Fresh from a $20-million IPO in November, The Joint Corp. (NASDAQ:JYNT), a franchisor of some 236 chiropractic clinics in 25 states, plans to more than double the number of clinics in its chain as part of a national expansion over the next five years.
John Richards
“Our strategy is to aggressively grow our already proven, profitable business model through the rapid expansion of primarily, but not exclusively, corporate-owned clinics,” CEO, John Richards, says in an interview with BioTuesdays.com.
“The return on investment of our model is a very compelling story, so it makes sense to capture the earnings of the clinics ourselves,” he adds.
Mr. Richards explains that Joint differentiates itself from its competition by operating a non-insurance, cash-based model, with treatments averaging $29—which is less than the co-pay portion of most insurance coverage.
The absence of third party reimbursement and related administrative requirements allows the clinics to operate more efficiently and at a lower cost, and allows chiropractic doctors to focus their practice on patient care.
“Insurers are traditionally slow to pay chiropractors,” he contends, noting that the company’s founder established the Joint concept because of problems and delays with reimbursement. “We employ a cash-only, retail-based model, with spa-like clinics.”
Joint doesn’t treat severe back injury or employ invasive diagnostic tools such as X-rays and MRIs. Its clinics offer only spinal adjustments, which can be completed in about 10 minutes.
As a result, the company leads the industry in patient visits, with an average of 1,560 monthly, compared with an industry average of 430, according to a First Research industry report last March.
Mr. Richards says Joint’s private pay model can be a very attractive option for its chiropractors, who can earn between $75,000 and $100,000 a year. The industry average is $60,000, according to the Bureau of Labor statistics.
In addition, he suggests that Joint chiropractors can reach the $100,000 pay plateau in five years, compared with an industry average of 15 years.
The Joint Business Model: Chiropractor Employer of Choice
The American Chiropractic Association estimates that 80% of Americans experience back pain. Back pain typically is a recurring problem in the $11-billion chiropractic market, and Joint patients are encouraged to purchase lower cost memberships or treatment plans, he says, noting that 80% of clinic revenue is recurring.
“We view Joint as potentially a transformational retail concept in the health care area,” Roth Capital Partners analyst, Anton Brenner, wrote in an initiation report last month.
“Its clinics offer quick spinal adjustment chiropractic treatments by licensed chiropractors to patients at conveniently located clinics, at costs 50% or more below industry averages,” he pointed out. “The walk-in chiropractic clinics are open longer hours and more days than most medical practices, and patients have minimal wait times.”
Mr. Brenner started coverage of Joint with a “buy” rating and 12-month price target of $10. The stock closed at $6.31 on Friday.
Late last month, four-year-old Joint reported that third quarter revenue rose 23% to $1.8-million, with nine-month revenue up 18% to $5.1-million.
Mr. Richards says the company is structured to operate as a retail business rather than as a typical medical practice. “This should provide significant advantages in a fragmented industry, with some 60,000 chiropractors mostly operating as sole practitioners,” he suggests.
As a result, he points out that new clinics, which typically cost $225,000 to open, excluding franchising fees, can reach breakeven in about 12-15 months and recoup their investment in 28 months. With rapid patient turnover, new clinics can achieve EBITDA profit margins of 28% in two years, with a return on investment potentially approaching 50%.
“We have a simple, profitable and self-funding business model,” he contends. “Mature unit earnings can fund opening a new clinic every year. That’s why we’re moving to a corporate-owed concept because the returns on initial investment are rapid and compelling.”
Among other things, he figures the return on corporate-owned clinics can be four times greater than franchised units after three years.
Mr. Richards says there are about 252 franchised clinics in development, which are typically required to open within 12 months of signing. That would bring the total number of franchised units to around 480.
Clinics In Franchise Development (*Clinic counts as of 09/01/14)
“Our plans for 2015 include adding an additional 70-to-90 clinics, with an increasing blend of corporate-owned clinics and the continued, but more focused, expansion of franchise clinics, as the hallmark of our future strategy,” he adds.
Taking into account buying back certain franchised clinics and opening some 150-plus new corporate clinics, he suggests that the size of the chain could reach 600 units within five years. In addition, the company estimates the U.S. store opportunity is more than 1,600 clinics.
“We think this number could prove considerably conservative, given we have seen Joint stores successful in markets with trade populations as small as 50,000 to 60,000, implying that the final store opportunity in the U.S. may be closer to 3,000-to-4,000 locations,” Feltl analyst, Brent Rystrom, wrote in an initiation report last month.
He initiated coverage of Joint with a “strong buy” rating and price target of $12.45, saying the “shift to a corporate store model could drive exceptional shareholder returns.”
