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 – three months ended
months ended
Components of revenues were as follows:
Three Months Ended
September 30,
Change from Percent Change
2022 2021 Prior Year from Prior Year
Revenues:
Revenues from company-owned or managed
clinics $ 15,836,327 $ 11,634,009 $ 4,202,318 36.1 {194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}
Royalty fees 6,604,653 5,714,637 $ 890,016 15.6 {194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}
Franchise fees 642,405 648,598 $ (6,193) (1.0) {194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}
Advertising fund revenue 1,881,367 1,627,693 $ 253,674 15.6 {194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}
IT related income and software fees 1,109,753 840,969 $ 268,784 32.0 {194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}
Regional developer fees 153,181 209,651 $ (56,470) (26.9) {194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}
Other revenues 375,314 316,064 $ 59,250 18.7 {194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}
Total revenues $ 26,603,000 $ 20,991,621 $ 5,611,379 26.7 {194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}
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Consolidated Results
Total revenues increased by
expansion and revenue growth of our franchise base and the continued revenue
growth and expansion of our company-owned or managed clinics portfolio.
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
company-owned or managed clinics portfolio. As of
there were 115 and 83 company-owned or managed clinics in operation,
respectively.
Franchise Operations
•Royalty fees and advertising fund revenue increased due to an increase in the number of franchised clinics in operation during the current period, along with continued sales growth in existing franchised clinics. As ofSeptember 30, 2022 and 2021, there were 690 and 583 franchised clinics in operation, respectively. •Franchise fees revenue was relatively flat as the impact of an increase in executed franchise agreements was more than offset by the impact of accelerated revenue recognition resulting from the terminated franchise license agreements in the prior year period. There were no such comparable events during the third quarter of 2022 .
•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.
•Regional developer fees revenue decreased due to the impact of repurchased
regional developer rights during the first half of 2022.
•Other revenues primarily consisted of merchant income associated with credit
card transactions.
Total Revenues – nine months ended
ended
Components of revenues were as follows:
Nine Months Ended
September 30,
Change from Percent Change
2022 2021 Prior Year from Prior Year
Revenues:
Revenues from company-owned or managed
clinics $ 42,936,298 $ 32,537,942 $ 10,398,356 32.0 {194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}
Royalty fees 19,024,799 15,816,500 $ 3,208,299 20.3 {194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}
Franchise fees 1,970,256 1,967,680 $ 2,576 0.1 {194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}
Advertising fund revenue 5,417,840 4,521,342 $ 896,498 19.8 {194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}
IT related income and software fees 3,166,732 2,387,543 $ 779,189 32.6 {194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}
Regional developer fees 524,923 642,041 $ (117,118) (18.2) {194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}
Other revenues 1,058,008 885,335 $ 172,673 19.5 {194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}
Total revenues $ 74,098,856 $ 58,758,383 $ 15,340,473 26.1 {194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}
Consolidated Results
Total revenues increased by
expansion and revenue growth of our franchise base and of our company-owned or
managed clinics portfolio.
Corporate Clinics 37
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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
company-owned or managed clinics portfolio. As of
there were 115 and 83 company-owned or managed clinics in operation,
respectively.
Franchise Operations
•Royalty fees and advertising fund revenue increased due to an increase in the number of franchised clinics in operation during the current period, along with continued sales growth in existing franchised clinics. As ofSeptember 30, 2022 and 2021, there were 690 and 583 franchised clinics in operation, respectively. •Franchise fees were relatively flat over the prior year period as the impact of the increase in executed franchise agreements was partially offset by the impact of greater accelerated revenue recognition resulting from the terminated franchise license agreements in the prior year period compared to the current period.
•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.
•Regional developer fees revenue decreased due to the impact of repurchased
regional developer rights during the first and second quarters of 2022.
•Other revenues primarily consisted of merchant income associated with credit
card transactions.
Change from Percent Change
Cost of Revenues 2022 2021
Prior Year from Prior Year
Three Months Ended
8.3 {194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}
Nine Months Ended
18.4 {194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}
For the three months ended September 30, 2022 , as compared with the three months
ended September 30, 2021 , the total cost of revenues increased, primarily due to
an increase in regional developer royalties and sales commissions of $0.2
million . For the nine months ended September 30, 2022 , as compared with the nine
months ended September 30, 2021 , the total cost of revenues increased, primarily
due to an increase in regional developer royalties and sales commissions of $0.8
million and an increase in website hosting costs of $0.2 million .
Selling and Marketing Expenses
Change from Percent Change
Selling and Marketing Expenses 2022 2021
Prior Year from Prior Year
Three Months Ended
22.8 {194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}
Nine Months Ended
25.4 {194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}
Selling and marketing expenses increased for the three and nine months ended
September 30, 2022 , as compared to the three and nine months ended September 30,
2021 , driven by an increase in advertising fund expenditures from a larger
franchise base and an increase in local marketing expenditures by the
company-owned or managed clinics.
Depreciation and Amortization Expenses
Change from Percent Change
Depreciation and Amortization Expenses 2022 2021 Prior Year from Prior Year
Three Months Ended September 30, 2,011,768 1,662,255 $ 349,513 21.0 {194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}
Nine Months Ended September 30, 5,341,420 4,275,140 $ 1,066,280 24.9 {194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}
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Depreciation and amortization expenses increased for the three months endedSeptember 30, 2022 , as compared to the three months endedSeptember 30, 2021 , primarily due to the depreciation expenses associated with the expansion of our company-owned or managed clinics portfolio in 2021 and 2022. Depreciation and amortization expenses increased for the nine months endedSeptember 30, 2022 , as compared to the nine months endedSeptember 30, 2021 , primarily due to depreciation expenses associated with the expansion of our company-owned or managed clinics portfolio in 2021 and 2022 and the new IT platform used by clinics for operations and for the management of operations, which went live inJuly 2021 .
General and Administrative Expenses
Change from Percent Change
General and Administrative Expenses 2022 2021 Prior Year from Prior Year
Three Months Ended September 30, 17,796,806 12,812,331 $ 4,984,475 38.9 {194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}
Nine Months Ended September 30, 49,703,451 34,513,378 $ 15,190,073 44.0 {194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}
General and administrative expenses increased for the three months ended
September 30, 2022 , as compared to the three months ended September 30, 2021 ,
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 $3.7 million , (ii) general overhead and administrative expenses of
$1.0 million , and (iii) software and maintenance expense of $0.2 million .
General and administrative expenses increased for the nine months ended
September 30, 2022 , as compared to the nine months ended September 30, 2021 ,
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 $10.6 million , (ii) general overhead and administrative expenses of
$3.1 million , (iii) professional and advisory fees of $1.0 million , and (iv)
software and maintenance expense of $0.5 million . As a percentage of revenue,
general and administrative expenses during the nine months ended September 30,
2022 and 2021 were 67{194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6} and 61{194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}, respectively, reflecting the impact of the
greenfields that opened in 2022.
Income from Operations – three months ended
three months ended
Change from Percent Change
Three Months Ended September 30, 2022 2021 Prior
Year from Prior Year
Income from Operations 500,472 1,338,878 $ (838,406) (62.6) {194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}
Consolidated Results
Consolidated income from operations decreased by
months ended
clinics and unallocated corporate segments discussed below.
Our corporate clinics segment had loss from operations of$0.3 million for the three months endedSeptember 30, 2022 , a decrease of$1.5 million compared to income from operations of$1.2 million for the prior year period. The decrease was primarily due to: •A$5.7 million increase in operating expenses due to the increases in the following: (i) payroll-related expenses of$4.1 million due to a higher head count to support the expansion of our corporate clinic portfolio and general wage increases to remain competitive in the current labor market, (ii) selling and marketing expenses of$0.4 million driven by an increase in local marketing expenditures by the company-owned or managed clinics, (iii) depreciation expense associated with the expansion of our company-owned or managed clinics portfolio in 2021 and 2022 of$0.2 million , (iv) general overhead and administrative expenses to support the expansion of our corporate clinic portfolio of$0.7 million , and (v) impairment loss of$0.3 million ; partially offset by
•An increase in revenues of
Franchise Operations
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Our franchise operations segment had income from operations of$5.2 million for the three months endedSeptember 30, 2022 , an increase of$1.0 million , compared to income from operations of$4.2 million for the prior year period. This increase was primarily due to:
•An increase of
•An increase of
regional developer royalties and an increase of
expenses.
Unallocated Corporate
Unallocated corporate expenses for the three months endedSeptember 30, 2022 increased by$0.3 million compared to the prior year period, primarily due to the increase in general and administrative expenses of$0.2 million and amortization expense of 0.1 million.
Income from Operations – nine months ended
months ended
Change from Percent Change
Nine Months Ended September 30, 2022 2021
Prior Year from Prior Year
Income from Operations 797,253 5,345,305 $ (4,548,052) (85.1) {194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6}
Consolidated Results
Consolidated income from operations decreased by
months ended
2021
unallocated corporate segments discussed below.
Our corporate clinics segment had loss from operations of$0.4 million for the nine months endedSeptember 30, 2022 , a decrease of$4.8 million compared to income from operations of$4.4 million for the prior year period. The decrease was primarily due to: •A$15.2 million increase in operating expenses due to the increases in the following: (i) payroll-related expenses of$11.0 million due to a higher head count to support the expansion of our corporate clinic portfolio and general wage increases to remain competitive in the current labor market, (ii) depreciation expense associated with the expansion of our company-owned or managed clinics portfolio in 2021 and 2022 of$0.7 million , (iii) selling and marketing expenses due to increased local marketing expenditures by the company-owned or managed clinics of$0.8 million , (iv) general overhead and administrative expenses to support the expansion of our corporate clinic portfolio of$2.4 million , and (v) impairment loss of$0.3 million ; partially offset by
•An increase in revenues of
Franchise Operations
Our franchise operations segment had income from operations of$13.8 million for the nine months endedSeptember 30, 2022 , an increase of$1.9 million , compared to income from operations of$11.9 million for the prior year period. This increase was primarily due to:
•An increase of
•An increase of$1.1 million in cost of revenues, primarily due to an increase in regional developer royalties and website hosting costs and an increase of$1.9 million in operating expenses, primarily due to an increase in: (i) selling and marketing expenses resulting from a larger franchise base of$1.4 million , (ii) depreciation expense associated with the new IT platform of$0.4 million , and (iii) payroll-related expenses of$0.1 million .
Unallocated Corporate
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Unallocated corporate expenses for the nine months ended
increased by
the increases in professional and advisory fees of
overhead and administrative expenses of
Non-GAAP Financial Measures
The table below reconciles net income to Adjusted EBITDA for the three and nine
months ended
Nine Months Ended
Three Months Ended September 30, September 30,
2022 2021 2022 2021
Non-GAAP Financial Data:
Net income $ 491,113 $
1,937,095
Net interest expense 25,235 16,139 60,668 54,050 Depreciation and amortization expense 2,011,768 1,662,255 5,341,420 4,275,140 Tax (benefit) expense (15,876) (614,356) 106,527 (1,644,496) EBITDA 2,512,240 3,001,133 6,138,673 9,620,445 Stock compensation expense 305,815 296,850 969,562 826,908 Acquisition related expenses 46,712 3,000 78,298 48,346 Loss (gain) on disposition or impairment 264,391 (3,540) 360,140 16,967 Adjusted EBITDA$ 3,129,158 $
3,297,443
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. There was no bargain purchase gain for the three and nine months endedSeptember 30, 2022 and 2021. 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. 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 that 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.
Liquidity and Capital Resources
As ofSeptember 30, 2022 , we had unrestricted cash and short-term bank deposits of$10.3 million and$18 million of available capacity under the development line of credit. While the ongoing COVID-19 pandemic and the Ukraine War create 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 interruptions, delays and/or cost increases resulting from the ongoing COVID-19 pandemic, political instability and geopolitical tensions, such as the Ukraine War, economic weakness, inflationary pressures, increase in interest rates and other factors have created uncertainty as to general economic conditions for the remainder of 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 for funds to conduct our operations and meet other needs in the ordinary course of our business. For the remainder of 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 uncertainties described above, could rapidly and materially deteriorate or otherwise change. Our long-term capital requirements, primarily for acquisitions and other corporate initiatives, could be 41 -------------------------------------------------------------------------------- Table of Contents dependent on our ability to access additional funds through the debt and/or equity markets. If the equity and credit markets deteriorate, including as a result of economic weakness, a resurgence of COVID-19, political unrest or war, including the Ukraine War, or any other reason, it may make any necessary equity or debt financing more difficult to obtain in a timely manner and on favorable terms, if at all, and if obtained, it may be more costly or more dilutive. 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. Given the ongoing uncertainties described above, 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
Net cash provided by operating activities decreased by$6.8 million to$5.7 million for the nine months endedSeptember 30, 2022 , compared to$12.5 million for the nine months endedSeptember 30, 2021 . The decrease was primarily attributable to an increase in general and administrative expenses over the prior year period and negative change in working capital, which was partially offset by an increase in revenue over the prior year period. Net cash used in investing activities was$14.9 million and$11.3 million for the nine months endedSeptember 30, 2022 and 2021, respectively. For the nine months endedSeptember 30, 2022 , this included acquisitions of$8.0 million , purchases of property and equipment of$4.3 million and reacquisition and termination of regional developer rights for$2.7 million . For the nine months endedSeptember 30, 2021 , this included acquisitions of$4.5 million , purchases of property and equipment of$5.4 million and reacquisition and termination of regional developer rights for$1.4 million . Net cash provided by financing activities for the nine months endedSeptember 30, 2022 was$0.3 million , primarily from the proceeds from the exercise of stock options, compared to net cash used in financing activities of$2.0 million for the nine months endedSeptember 30, 2021 . For the nine months endedSeptember 30, 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 .
Recent Accounting Pronouncements
See Note 1, Nature of Operations and Summary of Significant Accounting Policies, to our condensed consolidated financial statements included in this report for information regarding recently issued accounting pronouncements that may impact our financial statements.
Off-Balance Sheet Arrangements
During the nine months ended
relationships with unconsolidated organizations or financial partnerships, such
as structured finance or special purpose entities that would have been
established for the purpose of facilitating off-balance sheet arrangements.
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