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What changed in JOINT Corp's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of JOINT Corp's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+313 added−345 removedSource: 10-K (2024-03-08) vs 10-K (2023-03-10)

Top changes in JOINT Corp's 2023 10-K

313 paragraphs added · 345 removed · 255 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

99 edited+18 added−27 removed98 unchanged
Biggest changeAccordingly, our long-term growth tactics include: • the continued growth of system sales and royalty income; • accelerating the opening of clinics already in development; • the sale of additional franchises; • increasing the capability and capacity of our existing regional developer network; • improving operational margins and leveraging infrastructure; • the opportunistic acquisition of existing franchised clinics – referred to as “buybacks”; and • the development of company-owned or managed clinics – referred to as “greenfields” – in clustered geographies.
Biggest changeAccordingly, our long-term growth tactics include: • the continued growth of system sales through the increased attraction and retention of patients; 6 Table of Contents • the increase in royalty income through the acceleration of the opening of clinics already in development and the sale of additional franchises; and • improving operational margins and expanding additional revenue streams within our clinics.
Chiropractic care is increasingly recognized as an effective treatment for pain and potentially for a variety of other conditions. The American College of Physicians (ACP) now recommends non-drug therapy such as spinal manipulation as a first line of treatment for patients with chronic low-back pain.
Chiropractic care is increasingly recognized as an effective treatment for pain and potentially for a variety of other conditions. The American College of Physicians (the "ACP") now recommends non-drug therapy such as spinal manipulation as a first line of treatment for patients with chronic low-back pain.
Even when entities are not covered by HIPAA, the Federal Trade Commission, or the FTC, has taken the position that a failure to take appropriate steps to keep consumers’ personal information secure may constitute unfair acts or practices in or affecting commerce in violation of the Federal Trade Commission Act.
Even when entities are not covered by HIPAA, the Federal Trade Commission (the "FTC") has taken the position that a failure to take appropriate steps to keep consumers’ personal information secure may constitute unfair acts or practices in or affecting commerce in violation of the Federal Trade Commission Act.
State regulations on corporate practice of chiropractic. In states that regulate the “corporate practice of chiropractic,” chiropractic services are provided solely by legal entities organized under state laws as professional corporations, or PCs or their equivalents.
State Regulations on Corporate Practice of Chiropractic In states that regulate the “corporate practice of chiropractic,” chiropractic services are provided solely by legal entities organized under state laws as professional corporations ("PCs") or their equivalents.
Additionally, an August 2015 decision by the NLRB held that Browning-Ferris Industries was a “joint employer” for purposes of collective bargaining under the National Labor Relations Act (NLRA) and, thus, obligated to negotiate with the Teamsters union over workers supplied by a contract staffing firm within one of its recycling plants.
Additionally, an August 2015 decision by the NLRB held that Browning-Ferris Industries was a “joint employer” for purposes of collective bargaining under the National Labor Relations Act (the "NLRA") and, thus, obligated to negotiate with the Teamsters union over workers supplied by a contract staffing firm within one of its recycling plants.
In an effort to effectively reverse the McDonald’s Corporation decision, in 2020, the Department of Labor (DOL) issued a final rule narrowing the meaning of “joint employer” in the FLSA.
In an effort to effectively reverse the McDonald’s Corporation decision, in 2020, the Department of Labor (the "DOL") issued a final rule narrowing the meaning of “joint employer” in the FLSA.
Diversity and Inclusion We recognize that our best performance comes when our teams are diverse, and accordingly, diversity, equity and inclusion ("DEI") are a critical part of our vision of building a world-class organizational culture.
Diversity, Equity and Inclusion We recognize that our best performance comes when our teams are diverse, and accordingly, diversity, equity and inclusion ("DEI") are a critical part of our vision of building a world-class organizational culture.
Substantive state laws regulating the franchisor-franchisee relationship presently exist in many states. State laws often limit, among other things, the duration and scope of non-competition provisions and the ability of a franchisor to terminate or refuse to renew a franchise. A new policy from the North American Securities Administrators Association, Inc.
Substantive state laws regulating the franchisor-franchisee relationship presently exist in many states. State laws often limit, among other things, the duration and scope of non-competition provisions and the ability of a franchisor to terminate or refuse to renew a franchise. A policy from the North American Securities Administrators Association, Inc.
While it has not done so to date, we cannot assure you that the New York Attorney General will not similarly choose to challenge our contractual relationships with our affiliated PCs in New York and, in particular, to question whether use of The Joint trademark by our affiliated PCs misleads consumers, causing them to incorrectly conclude that we are the provider of chiropractic treatment. 10 Table of Contents The Kansas Healing Arts Board, in response to a third-party complaint about one of our franchisees, sent a letter to the franchisee in February 2015 questioning whether the franchise business model might violate Kansas law regarding the unauthorized practice of chiropractic care.
While it has not done so to date, we cannot assure you that the New York Attorney General will not similarly choose to challenge our contractual relationships with our affiliated PCs in New York and, in particular, to question whether use of The Joint trademark by our affiliated PCs misleads consumers, causing them to incorrectly conclude that we are the provider of chiropractic treatment. 9 Table of Contents The Kansas Healing Arts Board, in response to a third-party complaint about one of our franchisees, sent a letter to the franchisee in February 2015 questioning whether the franchise business model might violate Kansas law regarding the unauthorized practice of chiropractic care.
On November 14, 2014, we completed our initial public offering, or the IPO, of 3,000,000 shares of common stock at an initial price to the public of $6.50 per share, and we received net proceeds of approximately $17.1 million.
On November 14, 2014, we completed our initial public offering (the "IPO") of 3,000,000 shares of common stock at an initial price to the public of $6.50 per share, and we received net proceeds of approximately $17.1 million.
We collect a royalty of 7.0% of revenues from franchised clinics. We remit a 3.0% royalty to our regional developers on the gross sales of franchises opened within certain regional developer protected territories. We also collect a national marketing fee of 2.0% of gross sales of all franchised clinics.
We collect a royalty of 7.0% of gross sales from franchised clinics. We remit a 3.0% royalty to our regional developers on the gross sales of franchises opened within certain regional developer protected territories. We also collect a national marketing fee of 2.0% of gross sales of all franchised clinics.
California adopted Assembly Bill 5, or AB-5, which took effect on January 1, 2020. This legislation codifies the standard established in a California Supreme Court case (Dynamex Operations West v.
California adopted Assembly Bill 5 ("AB-5"), which took effect on January 1, 2020. This legislation codifies the standard established in a California Supreme Court case (Dynamex Operations West v.
With the over-allotment option exercise, we received aggregate net proceeds of approximately $13.3 million. We deliver convenient, appointment-free chiropractic adjustments in an inviting, open bay environment at prices that are approximately 45% lower than the average industry cost for comparable procedures offered by traditional chiropractors, according to 2022 industry data from Chiropractic Economics.
With the over-allotment option exercise, we received aggregate net proceeds of approximately $13.3 million. We deliver convenient, appointment-free chiropractic adjustments in an inviting, open bay environment at prices that are approximately 45% lower than the average industry cost for comparable procedures offered by traditional chiropractors, according to 2023 industry data from Chiropractic Economics.
Other federal, state and local regulation We are subject to varied federal regulations affecting the operation of our business. We are subject to the U.S. Fair Labor Standards Act, the U.S.
Other Federal, State and Local Regulation We are subject to varied federal regulations affecting the operation of our business. We are subject to the U.S. Fair Labor Standards Act (the "FLSA"), the U.S.
In February 2020, the State of Washington Chiropractic Quality Assurance Commission delivered notices that it was investigating complaints made against three chiropractors who own clinics, or are (or were) employed by clinics, in Washington. These clinics 9 Table of Contents receive management services from our franchisees that are not owned by chiropractors.
In February 2020, the State of Washington Chiropractic Quality Assurance Commission delivered notices that it was investigating complaints made against three chiropractors who own clinics, or are (or were) employed by clinics, in Washington. These clinics 8 Table of Contents receive management services from our franchisees that are not owned by chiropractors.
We are operating under exemptions from registration in several states based on our qualifications for exemption as set forth in those states’ laws. As of December 31, 2022, we were registered to sell franchises in every state (where registrations are required) and could sell franchises in all 50 states.
We are operating under exemptions from registration in several states based on our qualifications for exemption as set forth in those states’ laws. As of December 31, 2023, we were registered to sell franchises in every state (where registrations are required) and could sell franchises in all 50 states.
We receive a franchise sales fee of $39,900 for each franchise we sell directly and offer a veterans discount, as well as a discount for purchase of multiple location franchises. If a franchisee purchases additional franchise licenses, the initial franchise fee is reduced by $10,000 per additional license.
We receive an initial franchise fee of $39,900 for each franchise we sell directly and offer a veterans discount, as well as a discount for purchase of multiple location franchises. If a franchisee purchases additional franchise licenses, the initial franchise fee is reduced by $10,000 per additional license.
Courts addressing this issue have come to differing conclusions, and while it remains uncertain as to how the joint employer issue will finally be resolved in California, potential new federal laws or regulations may ultimately be controlling on this issue. AB-5 has been the subject of widespread national discussion. Other states are considering similar approaches.
Courts addressing this issue have come to differing conclusions, and while it remains uncertain as to how the joint employer issue will finally be resolved in California, potential new federal laws or regulations may ultimately be controlling on this issue. 11 Table of Contents AB-5 has been the subject of widespread national discussion. Other states are considering similar approaches.
The law is aimed at the so-called “gig economy” where workers in many industries are 12 Table of Contents treated as independent contractors, rather than employees, and lack the protections of wage and hour laws, although California voters approved a ballot initiative, now under court review, to exclude app-based drivers from the application of AB-5.
The law is aimed at the so-called “gig economy” where workers in many industries are treated as independent contractors, rather than employees, and lack the protections of wage and hour laws, although California voters approved a ballot initiative, now under court review, to exclude app-based drivers from the application of AB-5.
Our Industry Chiropractic care is widely accepted among individuals with a variety of medical conditions, particularly back pain. A 2018 Gallup report commissioned by Palmer College of Chiropractic shows that among all U.S. adults, including those who did not have neck or back pain, 16% went to a chiropractor in the last 12 months.
Our Industry Chiropractic care is widely accepted among individuals with a variety of medical conditions, particularly back pain. A 2018 Gallup report commissioned by Palmer College of Chiropractic shows that among all U.S. adults, including those who did not have neck or 3 Table of Contents back pain, 16% went to a chiropractor in the last 12 months.
The following table sets forth our average price per adjustment as of December 31, 2022 for patients who pay by single adjustment plans, multiple adjustment packages, and multiple adjustment membership plans. Our price per adjustment as of December 31, 2022 averaged approximately $36 across all three groups.
The following table sets forth our average price per adjustment as of December 31, 2023 for patients who pay by single adjustment plans, multiple adjustment packages and multiple adjustment membership plans. Our price per adjustment as of December 31, 2023 averaged approximately $36 across all three groups.
Our distributors and suppliers also may be affected by higher minimum wage and benefit standards, which could result in higher costs for goods and services supplied to us. Joint Employer Rules 11 Table of Contents Background.
Our distributors and suppliers also may be affected by higher minimum wage and benefit standards, which could result in higher costs for goods and services supplied to us. Joint Employer Rules 10 Table of Contents Background.
Our three largest multi-unit competitors are Airrosti, HealthSource Chiropractic, and 100% Chiropractic, all of which are insurance-based models. We have identified 7 competitors who are attempting to duplicate our cash-only, low cost, appointment-free model.
Our three largest multi-unit competitors are Airrosti, HealthSource Chiropractic and 100% Chiropractic, all of which are insurance-based models. We have identified eight competitors who are attempting to duplicate our cash-only, low cost, appointment-free model.
At the clinic level, we expect to drive margins and labor efficiencies through continued sales growth and consistently applied operating standards as our clinic base matures and the average number of patient visits increases. In addition, we continue to consider introducing selected and complementary branded products such as nutraceuticals or dietary supplements and related additional services. Acquiring existing franchises.
At the clinic level, we expect to drive margins and labor efficiencies through continued sales growth and consistently applied operating standards as our clinic base matures and the average number of patient visits increases. In addition, we continue to consider introducing selected and complementary branded products such as nutraceuticals or dietary supplements and related additional services.
By comparison, our average fee as of December 31, 2022 was approximately $36, approximately 45% lower than the industry average price. We believe our pricing and service offering structure helps us to generate higher usage.
By comparison, our average fee as of December 31, 2023 was approximately $36, approximately 45% lower than the industry average price. We believe our pricing and service offering structure helps us to generate higher usage.
For example, the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) imposes extensive privacy and security requirements governing the transmission, use and disclosure of health information by covered entities in the healthcare 8 Table of Contents industry.
For example, the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) imposes extensive privacy and security requirements governing the transmission, use and disclosure of health information by covered entities in the healthcare 7 Table of Contents industry.
In addition to efforts to expand the definition of “joint employer” through the proposed new rule under the NLRA and the withdrawal of the FLSA rule, it is expected that the Equal Opportunity Employment Commission (EEOC), which enforces anti-discrimination laws, will issue rules which include an expansive definition of “joint employer.” Significance of Joint Employer Rules for our Business Model.
In addition to efforts to expand the definition of “joint employer” through the final rule under the NLRA and the withdrawal of the FLSA rule, it is expected that the Equal Opportunity Employment Commission (the "EEOC"), which enforces anti-discrimination laws, will issue rules which include an expansive definition of “joint employer.” Significance of Joint Employer Rules for our Business Model.
Except as specifically indicated otherwise, the information on, or that can be accessed through, our website or any other website identified herein is not incorporated by reference into this Annual Report on Form 10-K.
Except as specifically indicated otherwise, the information on, or that can be accessed through, our website or any other website identified herein is not incorporated by reference into this Form 10-K.
Our competitors include approximately 42,000 independent chiropractic offices currently open throughout the United States, according to a 2022 Kentley Insights market research report, as well as certain multi-unit operators. We may also face competition from traditional medical practices, outpatient clinics, physical therapists, med-spas, massage therapists and sellers of devices intended for home use to address back and joint discomfort.
Our competitors include approximately 40,000 independent chiropractic offices currently open throughout the United States, according to a 2024 Kentley Insights market research report, as well as certain multi-unit operators. We may also face competition from traditional medical practices, outpatient clinics, physical therapists, med-spas, massage therapists and sellers of devices intended for home use to address back and joint discomfort.
Available Information We make available free of charge, through our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (SEC).
Available Information We make available free of charge, through our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC.
We strive to make The Joint Chiropractic the career path of 13 Table of Contents choice for chiropractors, with opportunities for our chiropractors to grow and develop in their careers, supported by competitive compensation and benefits, and with our simple business model that allows our chiropractors to focus on patient care.
We strive to make The Joint Chiropractic the career path of choice for chiropractors, with opportunities for our chiropractors to grow and develop in their careers, supported by competitive compensation and benefits, and with our simple business model that allows our chiropractors to focus on patient care.
These numbers represent a marked increase over the 2012 National 3 Table of Contents Health Interview Survey that measured chiropractic use at 8% of the population. According to the American Chiropractic Association, 80% of Americans experience back pain at least once in their lifetime.
These numbers represent a marked increase over the 2012 National Health Interview Survey that measured chiropractic use at 8% of the population. According to the American Chiropractic Association, 80% of Americans experience back pain at least once in their lifetime.
During this period, we increased the number of clinics in operation from 33 to 838. We continue to be encouraged by the ability of individual clinics to generate growth.
During this period, we increased the number of clinics in operation from 33 to 935. We continue to be encouraged by the ability of individual clinics to generate growth.
The SEC’s website, www.sec.gov, contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. 15 Table of Contents
The SEC’s website, www.sec.gov, contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. 14 Table of Contents
A July 2014 decision by the United States National Labor Relations Board (NLRB) held that McDonald’s Corporation could be held liable as a “joint employer” for labor and wage violations by its franchisees under the Fair Labor Standards Act (FLSA).
A July 2014 decision by the United States National Labor Relations Board (the "NLRB") held that McDonald’s Corporation could be held liable as a “joint employer” for labor and wage violations by its franchisees under the FLSA.
Please see the risk factor in Item 1A for additional discussion of the “Risks Related to State Regulations on the Corporate Practice of Chiropractic” as they relate to our business model. Regulation relating to franchising We are subject to the rules and regulations of the Federal Trade Commission and various state laws regulating the offer and sale of franchises.
Please see the risk factor in Item 1A for additional discussion of the “Risks Related to State Regulations on the Corporate Practice of Chiropractic” as they relate to our business model. Regulation Relating to Franchising We are subject to the rules and regulations of the FTC and various state laws regulating the offer and sale of franchises.
While there is significant variation in results in our system, and the results of our top-performing clinics are not representative of our system overall, we believe it is worth noting that in January 2012, the highest-performing clinic in our system was a franchised clinic which had monthly sales of approximately $45,000, and in December 2022, the highest performing clinic in our system was a franchised clinic which had monthly sales of approximately $166,000.
While there is significant variation in results in our system, and the results of our top-performing clinics are not representative of our system overall, we believe it is worth noting that in January 2012, the highest-performing clinic in our system was a franchised clinic which had monthly sales of approximately $45,000, and in December 2023, the highest performing clinic in our system was a franchised clinic which had monthly sales of approximately $180,000.
The adjustment process, administered by a licensed chiropractor, takes approximately 15 - 20 minutes on average for a new patient and 5 - 7 minutes on average for a returning patient. Our consumer-focused service model targets the non-acute treatment market, which is part of the $19.5 billion chiropractic services market, according to an IBIS market research report in March 2022.
The adjustment process, administered by a licensed chiropractor, takes approximately 15 - 20 minutes on average for a new patient and 5 - 7 minutes on average for a returning patient. Our consumer-focused service model targets the non-acute treatment market, which is part of the $20.5 billion chiropractic services market, according to an IBIS market research report in November 2023.
However, we believe that our FDD and franchising procedures currently comply in all material respects with both the Federal Trade Commission guidelines and all applicable state laws regulating franchising in those states in which we have offered franchises. As those guidelines and laws change, we will revise our FDD and franchising procedures accordingly.
However, we believe that our FDD and franchising procedures currently comply in all material respects with both the FTC guidelines and all applicable state laws regulating franchising in those states in which we have offered franchises. As those guidelines and laws change, we will revise our FDD and franchising procedures accordingly.
Our competitive employment program for chiropractors includes: (i) full time and flexible hours, with full benefits and paid time off, (ii) part time and flexible hours with some benefits, (iii) company-paid malpractice insurance, (iv) tuition reimbursement, (v) sign-on and referral bonuses, and (vi) competitive starting base salary.
Our competitive employment program for chiropractors includes (i) full time and flexible hours, with full benefits and paid time off, (ii) part time and flexible hours with some benefits, (iii) company-paid malpractice insurance, (iv) tuition reimbursement, sign-on and referral bonuses in certain circumstances, and (v) a competitive starting base salary.
We intend to continue to drive awareness of our brand by continuing to locate clinics mainly at retail centers and convenience points, displaying prominent signage and employing consistent, proven and targeted marketing tools. We offer our patients the flexibility to visit our clinics without an appointment and receive prompt attention.
We intend to continue to drive awareness of our brand by continuing to locate clinics mainly at retail centers and convenience points, displaying prominent signage and employing consistent, proven and targeted marketing tools. We offer our patients the flexibility to visit our clinics without an appointment where they will receive 4 Table of Contents prompt attention.
He has also served as chief operating officer of 24seven Vending (U.S), where he directed its franchise system in the U.S., and as executive vice president of development for Mail Boxes Etc. and vice 5 Table of Contents president of international for I Can’t Believe It’s Yogurt and Java Coast Fine Coffees. Mr.
He also served as chief operating officer of 24seven Vending (U.S), where he directed its franchise system in the United States, as executive vice president of development for Mail Boxes Etc. and as vice president of international for I Can’t Believe It’s Yogurt and Java Coast Fine Coffees. Mr.
We believe that our ability to leverage aggregated and general media digital advertising and search tools will continue to grow as the number and density of our clinics increases. Selling additional franchises. We will continue to sell franchises.
We believe that our ability to leverage aggregated and general media digital advertising and search tools will continue to grow as the number and density of our clinics increases.
An article appearing in the Journal of the American Medical Association (JAMA) entitled “US Healthcare Spending by Payer and Health Condition, 1996-2016” estimates that $134 billion was spent in 2016 on back pain in the U.S.
An article appearing in the Journal of the American Medical Association entitled “US Healthcare Spending by Payer and Health Condition, 1996-2016” estimates that $134 billion was spent in 2016 on back pain in the United States.
Quality, Empathetic Service . Across our system we have a community of more than 2,455 fully licensed chiropractic doctors, who performed approximately 12.2 million adjustments in 2022 alone. Our doctors provide personal and intuitive patient care focused on pain relief and ongoing wellness to promote healthy, active lifestyles.
Quality, Empathetic Service . Across our system we have a community of more than 2,591 fully licensed chiropractic doctors, who performed approximately 13.6 million adjustments in 2023 alone. Our doctors provide personal and intuitive patient care focused on pain relief and ongoing wellness to promote healthy, active lifestyles.
Since acquiring the predecessor to our company in March 2010, we have grown our enterprise from eight to 838 clinics in operation as of December 31, 2022, with an additional 197 franchise licenses sold but not yet developed across our network, and 38 letters-of-intent for 38 future clinic licenses.
Since acquiring the predecessor to our company in March 2010, we have grown our enterprise from eight to 935 clinics in operation as of December 31, 2023, with an additional 132 franchise licenses sold but not yet developed across our network, and 40 letters of intent for 40 future clinic licenses.
Our doctors continually refine their skills, as our clinics see an average of 321 patient visits per week (for clinics open for the full twelve months of 2022), as compared to the most recent chiropractic industry average of 115 patients per week for non-multidisciplinary or integrated practices, according to the same 2022 Chiropractic Economics survey referred to above.
Our doctors continually refine their skills, as our clinics see an average of 305 patient visits per week (for clinics open for the full 12 months of 2023), as compared to the most recent chiropractic industry average of 155 patients per week for non-multidisciplinary or integrated practices, according to the same 2023 Chiropractic Economics survey referred to above.
Based on publicly available information, 5 of these competitors each operate fewer than 12 clinics as franchises, and the largest competitor operated 158 clinics as franchises as of December 31, 2022. We anticipate that other direct competitors will join our industry as our visibility, reputation and perceived advantages become more widely known.
Based on publicly available information, five of these competitors each operate fewer than 15 clinics as franchises, and the largest competitor operated 131 clinics as franchises as of December 31, 2023. We anticipate that other direct competitors will join our industry as our visibility, reputation and perceived advantages become more widely known.
The term of our lease for this location expires on December 31, 2025. The primary functions performed at our corporate headquarters are finance and accounting, treasury, marketing, operations, human resources, information systems support, and legal. We are also obligated under non-cancellable leases for the clinics which we own or manage. Our clinics are on average 1,200 square feet.
The primary functions performed at our corporate headquarters are finance and accounting, treasury, marketing, operations, human resources, information systems support, and legal. We are also obligated under non-cancellable leases for the clinics which we own or manage. Our clinics are on average 1,200 square feet.
Our underwriters exercised their option to purchase 450,000 additional shares of common stock to cover over-allotments on November 18, 2014, pursuant to which we received net proceeds of approximately $2.7 million.
Our underwriters exercised their option to purchase 450,000 additional shares of common stock to cover over-allotments on November 18, 2014, pursuant to which we received net proceeds of approximately $2.7 million. With the over-allotment option exercise, we received aggregate net proceeds of approximately $19.8 million.
Similarly, in an effort to effectively reverse the Browning-Ferris decision, in 2020, the NLRB issued a final rule, narrowing the meaning of “joint employer” in the collective bargaining context under the NLRA. Current Status of Joint Employer Rules .
Similarly, in an effort to effectively reverse the Browning-Ferris decision, in 2020, the NLRB issued a final rule, narrowing the meaning of “joint employer” in the collective bargaining context under the NLRA. Current Status of Joint Employer Rules . On October 27, 2023, the NLRB published a final rule redefining joint employment standards under the NLRA.
These flexible plans are designed to attract patients and encourage repeat visits and routine usage as part of an overall health and wellness program. As of December 31, 2022, we had 838 franchised or company-owned or managed clinics in operation in 40 states.
These flexible plans are designed to attract patients and encourage repeat visits and routine usage as part of an overall health and wellness program. As of December 31, 2023, we had 935 franchised or company-owned or managed clinics in operation in 41 states and the District of Columbia.
Dr. Knauf began working at The Joint in 2011. After spending four years as a chiropractor in one of The Joint Corp. clinics, he took the role of Senior Doctor of Chiropractic for 13 of The Joint Corp. clinics and, subsequently, was elevated to a director position at the corporate office.
After spending four years as a chiropractor in one of our clinics, he took the role of Senior Doctor of Chiropractic for 13 of our clinics and, subsequently, was elevated to a director position at the corporate office.
In addition to our 838 operating clinics as of December 31, 2022, we have granted franchises, either directly or with our regional developers' support, for an additional 197 clinics that we believe will be developed in the future and executed 38 letters-of-intent for 38 future clinic licenses.
Opening Clinics in Development In addition to our 935 operating clinics as of December 31, 2023, we have granted franchises, either directly or with our regional developers' support, for an additional 132 clinics that we believe will be developed in the future and executed letters-of-intent for 40 future clinic licenses.
Based on our investigation and the legal guidance we received, it was determined that the breach did not result in the release of “personal information,” as defined in the relevant data breach notification laws of all but two states. With respect to those two states, we are working with the vendors to determine the process for notification.
Based on our investigation and the legal guidance we received, it was determined that the breach did not result in the release of “personal information,” as defined in the relevant data breach notification laws of all but two states.
Our clinic leases generally have an initial term of five years, include one to two options to renew for terms of five years, and require us to pay a proportionate share of real estate taxes, insurance, common area maintenance charges and other operating costs. As of December 31, 2022, our franchisees operated 712 clinics in 39 states.
Our clinic leases generally have an initial term of five years, include one to two options to renew for terms of five years, and require us to pay a proportionate share of real estate taxes, insurance, common area maintenance charges and other operating costs.
Recruitment We believe our employees are among our most valuable resources and are critical to our continued success. We focus significant attention on attracting and retaining talented and experienced individuals to operate our clinics and support our operations, and our management believes in a continuous improvement culture and routinely reviews employee turnover rates at various levels of the organization.
We focus significant attention on attracting and retaining talented and experienced individuals to operate our clinics and support our operations, and our management believes in a continuous improvement culture and routinely reviews employee turnover rates at various levels of the organization.
The Federal Trade Commission and various state laws require that we furnish a Franchise Disclosure Document or FDD containing certain information to prospective franchisees, and a number of states require registration of the FDD at least annually with state authorities.
The FTC and various state laws require that we furnish an FDD containing certain information to prospective franchisees, and a number of states require registration of the FDD at least annually with state authorities.
Our Growth Strategy Our goal is not only to capture a significant share of the existing market but also to expand the market for chiropractic care. We are accomplishing this through the rapid geographic expansion of our affordable franchising program and the acceleration of our development of company-owned or managed clinics.
Our Growth Strategy Our goal is not only to capture a significant share of the existing market but also to expand the market for chiropractic care. We are accomplishing this through the rapid geographic expansion of our affordable franchising program and the continued support of our robust regional developer network.
The notices contained allegations of fee-splitting, specifically targeting a provision in our Franchise Disclosure Document providing for the payment of royalty fees based on revenue derived from the furnishing of chiropractic care. The notices appeared to question our business model. The Commission posed a number of questions to the chiropractors and requested documentation describing the fee structure and related matters.
The notices contained allegations of fee-splitting, specifically targeting a provision in our Franchise Disclosure Document ("FDD") providing for the payment of royalty fees based on revenue derived from the furnishing of chiropractic care. The notices appeared to question our business model.
August 2020 6131833 You're Back, Baby July 2019 5940161 Back-Tober September 2018 5571732 Relief Recovery Wellness February 2018 5398367 Pain Relief Is At Hand February 2018 5395995 What Life Does To Your Body, We Undo February 2018 5396012 Be Chiro-Practical October 2017 5313693 Relief.
August 2020 6131833 YOU'RE BACK, BABY December 2019 5940161 BACK-TOBER September 2018 5571732 RELIEF RECOVERY WELLNESS February 2018 5398367 PAIN RELIEF IS AT HAND February 2018 5395995 WHAT LIFE DOES TO YOUR BODY, WE UNDO February 2018 5396012 RELIEF. ON SO MANY LEVELS.
We attracted an average of 1,229 new patients per clinic (for all clinics open for the full twelve months of 2022) during the year ended December 31, 2022, as compared to the most recent chiropractic industry average of 333 new patients per year for traditional 4 Table of Contents insurance-based non-multidisciplinary or integrated practices, according to a 2022 Chiropractic Economics survey (conducted in March and April of 2022).
We attracted an average of 1,021 new patients per clinic (for all clinics open for the full 12 months of 2023) during the year ended December 31, 2023, as compared to the most recent chiropractic industry average of 380 new patients per year for traditional insurance-based non-multidisciplinary or integrated practices, according to a 2023 Chiropractic Economics survey (published in June of 2023).
From January 2012 through December 31, 2022, we have increased the annual system-wide sales from $22.3 million to $435.3 million (which includes $59.4 million of revenue from clinics owned or operated by us and $375.9 million from clinics operated by our franchisees, which is a non-GAAP measure for the year ended December 31, 2022).
From January 2012 through December 31, 2023, we have increased the annual system-wide sales from $22.3 million to $488.0 million (which includes $70.7 million of gross sales from clinics owned or managed by us and $417.3 million from clinics owned or managed by our franchisees, which is a non-GAAP measure for the year ended December 31, 2023).
Our clinics are open longer hours than many of our competitors, including weekend days, and our patients do not need appointments. We accept cash or major credit cards in return for our services. We do not accept insurance and do not provide Medicare covered services.
We offer a welcoming, consumer-friendly experience that attempts to redefine the chiropractic doctor/patient relationship. Our clinics are open longer hours than many of our competitors, including weekend days, and our patients do not need appointments. We accept cash or major credit cards in return for our services. We do not accept insurance and do not provide Medicare covered services.
In order to ensure that we are meeting our human capital objectives, we will continue to utilize engagement surveys to understand the perception of our brand as an employer and the effectiveness of our employee and compensation programs and to learn where we can improve across the company.
In addition, we continue to expand and strengthen our relationship with chiropractic colleges to increase engagement with students and to increase the applicant flow of qualified candidates. 12 Table of Contents In order to ensure that we are meeting our human capital objectives, we will continue to utilize engagement surveys to understand the perception of our brand as an employer and the effectiveness of our employee and compensation programs and to learn where we can improve across the company.
In February 2019, a bill was introduced in the Arkansas state legislature prohibiting the ownership and management of a chiropractic corporation by a non-chiropractor. The bill was drafted by the Arkansas State Board of Chiropractic Examiners. This bill has since been withdrawn.
It appears that the investigation with respect to the third chiropractor has either been closed or gone dormant. In February 2019, a bill was introduced in the Arkansas state legislature prohibiting the ownership and management of a chiropractic corporation by a non-chiropractor. The bill was drafted by the Arkansas State Board of Chiropractic Examiners. This bill has since been withdrawn.
According to our patient survey conducted in early 2023 by WestGroup Research, 35% of our new patients had never tried chiropractic care before they came to The Joint.
According to our patient survey conducted in early 2024 by WestGroup Research, 36% of our new patients had never tried chiropractic care before they came to The Joint. This remains consistent with the strong outcomes of 35% and 36% of patients new to chiropractic in the same survey conducted in 2023 and 2022, respectively.
The map below shows the states in which we or our franchisees operate clinics and the number of clinics open in each state as of December 31, 2022. 2 Table of Contents Our retail locations have been selected to be visible, accessible and convenient. We offer a welcoming, consumer-friendly experience that attempts to redefine the chiropractic doctor/patient relationship.
The map below shows the states in which we or our franchisees manage or operate clinics and the number of clinics open in each state or district as of December 31, 2023. 2 Table of Contents Our retail locations have been selected to be visible, accessible and convenient.
According to a report issued by IBIS World Chiropractors Market Research in March 2022, expenditures for chiropractic services in the U.S. are $19.5 billion annually. The United States Bureau of Labor Statistics expects employment in chiropractic to grow steadily.
According to a report issued by IBIS World Chiropractors Market Research in November 2023, expenditures for chiropractic services in the U.S. are approximately $20.5 billion annually. The United States Bureau of Labor Statistics expects employment of chiropractors to grow nine percent from 2022 to 2032, much faster than the average for all occupations.
As of December 31, 2022, we leased 138 facilities in which we operate or intend to operate clinics. We are obligated under two additional leases for facilities in which we have ceased clinic operations. Our corporate headquarters are located at 16767 N. Perimeter Center Drive, Suite 110, Scottsdale, Arizona 85260.
We are obligated under two additional leases for facilities in which we have ceased clinic operations. Our corporate headquarters are located at 16767 N. Perimeter Center Drive, Suite 110, Scottsdale, Arizona 85260. The term of our lease for this location expires on December 31, 2025.
This remains consistent with the strong outcome of 36% of patients new to chiropractic in the same survey conducted in 2022, and an increase from 27% in 2021, 26% in 2019, 22% in 2017, 21% in 2016, and 16% in 2013, demonstrating our continued impact on the chiropractic market and offering validation to our thesis that we are actually expanding the overall market for chiropractic.
This is also an increase from 27% in 2021, 26% in 2019, 22% in 2017, 21% in 2016, and 16% in 2013, demonstrating our continued impact on the chiropractic market and offering validation to our thesis that we are a key driver in expanding the overall market for chiropractic.
As we continue to grow, we expect to drive greater efficiencies across our operations, development and marketing programs and further leverage our technology and existing support infrastructure. We believe we will be able to control corporate costs over time to enhance margins as general and administrative expenses grow at a slower rate than our clinic base and sales.
We believe we will be able to control corporate costs over time to enhance margins as general and administrative expenses grow at a slower rate than our clinic base and sales.
While these expenses could be material, our current expectation is that any such actions will not require us to expend substantial funds. Competition The chiropractic industry is highly fragmented. According to the March 2022 IBIS market research report, the three largest industry companies were each expected to generate less than 1% of total industry revenue in 2022.
While these expenses could be material, our current expectation is that any such actions will not require us to expend substantial funds. Competition The chiropractic industry is highly fragmented. According to the November 2023 IBIS market research report, the Top 50 industry practices accounted for only 4% of total industry revenue.
In order to achieve our goal of opening 1,000 clinics by the end of 2024 and in light of the recent shortage of qualified chiropractors, it is crucial that we continue to attract and retain qualified chiropractors.
In order to continue our growth through clinic development and, in light of the recent shortage of qualified chiropractors, it is crucial that we continue to attract and retain qualified chiropractors.
In return, we share part of the initial franchise fee and pay the regional developer 3% of the 7% ongoing royalties we collect from the franchisees in their protected territory. In 2019, we sold the rights to one additional regional developer territory for a minimum development commitment of 40 clinics over a ten-year period.
In return, we share part of the initial franchise fee and pay the regional developer 3% of the 7% ongoing royalties we collect from the franchisees in their protected territory.
We will continue to support our franchisees and regional developers to open these clinics and to achieve sustainable performance as rapidly as possible. Continuing to improve margins and leverage infrastructure. We believe our corporate infrastructure can support a clinic base greater than our existing footprint.
We will continue to support our franchisees and regional developers to open these clinics and to achieve sustainable performance as rapidly as possible. Continuing to Improve Margins As we continue to grow, we expect to drive greater efficiencies across our operations, development and marketing programs and further leverage our technology and existing support infrastructure.
We are a rapidly growing franchisor and operator of chiropractic clinics that uses a private pay, non-insurance, cash-based model.
ITEM 1. BUSINESS " Our mission is to improve quality of life through routine and affordable chiropractic care." Overview We are a rapidly growing franchisor and operator of chiropractic clinics that uses a private pay, non-insurance, cash-based model.
Strong and proven management team . Our strategic vision is directed by our president and chief executive officer, Peter D. Holt, who has more than 35 years of experience in domestic and international franchising, franchise development and operations.
Holt, who has more than 35 years of experience in domestic and international franchising, franchise development and operations. Mr. Holt previously served as president and chief executive officer of Tasti-D-Lite.
Jorge Armenteros joined as vice president of operations in 2017 bringing with him more than 40 years of franchise operations and leadership experience. For 10 years prior to joining the team, Mr. Armenteros was the executive senior vice president of franchise operations and corporate development for Campero USA, a fast-food restaurant chain.
Simon spent five years as a franchisee and area developer with Extreme Pita and previously spent 10 years with Mail Boxes Etc. in franchise sales roles. Jorge Armenteros joined as senior vice president of operations in 2017 bringing with him more than 40 years of franchise operations and leadership experience. For 10 years prior to joining the team, Mr.
We believe that most chiropractors who use this third-party reimbursement model would find it economically difficult to discount the prices they charge for their services to levels comparable with our pricing. Accordingly, we believe these and certain other trends favor our business model.
While chiropractors typically accept cash payment in addition to insurance, Medicare and Medicaid, they continue to incur overhead expenses associated with maintaining the capability to process third-party reimbursement. We believe that most chiropractors who use this third-party reimbursement model would find it economically difficult to discount the prices they charge for their services to levels comparable with our pricing.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRISKS RELATED TO OTHER LEGAL AND REGULATORY MATTERS 23 Table of Contents Proposed and expected new federal regulations under the Biden administration expanding the meaning of “joint employer” and evolving state laws increase our potential liability for employment law violations by our franchisees and the likelihood that we may be required to participate in collective bargaining with our franchisees’ employees.
Biggest changePlease see “Part I, Item 1 - Business - Regulatory Environment - State regulations on corporate practice of chiropractic” for a description of certain of these actions by states, including state legislatures, state chiropractic regulatory bodies and a state attorney general, to regulate and restrict the corporate practice of chiropractic. 21 Table of Contents RISKS RELATED TO OTHER LEGAL AND REGULATORY MATTERS Proposed and expected new federal regulations under the Biden administration expanding the meaning of “joint employer” and evolving state laws increase our potential liability for employment law violations by our franchisees and the likelihood that we may be required to participate in collective bargaining with our franchisees’ employees.
If we are unable to obtain adequate insurance, our franchisees or franchisee doctors fail to name the Company as an additional insured party, or if there is an increase in the future cost of insurance to us and the chiropractors who provide chiropractic services or an increase in the amount we have to self-insure, there may be a material adverse effect on our business and financial results.
If we are unable to obtain adequate insurance, our franchisees or franchisee doctors fail to name our company as an additional insured party, or if there is an increase in the future cost of insurance to us and the chiropractors who provide chiropractic services or an increase in the amount we have to self-insure, there may be a material adverse effect on our business and financial results.
Even when entities are not covered by HIPAA, the Federal Trade Commission, or the FTC, has taken the position that a failure to take appropriate steps to keep consumers’ personal information secure may constitute unfair acts or practices in or affecting commerce in violation of the Federal Trade Commission Act.
Even when entities are not covered by HIPAA, the FTC has taken the position that a failure to take appropriate steps to keep consumers’ personal information secure may constitute unfair acts or practices in or affecting commerce in violation of the Federal Trade Commission Act.
Under the terms of such indemnification agreements, we are required to indemnify each of our directors and officers, to the fullest extent permitted by the laws of the state of Delaware, if the basis of the indemnitee’s involvement was by reason of the fact that the indemnitee is or was a director or officer of the Company or any of its subsidiaries or was serving at the Company’s request in an official capacity for another entity.
Under the terms of such indemnification agreements, we are required to indemnify each of our directors and officers, to the fullest extent permitted by the laws of the state of Delaware, if the basis of the indemnitee’s involvement was by reason of the fact that the indemnitee is or was a director or officer of our company or any of its subsidiaries or was serving at our request in an official capacity for another entity.
Our ability to operate new clinics, especially company-owned or managed clinics, profitably and increase average clinic sales and comparable clinic sales depends on many factors, some of which are beyond our control, including: (i) consumer awareness and understanding of our brand and changes in consumer preferences and discretionary spending; (ii) general economic conditions, which can affect clinic traffic, local rent and labor costs and prices we pay for the supplies we 16 Table of Contents use; (iii) competition, either from our competitors in the chiropractic industry or our own and our franchisees’ clinics; (iv) the identification and availability of attractive sites for new facilities and the anticipated commercial, residential and infrastructure development near our new facilities; (v) changes in government regulation; (vi) in certain regions, decreases in demand for our services due to inclement weather; and (vii) other unanticipated increases in costs, any of which could give rise to delays or cost overruns.
Our ability to operate new clinics, especially company-owned or managed clinics, profitably and increase average clinic sales and comparable clinic sales depends on many factors, some of which are beyond our control, including: (i) consumer awareness and understanding of our brand and changes in consumer preferences and discretionary spending; (ii) 15 Table of Contents general economic conditions, which can affect clinic traffic, local rent and labor costs and prices we pay for the supplies we use; (iii) competition, either from our competitors in the chiropractic industry or our own and our franchisees’ clinics; (iv) the identification and availability of attractive sites for new facilities and the anticipated commercial, residential and infrastructure development near our new facilities; (v) changes in government regulation; (vi) in certain regions, decreases in demand for our services due to inclement weather; and (vii) other unanticipated increases in costs, any of which could give rise to delays or cost overruns.
Long-lived assets, such as operating lease right-of-use assets and property, plant and equipment in our corporate clinics, are tested for impairment if an event occurs or circumstances change that would indicate the carrying amount may not be recoverable.
Long-lived assets, such as operating lease right-of-use ("ROU") assets and property, plant and equipment in our corporate clinics, are tested for impairment if an event occurs or circumstances change that would indicate the carrying amount may not be recoverable.
Such information may include certain identifying information and financial information of our patients. Theses state laws may impose notification requirements in the event of a breach of such personal information. Violations of these laws may result in criminal, civil and administrative sanctions and also may provide individuals with a private right of action with respect to disclosures of personal information.
Such information may include certain identifying information and financial information of our patients. These state laws may impose notification requirements in the event of a breach of such personal information. Violations of these laws may result in criminal, civil and administrative sanctions and also may provide individuals with a private right of action with respect to disclosures of personal information.
Our level of debt could have important consequences to investors, including: • requiring a portion of our cash flows from operations be used for the payment of interest on our debt, thereby reducing the funds available to us for our operations or other capital needs; • limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate because our available cash flow, after paying principal and interest on our debt, may not be sufficient to make the capital and other expenditures necessary to address these changes; • increasing our vulnerability to general adverse economic and industry conditions, since we will be required to devote a proportion of our cash flow to paying principal and interest on our debt during periods in which we experience lower earnings and cash flow; • limiting our ability to obtain additional financing in the future to fund working capital, capital expenditures, acquisitions, and general corporate requirements; and • placing us at a competitive disadvantage to other relatively less leveraged competitors that have more cash flow available to fund working capital, capital expenditures, acquisitions, and general corporate requirements.
Our level of debt could have important consequences to investors, including: • requiring a portion of our cash flows from operations be used for the payment of interest on our debt, thereby reducing the funds available to us for our operations or other capital needs; 18 Table of Contents • limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate because our available cash flow, after paying principal and interest on our debt, may not be sufficient to make the capital and other expenditures necessary to address these changes; • increasing our vulnerability to general adverse economic and industry conditions, since we will be required to devote a proportion of our cash flow to paying principal and interest on our debt during periods in which we experience lower earnings and cash flow; • limiting our ability to obtain additional financing in the future to fund working capital, capital expenditures, acquisitions, and general corporate requirements; and • placing us at a competitive disadvantage to other relatively less leveraged competitors that have more cash flow available to fund working capital, capital expenditures, acquisitions, and general corporate requirements.
Please see “Part I, Item 1 - Business - Regulatory Environment – Regulation relating to franchising” for a description of other federal and state regulation related to franchising. 24 Table of Contents We conduct business in a heavily regulated industry, and if we fail to comply with these laws and government regulations, we could incur penalties or be required to make significant changes to our operations.
Please see “Part I, Item 1 - Business - Regulatory Environment – Regulation relating to franchising” for a description of other federal and state regulation related to franchising. 22 Table of Contents We conduct business in a heavily regulated industry, and if we fail to comply with these laws and government regulations, we could incur penalties or be required to make significant changes to our operations.
Events or rumors relating to our brand names or our ability to defend successfully against intellectual property infringement claims by third parties could significantly impact our business. Recognition of our brand names, including “THE JOINT CHIROPRACTIC”, and the association of those brands with quality, convenient and inexpensive chiropractic maintenance care, are an integral part of our business.
Events or rumors relating to our brand names or our ability to defend successfully against intellectual property infringement claims by third parties could significantly impact our business. Recognition of our brand names, including “THE JOINT CHIROPRACTIC,” and the association of those brands with quality, convenient and inexpensive chiropractic maintenance care, are an integral part of our business.
As further disclosed under the aforementioned caption, we anticipate that fiscal 2023 will continue to be a volatile macroeconomic environment and expect elevated levels of cost inflation to persist for 2023. Reductions in discretionary spending may adversely impact our business, financial condition, or results of operations.
As further disclosed under the aforementioned caption, we anticipate that fiscal 2024 will continue to be a volatile macroeconomic environment and expect elevated levels of cost inflation to persist for 2024. Reductions in discretionary spending may adversely impact our business, financial condition, or results of operations.
As noted in a previous risk factor, the current period of high inflation, which is expected to persist through at least 2023, is likely to reduce consumer discretionary spending. Traffic in our clinics could decline if consumers choose to reduce the amount they spend on non-critical medical procedures.
As noted in a previous risk factor, the current period of high inflation, which is expected to persist through at least 2024, is likely to reduce consumer discretionary spending. Traffic in our clinics could decline if consumers choose to reduce the amount they spend on non-critical medical procedures.
The current nationwide labor shortage has negatively impacted our ability and the ability of our franchisees to recruit and retain qualified chiropractors, wellness coordinators and other qualified personnel. This shortage has limited our ability to open new clinics and has required us to enhance wages and benefits and shorten clinic operating hours.
The current nationwide labor shortage and, in particular the shortage of qualified chiropractors, has negatively impacted our ability and the ability of our franchisees to recruit and retain qualified chiropractors, wellness coordinators and other qualified personnel. This shortage has limited our ability to open new clinics and has required us to enhance wages and benefits and shorten clinic operating hours.
In the event that a continued deterioration of economic conditions causes a significant decrease in demand for our services, this could negatively impact our ability to meet the financial covenants in our credit facility, although we were in compliance as of December 31, 2022.
In the event that a continued deterioration of economic conditions causes a significant decrease in demand for our services, this could negatively impact our ability to meet the financial covenants in our credit facility, although we were in compliance as of December 31, 2023.
If we fail to properly maintain the integrity of our data or to strategically implement, upgrade or consolidate existing information systems, our reputation and business could be materially adversely affected. We increasingly use electronic means to interact with our customers and collect, maintain and store individually identifiable information, including, but not limited to, personal financial information and health-related information.
If we fail to properly maintain the integrity of our data or to strategically implement, upgrade or consolidate existing information systems, our reputation and business could be materially adversely affected. 24 Table of Contents We increasingly use electronic means to interact with our customers and collect, maintain and store individually identifiable information, including, but not limited to, personal financial information and health-related information.
We plan to continue to utilize targeted marketing efforts within local neighborhoods through channels such as radio, digital media, community sponsorships 18 Table of Contents and events, and a robust online/social media presence. These initiatives may not be successful, resulting in expenses incurred without the benefit of higher revenue.
We plan to continue to utilize targeted marketing efforts within local neighborhoods through channels such as radio, digital media, community sponsorships and events, and a robust online/social media presence. These initiatives may not be successful, resulting in expenses incurred without the benefit of higher revenue.
We may be subject to short selling strategies that may drive down the market price of our common stock. In 2021, we were the target of negative allegations posted on an internet platform designed to advise short sellers, which precipitated a decline in the price of our stock.
We may be subject to short selling strategies that may drive down the market price of our common stock. In 2021, we were the target of negative allegations posted on an internet platform designed to advise short sellers, which precipitated a decline in the 26 Table of Contents price of our stock.
As of December 31, 2022, we had active licenses and letters-of-intent for 235 clinics which we believe to be developable within the specified time periods, but we cannot be certain of this. Our regional developers are independent operators over whom we have limited control. Our regional developers are independent operators. Accordingly, their actions are outside of our control.
As of December 31, 2023, we had active licenses and letters-of-intent for 172 clinics which we believe to be developable within the specified time periods, but we cannot be certain of this. Our regional developers are independent operators over whom we have limited control. Our regional developers are independent operators. Accordingly, their actions are outside of our control.
Based on the self-assessment completed as of January 19, 2023, we are currently in compliance with the Payment Card Industry Data Security Standard, or PCI DSS, the payment card industry’s security standard for companies that collect, store or transmit certain data regarding credit and debit cards, credit and debit card holders and credit and debit card transactions.
Based on the self-assessment completed as of January 22, 2024, we are currently in compliance with the Payment Card Industry Data Security Standard, or PCI DSS, the payment card industry’s security standard for companies that collect, store or transmit certain data regarding credit and debit cards, credit and debit card holders and credit and debit card transactions.
Furthermore, there is an expectation that new rules will be issued by the Equal Opportunity Employment Commission (EEOC), similarly expanding “joint liability” with respect to the enforcement of anti-discrimination laws. Such expansions of joint employer liability have implications for our business model.
Furthermore, there is an expectation that new rules will be issued by the EEOC, similarly expanding “joint liability” with respect to the enforcement of anti-discrimination laws. Such expansions of joint employer liability have implications for our business model.
Adverse changes in future market conditions or weaker operating results compared to our expectations, including, for example, as a result of the pandemic, may impact our projected cash flows and estimates of weighted average cost of capital, which could result in a potentially material impairment charge if we are unable to recover the carrying value of our goodwill and other intangible assets.
Adverse changes in future market conditions or weaker operating results compared to our expectations may impact our projected cash flows and estimates of weighted average cost of capital, which could result in a potentially material impairment charge if we are unable to recover the carrying value of our goodwill and other intangible assets.
Adverse changes in future market conditions or weaker operating results compared to our expectations, including, for example, as a result of the pandemic, may impact our projected cash flows and estimates of weighted average cost of capital, which could result in a potentially material impairment charge if we are unable to recover the carrying value of our long-lived assets.
Adverse changes in future market conditions or weaker operating results compared to our expectations may impact our projected cash flows and estimates of weighted average cost of capital, which could result in a potentially material impairment charge if we are unable to recover the carrying value of our long-lived assets.
Any audit by the IRS with respect to our receipt of an employee retention credit (“ERC”) under The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act could result in additional taxes or costs to the Company. We recently received notice that we will be receiving an ERC pursuant to the CARES ACT.
Any audit by the IRS with respect to our receipt of an employee retention credit (“ERC”) under The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act could result in additional taxes or costs to our company. We received an ERC pursuant to the CARES ACT.
Our growth plan includes a significant number of new franchised and company-owned or managed clinics. Our existing clinic management systems, administrative staff, financial and management controls and information systems may be inadequate to support our planned expansion. Those demands on our infrastructure and resources may also adversely affect our ability to manage our existing clinics.
Our growth plan includes a significant number of new franchised clinics. Our existing clinic management systems, administrative staff, financial and management controls and information systems may be inadequate to support our continued expansion. Those demands on our infrastructure and resources may also adversely affect our ability to manage our existing clinics.
As discussed in the above-cited section, the proposed rules issued under the National Labor Relations Act (NLRA) and the withdrawal of the Trump-era rules issued under the Fair Labor Standards Act (FLSA) include or reinstate expansive definitions of “joint employer,” which could be used to deem a franchisor to be a joint employer of a franchisee’s employees.
As discussed in the above-cited section, the proposed rules issued under the NLRA and the withdrawal of the Trump-era rules issued under the FLSA include or reinstate expansive definitions of “joint employer,” which could be used to deem a franchisor to be a joint employer of a franchisee’s employees.
Each of the PCs is wholly owned by one or more licensed chiropractors, or medical professionals as state law may require, and we do not own any capital stock of any PC.
Each PC employs or contracts with chiropractors in one or more offices. Each of the PCs is wholly owned by one or more licensed chiropractors, or medical professionals as state law may require, and we do not own any capital stock of any PC.
Our annual Comp Sales for the full year 2022, for clinics that have been open for at least 13 full months, was 9%, and for clinics that have been open for greater than 48 months, was 4%.
Our annual Comp Sales for the full year 2023, for clinics that have been open for at least 13 full months, was 4%, and for clinics that have been open for greater than 48 months, was (1)%.
If we are unable to maintain effective internal control over financial reporting or disclosure controls and procedures, our ability to record, process and report financial information accurately, and to prepare financial statements within required time periods could be adversely affected, which could subject us to litigation or investigations requiring management resources and payment of legal and other expenses, negatively affect investor confidence in our financial statements and adversely impact our stock price. 21 Table of Contents Internal controls related to the operation of financial reporting and accounting systems are critical to maintaining adequate internal control over financial reporting.
If we are unable to maintain effective internal control over financial reporting or disclosure controls and procedures, our ability to record, process and report financial information accurately, and to prepare financial statements within required time periods 19 Table of Contents could be adversely affected, which could subject us to litigation or investigations requiring management resources and payment of legal and other expenses, negatively affect investor confidence in our financial statements and adversely impact our stock price.
Of our total of 18 regional developers as of December 31, 2022, three had not met their minimum franchise sales requirements within the time periods specified in their regional developer agreements. 20 Table of Contents FINANCIAL RISK FACTORS Our level of debt could impair our financial condition and ability to operate.
Of our total of 17 regional developers as of December 31, 2023, three had not met their minimum franchise sales requirements within the time periods specified in their regional developer agreements. FINANCIAL RISK FACTORS Our level of debt could impair our financial condition and ability to operate.
Discretionary spending is negatively impacted by, among other things, those factors disclosed in this Form 10-K under the caption “Recent Events” in Management’s Discussion and Analysis of Financial Condition and Results of Operations -- unfavorable global economic or political conditions, such as the recent COVID-19 pandemic, the Ukraine War, inflation and other cost increases, and increases in interest rates.
Discretionary spending is negatively impacted by, among other things, those factors disclosed in this Form 10-K under the caption “Recent Events” in Management’s Discussion and Analysis of Financial Condition and Results of Operations -- unfavorable global economic or political conditions, such as the Ukraine War, the Israel-Gaza conflict, labor shortages, inflation and other cost increases, and increases in interest rates.
Specifically, we failed to have the appropriate Company personnel monitor users with administrative access to certain financial applications and data, and we did not design and maintain effective controls such that all accounting duties are sufficiently segregated; (iii) accounting related to significant complex accounting areas - we did not design and maintain effective controls over the accounting of complex accounting areas, including taxes and business combination and asset acquisition transactions.
Specifically, we failed to have the appropriate personnel monitor users with administrative access to certain financial applications and data, and we did not design and maintain effective controls such that all accounting duties are sufficiently segregated; (iii) accounting related to significant complex accounting areas - we did not design and maintain effective controls over the accounting of complex accounting areas, including taxes and business combination and asset acquisition transactions Specifically, we failed to properly design controls to appropriately determine the proper accounting treatment for certain revenue streams and leases.
If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results, prevent fraud, or maintain investor confidence.
We previously identified material weaknesses in our internal control over financial reporting. If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results, prevent fraud, or maintain investor confidence.
Our three largest multi-unit competitors are Airrosti, which currently operates 158 clinics; HealthSource Chiropractic, which currently operates 114 clinics; and 100% Chiropractic, which currently operates 97 clinics. Two of these competitors are currently operating under an insurance-based model.
Our three largest multi-unit competitors are Airrosti, which currently operates 150 clinics; HealthSource Chiropractic, which currently operates 131 clinics; and 100% Chiropractic, which currently operates 125 clinics. Two of these competitors are currently operating under an insurance-based model.
While we do not have responsibility for compliance by affiliated PCs and their chiropractors with regulatory and other requirements directly applicable to chiropractors, claims, suits or complaints relating to services provided at the offices of our franchisees or affiliated PCs may be asserted against us. As we develop company-owned or managed clinics, our exposure to malpractice claims will increase.
While we do not have responsibility for compliance by affiliated PCs and their chiropractors with regulatory and other requirements directly applicable to chiropractors, claims, suits or complaints relating to services provided at the offices of our franchisees or affiliated PCs may be asserted against us.
Some of these competitors and potential competitors may have financial resources, affiliation models, reputations or management expertise that provide them with competitive advantages over us, which may make it difficult to compete against them.
Many of those chiropractors have established practices and reputations in their markets. Some of these competitors and potential competitors may have financial resources, affiliation models, reputations or management expertise that provide them with competitive advantages over us, which may make it difficult to compete against them.
Any claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims and may reduce the amount of money available to us. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Any claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims and may reduce the amount of money available to us.
While we have determined that we are not currently regulated as a covered entity under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and thus are not subject to its requirements or penalties, any entity may be prosecuted under HIPAA’s criminal provisions either directly or under aiding-and-abetting or conspiracy principles.
While we have determined that we are not currently regulated as a covered entity under HIPAA and thus are not subject to its requirements or penalties, any entity may be prosecuted under HIPAA’s criminal provisions either directly or under aiding-and-abetting or conspiracy principles.
All of these measures have reduced our net revenues and increased our operating expenses and may continue to do so if labor shortages continue. Inflation, exacerbated by COVID-19 and the Ukraine 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.
All of these measures have reduced our net revenues and increased our operating expenses and may continue to do so if labor shortages continue. Inflation has led to increased labor costs and interest rates and may lead to reduced discretionary spending, all of which may negatively impact our business. The primary inflationary factor affecting our operations is labor costs.
Goodwill is tested for impairment annually and between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. Also, we review our amortizable intangible assets for impairment if an event occurs or circumstances change that would indicate the carrying amount may not be recoverable.
Also, we review our amortizable intangible assets for impairment if an event occurs or circumstances change that would indicate the carrying amount may not be recoverable.
The primary bases of such competition are quality of care, reputation, price of services, marketing and advertising strategy implementation, convenience, traffic flow, visibility of office locations, and hours of operation. Our clinics compete with all other chiropractors in their local market. Many of those chiropractors have established practices and reputations in their markets.
The business of providing chiropractic services is highly competitive in each of the markets in which our clinics operate. The primary bases of such competition are quality of care, reputation, price of services, marketing and advertising strategy implementation, convenience, traffic flow, visibility of office locations, and hours of operation. Our clinics compete with all other chiropractors in their local market.
The occurrence of any events or rumors that cause patients to no longer associate the brands with quality, convenient and inexpensive chiropractic maintenance 25 Table of Contents care may materially adversely affect the value of the brand names and demand for chiropractic services at our franchisees or their affiliated PCs.
The occurrence of any events or rumors that cause patients to no longer associate the brands with quality, convenient and inexpensive chiropractic maintenance care may materially adversely affect the value of the brand names and demand for chiropractic services at our franchisees or their affiliated PCs. 23 Table of Contents Our ability to compete effectively depends in part upon our intellectual property rights, including but not limited to our trademarks.
Our ability to compete effectively depends in part upon our intellectual property rights, including but not limited to our trademarks. Our use of contractual provisions, confidentiality procedures and agreements, and trademark, copyright, unfair competition, trade secret and other laws to protect our intellectual property rights may not be adequate.
Our use of contractual provisions, confidentiality procedures and agreements, and trademark, copyright, unfair competition, trade secret and other laws to protect our intellectual property rights may not be adequate.
As of 28 Table of Contents December 31, 2022, we had 14,528,487 outstanding shares of common stock and are authorized to sell up to 20,000,000 shares of common stock. The trading volume of shares of our common stock averaged approximately 219,044 shares per day during the year ended December 31, 2022.
As of December 31, 2023, we had 14,751,633 outstanding shares of common stock and are authorized to sell up to 20,000,000 shares of common stock. The trading volume of shares of our common stock averaged approximately 136,520 shares per day during the year ended December 31, 2023.
Please see Note 13, “Subsequent Events” in the Notes to the consolidated financial statements included in Item 8 of this report for a description of the ERC. The Company’s eligibility to receive the ERC remains subject to audit by the IRS for a period of five years.
Please see Note 12, “Employee Retention Credit” in the Notes to the consolidated financial statements included in Item 8 of this Form 10-K for a description of the ERC. Our eligibility to receive the ERC remains subject to audit by the IRS for a period of five years.
In addition, if our billing software fails to work properly, and as a result, we do not automatically process monthly membership fees to our patients’ credit cards on a timely basis or at all, or there are issues with financial insolvency of our third-party vendors or other unanticipated problems or events, we could lose revenue, which would harm our operating results.
In addition, if our billing software fails to work properly, and as a result, we do not automatically process monthly membership fees to our patients’ credit cards on a timely basis or at all, or there are issues with financial insolvency of our third-party vendors or other unanticipated problems or events, we could lose revenue, which would harm our operating results. 25 Table of Contents We are also subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it more difficult for us to comply.
These risks include a significant further decline in our franchisees’ revenue, which occurred in 2020 as a result of the COVID-19 pandemic. Furthermore, in 2020, we took additional actions to support our franchisees that experienced challenges during the COVID-19 pandemic, further reducing our royalty revenues and other fees from franchisees.
Furthermore, in 2020, we took additional actions to support our franchisees that experienced challenges during the COVID-19 pandemic, further reducing our royalty revenues and other fees from franchisees.
Our marketing programs may not be successful. We incur costs and expend other resources in our marketing efforts to attract and retain patients. Our marketing activities are principally focused on increasing brand awareness and driving patient volumes. As we open new clinics, we undertake aggressive marketing campaigns to increase community awareness about our growing presence.
Our marketing activities are principally focused on increasing brand awareness and driving patient volumes. As we open new clinics, we undertake aggressive marketing campaigns to increase community awareness about our growing presence.
GENERAL RISK FACTORS 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.
In addition, the restatement may lead to a loss of investor confidence and have negative impacts on the trading price of our common stock. 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.
These potential increases in occupancy costs and the cost of closing company-owned or managed clinics could materially adversely affect our business, financial condition or results of operations.
These potential increases in occupancy costs and the cost of closing company-owned or managed clinics could materially adversely affect our business, financial condition or results of operations. Changes in economic conditions and adverse weather and other unforeseen conditions could materially affect our ability to maintain or increase sales at our clinics or open new clinics.
If the IRS audits the Company during that time, it may find that the Company was not eligible to receive some or all of the ERC, in which case we would be required to return some or all of the ERC to the IRS.
If the IRS audits us during that time, it may find that we were not eligible to receive some or all of the ERC, in which case we would be required to return some or all of the ERC to the IRS. Additionally, 20% of the ERC will be paid to an outside third party as a consulting fee.
An increase in those fees would require us to either increase the prices we charge for our services, which could cause us to lose patients and revenue, or absorb an increase in our operating expenses, either of which could harm our operating results. 27 Table of Contents If we or any of our processing vendors have problems with our billing software, or the billing software malfunctions, it could have an adverse effect on patient satisfaction and could cause one or more of the major credit card companies to disallow our continued use of their payment products.
If we or any of our processing vendors have problems with our billing software, or the billing software malfunctions, it could have an adverse effect on patient satisfaction and could cause one or more of the major credit card companies to disallow our continued use of their payment products.
In 2020, for a period of time, we waived minimum royalty requirements, monthly software fees for clinics forced to close temporarily due to the pandemic, and minimum required marketing expenditures. We may need to re-implement, expand or extend these accommodations to franchisees, further reducing our revenues from franchised clinics and reducing the visibility of “The Joint” brand in the marketplace.
We may need to re-implement, expand or extend these accommodations to franchisees, further reducing our revenues from franchised clinics and reducing the visibility of “The Joint” brand in the marketplace.
Our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404, since as of December 31, 2022, we became a non-accelerated filer.
Furthermore, our independent registered public accounting firm is now required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404, since as of December 31, 2023, we became an accelerated filer. Internal controls related to the operation of financial reporting and accounting systems are critical to maintaining adequate internal control over financial reporting.
Completion of remediation does not provide assurance that our remediation or other controls will continue to operate properly.
During 2022, we completed the remediation measures related to the material weakness described in this paragraph. Completion of remediation does not provide assurance that our remediation or other controls will continue to operate properly.
We previously reported in our Annual Report on Form 10-K as of December 31, 2021 material weaknesses in internal control related to: (i) risk assessment and scoping - we did not effectively design and maintain controls in response to the risks of material misstatement.
Specifically, these material weaknesses related to: (i) risk assessment and scoping - we did not effectively design and maintain controls in response to the risks of material misstatement.
Further, our brand value could suffer and our business could be adversely affected if patients perceive a reduction in the quality of service or staff.
Further, our brand value could suffer and our business could be adversely affected if patients perceive a reduction in the quality of service or staff. 16 Table of Contents Our marketing programs may not be successful. We incur costs and expend other resources in our marketing efforts to attract and retain patients.
RISKS RELATED TO USE OF THE FRANCHISE BUSINESS MODEL 19 Table of Contents Our dependence on the success of our franchisees exposes us to risks including the loss of royalty revenue and harm to our brand.
RISKS RELATED TO USE OF THE FRANCHISE BUSINESS MODEL Our dependence on the success of our franchisees exposes us to risks including the loss of royalty revenue and harm to our brand. A substantial portion of our revenues comes from royalties generated by our franchised clinics, which royalties are based on the revenues generated by those clinics.
RISKS RELATED TO INDUSTRY DYNAMICS AND COMPETITION 22 Table of Contents Our clinics and chiropractors compete for patients in a highly competitive environment that may make it more difficult to increase patient volumes and revenues. The business of providing chiropractic services is highly competitive in each of the markets in which our clinics operate.
In the event we are required to return some or all of the ERC, we may not be able to recoup the consulting fee. 20 Table of Contents RISKS RELATED TO INDUSTRY DYNAMICS AND COMPETITION Our clinics and chiropractors compete for patients in a highly competitive environment that may make it more difficult to increase patient volumes and revenues.
Our success is dependent on the chiropractors who control the professional corporations, or PC owners, with whom we enter into management services agreements, and we may have difficulty locating qualified chiropractors to replace PC owners.
Our success is dependent on the chiropractors who control the PCs, or PC owners, with whom we enter into management services agreements, and we may have difficulty locating qualified chiropractors to replace PC owners. In states that regulate the corporate practice of chiropractic, our chiropractic services are provided by legal entities organized under state laws as PCs and their equivalents.
Our ability to implement these systems is subject to the availability of skilled information technology specialists to assist us in creating, implementing and supporting these systems. 26 Table of Contents Our failure to successfully design, implement and maintain all of our systems could have a material adverse effect on our business, financial condition and results of operations.
Our failure to successfully design, implement and maintain all of our systems could have a material adverse effect on our business, financial condition and results of operations.
We anticipate that our leases generally will have an initial term of five or ten years and generally can be extended only in five-year increments (at increased rates). We expect that all of our leases will require a fixed annual rent, although some may require the payment of additional rent if clinic sales exceed a negotiated amount.
We expect that all of our leases will require a fixed annual rent, although some may require the payment of additional rent if clinic sales exceed a negotiated amount.
Our increased reliance on sources of revenue other than from franchise and regional developer licenses exposes us to risks including the loss of revenue and reduction of working capital.
Our increased reliance on sources of revenue other than from company-owned or managed clinics exposes us to risks including the loss of revenue and reduction of working capital. As our portfolio of company-owned or managed clinics has matured, we have placed more reliance on revenues from company-owned or managed clinics.
A significant number of our clinic service personnel are paid at rates related to the applicable minimum wage, and increases in the minimum wage could increase our labor costs.
Beginning in the fourth quarter of 2021 and through 2023, company-owned or managed clinics were negatively impacted by wage increases, which increased our general and administrative expenses and decreased profitability. A significant number of our clinic service personnel are paid at rates related to the applicable minimum wage, and increases in the minimum wage could increase our labor costs.
Our management information systems regularly require modifications, improvements or replacements that may require both substantial expenditures as well as interruptions in operations.
Our management information systems regularly require modifications, improvements or replacements that may require both substantial expenditures as well as interruptions in operations. Our ability to implement these systems is subject to the availability of skilled information technology specialists to assist us in creating, implementing and supporting these systems.
We rely on the performance of our franchisees in successfully opening and operating their clinics and paying royalties and other fees to us on a timely basis. Our franchise system subjects us to a number of risks as described here and in the next four risk factors.
We anticipate that franchise royalties will represent a substantial part of our revenues in the future. As of December 31, 2023, we had franchisees operating or managing 800 clinics. We rely on the performance of our franchisees in successfully opening and operating their clinics and paying royalties and other fees to us on a timely basis.
We replaced and upgraded our IT platform in 2021, but we cannot provide assurances that our on-going improvements and enhancements efforts will be executed without delays, difficulties or service interruptions. Our long-term strategy involves opening new, company-owned or managed clinics and is subject to many unpredictable factors.
We replaced and upgraded our IT platform in 2021, but we cannot provide assurances that our on-going improvements and enhancements efforts will be executed without delays, difficulties or service interruptions. Our expansion into new markets may be more costly and difficult than we currently anticipate which would result in slower growth than we expect.
We do not own, and we do not intend to own, any of the real property where our company-owned or managed clinics operate. We expect the spaces for the company-owned or managed clinics we intend to open in the future will be leased.
We do not own, and we do not intend to own, any of the real property where our company-owned or managed clinics operate. We anticipate that our leases generally will have an initial term of five or ten years and generally can be extended only in five-year increments (at increased rates).
Changes in economic conditions and adverse weather and other unforeseen conditions could materially affect our ability to maintain or increase sales at our clinics or open new clinics. Our services emphasize maintenance therapy, which is generally not a medical necessity, and should be viewed as a discretionary medical expenditure.
Our services emphasize maintenance therapy, which is generally not a medical necessity, and should be viewed as a discretionary medical expenditure.
We cannot provide any assurance that additional material weaknesses will not occur in the future. Our balance sheet includes intangible assets and goodwill. A decline in the estimated fair value of an intangible asset or a reporting unit could result in an impairment charge recorded in our operating results, which could be material.
A decline in the estimated fair value of an intangible asset or a reporting unit could result in an impairment charge recorded in our operating results, which could be material. Goodwill is tested for impairment annually and between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired.
If the opening of our company-owned or managed clinics is delayed or if the cost of developing company-owned or managed clinics exceeds our expectations, we may experience insufficient working capital to fully implement our development plans, and our business, financial condition and results of operations could be adversely affected.
In addition, the length of time to complete the re-franchising efforts could be in excess of our current expectations, and result in increased levels of general and administrative expenses for longer than anticipated. We may experience insufficient working capital to fully implement our growth plans, and our business, financial condition and results of operations could be adversely affected.
Removed
The primary inflationary factor affecting our operations is labor costs. In the fourth quarter of 2021 and during 2022, company-owned or managed clinics were negatively impacted by wage increases, which increased our general and administrative expenses and decreased profitability.
Added
Our franchise system subjects us to a number of risks as described here and in the next four risk factors. These risks include a significant further decline in our franchisees’ revenue, which occurred in 2020 as a result of the COVID-19 pandemic.
Removed
One component of our long-term growth strategy is to open new company-owned or managed clinics and to operate those clinics on a profitable basis, often in untested geographic areas. As of December 31, 2022, we owned or managed 126 clinics.
Added
In 2020, for a period of time, we waived 17 Table of Contents minimum royalty requirements, monthly software fees for clinics forced to close temporarily due to the pandemic, and minimum required marketing expenditures.
Removed
We have limited or no prior experience operating in a number of geographic areas, particularly in areas in which snow and ice are factors in the winter months.
Added
As of December 31, 2023, we had drawn $2.0 million under the Credit Agreement (defined at Note 7, Debt).
Removed
We may encounter difficulties, including reduced patient volume related to inclement weather, as we attempt to expand into those untested geographic areas, and we may not be as successful as we are in geographic areas where we have greater familiarity and brand recognition. We may not be able to open new company-owned or managed clinics as quickly as planned.
Added
As discussed in Part II, Item 9A of this Form 10-K, our management previously concluded that our internal controls over financial reporting were not effective as of December 31, 2022 due to material weaknesses in internal controls related to (i) the accounting treatment in significant complex areas, and (ii) the identification of uncertain tax positions.
Removed
In the past, we have experienced delays in opening some clinics, for various reasons, including construction permitting, landlord responsiveness, and municipal approvals. Such delays could affect future clinic openings. Delays or failures in opening new clinics could materially and adversely affect our growth strategy and our business, financial condition and results of operations.
Added
We did not design and maintain effective controls over the accounting of complex areas, including accounting for revenue recognition and we did not design and maintain effective controls over the identification of uncertain tax positions.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES We lease the property for our corporate headquarters and all of the properties on which we own or manage clinics. As of December 31, 2022, we leased 138 facilities in which we operate or intend to operate clinics. We are obligated under two additional leases for facilities in which we have ceased clinic operations.
Biggest changeITEM 2. PROPERTIES We lease the property for our corporate headquarters and all of the properties on which we own or manage clinics. As of December 31, 2023, we leased 138 facilities in which we operate or intend to operate clinics. We are obligated under two additional leases for facilities in which we have ceased clinic operations.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the NASDAQ Capital Market under the symbol “JYNT.” Holders As of December 31, 2022, there were approximately 33 holders of record of our common stock and 14,528,487 shares of our common stock outstanding.
Biggest changeITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the Nasdaq Capital Market under the symbol “JYNT.” Holders As of December 31, 2023, there were approximately 104 holders of record of our common stock and 14,751,633 shares of our common stock outstanding.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeDepreciation and Amortization Expenses Year Ended December 31, Change from Prior Year Percent Change from Prior Year 2022 2021 Depreciation and Amortization Expenses 7,643,980 6,088,947 $ 1,555,033 25.5 % Depreciation and amortization expenses increased for the year ended December 31, 2022, as compared to the year ended December 31, 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 in July 2021. 37 Table of Contents General and Administrative Expenses Year Ended December 31, Change from Prior Year Percent Change from Prior Year 2022 2021 General and Administrative Expenses 67,987,482 49,453,305 $ 18,534,177 37.5 % General and administrative expenses increased during the year ended December 31, 2022 compared to the year ended December 31, 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 $14.3 million, (ii) general overhead and administrative expenses of $2.6 million, (iii) professional and advisory fees of $1.0 million, and (iv) software and maintenance expense of $0.7 million.
Biggest changeGeneral and Administrative Expenses Year Ended December 31, Change from Prior Year Percent Change from Prior Year 2023 2022 General and Administrative Expenses $ 81,466,088 $ 70,233,447 $ 11,232,641 16.0 % General and administrative expenses increased during the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to the increases in the following to support continued clinic count and revenue growth in both operating segments: (i) payroll and related expenses of $8.2 million; (ii) general overhead and administrative expenses of $2.7 million; (iii) professional and advisory fees of $1.0 million primarily related to the accounting restatement; and (iv) software and maintenance expense of $0.4 million; offset by a decrease in acquisition related expenses of $1.1 million.
Forfeitures are estimated based on historical and forecasted turnover, which is approximately 5%. Revenue Recognition We generate revenue primarily through our company-owned and managed clinics and through royalties, franchise fees, advertising fund contributions, IT related income and computer software fees from our franchisees. Revenues from Company-Owned or Managed Clinics.
Forfeitures are estimated based on historical and forecasted turnover, which is approximately 5%. Revenue Recognition We generate revenue through our company-owned and managed clinics and through royalties, franchise fees, advertising fund contributions, IT related income and computer software fees from our franchisees. Revenues from Company-Owned or Managed Clinics.
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; e.
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; •.
Adjusted EBITDA does not reflect the bargain purchase gain, which represents the excess of the fair value of net assets acquired over the purchase consideration; and f. Adjusted EBITDA does not reflect the (gain) loss on disposition or impairment, which represents the impairment of assets as of the reporting date.
Adjusted EBITDA does not reflect the bargain purchase gain, which represents the excess of the fair value of net assets acquired over the purchase consideration; and •. Adjusted EBITDA does not reflect the (gain) loss on disposition or impairment, which represents the impairment of assets as of the reporting date.
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. 39 Table of Contents Our management does not consider Adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with GAAP.
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. 38 Table of Contents Our management does not consider Adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with GAAP.
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 2023 may be impacted.
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 2024 may be impacted.
Off-Balance Sheet Arrangements During the year ended December 31, 2022, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements.
Off-Balance Sheet Arrangements During the year ended December 31, 2023, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements.
We require the entire non-refundable initial franchise fee to be paid upon execution of a franchise agreement, which typically has an initial term of ten years. Initial franchise fees are recognized ratably on a straight-line basis over the term of the franchise agreement.
We require the entire non-refundable initial franchise fee to be paid upon execution of a franchise agreement, which typically has an initial term of 10 years. Initial franchise fees are recognized ratably on a straight-line basis over the term of the franchise agreement.
For 2023, 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.
For 2024, 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.
Evaluating and quantifying these amounts involves significant judgments. Each source of income must be evaluated based on all positive and negative evidence; this evaluation involves assumptions about future activity. The actual realization of deferred tax assets may differ from the amounts we have recorded. 35 Table of Contents Significant judgment is also required in evaluating our uncertain tax positions.
Evaluating and quantifying these amounts involves significant judgments. Each source of income must be evaluated based on all positive and negative evidence; this evaluation involves assumptions about future activity. The actual realization of deferred tax assets may differ from the amounts we have recorded. Significant judgment is also required in evaluating our uncertain tax positions.
Intangible Assets Intangible assets consist primarily of re-acquired franchise and regional developer rights and customer relationships. We amortize the fair value of re-acquired franchise rights over the remaining contractual terms of the re-acquired franchise rights at the time of the acquisition, which range from one to ten years.
Intangible Assets Intangible assets consist primarily of re-acquired franchise rights and customer relationships. We amortize the fair value of re-acquired franchise rights over the remaining contractual terms of the re-acquired franchise rights at the time of the acquisition, which range from one to ten years.
Examples of critical estimates used in valuing certain intangible assets we have acquired or may acquire in the future include, but are not limited to, future expected cash flows and member relationships, revenue growth rates, the period of time the acquired member relationships will continue to be used, anticipated member attrition rates, and discount rates used to determine the present value of estimated future cash flows.
Examples of critical estimates used in valuing certain intangible assets we have acquired or may acquire in the future include, but are not limited to, future expected cash flows and member relationships, revenue growth rates, the period of time the acquired member relationships will continue to be used, anticipated member attrition rates, and discount rates used to determine 31 Table of Contents the present value of estimated future cash flows.
Variable lease payments, such as percentage rentals based on location sales, periodic adjustments for inflation, reimbursement of real estate taxes, any variable common area maintenance and any other variable costs associated with the leased property are expensed as incurred and are also included in general and administrative expenses on the consolidated income statements.
Variable lease payments, such as percentage rentals based on location sales, periodic adjustments for inflation, reimbursement of real estate taxes, any variable common area maintenance and any other variable 33 Table of Contents costs associated with the leased property are expensed as incurred and are also included in general and administrative expenses on the consolidated income statements.
While franchised sales are not recorded as revenues by us, management believes the information is important in understanding the overall brand’s financial performance, because these sales are the basis on which we calculate and record royalty fees and are indicative of the financial health of the franchisee base. Key Clinic Development Trends .
While gross sales from franchised clinics are not recorded as revenues by us, management believes the information is important in understanding the overall brand’s financial performance, because these sales are the basis on which we calculate and record royalty fees and are indicative of the financial health of the franchisee base. Key Clinic Development Trends .
If we determine that it is not subject to unclaimed property laws for the portion of wellness package that we do not expect to be redeemed (referred to as “breakage”), then we recognize breakage revenue in proportion to the pattern of exercised rights by the patient. Royalties and Advertising Fund Revenue.
If we determine that it is not subject to unclaimed property laws for the portion of wellness package that we do not expect to be redeemed (referred to as “breakage”), then we recognize breakage revenue in proportion to the pattern of exercised rights by the patient. 32 Table of Contents Royalties and Advertising Fund Revenue.
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; c. Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; d.
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; •. Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; •.
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.
If the equity and credit markets deteriorate, including as a result of economic weakness, political unrest or 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.
We receive monthly performance reports from our system and our clinics which include key performance indicators per clinic, including gross sales, comparable same-store sales growth, or “Comp Sales,” number of new patients, conversion percentage, and member attrition.
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 (“Comp Sales”), number of new patients, conversion percentage and member attrition.
The principal limitation of Adjusted EBITDA is that it excludes significant expenses and income that are required by GAAP to be recorded in our financial statements. Some of these limitations are: a. Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; b.
The principal limitation of Adjusted EBITDA is that it excludes significant expenses and income that are required by GAAP to be recorded in our financial statements. Some of these limitations include the following: •. Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; •.
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.
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.
As a result, we recorded a noncash impairment loss of approximately $0.1 million for the year ended December 31, 2021 Stock-Based Compensation We account for share-based payments by recognizing compensation expense based on the estimated fair value of the awards on the date of grant.
As a result, we recorded a noncash impairment loss of approximately $0.2 million for the year ended December 31, 2022. Stock-Based Compensation We account for share-based payments by recognizing compensation expense based on the estimated fair value of the awards on the date of grant.
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.
In addition, the increase in interest rates and the expectation that interest rates will continue to remain elevated may adversely affect patients' financial conditions, resulting in reduced spending on our services.
As a result, we do not include the renewal option period in the expected lease term and the associated lease payments are not included in the measurement of the right-of-use asset and lease liability.
As a result, we do not include the renewal option period in the expected lease term and the associated lease payments are not included in the measurement of the ROU asset and lease liability.
We collect a monthly fee from our franchisees for use of our proprietary chiropractic software, computer support, and internet services support. These fees are recognized ratably on a straight-line basis over the term of the respective franchise agreement. 34 Table of Contents Regional Developer Fees .
We collect a monthly fee from our franchisees for use of our proprietary chiropractic software, computer support, and internet services support. These fees are recognized ratably on a straight-line basis over the term of the respective franchise agreement.
During the year ended December 31, 2022, an operating lease ROU asset related to a closed clinic with a total carrying amount of approximately $0.2 million was written down to zero. As a result, we recorded a noncash impairment loss of approximately $0.2 million during the year ended December 31, 2022.
As a result, we recorded a noncash impairment loss of approximately $1.8 million during the year ended December 31, 2023. During the year ended December 31, 2022, an operating lease ROU asset related to a closed clinic with a total carrying amount of $0.2 million was written down to their fair value of zero.
While the interruptions, delays and/or cost increases resulting from the 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 2023, 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.
While the interruptions, delays and/or cost increases resulting from political instability and geopolitical tensions, economic weakness, inflationary pressures, increase in interest rates and other factors have created uncertainty as to general economic conditions for 2024, as of the date of this Form 10-K, 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.
You should review the reconciliation of net income to Adjusted EBITDA above and not rely on any single financial measure to evaluate our business. Liquidity and Capital Resources Sources of Liquidity As of December 31, 2022, we had cash and short-term bank deposits of $9.7 million.
You should review the reconciliation of net (loss) income to Adjusted EBITDA above and not rely on any single financial measure to evaluate our business. Liquidity and Capital Resources Sources of Liquidity As of December 31, 2023, we had cash and short-term bank deposits of $18.2 million.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the results of operations and financial condition of The Joint Corp. for the years ended December 31, 2022 and 2021 should be read in conjunction with the consolidated financial statements and the notes thereto, and other financial information contained elsewhere in this Form 10-K.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our results of operations and financial condition for the years ended December 31, 2023 and 2022 should be read in conjunction with the consolidated financial statements and the notes thereto, and other financial information contained elsewhere in this Form 10-K.
Leases The accounting guidance for leases requires lessees to recognize a right-of-use ("ROU") asset and a lease liability in the balance sheet for most leases.
Leases The accounting guidance for leases requires lessees to recognize an ROU asset and a lease liability in the balance sheet for most leases.
We saw over 845,000 new patients in 2022, despite the continued pandemic, with approximately 36% of those new patients visiting a chiropractor for the first time. We are not only increasing our percentage of market share, but are expanding the chiropractic market. Key Performance Measures.
We saw over 932,000 new patients in 2023, with approximately 36% of those new patients visiting a chiropractor for the first time. We are not only increasing our percentage of market share, but are expanding the chiropractic market. Key Performance Measures.
Information pertaining to fiscal year 2020 was included in our Annual Report on Form 10-K for the year ended December 31, 2020 on pages 31-40 under Part II, Item 7, “Management’s Discussion and Analysis of Financial Position and Results of Operations,” which was filed with the SEC on March 5, 2021.
Information pertaining to fiscal year 2021 was included in our Amended Annual Report on Form 10-K/A for the year ended December 31, 2021 under Part II, Item 7, “Management’s Discussion and Analysis of Financial Position and Results of Operations,” which was filed with the SEC on September 26, 2023.
This decrease was primarily due to: • A $20.4 million increase in operating expenses primarily due to the increases in the following: (i) payroll-related expenses of $14.7 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 of $1.1 million associated with the expansion of our company-owned or managed clinics portfolio in 2021 and 2022, (iii) selling and marketing expenses due to increased local marketing expenditures by the company-owned or managed clinics of $1.4 million, (iv) general overhead and administrative expenses to support the expansion of our corporate clinic portfolio of $2.9 million, and (v) impairment loss of $0.3 million; partially offset by • An increase in revenues of $15.1 million from company-owned or managed clinics primarily due to improved same-store growth, as well as the expansion of our corporate-owned or managed clinics portfolio.
This decrease was primarily due to: • A $13.9 million increase in operating expenses primarily due to the increases in the following: (i) payroll-related expenses of $5.6 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 and amortization expense of $1.9 million primarily associated with the expansion of our company-owned or managed clinics portfolio; (iii) selling and marketing expenses due to increased local marketing expenditures by the company-owned or managed clinics of $1.9 million; (iv) general overhead and administrative expenses to support the expansion of our corporate clinic portfolio of $2.3 million; and (v) an increase in impairment loss of $2.2 million; partially offset by • An increase in revenues of $11.3 million from company-owned or managed clinics primarily due to the expansion of our corporate-owned or managed clinics portfolio.
The number of franchise licenses sold for the year ended December 31, 2022 was 75, compared with 156 and 121 licenses for the years ended December 31, 2021 and 2020, respectively. We ended 2022 with 18 regional developers who were responsible for 67% of the 75 licenses sold during the year.
The number of franchise licenses sold for the year ended December 31, 2023 was 55, compared with 75 and 156 licenses for the years ended December 31, 2022 and 2021, respectively. We ended 2023 with 17 regional developers who were responsible for 51% of the 55 licenses sold during the year.
While the 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 unfavorable global economic or political conditions 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 line of credit will be sufficient to fund our anticipated operating and investment needs for at least the next 12 months.
Corporate Clinics Our corporate clinics segment had loss from operations of $0.9 million for the year ended December 31, 2022, a decrease in income of $5.3 million compared to income from operations of $4.4 million for the year ended December 31, 2021.
Corporate Clinics Our corporate clinics segment had loss from operations of $2.5 million for the year ended December 31, 2023, a decrease in income of $2.6 million compared to income from operations of $0.1 million for the year ended December 31, 2022.
As required, we perform an annual impairment test of goodwill as of the first day of the fourth quarter or more frequently if events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.
As required, we perform an annual impairment test of goodwill as of the first day of the fourth quarter or more frequently if events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. No impairments of goodwill were recorded for the years ended December 31, 2023 and 2022.
Significant Events and/or Recent Developments For the year ended December 31, 2022: • Comp Sales of clinics that have been open for at least 13 full months increased 9%. • Comp Sales for mature clinics open 48 months or more increased 4%. • System-wide sales for all clinics open for any amount of time grew 21% to $435.3 million.
Significant Events and/or Recent Developments For the year ended December 31, 2023: • Comp Sales of clinics that have been open for at least 13 full months increased 4%. • Comp Sales for mature clinics open 48 months or more decreased 1%. 30 Table of Contents • System-wide sales for all clinics open for any amount of time grew 12% to $488.0 million.
We generated $11.1 million of cash flow from operating activities in the year ended December 31, 2022.
We generated $14.7 million of cash flow from operating activities in the year ended December 31, 2023.
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.
We believe that we continue to have a sound business concept 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.
For the year ended December 31, 2021, this included clinic acquisitions for $5.8 million, purchases of property and equipment for $7.0 million, and reacquisition and termination of regional developer rights for $1.4 million. Net cash provided by (used in) financing activities was $0.3 million and $(2.0) million during the years ended December 31, 2022 and 2021, respectively.
For the year ended December 31, 2022, this included clinic acquisitions for $12.1 million, purchases of property and equipment for $5.9 million. Net cash provided by financing activities was $0.2 million and $0.3 million during the years ended December 31, 2023 and 2022, respectively.
We saw over 845,000 new patients in 2022, compared with 807,000 new patients in 2021, with approximately 36% of those new patients having never been to a chiropractor before. We are not only increasing our percentage of market share, but expanding the chiropractic market.
We saw over 932,000 new patients in 2023, compared with 845,000 new patients in 2022, with approximately 36% of those new patients having never been to a chiropractor before. We are not only increasing our percentage of market share, but expanding the chiropractic market. These factors, along with continued leverage of our operating expenses, drove improvement in our bottom line.
Net cash used in investing activities was $20.8 million and $14.1 million during the years ended December 31, 2022 and 2021, respectively. For the year ended December 31, 2022, this included clinic acquisitions for $12.1 million, purchases of property and equipment for $5.9 million, and reacquisition and termination of regional developer rights for $2.9 million.
Net cash used in investing activities was $6.2 million and $17.9 million during the years ended December 31, 2023 and 2022, respectively. For the year ended December 31, 2023, this included clinic acquisitions for $1.2 million and purchases of property and equipment for $5.0 million.
The decrease was primarily attributable to the decreased net income, net of non-cash charges, in the year ended December 31, 2022 of $11.2 million versus $12.5 million in the prior year period and the changes in operating assets and liabilities of $(0.1) million in the year ended December 31, 2022 versus $2.8 million in the prior year period.
The increase was primarily attributable to the increased net income, net of non-cash charges, in the year ended December 31, 2023 of $13.9 million versus $8.4 million in the prior year period and the changes in operating assets and liabilities of $0.8 million in the year ended December 31, 2023 versus $(0.2) million in the prior year period.
The following table summarizes our material contractual obligations at December 31, 2022 and the effect that such obligations are expected to have on our liquidity and cash flows in future periods: Material Contractual Cash Requirements Payments Due by Fiscal Year Total 2023 2024 2025 2026 2027 Thereafter Operating leases $ 27,149,598 6,280,108 5,689,672 5,084,585 3,264,579 2,268,960 4,561,694 Debt under the Credit Agreement $ 2,000,000 — — — — 2,000,000 41 Table of Contents Recent Accounting Pronouncements Please see Note 1, “Nature of Operations and Summary of Significant Accounting Policies” in the Notes to consolidated financial statements included in Item 8 of this report for information regarding recently issued accounting pronouncements that may impact our financial statements.
The following table summarizes our material contractual obligations at December 31, 2023 and the effect that such obligations are expected to have on our liquidity and cash flows in future periods: Material Contractual Cash Requirements Payments Due by Fiscal Year Total 2024 2025 2026 2027 2028 Thereafter Operating leases $ 16,694,145 4,424,754 4,052,720 2,753,979 2,026,045 1,202,912 2,233,735 Debt under the Credit Agreement $ 2,000,000 — — — 2,000,000 — — Recent Accounting Pronouncements Please see Note 1, “Nature of Operations and Summary of Significant Accounting Policies” in the Notes to consolidated financial statements included in Item 8 of this Form 10-K for information regarding recently issued accounting pronouncements that may impact our financial statements.
Analysis of Cash Flows 40 Table of Contents Net cash provided by operating activities was $11.1 million for the year ended December 31, 2022, compared to net cash provided by operating activities of $15.2 million for the year ended December 31, 2021.
Analysis of Cash Flows Net cash provided by operating activities was $14.7 million for the year ended December 31, 2023, compared to net cash provided by operating activities of $8.2 million for the year ended December 31, 2022.
In addition, 17 and 12 franchise license agreements were terminated during the years ended December 31, 2022 and 2021, respectively, in connection with acquisitions, resulting in elimination of fees to be recognized ratably over the term of the original respective franchise agreements. • 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 year ended December 31, 2022. • Other revenues primarily consisted of merchant income associated with credit card transactions.
As of December 31, 2023 and 2022, there were 800 and 712 franchised clinics in operation, respectively. • Franchise fees revenue increased due to the continued increase in active franchise licenses and the impact of accelerated revenue recognition resulting from the terminated franchise license agreements, with 21 and 17 franchise license agreements terminated during the years ended December 31, 2023 and 2022, respectively. • Software fees revenue increased due to an increase in our franchised clinic base and the related revenue recognition over the term of the franchise agreement as described above. • Other revenues primarily consisted of merchant income associated with credit card transactions.
Franchise Operations Our franchise operations segment had income from operations of $19.6 million for the year ended December 31, 2022, an increase of $2.9 million, compared to income from operations of $16.7 million for the year ended December 31, 2021.
Franchise Operations Our franchise operations segment had income from operations of $20.3 million for the year ended December 31, 2023, an increase of $3.0 million, compared to income from operations of $17.3 million for the year ended December 31, 2022.
We have provided Adjusted EBITDA, a non-GAAP measure of financial performance because it is 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.
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.
As of December 31, 2022 and 2021, there were 126 and 96 company-owned or managed clinics in operation, respectively. 36 Table of Contents Franchise Operations • Royalty fees and advertising fund revenue increased due to an increase in the number of franchised clinics in operation during 2022, along with continued sales growth in existing franchised clinics.
Franchise Operations • Royalty fees and advertising fund revenue increased due to an increase in the number of franchised clinics in operation during 2023, along with continued sales growth in existing franchised clinics.
We record an accrual for a potential loss when it is probable that a loss will occur and the amount of the loss can be reasonably estimated.
Loss Contingencie s Accounting Standards Codification 450, Contingencies (“ASC 450”), governs the disclosure of loss contingencies and accrual of loss contingencies in respect of litigation and other claims. We record an accrual for a potential loss when it is probable that a loss will occur and the amount of the loss can be reasonably estimated.
Income from Operations Year Ended December 31, Change from Prior Year Percent Change from Prior Year 2022 2021 Income from Operations 2,076,861 5,352,419 $ (3,275,558) (61.2) % Consolidated Results Consolidated income from operations decreased by $3.3 million for the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to the increased expenses in the corporate clinics and unallocated corporate segments discussed below.
(Loss) Income from Operations Year Ended December 31, Change from Prior Year Percent Change from Prior Year 2023 2022 (Loss) Income from Operations $ (2,073,087) $ 828,254 $ (2,901,341) (350.3) % Consolidated Results Consolidated income from operations decreased by $2.9 million for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to the impairment charges in the corporate clinics and increases in expenses from unallocated corporate segments discussed below.
As a percentage of revenue, general and administrative expenses during the year ended December 31, 2022 and 2021 were 67% and 61%, respectively, reflecting the impact of the greenfields that opened in 2022.
As a percentage of revenue, general and administrative expenses were flat at 69% during the year ended December 31, 2023 and 2022, respectively.
This increase was primarily due to: • An increase of $6.0 million in total revenues due to an increase in the number of franchised clinics in operation, along with continued sales growth in existing franchised clinics; partially offset by • An increase of $1.4 million in cost of revenues, primarily due to an increase in regional developer royalties and website hosting costs and an increase of $1.8 million in operating expenses, primarily due to an increase in: (i) selling 38 Table of Contents and marketing expenses resulting from a larger franchise base of $1.2 million, (ii) depreciation expense associated with the new IT platform of $0.4 million, and (iii) payroll-related expenses of $0.2 million.
This increase was primarily due to: • An increase of $5.2 million in total revenues due to an increase in the number of franchised clinics in operation, along with continued sales growth in existing franchised clinics; partially offset by • An increase of $1.4 million in cost of revenues, primarily due to an increase in regional developer royalties and website hosting costs.
As of December 31, 2022, we and our franchisees operated or managed 838 clinics, of which 712 were operated or managed by franchisees and 126 were operated as company-owned or managed clinics.
As of December 31, 2023, we and our franchisees operated or managed 935 clinics, of which 800 were operated or managed by franchisees and 135 were operated as company-owned or managed clinics. We and our franchisees opened 114 clinics during 2023, 104 franchised clinics and 10 company-owned or managed clinics.
We look primarily to estimated undiscounted future cash flows in the assessment of whether or not long-lived assets are recoverable. We record an impairment loss when the carrying amount of the asset is not recoverable and exceeds its fair value.
We record an impairment loss when the carrying amount of the asset is not recoverable and exceeds its fair value.
For the year ended December 31, 2022, this included proceeds from the exercise of stock options of $0.4 million. For the year ended December 31, 2021, this included repayment of the PPP loan of $2.7 million and purchases of treasury stock for $0.7 million, which were partially offset by the proceeds from the exercise of stock options of $1.5 million.
For the year ended December 31, 2023, this included proceeds from the exercise of stock options of $0.2 million. For the year ended December 31, 2022, this included proceeds from the exercise of stock options of $0.4 million.
The decrease in operating assets and liabilities for the year ended December 31, 2022 is primarily attributable to: i) a decrease in accrued expenses of $1.2 million, mainly driven by the legal claim settlement of $0.75 million and other non-recurring payments made during the year, ii) a decrease in payroll liabilities of $1.9 million, mostly due to the short-term incentive compensation payments made during the year (without the comparable accrual as of December 31, 2022), and iii) an increase in deferred franchise cost of $0.4 million related to the commissions paid for the sale of franchise licenses during the year.
The increase in operating assets and liabilities for the year ended December 31, 39 Table of Contents 2023 is primarily attributable to (i) an increase in accrued expenses of $0.8 million, mainly driven by accruals relating to the restatement and ERC consultants, (ii) an increase in payroll liabilities of $1.5 million, mostly due to the short-term incentive compensation accrual in the current year (without the comparable accrual as of December 31, 2022) and payroll cycle timing, (iii) an increase in deferred franchise cost of $0.4 million related to the commissions paid for the sale of franchise licenses during the year and (iv) an increase in deferred revenue of $0.3 million related to the amounts collected for the sale of franchise license and membership and wellness packages sold during the year (which are recorded as deferred revenue until the service is performed).
The total purchase price for the transaction was $1,965,755, less $70,628 of net deferred revenue, resulting in total purchase consideration of $1,895,127. Based on the terms of the purchase agreement, the acquisition has been treated as an asset purchase. For the year ended December 31, 2022, we constructed and developed 16 new corporate clinics.
Based on the terms of the purchase agreement, the acquisition has been treated as an asset purchase. For the year ended December 31, 2023, we constructed and developed 10 new corporate clinics.
We have a regional developer program where regional developers are granted an exclusive geographical territory and commit to a minimum development obligation within that defined territory. Regional developer fees are non-refundable and are recognized as revenue ratably on a straight-line basis over the term of the regional developer agreement, which is considered to begin upon the execution of the agreement.
Regional Developer Fees We have a regional developer program where regional developers are granted an exclusive geographical territory and commit to a minimum development obligation within that defined territory.
In the fourth quarter of 2021 and in 2022, company-owned or managed clinics were negatively impacted by labor shortages and 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.
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.
On July 5, 2022, we entered into an Asset and Franchise Purchase Agreement under which we repurchased from the seller an operating franchise in Arizona. 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.
On May 22, 2023, we entered into an Asset and Franchise Purchase Agreement under which we repurchased from the sellers three operating franchised clinics in California. We operate the franchises as company-managed clinics. The total purchase price for the transaction was $1,188,764, less $28,997 of net deferred revenue, resulting in total purchase consideration of $1,159,767.
Unallocated Corporate Unallocated corporate expenses for the year ended December 31, 2022 increased by $0.8 million compared to the prior year period, primarily due to the increases in professional and advisory fees of $0.8 million.
Unallocated Corporate Unallocated corporate expenses for the year ended December 31, 2023 increased by $3.3 million compared to the prior year period, primarily due an increase in (i) payroll related expenses of $1.6 million, (ii) professional and advisory fees of $1.0 million primarily related to the accounting restatement, and (iii) general overhead and administrative expenses of $0.7 million primarily related to insurance and software and maintenance expenses.
The fluctuation in the effective rate was primarily attributable to state taxes including the change in rates, and stock-based compensation during the year ended December 31, 2022, as compared to the year ended December 31, 2021. Please see Note 9, “Income Taxes” in the Notes to consolidated financial statements included in Item 8 of this report for further discussion.
The fluctuation in the effective rate was primarily attributable to state taxes, including the change in rates, stock-based compensation and changes in valuation allowance during the year ended December 31, 2023, as compared to the year ended December 31, 2022.
Goodwill Goodwill consists of the excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired in the acquisitions of franchises treated as a business combination under U.S. GAAP. Goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests.
The fair value of customer relationships is amortized over their estimated useful life which ranges from two to four years. Goodwill Goodwill consists of the excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired in the acquisitions of franchises treated as a business combination under GAAP.
Of the 126 company-owned or managed clinics, 57 were constructed and developed by us, and 69 were acquired from franchisees. 30 Table of Contents Our current strategy is to grow through the sale and development of additional franchises and continue to expand our corporate clinic portfolio within clustered locations.
This compares to 137 clinics opened in 2022, 121 franchised clinics and 16 company-owned or managed clinics. Of the 135 company-owned or managed clinics at December 31, 2023, 65 were constructed and developed by us, and 70 were acquired from franchisees. 29 Table of Contents Our current strategy is to grow through the sale and development of additional franchises.
Total Revenues Components of revenues for the year ended December 31, 2022, as compared to the year ended December 31, 2021, were as follows: Year Ended December 31, Change from Prior Year Percent Change from Prior Year 2022 2021 Revenues: Revenues from company-owned or managed clinics $ 59,422,294 $ 44,348,234 $ 15,074,060 34.0 % Royalty fees 26,190,531 22,062,989 4,127,542 18.7 % Franchise fees 2,441,325 2,659,097 (217,772) (8.2) % Advertising fund revenue 7,456,696 6,298,924 1,157,772 18.4 % Software fees 4,290,739 3,383,856 906,883 26.8 % Regional developer fees 659,099 848,640 (189,541) (22.3) % Other revenues 1,450,725 1,257,913 192,812 15.3 % Total revenues $ 101,911,409 $ 80,859,653 $ 21,051,756 26.0 % The reasons for the significant changes in our components of total revenues were as follows: Consolidated Results • Total revenues increased by $21.1 million, primarily due to the continued expansion and revenue growth of our franchise base, continued same-store sales growth and expansion of our corporate-owned or managed clinics portfolio.
Total Revenues Components of revenues for the year ended December 31, 2023, as compared to the year ended December 31, 2022, were as follows: 34 Table of Contents Year Ended December 31, Change from Prior Year Percent Change from Prior Year 2023 2022 Revenues: Revenues from company-owned or managed clinics $ 70,718,880 $ 59,422,294 $ 11,296,586 19.0 % Royalty fees 29,160,831 26,190,531 2,970,300 11.3 % Franchise fees 2,882,895 2,441,325 441,570 18.1 % Advertising fund revenue 8,321,043 7,456,696 864,347 11.6 % Software fees 5,086,562 4,290,739 795,823 18.5 % Other revenues 1,526,145 1,450,725 75,420 5.2 % Total revenues $ 117,696,356 $ 101,252,310 $ 16,444,046 16.2 % The reasons for the significant changes in our components of total revenues were as follows: Consolidated Results • Total revenues increased by $16.4 million, primarily due to the continued expansion and revenue growth of our franchise base, continued same-store sales growth and expansion of our corporate-owned or managed clinics portfolio.
Corporate Clinics • Revenues from company-owned or managed clinics increased, primarily due to improved same-store sales growth, as well as due to the expansion of our corporate-owned or managed clinics portfolio.
Corporate Clinics • Revenues from company-owned or managed clinics increased, primarily due to the expansion of our corporate-owned or managed clinics portfolio. As of December 31, 2023 and 2022, there were 135 and 126 company-owned or managed clinics in operation, respectively.
These decreases in operating assets and liabilities were partially offset by the increases in: i) deferred revenue of $2.2 million related to the amounts collected for the sale of franchise license and membership and wellness packages sold during the year (which are recorded as deferred revenue until the service is performed), ii) accounts payable of $0.8 million due to the general increase in operating expenses and timing of payments, and iii) prepaid expenses and other current assets of $0.2 million, mainly driven by the general increase in operating expenses.
These increases in operating assets and liabilities were partially offset by the decreases in (i) upfront regional developer fees of $0.6 million, (ii) accounts payable of $1.4 million due to the general increase in operating expenses and timing of payments, and (iii) prepaid expenses and other current assets of $0.3 million, mainly driven by the general increase in operating expenses.
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 accounted for the termination of development rights associated with unsold or undeveloped franchises as a cancellation, and the associated upfront regional developer fee liability was netted against the aggregate purchase price. We recognized the net amount of $0.7 million as a general and administrative expense on June 15, 2023.
No impairments of goodwill were recorded for the years ended December 31, 2022 and 2021. 33 Table of Contents Long-Lived Assets We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered.
Long-Lived Assets We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. We look primarily to estimated undiscounted future cash flows in the assessment of whether or not long-lived assets are recoverable.
Selling and Marketing Expenses Year Ended December 31, Change from Prior Year Percent Change from Prior Year 2022 2021 Selling and Marketing Expenses 13,962,709 11,424,416 $ 2,538,293 22.2 % Selling and marketing expenses increased $2.5 million for the year ended December 31, 2022, as compared to the year ended December 31, 2021, driven by an increase in advertising fund expenditures from a larger franchise base and increased local marketing expenditures by the company-owned or managed clinics.
Cost of Revenues Year Ended December 31, Change from Prior Year Percent Change from Prior Year 2023 2022 Cost of Revenues $ 10,546,558 $ 9,171,063 $ 1,375,495 15.0 % For the year ended December 31, 2023, as compared with the year ended December 31, 2022, the total cost of revenues increased due to an increase in regional developer royalties and sales commissions of $1.3 million and an increase in website hosting costs of $0.1 million. 35 Table of Contents Selling and Marketing Expenses Year Ended December 31, Change from Prior Year Percent Change from Prior Year 2023 2022 Selling and Marketing Expenses $ 16,541,990 $ 13,962,709 $ 2,579,281 18.5 % Selling and marketing expenses increased $2.6 million for the year ended December 31, 2023, as compared to the year ended December 31, 2022, driven by an increase in advertising fund expenditures from a larger franchise base and increased local marketing expenditures from a larger company-owned or managed clinic base.
This strong result reflects the power of the regional developer program to accelerate the number of clinics sold, and eventually opened, across the country. In addition, we believe that we can accelerate the development of, and revenue generation from, company-owned or managed clinics through the accelerated development of greenfield clinics and the further selective acquisition of existing franchised clinics.
This strong result reflects the power of the regional developer program to accelerate the number of clinics sold, and eventually opened, across the country.
We expect elevated levels of cost inflation to persist in 2023. 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 take such pricing actions.
While we anticipate that these continued headwinds can be partially mitigated by pricing actions, there can be no assurance that we will be able to continue to take such pricing actions. A continued increase in labor costs could have an adverse effect on our operating costs, financial condition and results of operations.
Non-GAAP Financial Measures The table below reconciles net income to Adjusted EBITDA for the years ended December 31, 2022 and 2021.
Please see Note 9, “Income Taxes” in the Notes to consolidated financial statements included in Item 8 of this Form 10-K for further discussion. Non-GAAP Financial Measures The table below reconciles net (loss) income to Adjusted EBITDA for the years ended December 31, 2023 and 2022.
Recent Events Recent events that may impact our business include unfavorable global economic or political conditions, such as the Covid-19 pandemic, the Ukraine War, labor shortages, and inflation and other cost increases. We anticipate that 2023 will continue to be a volatile macroeconomic environment.
JP Morgan Chase waived this default until September 30, 2023. The filing of our 2023 Q2 10-Q on September 26, 2023 cured the default. Recent Events Recent events that may impact our business include unfavorable global economic or political conditions, such as the Ukraine War, the Israel-Gaza conflict, labor shortages, and inflation and other cost increases.
We seek to be the leading provider of chiropractic care in the markets we serve and to become the most recognized brand in our industry through the rapid and focused expansion of chiropractic clinics in key markets throughout North America and potentially abroad.
Overview We are a rapidly growing franchisor and operator of chiropractic clinics that uses a private pay, non-insurance, cash-based model. 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.
We regularly assess the tax risk of our tax return filing positions, and we have not identified any material uncertain tax positions as of December 31, 2022 and 2021, respectively. Loss Contingencie s Accounting Standards Codification 450, Contingencies (“ASC 450”), governs the disclosure of loss contingencies and accrual of loss contingencies in respect of litigation and other claims.
We regularly assess the tax risk of our tax return filing positions, and we have identified $1.2 million and $1.3 million in uncertain tax positions as of December 31, 2023 and 2022, respectively.
During the year ended December 31, 2021, certain operating lease ROU assets related to closed clinics with a total carrying amount of $0.5 million were written down to their fair value of $0.4 million.
During the year ended December 31, 2023, intangible assets and property and equipment, net related to a closed clinic and asset groups determined to not be recoverable with a total carrying amount of approximately $3.0 million was written down to $1.2 million.
Income Tax Expense (Benefit) Year Ended December 31, Change from Prior Year Percent Change from Prior Year 2022 2021 Income tax expense (benefit) 766,510 (1,293,229) $ 2,059,739 (159.3) % For the years ended December 31, 2022 and 2021, the effective tax rates were 39.4% and (24.5)%, respectively.
Income Tax Expense 37 Table of Contents Year Ended December 31, Change from Prior Year Percent Change from Prior Year 2023 2022 Income tax expense $ 11,390,953 $ 68,448 $ 11,322,505 16,541.8 % For the years ended December 31, 2023 and 2022, the effective tax rates were 695.1% and 9.8%, respectively.
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 carried an upfront regional developer fee liability balance associated with this transaction of $0.3 million, representing the unrecognized fee collected upon the execution of the regional developer agreement.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeGiven the low interest income generated from our cash, any reduction in interest rates would not have a material impact on our interest income. Borrowings under the Revolver bear interest at a rate equal to an applicable margin plus a variable rate. As such, the Revolver exposes us to market risk for changes in interest rates.
Biggest changeGiven the low interest income generated from our cash, any reduction in interest rates would not have a material impact on our interest income. 40 Table of Contents Borrowings under the Credit Agreement bear interest at a rate equal to an applicable margin plus a variable rate.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Financial instruments held by us as of December 31, 2022 include cash and cash equivalents and short-term borrowings. A portion of our cash is affected by short-term interest rates, which are currently low.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Financial instruments held by us as of December 31, 2023 include cash and cash equivalents and short-term borrowings. A portion of our cash is affected by short-term interest rates, which are currently low.
Given our short-term debt position as of December 31, 2022, the effect of a 10-basis point change in interest rates would not have a material impact on our variable interest expense.
As such, the Revolver exposes us to market risk for changes in interest rates. Given our short-term debt position as of December 31, 2023, the effect of a 10-basis point change in interest rates would not have a material impact on our variable interest expense.

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