Joint Corp Stock

Thank you for standing by. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the Joint Corporation Second Quarter 2026 Financial Results Conference Call. All line. placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I will now turn the call over to Richard Land with Alliance Investors, With Alliance Advisors Investor Relations, please go ahead.

Thank you, Rebecca, and good afternoon, everyone. Joining us on the call today are President and CEO Sanjeev Razdan and CFO Scott Bowman. Please note we are using a slide presentation that can be found on the Joint's Investor Relations website. This afternoon, the Joint Corp issued a press release for the second quarter ended June 30th, 2026. If you do not already have a copy, it can also be found on the company's website. Please be advised that today's discussion, including any financial and related guidance to be provided, consists of forward looking statements as defined by securities laws. These statements are based on information currently available to us and involve risks and uncertainties that could cause actual future results, performance and business prospects and opportunities to differently materially from those expressed in or implied by these statements.

Some important factors that could cause such differences are discussed in the risk factor section of the Joint Corps filing with the Securities and Exchange Commission. Forward-looking statements speak only as of the date the statements are made and the company assumes no obligation to update them except to the extent required by applicable securities laws. uses non-GAAP financial measures such as EBITDA, adjusted EBITDA, free cash flow, and system-wide sales. A description of these measures is included in the press release issued earlier this afternoon, and reconciliations to the most directly comparable GAAP measures are included in the appendix to the presentation and press release, both of which are available in the investors tab of our website. With that, I'll now turn the call over to Sanjeev Razdan. Sanjeev, please go ahead.

Thank you, Richard. Good afternoon, everyone. The second quarter was a period of continued execution of our joint 2.0 initiative, With our results reflecting the progress we are making toward a stronger, more profitable financial profile as a capital light pure play franchisor. This was underscored by a $560,000 year-over-year improvement in consolidated net income and a $1.4 million increase in adjusted EBITDA from continuing operations, reflecting the improved operating leverage of the current business. Meanwhile, we delivered 152% year-over-year growth in cash flow from operating activities, resulting in a $1.6 million increase in free cash flow. These improvements were driven by continued progress on our re-franchising initiative, disciplined capital allocation, and significant improvement in our patient retention levels. First, on re-franchising, our three previously announced clinic sale bundles are progressing well, with buyers already operating the clinics under management service agreements, while lease assignments are completed and remaining ownership transfers are finalized. Taken together, these transactions mean the joint effectively operates today as a capital-light, pure-play franchisor.

Second, on patient retention, we posted our best quality retention rate in over five years, a direct result of the new flexible and expanded plan options introduced earlier this year. These initiatives are working as intended, reducing attrition while making our offerings more attractive to patients. And third, on capital allocation, we remained disciplined during the quarter, repurchasing approximately $677,000. dollars of shares while also investing in the business and completing three regional developer territory buybacks in the quarter bringing the year-to-date total to four Together, these actions reflect our conviction in the long-term value of this business and our commitment to disciplined, balanced capital deployment. Combined with our progress on optimizing the clinic portfolio, they're driving higher profitability and stronger free cash flow. Turning to slide five, I'll touch on some of our Q2 financial highlights, which reflect the combined benefit of this execution. Revenue grew 14% year-over-year to $15.2 million. Adjusted EBITDA from continuing operations was $1.5 million compared to $88,000 in Q2 2025, an increase of $1.4 million, underscoring the operating leverage we are generating as we shift to a new level. more royalty and fee-based franchise revenue.

Consolidated net income increased to $653,000 compared to $93,000 in Q2 2025. And cash flow from operating activities grew 152% year-over-year to $2.2 million, driving a $1.6 million increase in fiscal year-over-year. free cash flow to 1.9 million dollars. Turning to slide six, Now I'd like to provide a little bit more background on the status of our re-franchising efforts. Since entering into the sale agreement covering the Southern California Clinic bundle, ownership has been transferred for 32 clinics to date and the remaining 13 clinics are being operated by the buyer under management service agreements while lease assignments are finalized. For the Northern California bundle, a signed asset purchase agreement is in place for four clinics. And finally, for the Southeast bundle, a signed asset purchase agreement is in place. I beg your pardon. And finally, for the Southeast bundle, ownership has been transferred for six clinics to date, with the remaining 15 clinics also operating under management service agreements pending lease reassignments.

Thank you. Once ownership transfers are finalized across these clinic bundles, we will have only three remaining company-owned or managed clinics, effectively positioning the company to realize the full benefits of our pure-play, capital-light franchise or model. Turning to slide seven, while our re-franchising efforts nearly behind behind us, we have more capacity to concentrate on driving growth through franchise system support, new patient acquisition, and long-term network development. We see a significant opportunity to further strengthen new patient acquisition and to win back lapsed patients. along with patient retention remains our primary near-term focus, and we're leaning into targeted marketing and optimized membership offerings to capture demand more effectively. We've done extensive research recently on our consumer base, and that work is sharpening our focus on the patient and user experience. For example, as a result of these consumer insights, we are piloting a proprietary set of clinical care protocols which, amongst other things, will provide quantifiable mobility scores to our patients. Our 2025 class of 29 clinic openings continue to outperform prior year cohorts, and the new clinics so far this year are performing even better. In addition, we are working to bring on well-capitalized franchisees with strong multi-site operating experience to support our portfolio optimization efforts as well as to drive net new clinic growth.

Also, as we directly engage franchisees previously supported by regional developers, we are finding opportunities to elevate both the quality of operations and the pace of clinic development. As mentioned on our last call, our longer-term journey will prioritize growth through new channels, expansion into underpenetrated U.S. markets, and potential entry into our first international markets. This longer-term strategy is expected to address shifting consumer trends, including growing interest in longevity, health span, mindfulness, sleep quality, posture, and non-invasive whole-body care. Thank you. Chiropractic care and the joint's unique model is exceptionally well positioned against this backdrop. Moving to slide eight. Now turning to our marketing efforts and how we are driving top line momentum. Our messaging continues to center on chiropractic care for pain relief, helping patients improve their mobility, and get back to doing the things they love. We're increasingly emphasizing the quality of the patient experience alongside this.

This message tends to attract patients who stay with us longer. We have seen sequential improvement in active member growth each month this year. We are also increasing focus on our MVPs, or most valuable patients, by exploring ways to personalize their experience, bringing additional value to membership, and ultimately driving LTV, or long-term value. Another focus is on winning back lapsed patients who are familiar with the joint and have benefited from our membership model in the past. On the digital side, our ongoing SEO and AI visibility optimization work is driving higher organic traffic and lead quality. Our AI visibility score has held steady in the high 70s, keeping us ahead of competitors on key search topics. Meanwhile, we are seeing continued positive trends in traffic and high intent actions on our local clinic microsites.

During Q2, we expanded our offering of more flexible plans to drive conversion and longer-term retention. Lastly, in July, we rolled out our $5 and $10 pricing increases to additional clinics, bringing the total number of clinics that have opted to take pricing to over 500. Feedback to date continues to indicate no meaningful patient pushback, and we are using this data to ensure pricing changes support revenue optimization without impacting patient acquisition or retention. Turning to slide 9, I'll speak to how these initiatives are translating into comps and retention. Comp sales were negative 2.8% in the second quarter, an improvement compared to the first quarter. I mentioned. Our flexible membership options drove our best patient retention rate in over five years this quarter, and pricing optimization efforts also continued. Together with improving active member trends, these factors are driving consistent recovery in comp trends.

We expect comp sales trends to improve throughout the balance of this year. Thank you. Growing our active member base remains a central driver of comp sales improvement, and we will continue to drive growth through stronger lead generation, improved retention, and winning back lapsed patients. With that, I'll turn it over to Scott, our CFO. Thanks, Angie.

First, I'll review some key operating metrics. System-wide sales in the second quarter were 128 million, a decline of 3.7% compared to the same period last year. Comp sales were negative 2.8%, 140 basis point improvement from the first quarter, consistent with the strengthening trends Sanjeev discussed earlier. Meanwhile, adjusted EBITDA from consolidated operations was $3.2 million in line with the same period last year. Turning to slide 12, I'll review results from continuing operations for the second quarter unless otherwise specified. Revenue grew 14% to $15.2 million, reflecting the shift to our pure play franchisor revenue model. Cost of revenues was $2.5 million, down 11% compared to the same period last year, primarily reflecting lower regional developer royalty costs as we continue to reacquire RD territories.

Selling and marketing expenses were $4.9 million, an increase of 40% compared to the same period last year. by a shift in local marketing to national marketing, which has funded incremental investments in patient acquisition and brand initiatives. Meanwhile, G&A expenses decreased 2% to $7.6 million compared to $7.7 million in the same period last year. Included in G&A expenses is approximately $500,000 that relates to expenses incurred for RD buyback and expenses that will not be recurring post-re-franchising. Net loss from continuing operations was $251,000 compared to a loss of $990,000 in the same trade last year. consolidated net income was $653,000 compared to $93,000 in the prior year period. And lastly, adjusted EBITDA from continuing operations was 1.5 million compared to 88,000 in the same period last year. reflection of the operating leverage we are generating in our new franchisor model. Now, onto the balance sheet and capital allocation. Unrestricted cash at the end of the second quarter was $22.2 million compared to $23.6 million at the end of 2025.

We maintain our $20 million line of credit with JPMorgan Chase, which remains fully undrawn and is available through August 2029. During the quarter, we repurchased approximately 82,000 shares for consideration of $677,000 at an average price of $823 per share. We now have $3.8 million remaining under the $12 million authorization approved in November 2025. As Sanjeev mentioned, we also completed three RD territory buybacks during the quarter, further optimizing our portfolio economics. with prior buybacks, we are already seeing stronger performance in these markets post-transaction. Through the buybacks of the four RD territories we have completed year-to-date, we expect to realize approximately 630,000 in reduced RD royalties on an annualized basis, partially offset by internal costs to manage these territories. On to slide 14, let's discuss our clinic count. Total clinic count was 941 at the end of the second quarter.

During the quarter, we opened five clinics, closed seven clinics, and re-franchised 29 clinics, reflecting our previously discussed strategy to optimize the portfolio for quality and performance. Meanwhile, our new clinics in 2026 have continued to outperform similar to 2025 and are reaching their break-even point even earlier at under six months. As Sanjeev noted, our re-franchising efforts are now substantially complete with the sale of our three previously announced clinic bundles progressing well. On slide 15, with re-franchising largely complete, I would like to touch on our pure play franchisor financial model. Under this new operating model, the joint is now reshaped with a capital light operating model with lower G&A expense and higher profitability margins. We expect to achieve this model starting in the back half of 2026 once the transfer of ownership of the remaining clinics is fully complete. I would like to remind everyone that these are not our long-term targets.

They are the starting point once the full benefit of re-franchising is realized, and we intend to build on these improvements in 2027 and beyond. As a reminder, our expected starting points for this new model are as follows. gross margin between 83 and 85 percent of revenues, G&A expense between 40 and 42 percent of revenues, CapEx of approximately 3 percent of revenues, and free cash flow conversion, which we define as free cash flow divided by adjusted EBITDA, between 60 and 70 percent. These starting points would result in an estimated adjusted EBITDA margin of 19 to 21 percent and net income margin of 13 to 15 percent. On to slide 16, we are reiterating our full year 2026 financial guidance as originally provided in March 2026. Our operating model improvements are progressing as expected, and with improving comp sale trends observed in recent months, we continue to expect system-wide sales of from 519 to 552 million, comp sales in the range of negative 3% to positive 3%, consolidated adjusted EBITDA in the range of $12.5 to $13.5 million. We expect comp sales to improve in the second half of the year, with the fourth quarter expected to be higher than the third quarter. We have more visibility on new franchise clinic openings for the year, which we now expect to be in the range of 22 to 26.

This compares to prior guidance of 30 to 35 new clinics. New clinic openings will continue to be offset by closures as we reshape the portfolio around stronger operators and healthier sites. meaning that on a net basis, our clinic count at the end of the 2026 year will be lower than 2025. Our clinic portfolio optimization is giving us a stronger, more durable foundation for future growth, and we continue to see potential for more than 1,800 franchise clinics in the U.S. alone. Finally, on slide 17, I'll briefly speak to our capital allocation. As highlighted by our activities in the second quarter, we remain committed to disciplined capital allocation that prioritizes investments in growth initiatives, share repurchases, and repurchases of RD territories. With that, I'll turn it back over to Sanjeev. Thanks, Scott. Q2 was a quarter defined by continued execution.

Our disciplined capital allocation, our best patient retention in over five years, and the nearing completion of our re-franchising initiative are together building towards the stronger capital-light financial profile we will deliver. We are securing a strong foundation to launch the Joint 3.0 with a growing national brand, more active members, stronger patient retention, and lifetime value. and an innovation pipeline to improve the patient experience. Meanwhile, our capital allocation including share repurchases, RD buybacks, and discipline investment and growth initiatives reflects our conviction in the long-term value of this business and commitment to delivering returns for stockholders. And finally, we are also building a business that is well aligned with aging demographics and consumer expectations for where healthcare and wellness are heading. This growing consumer demand for longevity, healthspan, and non-invasive whole body care creates a unique opportunity for the joint to address this demand at scale.

With that, operator, we are ready for Q&A. At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for a moment to compile the Q&A roster. Your first question comes from the line of Nicholas Sherwood with Maxim Group. Your line is open.

Hi, thank you for taking my question. My first question is, one of the things that you've spoken about in the past is making sure that you're optimizing your digital marketing strategy for sort of AI search engine optimization. And there's been a lot of things out there, how click rates on Google are going to zero in some cases, you know, how are you operating in this new AI search environment and making sure that you're getting customers to click through onto your website? First of all, I want to acknowledge, Nicholas, that the AI search environment is just incredibly rapidly changing.

And for us, the way that we stay ahead of this is in three ways. Number one, we have the benefit about 260 local franchisees and operators who are giving us feedback right at local level on how our search is showing up in their trade zones, and that allows us to just stay on top of things. The second thing we do this is that we have a digital marketing team that stays on top of the algorithm changes that are happening in the marketplace, not just just with Google, which continues to remain dominant, but also all the other platforms now where consumers are searching for us. through some kind of AI-enabled search. So we have dedicated resources that are constantly staying on top of the algorithm changes that drive those processes. those searches. The third thing is that we have a measurement system in place which is objective. We look at it through a couple of different measurement systems to make sure that we're not just reliant on internal ways of looking at it. And so as a result of those three ways that I've described to you, it gives us enough insight and allows our team to then take corrective action if we need to, to stay on top of it.

For when we started this journey sometime I would say late last year, our AI score, search score was in the low 70s, 71 to be precise. And for the last several months now, we have been in the high 70s. And which is a pretty comparative number when we compare it with others who are considered to be strong in the category.

Understood. I appreciate the detail. And then my second question is, looking at the getting lapsed patients to return? You know, are these patients lapsing because either, you know, they find themselves cured, maybe that they just feel like they need to go do something else, such as traditional physical therapy, or is it a cost issue? You know, kind of what is the mix between those three for lapsed patients, and how do you attack, you know, getting them back into your clinics? Great question.

We find invariably that the reasons for our patients to lapse are one of three. Number one, I no longer in pain. Number two, I may not have the same amount of time to come back for a regular adjustment as when I did when I was in pain or discomfort. Number three, relative to the first two, I no longer wish to invest that same level of money in getting regular adjustments. So those tend to be for us pain, time, money, the three biggest drivers of patients lapsing. What we found is we've done consumer research, is that unlike several brands where the lapsed patients tend to have some degree of disgruntlement with the concept, our lapsed patients actually have fond memories of getting pain relief and are very willing to reconsider us and And I think that's a good insight for us. Clearly, as we've realized this, we are actively making sure that We are looking to target some of our digital marketing and local marketing efforts towards winning back those lapsed patients.

In fact, our August promotion right now is targeted towards them just as we speak. And we're very hopeful that that's going to work for us and, in fact, allow us to acquire more patients into the active member funnel for us at a lower cost of acquisition over time. And I'll just add a comment on to that as well.

You know, we talked about the flexible options a lot that we've rolled out. And that's a big win, too, for these patients. Typically, these patients will lapse from a wellness plan, four visits a month for a certain price, depending on location. With this Align One plan that we have, you pay $35, you get one visit per month for that, and then you can pay an additional $25 if you need additional visits. That has been a big win for us, because what that has done is given these patients another option to choose from other than and the standard wellness plan. And as a result of that, our conversion rate for those last patients has gone up several hundred basis points. You know, with this new flexible option, we actually have two of those.

And so that's been an unlock for us here in the last few months.

Okay, yes, sounds great. I appreciate the color, and I will return to the queue. Thank you for answering my questions.

Of course. Your next question comes from the line of George Kelly with Roth Capital Partners. Your line is open.

Hey everyone, thanks for taking my questions. I have a few for you. So first, I was wondering if you could provide more detail just on your comp performance. maybe not sure if you want to give sort of the trends throughout the quarter and any, you know, Any comment on July would be helpful as well. And then the second question is about pricing. Can you give a breakdown of how much pricing benefited 2Q and maybe your expectations? I know more clinics have rolled out the new pricing. Maybe your expectations on pricing in the back half of the year.

Sure. Yes. As far as comps go, We did see a little bit better comps towards the end of the quarter. and coming into third quarter. And so, you We're encouraged, if you look at the back half of the year, we've indicated that we think that our comps will be better. And so they were slightly better at the end of the quarter. And so we felt pretty good coming into the third quarter as well. And that's why we kind of reiterated that we think that comps will be better. you know, be higher in the back half. Related to your pricing question, so, So, we had some pricing initiatives earlier in the year and then we had some more at the end of June rollout. And so the way that we look at it, it looks like it's helping in the low single-digit range in terms of pricing.

We have a lot of other initiatives going on out there with new offerings and things like that, but isolated just to the wellness plan, it looks like it's about a low single-digit impact. And as we look into the second half, you know, with more clinics, with the new pricing, you know, we see that it'll likely be at the high end of that low single-digit range, based on at least our estimates right now. Okay.

And just to remind everyone, when we take pricing, what we've been doing is taking pricing only for new patients. So in a membership model for us, it takes time for that pricing impact to catch up when the bulk of the patients then are on that most current pricing model. Right.

Okay, okay, yep, that's helpful. And can you comment on July comp performance?.

Yes, what I would say, George, is July comps are a bit better than, you know, the closing out Q2. Okay.

So not dramatically different, but sequentially a little better than the end of Q2. Okay, great. And then the second topic I wanted to cover is, You've had this slide in your deck now for a few quarters, the pro forma profitability. And I noticed that this time around, you noted in this slide that it's really a starting point. And I think in your prepared for Mark Scott, you talked about there being opportunity for sort of continual margin improvement. So I was wondering if you could provide more context, A, about where you're finding or believe that there could be more opportunity. Is it really just about growth and scale and leveraging? your cost structure or are there kind of more, more places where you think you could sort of directly take cost out. And then the second part of the question is about expectations.

I don't know how far sort of in front you want to get. Maybe you don't want to get too far ahead here, but like how should we think about 27 and 28? You've said that I think it's 19 to 21% EBITDA margin targets when the re-franchising is done. I don't know if you'd be willing to to give what those numbers could look like over the near to medium term.

Yes, good question, George. We're not ready to guide the 27 and 28, but I'll give you a little bit of color that hopefully will help. So the model that is in the earnings deck, I wanted to make sure that everybody understood that this is a starting point for us. And what I was trying to accomplish was to give everyone the structure of what we would expect to see once re-franchising is complete. It wasn't like a forward projection of what we want to be a year or two years from now. Now it's kind of point in time, what we would expect. Okay, and the expectation was that was a starting point. And as we continue to increase sales, this platform and framework will give us a good opportunity to leverage these additional sales to expand our profitability margin.

Okay, so that's what I was trying to set this out for. And so this model I think will allow us, the way that we have our DNA structure now, it can withstand some increase in revenue and sales. And so that's why I feel confident that as we add sales, we can leverage this model. from a re-franchising standpoint. You know, in my prepared remarks, I try to give some color on some of those expenses that we don't expect to recur. You know, they already buy back. and some of those cost to get through the refranchising about a half a million dollars in the quarter. will not recur. And so, you know, once we get past the re-franchising, that will become more clear. And that will allow us to, head towards that GNA target that I have in the deck.

As far as overall cost structure post-refranchising, yes, I think there's, you know, some, you know, areas we can continue to optimize and I, I think that will become more clear as we get past re-franchising and we kind of see what the go forward kind of model will be from a structure standpoint. And from an expense standpoint with you know, the legal costs that we spend and other costs that we spend, it'll be more clear, you know, once we get all of the ownership transfers done.

So hopefully that gives you something to understand. It does. Thanks. Just to clarify one more time, I think that half a million that we're saying was associated with RD buybacks and some one-time expenses related to re-franchising. It is currently sitting in our SG&A, and we don't expect to have one.

that repeat. Understood. And then last one for me is just on re-franchising. What are the remaining proceeds on those clinics that have not yet transferred ownership? Like what are you expecting to get when they do? And when do you expect that process to be complete?.

Yes, so we're still working through the process to complete and it is a rather lengthy process just because we have to work with the landlords to execute the lease assignments to transfer the ownership. In the meantime, we have these management service agreements And so as far as the remaining proceeds to go, it'll be – a little bit less of $500,000 or maybe a little less, you know, when all said and done to collect the remaining proceeds.

Okay, that's all I had. Thank you. Sure. I will now turn the call back over to Sanjeev Razdan for closing remarks.

Thank you all for joining us today. Have a great day, and remember, at the Joint, we always have your back.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Good day, and welcome to The Joint Corporation First Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Richard Land, Alliance Advisors Investor Relations. Please go ahead.

Thank you, Danielle, and good afternoon, everyone. This is Richard Land with Alliance Advisors Investor Relations. Joining us on the call today are President and CEO, Sanjiv Razdan, and CFO, Scott Bowman.

Please note, we are using a slide presentation that can be found on The Joint Corp's IR website. This afternoon, The Joint Corp. issued a press release for the first quarter ended March 31, 2026. If you do not already have a copy, it can also be found on the company's website. Please be advised that today's discussion, including any financial and related guidance to be provided, consists of forward-looking statements as defined by securities laws. These statements are based on information currently available to us and involve risks and uncertainties that could cause actual future results, performance and business prospects and opportunities to differ materially from those expressed in or implied by these statements. Some important factors that could cause such differences are discussed in the Risk Factors section of The Joint Corp's filings with the Securities and Exchange Commission.

Forward-looking statements speak only as of the date the statements are made, and the company assumes no obligation to update them, except to the extent required by applicable securities laws. Management uses non-GAAP financial measures such as EBITDA, adjusted EBITDA, free cash flow and system-wide sales. A description of these measures is included in the press release issued earlier this afternoon and reconciliations to the most directly comparable GAAP measures are included in the appendix to the presentation and press release, both of which are available in the Investors tab on our website. With that, I'll now turn the call over to Sanjiv Razdan. Sanjiv, please go ahead.

Thank you, Richard. Good afternoon, everyone. Alongside the strong first quarter results we reported today, we continue to have meaningful progress with our Joint 2.0 initiative, the first phase of our transformation journey.

In April, we entered into an agreement for the sale of 45 company-owned or managed clinics in Southern California. When combined with the 2 other signed refranchising agreements that are pending closing, just 3 clinics out of our entire portfolio remain company-owned or managed. That is down from 135 at the start of this process. This is a defining milestone. With our refranchising efforts effectively complete, The Joint is now in every meaningful sense, a pure-play franchisor. And as we continue to implement heightened cost discipline across our operations, our financial results are benefiting. These benefits include higher profitability and free cash flow conversion, which we are in part allocating for the benefit of our shareholders, including through our continued share repurchases as well as through recent RD territory buybacks.

On Slide 5, let me touch on the Q1 financial highlights before walking through the details of our transformation. Revenue from continuing operations grew 13% year-over-year to $14.8 million. Adjusted EBITDA from continuing operations was $2.2 million compared to $46,000 in Q1 2025, underscoring the operating leverage we are generating as we shift towards more royalty and fee-based franchise revenue. Net income from continuing operations was $1.1 million compared to a net loss of $506,000 in Q1 2025. And cash flow from operating activities improved by $2.2 million from the first quarter of 2025, helping to drive a $2.3 million improvement in free cash flow over the same period.

On Slide 6, now I'll walk through our recent refranchising activity in more detail. In March 2026, we signed a letter of intent for the sale of 5 company-owned or managed clinics. Then in April, subsequent to quarter end, we signed an asset purchase agreement for the sale of 45 additional company-owned or managed clinics for a total of $2.3 million. When completed, these 2 transactions, along with the asset purchase agreement announced in December last year, will bring our company-owned clinic count down to just 3, which compares to 135 corporate clinics at the start of our Joint 2.0 initiative. Completing this journey ahead of schedule is a testament to the strength of our operator relationships and the attractiveness of The Joint franchise model.

In addition to our success with refranchising, we also recently completed buybacks of 3 regional developer territories, allowing us to capture a greater share of long-term royalty economics in those markets. Now that we have bought back these RD territories, it allows us to provide strong direct support to our franchisees and drive growth over time.

On Slide 7, with the Joint 2.0 transformation efforts nearing completion, I want to share our thinking about what comes next. We are increasingly focused on the Joint 3.0, the next phase of our journey, which will begin in earnest in 2027. That phase will prioritize growth through new channels, including B2B, expansion into underpenetrated U.S. markets and potential entry into our first international market. Underpinning this is a powerful set of consumer trends, including growing interest in longevity, health span, mindfulness, sleep quality and noninvasive whole body care. Chiropractic care and The Joint's unique model is exceptionally well positioned against this backdrop. We see significant opportunity to evolve our brand positioning, not just around the theme of pain relief, but also around moving better with quantifiable patient outcomes through the creation of the Joint Bova score feature. In line with this positioning, we are exploring signature treatments, nutritional supplements and orthotics.

On Slide 8, now turning to our marketing efforts and how we are driving top line momentum. Our messaging continues to center on chiropractic care for pain relief, helping patients improve their mobility and get back to doing the things they love. This message tends to attract patients who stay with us longer. Our national marketing and advertising program, which was launched in November is now several months in. We have seen sequential improvement in active member growth each month since launch, which is encouraging.

On the digital side, our ongoing SEO and AI visibility optimization work is driving higher organic traffic and lead quality with our AI visibility score improving to between 78 and 80, up from about 70 at the beginning of the process. We now exceed the industry benchmark. Meanwhile, all local clinic micro sites have been migrated to the new optimized template, and we are seeing continued positive trends in traffic and high-intent actions, including new inbound phone calls and form submissions.

During Q1, we benefited from new sales initiative tests, including the introduction of a new 3-month minimum term commitment program, new, more flexible offerings to drive conversion and longer-term retention, and we signed our first B2B partnership program, which gives our partners' employees access to care at The Joint. In addition, we have started to roll out our new CareCredit program nationwide, which provides patients with deferred payment options on a higher ticket packages and plans, improving their access to care. It also enables access to 12 million members in the CareCredit program network.

Lastly, our pricing optimization efforts continued during the quarter with $5 to $10 price increases now rolled out across approximately 300 clinics with the rest of the portfolio starting to implement this pricing beginning in the third quarter. Feedback to date indicates no meaningful patient pushback, and we are using this data to ensure pricing changes support revenue optimization without impacting patient acquisition or retention.

Turning to Slide 9. I'll speak to comp sales and patient engagement. Q1 comp sales of negative 4.2% reflected the impact of continued macro headwinds such as general cost of living pressures across the entire market. However, comp sales are expected to consistently improve throughout the balance of the year, as Scott will speak to shortly.

Beginning with January, we have now had 4 consecutive months of month-on-month improvement in active member count per clinic. We expect comp sales trends to improve throughout the balance of the year as our national campaign matures, SEO improvements compound and pricing optimization rolls out more broadly. Growing our active member base remains a central driver of comp sales improvement, and we will drive growth through stronger lead generation, better in-clinic conversion and improved retention, along with the benefit of optimized pricing. Our patient retention rate has improved over the prior year, supported by more flexible offerings and longer contract minimums. This gives us a stronger foundation from which to accelerate growth. With that, I'll turn it over to Scott, our CFO.

Thanks, Sanjiv. To start, let's discuss our operating metrics. System-wide sales in the first quarter were $126 million, a decline of 4.9% compared to the same period last year. Comp sales were negative 4.2%, consistent with the headwinds Sanjiv discussed earlier. Meanwhile, adjusted EBITDA from consolidated operations grew 22% to $3.5 million, demonstrating our profitability improvements.

Turning to Slide 12. I'll review our results from continuing operations for the first quarter, unless otherwise specified. Revenues grew 13% to $14.8 million, reflecting the early benefits of transitioning clinics to continuing operations as part of refranchising. Cost of revenues was $2.7 million, down 8% compared to the same period last year, primarily due to lower regional developer royalties. Selling and marketing expenses were $3.7 million, up 6% compared to the same period last year, driven by the transition of clinics to continuing operations. Meanwhile, G&A expenses increased 2% to $7.1 million, of which approximately $300,000 relates to expenses that will not be incurred upon the completion of our refranchising strategy.

Overall, we expect G&A to decline as a percentage of revenue as we complete the transition of company-owned clinics to franchise clinics. Net income from continuing operations was $1.1 million compared to a net loss of $506,000 in the same period last year, while consolidated net income was $1.3 million compared to $1 million in the prior year period. And lastly, adjusted EBITDA from continuing operations was $2.2 million compared to $46,000 in the same period last year, a clear reflection of the operating leverage we will have in our pure franchise model.

On Slide 13, let's discuss our clinic count. Total clinic count was 943 at the end of the first quarter compared to 960 at year-end 2025. During the first quarter, we opened 3 clinics and closed 20, resulting in 868 franchise clinics and 75 company-owned or managed clinics. This reflects our previously discussed strategy to optimize the portfolio for quality and performance. As Sanjiv noted, the asset purchase agreement signed in April, combined with the letter of intent signed in March, will reduce our company-owned clinic count to just 3 when the transactions close. Meanwhile, our work to improve new clinic performance through enhanced preopening protocols continues to drive faster time to breakeven for new openings.

Now I'll review our balance sheet and capital allocation. Unrestricted cash at the end of the first quarter was $20.7 million compared to $23.6 million at year-end 2025. We maintain our $20 million line of credit for JPMorgan Chase, which remains fully undrawn and is available through August 2029. In early May, we extended the maturity of our credit facility by 2 years from August 2027 to August 2029. During the quarter, we repurchased approximately 137,000 shares for total consideration of $1.1 million at an average price of $8.35 per share. We now have $4.5 million remaining under the $12 million authorization approved in November of 2025.

As Sanjiv mentioned, we also completed 3 RD territory buybacks recently, which will further optimize our portfolio economics. Through these buybacks, we expect to realize approximately $450,000 in reduced RD royalties on an annualized basis, partially offset by internal costs to manage these territories.

On to Slide 15, we are reiterating our full year 2026 guidance as originally provided in March 2026. We expect system-wide sales of $519 million to $552 million, comp sales in the range of negative 3% to positive 3%, consolidated adjusted EBITDA in the range of $12.5 million to $13.5 million and new franchise clinic openings in the range of 30 to 35. As Sanjiv noted, we expect comp sales trends to improve throughout the year with a general cadence of slightly negative comps in Q2, followed by positive comps in Q3 and Q4 with the fourth quarter expected to be higher than the third quarter.

New clinic openings will continue to be offset by closures as we reshape the portfolio around stronger operators and healthier sites meaning that on a net basis, our clinic count at the end of 2026 will be lower than 2025. This clinic portfolio optimization leaves us with a stronger foundation to grow from, and we continue to believe that there is potential for more than 1,800 franchise clinics in the U.S. alone.

On Slide 16, we continue to work towards our pure-play franchisor model, which will be capital-light with lower G&A expense and higher profitability margins. Once refranchising is complete, we expect to achieve this model starting in the back half of 2026. Keep in mind that these are not our long-term targets. They are just a starting point once the full benefit of refranchising is realized, which we intend to build on in 2027 and beyond.

For the model, gross margin is expected to be 83% to 85% of revenues compared to 90% in 2025. G&A expense is expected to be 40% to 42% of revenues compared to 64% in 2025. CapEx is expected to be approximately 3% of revenues, and free cash flow conversion, which we define as free cash flow divided by adjusted EBITDA, is expected to be 60% to 70%. These assumptions would result in an estimated adjusted EBITDA margin of 19% to 21% and net income margin of 13% to 15%.

Finally, on Slide 17, I'll speak to our capital allocation. As highlighted by our activities in Q1, we remain committed to a disciplined capital allocation framework that prioritizes investments in growth initiatives, share repurchases and opportunistic repurchase of RD territories. With that, I'll turn it back over to Sanjiv.

Thanks, Scott. On Slide 19, Q1 was another quarter of continued progress towards reigniting growth. The financial results with 13% revenue growth from continuing operations and 22% consolidated adjusted EBITDA growth are starting to reflect the franchisor model we have been building. The Joint 2.0 transformation is now nearing completion, and we are securing a strong foundation to launch the Joint 3.0 as a capital-light pure-play franchisor with a growing national brand, improving patient acquisition trends and a pipeline of new B2B initiatives.

Meanwhile, our capital allocation, including share repurchases, RD buybacks and disciplined investment in growth initiatives reflects our conviction in the long-term value of this business and our commitment to delivering returns for stockholders. And finally, we are also building a business that is well aligned with where health care and wellness are heading. Consumer demand for longevity, health span and non-invasive whole-body care is growing, and The Joint is uniquely positioned to meet that demand at scale. With that, operator, we are ready for Q&A.

[Operator Instructions] The first question comes from Jeff Van Sinderen from B. Riley.

Just wondering on the time frame to close the refran transactions. I think you said second half you expected those to be completed. So it sounds like they're closing in the next month or so, a couple of months?

Yes. So the timing on those -- really, the timing is dependent on getting the leases assigned to the new owners. And so that's an ongoing process. And so over the next couple of months, we should be very near completion of that lease assignment process.

Jeff, in addition to that, what I just want to make sure is clear is that all but 6 or 7 of those clinics now are being operated by the buyers of these clinics. Either those leases have already been transferred to them and they are owning and operating those clinics or they are operating them under a management services agreement, which for all intents and purposes mirrors the economics of a pure franchiser model. So the only mechanical piece that needs to be complete to conclude these deals is to reassign those leases, which we are confident will happen here in the next couple of months.

We do have one other small cluster of 4 or 5 clinics in Northern California that are under a letter of intent where an APA will be -- is expected to be signed shortly. And that then leaves us with 3 clinics that we are also addressing. I hope that clarifies.

Sure. I'm sorry, how is that? Last cluster you mentioned, how many clinics is that?

The last cluster is 5.

Okay. Got it. And then I'm just -- I know you went through a bunch of different things in the prepared comments. But I guess trying to get a better sense of what you think are the main drivers of getting the same-store sales turned around. It sounds like you feel like you're on the right path to that, but maybe you could just delve a little bit more into that and how you see that coming about?

Yes, absolutely. First of all, I think what I didn't say in my prepared comments, but I think I don't want to get this point to be lost here. As we have now practically concluded refranchising, it's going to allow this entire team here to be single-mindedly focused on growth outcomes. What gives us confidence that we will continue to see the sequential improvement we're seeing is based on the work that we started late last year, which to recap, one, was to pivot the external messaging to pain relief. Secondly, we transferred $500 per clinic per month from local marketing to national advertising to invest more on the brand awareness side. Three, we got caught up on search engine optimization and now have optimized for AI search, where we are slightly ahead of the industry benchmark, and we're being rated well there.

So that is stuff that we've already done and that impact is compounding. In addition to that, what we have done and continue to feel good about is that our patient retention is improving. It is significantly better than last year. That is happening as a result of 2 things. One is that we have extended the minimum contract term from 2 months to 3 months, and we have had 0 pushback from patients on that. And I think the other thing we have done is to create this new offering to help extend the lifetime value of patients. So essentially, we have patients who are on our wellness plan that gets them 4 visits a month, we are -- should they wish to cancel, we are offering them the option of a plan called Align One, which gives them 1 visit per month at $35 a month or $39 a month depending on what part of the country they're in. That gets them 1 visit per month and then the ability to buy incremental visits. And we find that people are very on the balance, quite happy to extend their stay -- their membership with us on that plan, and it's -- we are seeing significantly lower attrition on that plan. And even though it's just 1 month -- 1 visit per month plan, we are seeing the actual uptake on that closer to 2 visits per month.

So those are some of the things that are giving us confidence. Plus the pricing, Jeff, that was rolled out to 300 clinics. Now we feel very confident of extending that to the rest of the enterprise. And that, as I had indicated, is expected to happen early in the third quarter.

Okay. Good to hear. And then can you just remind us how many RD rights you still have left to buy back if you wanted to buy those back?

Yes. And just as a reminder, we have now bought back 4 RD rights in the last 12 months or so, which equate to about $1.3 million in RD royalties, which we are now going to be able to recover. One of those 4 was done last year and 3 we have just concluded and shared with you on this call. And I'm going to let Scott answer exactly how many RD territories are left.

Yes. So remaining, we have 12 RD territories remaining. And so we'll continue to evaluate those opportunities and work with the RDs.

The next question comes from Jeremy Hamblin from Craig-Hallum.

This is [ Will ] on for Jeremy. First, I was just wondering if you could give us a sense of sort of the demand elasticity you've seen in geographies where you've taken the most price? And then also just what you've seen in terms of comp impact from that $10 raise?

Yes. So it's interesting. So we have done the analysis looking at the trends and everything, but we coupled that with conversations with the local operators just to understand the dynamics of the price increases. And one thing I'll start off by saying that these price increases are just for new patients. So everybody that was already on a plan continues at that same price. It's just for new patients. And so what we've seen is little or no pushback because I think as customers walk in, even with a little bit of an increase in price, we still provide tremendous value. And so we've seen very little or no pushback.

A couple of the metrics that we look at is our conversion rate to see if that has gone down, it has not. No meaningful movement in conversion and our attrition rate has actually improved. So the metrics tell us that it's working and the operators confirm that. And so that gives us the confidence to roll it out further.

Okay. That's helpful. And then I was just wondering how we should be thinking about SG&A dollars here post-refranchise kind of for the remainder of '26. And then kind of wondering when you'd expect to kind of hit stride with the new go-forward run rate?

Yes. So the go-forward run rate, we should be -- mostly on that new model in the back half of this year. So as Sanjiv talked about, we signed some agreements late in the quarter, making those transitions, which does take a little time to get those fully transitioned over. In many ways, they are mimicking franchise model with the services agreements that they're under. But it's going to be in the back half where we'll start to see that model come into play and based on the model that I put out there. And from a G&A standpoint, so in the materials, you show that we show that we were $7.1 million in G&A for the quarter. And so that's just continuing operations. And so we'll likely see some reductions in that number for the remaining quarters. But keep in mind that is a continuing operations number.

In addition, Will, what I'd like to add is that the slide that Scott shared on this call about where we expect to land in mid-2026, that is exactly that, right? We expect to be there in the back half of this year. As we start to hit that run rate, we expect our ability to be even more -- bring even more resource to drive growth on the top line and revenue and equally optimize our cost structure. So over time, we expect that those numbers that we've shared for mid-2026 will only continue to strengthen as we get into 2027 and beyond.

Okay. Yes, that's super helpful. And then just last one for me. Just wondering how the new clinic pipeline is shaping up? Maybe anything on new interest from new franchisees versus existing? And then if you could provide anything on just the cadence of openings for the remainder of the year to get to the guidance?

Yes. So our guidance of 30 to 35, we believe that we have confidence to be able to get to that guidance, which is why we've reiterated it. The cadence of opening is skewed towards the back half of the year. So in terms of assuming when those openings are happening, they will be second half of the year more heavily loaded. I think what we're seeing is 2 things. One, the new openings we had in 2025, if you recall, we had 29 openings. Those 29 openings have outperformed our run rate of prior openings and are tracking to breakeven times at half the time of the run rate. The 3 clinics or the 2 clinics that opened very early this year are tracking at the moment, it's very early days at an even faster run rate. So we're very optimistic about the new clinic openings because of who is opening these clinics, stronger franchisees, strong diligence on site selection and approval and very robust on-the-ground new clinic opening protocols, which we believe is yielding these results.

We are seeing interest from new franchisees coming into the system as well as existing franchisees. An area of focus for us is to grow and develop in the Northeast where we've been traditionally underpenetrated, and we've had some great successes, early successes over there. And even our Southern California corporate clinic bundle, we have just sold to a franchisee that is completely new to our system. So we're very excited and encouraged by existing franchisees doubling down on investing in the brand as well as new franchisees being attracted to the brand. Once we publish our franchise disclosure document, we will be able to share some of these numbers more publicly with potential franchisees and optimistic about the impact that will have on our pipeline.

[Operator Instructions] The next question comes from George Kelly from ROTH Capital.

First one is on pricing. Maybe I missed it in your prepared remarks, but did you settle on a $10 pricing increase?

So going forward, we -- yes, we're leveraging the $10 price increase more and looking at the analytics and working with the operators, that is the preferred increase that we have right now.

Okay. But do you expect to take some kind of price across the entire base by year-end? And then second question, you mentioned about the 4 consecutive months of improved active members. Could you give like just a sort of comp trend over that same time frame? And like where did you exit the quarter? Or what kind of comp growth did you generate? I think you said it was slightly negative, but could you just quantify where comps are trending currently?

Yes. So the end -- to end the quarter, they were similar to the full quarter of negative 4.2%. They were right in that range. However, once we got into April, we did see some improvement. And so quarter-to-date, we're running about negative 3% so as Sanjiv mentioned, we're seeing some good signs and improvement, month-over-month improvement in our active member growth. And that improvement is better trends in attracting new patients, the conversion of those patients and then also improvement on our patient retention. And so those 3 areas are what we look at as KPIs to drive active member growth, and we've seen improvement in all 3.

Okay. Okay. And then 2 other quick ones. Back to the prior question about your G&A kind of go-forward G&A. So if I look at the $7.1 million in Q1, you mentioned that there was $300,000 of nonrecurring, I think, post refranchising, $300,000 that's expected to come out. Was that a quarterly number? And then the second question on G&A, is there was also a $600,000 restructuring charge in the quarter? And did that fully hit G&A? So if I take those 2 amounts out, is the kind of real go-forward G&A run rate somewhere in the kind of low 6% range?

Yes. So the $300,000, you're right, that was a quarterly number, which will go away with -- once we're fully refranchised. And then the restructuring, yes, most of that was in G&A and then was added back for adjusted EBITDA.

Okay. Okay. And then last question for me. Sanjiv, you mentioned the FDD and your sort of optimism around messaging that whenever that comes out, I presume shortly. I guess if you could, the one question I had is just on 4-wall margin. I don't know if you can talk to it at all or give any kind of hint, but has that stabilized? Do you still hear a lot of input from your franchisees about labor inflation and other aspects of inflation? Or do you have a sense that like that 4-wall margin is holding in?

Yes. So George, 2 things. One, of course, the FDD is due out shortly. So prospective franchisees and anybody who looks at it will get a transparency to the Item 19 and some of the numbers over there. I think what we're seeing now is stabilization for quite some time, I think by some time, I mean, several months, almost a year, the labor or wage inflation that we were seeing in this business has stabilized and that is not growing at the same rate that it was in that post-pandemic period. So that is definitely our -- I would say, the input cost structure is relatively stable. And that is why as active members keep growing and our ability to transfer some of that cost that we have not transferred on to consumers, we found with these 300 clinics where we've taken the price increases that there's really been no impact to conversion or retention. So we're optimistic that, that will help start to shore up some of the unit level economics as the new pricing starts to kick in early quarter 3.

This concludes our question-and-answer session. I would like to turn the conference back over to Sanjiv Razdan for closing remarks.

Thank you all for joining us today. Have a great day. And remember, at The Joint, we always have your back.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to The Joint Corp. Fourth Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Richard Land, Investor Relations. Please go ahead.

Thank you, Chloe, and good afternoon, everyone. This is Richard Land of Alliance Advisors Investor Relations.

Joining us on the call today are President and CEO, Sanjiv Razdan; and CFO, Scott Bowman. Please note, we are using a slide presentation that can be found at ir.thejoint.com/events.

This afternoon, The Joint Corp. issued a press release for the fourth quarter and full year ended December 31, 2025. If you do not already have a copy of this press release, it can be found in the Investor Relations section of the company's website.

As provided on Slide 2, please be advised that today's discussion, including any financial and related guidance to be provided, consists of forward-looking statements as defined by securities laws. These statements are based on information currently available to us and involve risks and uncertainties that could cause actual future results, performance and business prospects and opportunities to differ materially from those expressed in or implied by these statements. Some important factors that could cause such differences are discussed in the Risk Factors section of The Joint Corp's filings with the Securities and Exchange Commission.

Forward-looking statements speak only as of the date the statements are made, and the company assumes no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws.

Management uses non-GAAP financial measures such as EBITDA, adjusted EBITDA and system-wide sales. A description of these non-GAAP financial measures is included in the press release issued earlier today and reconciliations of these non-GAAP financial measures to their most directly comparable GAAP measures are included in the appendix to the presentation and press release, both of which are available in the Investors tab of our website.

Turning to Slide 3. With that, it's my pleasure now to turn the call over to Sanjiv Razdan. Sanjiv, please go ahead.

Thank you, Richard, and I welcome everyone to the call.

Turning to Slide 4. Today, I will review the fourth quarter results and provide an update on the progress we have achieved over the last year. On our 2024 fourth quarter results conference call a year ago, I introduced the key strategies underlying Joint 2.0, the first phase of our transformation journey to reignite growth and improve profitability. I noted at that time that completing this first phase would take 18 to 24 months, and I'm pleased to report that we are on track to complete our work on Joint 2.0 on schedule by the end of this year.

Among the key progress points we have achieved to date are: we have significantly strengthened our management team, with 6 of our senior leaders having extensive health care industry experience and a number of us having franchise management experience. We have made significant progress with our refranchising efforts as we now have 48 corporate-owned clinics remaining in our portfolio compared to 135 at the start of this process. We are in active conversations with multiple parties about the refranchising of the remaining corporate clinics.

As evidenced by the better-than-expected adjusted EBITDA performance in Q4 and for the full year, we are making progress with improving our operating leverage. As we complete the transition to a pure-play franchise-owned model, our operating leverage will continue to significantly improve, which Scott will review later on this call. We have also focused on strengthening our marketing activities to drive new patient acquisition and strengthen the returns we generate on our marketing investments.

Progress on this initiative includes centering our message on chiropractic care for pain relief to improve mobility and get patients back to doing the things they love. And finally, we wanted to optimize our capital allocation, which we are achieving through more diligent return-focused growth investments and opportunistic share repurchases. While the full financial benefit of these strategies will take time, these initiatives are improving the financial position of our franchisees and stockholders. And as we complete our transformation journey, The Joint will be a highly efficient, capital-light pure-play franchisor with more consumer touch points and with strong free cash flow generation.

Turning to Slide 5 now. I'll summarize our Q4 2025 financial results compared to Q4 2024, and our CFO, Scott Bowman, will provide greater detail in a moment. Revenue from continuing operations increased 3.1%, and consolidated adjusted EBITDA increased 7.8%. This improvement reflects the benefit of rightsizing our costs. In the fourth quarter, we repurchased 1.1 million shares for total consideration of $9 million. And for 2025, we repurchased 1.3 million shares for total consideration of $11.3 million. At December 31, 2025, our unrestricted cash and cash equivalents remained strong at $23.6 million.

Turning to Slide 6. I will review the progress we have made with refranchising our remaining company-owned clinics. Towards the end of the 2025 fourth quarter, we signed an asset purchase agreement for the sale of 22 corporate-owned or managed clinics for $1.5 million to 3 buying groups. The buyers have assumed business operations via management service agreements, pending the completion of the lease reassignments, which we expect to be completed in the second quarter.

All 3 of the buying groups are either current franchisees or have several years of experience operating within our system. In March, we entered into a letter of intent for the sale of 5 corporate-owned or managed clinics. This leaves us with 48 remaining company-owned clinics, or just 5% of our total clinic portfolio, all but 2 of which are in California.

We continue to be in active dialogue with buyers for the sale of our corporate clinics and remain confident we will complete our refranchising initiative and become a pure-play franchisor this year. Given how close we are to completing this process, later on this call, Scott will provide an overview of what our operating and financial model looks like as a pure-play franchisor.

Let's review our marketing efforts. Turning to Slide 7. As we have noted previously, to drive stronger new patient demand and lead generation, we have shifted marketing content from broad wellness-focused communications to a message centered on chiropractic care for pain relief, so that patients can improve their mobility and get back to doing the things they love to do. While brand awareness initiatives take longer to produce results, we are inclined to attract patients who remain with us for longer.

As noted on our Q3 call, we have shifted a portion of our marketing investment to target an earlier stage in the sales funnel. We are shifting from predominantly local spend to one that also leverages our national scale. The goal is to increase awareness of The Joint, so that when individuals first experience discomfort, they are predisposed to think of us to alleviate their pain. This high-impact national media program started in November.

We also previously discussed the updates we are making in our digital marketing efforts. These efforts are focused on improving search visibility, including within AI-driven search environments. These are key drivers of organic traffic and leads to our new microsites or localized clinic pages. All of our clinic microsites have now been migrated to the new template and have returned to growth with overall traffic and organic traffic continuing to trend up.

Importantly, high-intent actions have strengthened, with phone calls and overall submissions, both also continuing to increase. At the same time, we launched a redesigned national blog in January with fresh content and digital linkage. Overall -- and organic traffic are reflecting early benefit from our ongoing SEO work and awareness investment.

In addition, updates to national website pages are enhancing visibility among early awareness audiences, searching for topics such as back pain, neck pain and mobility or lifestyle improvement. As a result of shifting to more national advertising and our improving SEO, we have seen improvement in our new patient acquisition trends each month since program launch, indicating that these efforts are driving consideration and new patients, albeit at a rate that remains lower than last year.

Turning to Slide 8. We are making progress with sales driving initiatives to reignite system-wide sales growth and drive long-term profitability. To recap, we are working to improve comp sales by growing our active member base. This will be accomplished by stronger lead generation, better conversion within our clinics to drive new patients, improved retention of our existing patients and optimized pricing. For Q4, similar to the last several quarters, we improved our patient attrition rate through the introduction of an offering for low-frequency patients. We are now maintaining patient attrition at a level that provides a solid foundation from which we can drive growth as comp sales begin to improve. That said, Q4 sales comps were lower than expected, largely due to lower new patient count.

One of our initiatives targets taking pricing in the near term. To give some perspective on this, we last took meaningful enterprise-wide pricing in 2022. Since November, we have been piloting 3 different levels of price increases across 3 diverse demographic areas. We continue to test and optimize pricing in approximately 300 clinics before we roll out adjustments across our system. We expect comp sales trends will improve during the course of the year as our new national brand awareness campaign continues to roll out as we benefit from improvements to SEO and implement the optimized pricing structure nationally.

Turning to Slide 9. We are focused on elevating our patients' experience through improved technology. We are continuing to introduce feature updates for our patient-facing mobile app. In addition, more than 23,000 patients have shared app feedback through our survey, giving us an average rating of 4.9 out of the -- 4.91 out of 5. 75% of patients reported waiting less than 5 minutes, while 17% waited less than 10. Lastly, our intent to recommend is 9.7 on a 10-point scale, indicating that patients are having consistently positive experiences.

With that, I will turn the call to Scott.

Thanks, Sanjiv.

Turning to Slide 11. Let's discuss our operating metrics. In the fourth quarter, system-wide sales were down 3.9% to $140 million. Comp sales were down 3.8%, and adjusted EBITDA for consolidated operations grew 7.8% to $3.6 million. For the full year, system-wide sales of $532 million were flat compared to the prior year. Comp sales declined 0.4%, and adjusted EBITDA from consolidated operations rose 13.9% to $13 million.

Turning to Slide 12. Let's discuss our clinic count and new clinic performance. Our total clinic count of 960 at year-end compares to 967 clinics in the prior year. During 2025, we opened 29 clinics, refranchised 41 and closed 36 clinics for a total clinic count of 885 franchised clinics and 75 company-owned clinics. This includes the 27 clinics that are currently under an asset purchase agreement or letter of intent for their sale. Our efforts to improve new clinic performance through improved pre-opening protocols have resulted in clinics reaching a breakeven point in half the time compared to prior years.

Turning to Slide 13. Let's discuss our financials. I'll review continuing operations for the fourth quarter unless otherwise specified. Revenue grew 3% to $15.2 million, mainly due to additional marketing funding for national advertising. Cost of revenues was $2.8 million, down 11%, reflecting lower regional developer royalties. Selling and marketing expenses were $3.5 million, up 25% due to enhanced national marketing and one-off costs associated with transitioning to a new marketing agency.

G&A expenses increased 2% to $7.7 million, mainly due to increased payroll costs and other costs that will decline as we complete refranchising. Consolidated net income was $1 million for the quarter, and adjusted EBITDA from consolidated operations improved 8% to $3.6 million, and adjusted EBITDA for continuing operations was $1.6 million compared to $2 million in the same period last year.

Turning to Slide 14. Let's discuss our full-year financials compared to the prior year. Revenue was $54.9 million compared to $52.2 million in 2024. Consolidated net income increased $8.7 million to $2.9 million, which compares to a $5.8 million loss in 2024. Net loss from continuing operations was $268,000 compared to a loss of $1.6 million in 2024. Adjusted EBITDA from consolidated operations increased 14% to $13 million, while adjusted EBITDA from continuing operations improved to $3.1 million compared to $2.3 million in 2024.

On to Slide 15, I'll review our liquidity and stock repurchase plan. At the end of the fourth quarter, unrestricted cash was $23.6 million compared to $25.1 million in the prior year. We maintained our line of credit with JPMorgan Chase for $20 million and had 0 funds drawn during the quarter.

During the fourth quarter, we repurchased 1.1 million shares for $9 million, averaging $8.45 per share. For the full year, we repurchased 1.3 million shares for total consideration of $11.3 million, averaging $8.73 per share. At the end of 2025, we had $5.7 million remaining on our share repurchase plan that was authorized in November 2025.

On to Slide 16, we are initiating our full-year 2026 guidance as follows. We expect system-wide sales to range from $519 million to $552 million. We expect comp sales to be in the range of negative 3% to positive 3%. We expect consolidated adjusted EBITDA to be in the range of $12.5 million to $13.5 million. And on a net basis, we expect our clinic count at the end of 2026 will be lower than at the end of 2025 as new clinics opened this year will be offset by closures as we reshape our portfolio, with a focus on stronger operators and healthier sites.

We continue to believe that over time, there is potential for more than 1,800 clinics in the U.S. alone. This short-term optimization of our portfolio will leave us with a stronger foundation to grow from. Due to our refranchising efforts and realignment of corporate costs, we expect 2026 continuing operations to be more profitable than 2025. Given the progress of our refranchising efforts, the next few slides will provide you certain key attributes of our go-forward model as a pure-play franchisor starting in mid-2026.

Slide 17 shows that our revenue target as a pure-play franchisor will be approximately 11% of system-wide sales, which compares to 10.3% in 2025.

On Slide 18, we are showing our expected run-rate financials once we complete refranchising in mid-2026. In this case, gross margin would be between 83% and 85% of revenues, which compares to 90% in 2025. G&A expense would be between 40% and 42% of revenues, which compares to 64% in 2025. CapEx would be approximately 3% of revenues, and free cash flow conversion would be between 60% and 70%.

For this purpose, we define free cash flow conversion as free cash flow divided by adjusted EBITDA. These assumptions result in an estimated adjusted EBITDA margin of 19% to 21% compared to 12% in 2025, and net income margin of 13% to 15% compared to 3% in 2025. For CapEx, our internal IRR target for growth projects is 25%. Keep in mind that these estimates are what we believe will be the starting point once refranchising is complete, and we intend to build on these returns over time.

To further illustrate how our model works as we generate revenue growth, I will review some assumptions for our run-rate financials in the future based on a couple of growth examples. If we were to generate 5% revenue growth, this would result in an estimated adjusted EBITDA margin of 20% to 22%, and an estimated net income margin of 14% to 16%. And if we were to generate 10% revenue growth, this would result in an estimated adjusted EBITDA margin of 22% to 24%, and an estimated net income margin of 16% to 18%.

Finally, on Slide 19, I will highlight that with the expected strong free cash flow we will generate, we will remain committed to disciplined capital allocation with current priorities being investments in growth initiatives, share repurchases and the repurchase of RD territories where feasible.

And with that, I will turn the call back over to Sanjiv.

Thanks, Scott.

Turning to Slide 21. With the full financial benefit of our strategies -- while the full financial benefit of our strategies will take time to come to fruition, we are making consistent progress with improving the financial position of our franchisees and stockholders. Phase 1 of our transformation journey has us on track to become a pure-play franchisor. We continue to drive forward with our cost savings initiatives, which are beginning to drive improved operating leverage. And our allocation of capital towards stock repurchases highlights our strong conviction that we will achieve our long-term goals of growing system-wide sales, comp sales, net new clinic openings and adjusted EBITDA.

I noted at the top of the call that we are on track to complete the first phase of our transformation journey, The Joint 2.0, by the end of this year. As we move closer to this goal, we are beginning to focus more time and attention on Joint 3.0, the next phase of this journey, which will begin in earnest in 2027. That phase will prioritize growth through expansion of our operations into new channels, B2B and entering new markets in the U.S. where we are underpenetrated as well as into our first international markets.

We are seeing secular trends around longevity, health span, mindfulness, sleep quality and non-invasive whole body care. Hence, we see significant opportunity to further define and activate our brand promise around the notion of moving better and feeling better. This means deepening our focus on clear differentiated proof points like creating options for signature-integrated treatments, nutrition, orthotics and finding ways to integrate data from wearable technology to shape treatment plans, while we also establish new ways to measure quantifiable positive patient outcomes.

With that, operator, I'm ready to begin Q&A.

[Operator Instructions] The first question today comes from Jeff Van Sinderen with B. Riley Securities.

I'm just wondering if you can share the attrition and new patient add metrics maybe sequentially and year-over-year. Any color or any metrics you can share there would be helpful.

Yes, I can start off on that one. We typically don't give the specific metrics. But what I can tell you is what we're focused on is active member growth. And so when you think of active member growth, you have to draw in new patients, you have to convert those new patients to a plan and then you have to retain them. And so of those 3 different components of active member growth, new patient flow has been the weakest for us.

And so the new marketing that we have out there to create brand awareness as well as improve our SEO is helping. But as you can imagine, it does take time to build, but the early signs that we're seeing are positive. When we look at conversion and when we look at attrition, those numbers were actually slightly better than last year. Not to say that there's not room for improvement, but new patients is our largest focus right now.

Okay. That's helpful. And then maybe you can touch on how -- I know you gave some color in your prepared comments, but any more you can add on how you're evolving marketing initiatives for 2026?

Yes, I'm happy to take that one, Jeff. I think the focus continues to remain where we've been. So, let's break that down. Number one, we believe that we continue to make -- shift investment from local to national in order to amplify brand awareness and activation. We are seeing positive outcomes as a result of that. So, we will continue to double-down on that, together with our franchisees. We will continue to evolve creative messaging to make sure that, that message cuts through is on point and is in keeping with the consumer needs.

The second thing that has worked well for us that we continue to work on is addressing the shift in search behaviors as a result of AI. We made a massive amount of progress in that in quarter 4 and made a significant investment to do that, and we will continue to work because that is just a moving target. So, we will continue to focus on making sure that we are relevant when it comes to shifting search behaviors.

The third thing that we're working on is then around the whole conversion piece of it. We got on a new operations leader, Ron Stilwell, who joined us in the first week of January, and he's already working with our franchisees on very specific in-clinic training on making sure our wellness coordinators are focused on converting leads. They have the right scripts. They have the right things to say to our patients in terms of what is their benefit and converting them to a plan. So, that is a huge area of focus for us, the whole conversion activity.

And last but certainly not the least, like we are finding ways of addressing the reasons for attrition, right? So where we have patients that may be looking for reduced frequency treatment because they're already feeling they're no longer in pain as when they came to us or may feel like they don't have the time, we introduced a package for them called Align 1, which gets them a minimum of 1 adjustment per month at the cost of $35 and allows them to add on incremental visits on a flexible and discounted basis. We've also just gone into test with something that we're calling Align 2, which is 2 visits per month, right?

So, I think we're recognizing that there may be patients who are not able to afford the time or the cost or need the 4 visits of on plan and testing various options. In fact, the Align 1 is already live. So, we're attacking the full fulcrum, bringing on new leads, making sure we're visible, right message, converting strongly and coming up with plans that help our wellness coordinators to prevent attrition when patients feel a whole lot better and are no longer in pain. So hopefully, that gives you a sense, Jeff, for what we're doing on the marketing front.

Yes. That's really helpful. And then just one last one, if I could squeeze it in. How did the 3-tiered pricing pilot go? And then how do you evolve that going forward?

Yes. So, we have some pricing tests out there, as you know, at the $2, $5 and $10 increase. $2 increase didn't really show us much. I don't think it was really big enough to cause a big difference. So, we're focused more on the $5 and $10. And I would say, overall, the $10 increases are showing a little bit more benefit. And so we're going to continue to test. We just launched some new markets a few weeks ago to get a read on some additional markets to give this a little bit broader perspective. But overall, we feel pretty good about it. But at the same time, we want to give it a little bit more time before we roll it out further. But we think that will be a component of our growth going forward for sure.

Just in addition to what Scott has shared, I think I'd like to add to that perspective. Our patients -- 70% of our patients really are in the average household income of somewhere in the range of $60,000 to $110,000 a year. That patient base or that consumer base has felt the impact of the macroeconomic climate probably most significantly than some others. So as we're testing and optimizing for this price increase, we're being very mindful of timing, regional impacts, and that is why we're being very, very purposeful and thoughtful about this test and reading these results very carefully before we extend it beyond the 300 clinics that it's already in.

The next question comes from Jeremy Hamblin with Craig-Hallum.

This is Will on for Jeremy. I'm just wondering if you could give us a sense for how the comp progressed throughout the quarter and then what you've kind of seen here quarter-to-date. I know you're facing a little bit easier comp in Q1, but just trying to get a sense for where things are.

Yes. Sure. Our comps were down the most in the month of November, and they were the best in December as we closed the year. Now, some of that is we had a little bit of a timing change in some of our year-end promotions. And so -- but I think on balance, December was slightly better than the other 2 months.

Got it. And then I was just wondering if you could give us a sense for the relative performance of the remaining 50-ish clinics compared to those in the Southeast that were sold. I think those California clinics might be a little bit higher in productivity, but I guess anything you could share there would be helpful.

Yes, Will. The California clinics on the balance are better performers than the clinics in the Southeast.

The next question comes from Nick Sherwood with Maxim Group.

So, what specific leading indicators give you confidence that comps will improve in 2026? And when do you think we can expect an inflection point?

Yes, it's a good question. So, 2 things that I think about on that question. Number one, just the initiatives that we're working on right now do take some time, but we're encouraged just on some of the early signs that we're seeing that could help us in the coming months. So, I think that's number one. And then number two is just the comps that we saw this past year and just the distribution of those comps. We were positive about 2% in the first half of the year last year and negative 3% for the back half of the year. And so we have some easier compares in the back half. So that, plus more traction on our initiatives leads us to believe that second half should be quite a bit better.

Okay. And then 2 follow-ups. Can you elaborate on some of those positive early signs that you're seeing? And then looking at comps, it was down this past year. Was that more due to higher rates of attrition from repeat customers, or an inability to bring in new customers to replace people that are leaving?

Yes. So, I'll answer the last question first. The key issue for us is just fewer new customers coming in. And so that's why our marketing efforts are so important right now, creating brand awareness, improving our SEO, being more visible on AI searches. And so that is the key focus right now. But we're still working on conversion and attrition because even though they were slightly better than last year, there's still opportunity there. And so just broadly from a marketing standpoint, Sanjiv can tag on as well, what we're seeing is we've been at work for a while now on improving SEO and that takes some time to actually get traction. And so we expected that.

But we're starting to see some good signs in terms of our measurement of SEO effectiveness was quite a bit under the average, and now it's at or even slightly above average. And so good progression there. And then as we look at our website activity and our leads coming in, we've seen steady improvement in the leads being generated from that new marketing and from the SEO improvement. Now, that has also led to some degree of improved run rate, sequential run rate in new patients, still negative, but less negative, but it's been a steady trend over the last few weeks. So, we're still relatively cautious there. But those things are kind of lining up for us, saying that it is working to some extent, although it will take time to really show through on inflection in comps.

Okay. And then my last question is this new AI SEO marketing investment. Is this something that costs significantly more than your old marketing? Or is this more so just reallocating resources and it's not actually going to be increasing your marketing spend substantially? Or is there some sort of upfront or higher investment required with this?

Yes. So it is an incremental spend. And so we're doing that while we are also spending money on brand awareness and more top of funnel. And so we have shifted some of the local marketing being spent by the franchisees to national marketing, okay? And so that has given us more funding to fund some more brand awareness campaigns and in SEO. And so on balance, we're not spending really any more net dollars because we're getting more NMF funds from the franchisees to spend on these additional initiatives.

Nick, just to recap, so everybody on the call understands what we're doing because, obviously, this is an important topic for us. We're going after it in 3 different ways, right? Generating more leads, converting those leads to active members and then preventing attrition by improving retention. What are we doing to improve lead generation? Number one, we pivoted our messaging from general wellness to pain. We refreshed all our creative. 82% of our patients cite discomfort of pain as a reason for why they come to us, so it becomes a much more compelling reason to use The Joint.

Now that we have that message pivoted to pain, we did 2 things. We shifted some local marketing dollars to national. The bulk of those dollars were invested behind high-impact media purchases on the demographic that we believe gives us the highest yield and comes to us most often. That's the -- the benefit of that, what we're seeing is sequential improvement in lead generation and new patients.

SEO to offset search behaviors due to AI was the other investment that, that shift went into and the combined impact of pain-related message, higher impact media with search optimized for AI is what is giving us that. And the early indicators on the search, as Scott indicated, was we are actually now able to measure benchmarks, measure our effectiveness on search against benchmarks, and we're finding that we are actually slightly ahead of the benchmarks after the catch-up that we've had to do. So, that's number one.

Number two is once the patient is in, how we're getting after converting them to active members, which we're tackling more through operations and training, which we have initiated and expect to see even more traction as time goes by. Our conversion year-on-year has remained more or less flat. Our attrition or retention has actually improved. Retention of patients is improving because we are finding ways to keep those patients longer and are putting in place offers that allow patients whose needs shift and are no longer in pain, require lower frequency, lower-cost solutions to stay with us. We have put that in place and doing more around that. So, that is what is giving us confidence that we will see an improvement in our comps and are already seeing sequential underlying metrics improve.

Our next question comes from George Kelly with ROTH Capital Partners.

First one for you -- or I guess, first couple for you on your comp guide. I was curious if you could at least directionally help us with what you've seen in January and February. Just curious if there has been an improvement there from what you reported in Q4? And then secondly, I'm wondering if you included a pricing increase in your guide.

Yes, George. This is Scott. So, what we've seen so far is similar trends than what we saw in Q4, okay? And so like I said, we're seeing some early signs on the leads and new patients, but still the comps are about where they were. We are rolling over some higher comps from last year. So, I think that's part of it. And so that's why I said I think the second half of the year, we should see more of an inflection in comps. And between now and then, we should see some incremental improvement as well because of the traction we see right now, we will accelerate and we have easier comps in the back half.

And does your guide include a pricing increase?

No, it doesn't include any pricing increase right now because we were just in -- just because we would have some tests out in the market, we didn't know for sure what the result of that would be. And so we were a little cautious and did not include that in the guide.

Okay. Okay. Understood. And then a question on your capital allocation priorities. The slide, I think it's 19, you just -- you list the 3 different key priorities. And so I guess, on 2 of them on investing in growth initiatives, I'm just a little unsure on what that might include. So, could you highlight some of the different investments you're contemplating and size of those?

And then secondly, on the buyback RD territories, I was curious if you could give us an update just on the status of those kind of ongoing negotiations. Do you feel like you're getting closer on any RD buybacks?

Sure. Yes. So the first question on investing in growth initiatives. So, we want to be prudent in that category, but still invest in the business. And I mentioned a target of about 3% of revenues for that category with a target IRR of about 25%, and that's an average. And so when we look at initiatives like that, we have things, a lot of in the technology area where we can rework our whole martech stack, make it more efficient as we capture leads and as we use those leads to fuel the marketing engine that we have. And so lots of opportunities there, and we're doing some good work there to improve that platform and to bring it in-house. And so that's one good example.

Another example is where we're making a lot of improvements for kind of the front-facing user interface for each of our wellness coordinators in our clinics. So as you can imagine, with each individual customer and all the plans and packages that we have, there's a lot of different options. And so doing some really good work there to really consolidate that user interface. And so it's much easier for the wellness coordinator to communicate the different plans available and to transact with that patient seamlessly. And so that will be a big win from an operations standpoint in our clinic. So, those are just 2 examples. But I think the major theme here is how can we invest in technology or other areas to grow the business and that have a positive ROI for those projects.

Okay. Okay. But it sounds like those are fairly modest investments. And then the RD stuff, any update on those negotiations?

Yes. So, we are in active negotiations on some of those RD territories. And so some of them are getting fairly close, but we'll continue those conversations and making sure that we understand kind of the value in those buybacks and understanding what improvements that we can make. And so those will be ongoing. And as we make further progress, we'll report back on what that's going to look like going forward.

Okay. Okay. And then one last one for me. The previous slide, I guess, it's 18, where you go through the post-refranchising run-rate profitability and everything. Is the margin target there -- the 19% to 21% EBITDA margin target, I'm just struggling a little bit to triangulate with your gross margin target and your G&A target. Is there a marketing investment beyond the fund that's incorporated in that 19% to 21% guide? Or is there something else that maybe I'm missing? Just trying to kind of bridge the different OpEx lines to get there.

No, that's a good question. So, that is the main difference there because marketing expense is not in G&A. It's a separate line item.

I guess I'm just wondering if you're overinvesting. Do you plan to spend more marketing dollars than you're bringing in?

No, we do not. We will -- no, it's a good question. We will spend more dollars, but the extra dollars that we're spending are being funded by the franchisees as they shift some of the local dollars into our national campaign.

This concludes our question-and-answer session. I would like to turn the conference back over to Sanjiv Razdan for any closing remarks.

Thank you for joining us. Have a good day. And know that at The Joint, we always have your back.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Joint Corporation Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Richard Land from Alliance Advisors. Please go ahead.

Thank you, operator, and good afternoon, everyone. This is Richard Land of Alliance Advisors Investor Relations. Joining us on the call today are President and CEO, Sanjiv Razdan; and CFO, Scott Bowman. Please note, we are using a slide presentation that can be found at ir.thejoint.com/events. This afternoon, the Joint Corp. issued a press release for the third quarter ended September 30, 2025. If you do not already have a copy of this press release, it could be found in the Investor Relations section of the company's website.

As provided on Slide 2, please be advised that today's discussion, including any financial and related guidance to be provided, consists of forward-looking statements as defined by securities laws. These statements are based on information currently available to us and involve risks and uncertainties that could cause actual future results, performance and business prospects and opportunities to differ materially from those expressed in or implied by these statements. Some important factors that could cause such differences are discussed in the Risk Factors section of the Joint Corp's filings with the Securities and Exchange Commission.

Forward-looking statements speak only as of the date the statements are made, and the company assumes no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws.

Management uses non-GAAP financial measures such as EBITDA, adjusted EBITDA and system-wide sales. A description of these non-GAAP financial measures is included in the press release issued this afternoon and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in the appendix to the presentation and press release, both of which are available in the Investors tab of our website.

Turning to Slide 3. With that, it's now my pleasure to turn the call over to Sanjiv Razdan. Please go ahead.

Thank you, Richard, and I welcome everyone to the call. Today, I will review the third quarter results and recent events. For those new to the call, we provide affordable, accessible and approachable chiropractic care and help consumers relieve and manage their pain while supporting their ongoing wellness journey.

There is a significant need for this with Americans spending $20 billion a year on back pain. To capture a leading share of this market opportunity, we have been strengthening our management team and executing on our strategies to reignite growth and improve profitability. Although the full financial benefit of these strategies will take time to come to fruition, the following initiatives will improve the financial position of our franchisees and stockholders.

To drive new patient acquisition, we have shifted our brand marketing campaign to focus on pain relief, which we are amplifying by moving a portion of our advertising spend from local to a national campaign. And we are strengthening our digital marketing campaigns with SEO and clinic microsite. To grow system-wide sales, we are conducting a 3-tiered pricing pilot for our wellness plan. To elevate our patient experience, we continue to upgrade our patient-facing technology. Recently, we launched the second release of our mobile app with a range of new features. To become a pure-play franchisor, we continue to pursue the refranchising of our corporate clinics. And to improve new clinic performance, we have implemented robust preopening protocols for new clinics to reduce time to breakeven and ensure a strong early sales volume.

Before I elaborate, for those of you who are new to The Joint, we are the largest franchisor of chiropractic care clinics. Our mission is to improve the quality of life through routine and affordable chiropractic care. And our big bold vision is to become America's most accessible health and wellness services company. I'll summarize our Q3 2025 financial results compared to Q3 2024, and our CFO, Scott Bowman, will provide greater detail in a moment.

Revenue from continuing operations increased 6%. Consolidated adjusted EBITDA increased 36%. This improvement reflects the impact of work done on rightsizing our costs, which has helped to offset a 1.5% decline in system-wide sales and negative comp sales of 2%. Since our last conference call in August, we have repurchased $5 million of stock, and the Board recently authorized an additional $12 million of our stock repurchase plan. At September 30, 2025, our unrestricted cash and cash equivalents remained strong at $29.7 million.

Turning to Slide 5 to discuss refranchising. We have entered into an initial agreement to sell 45 corporate clinics in Southern California for $4.5 million via an asset purchase agreement. We are continuing to negotiate certain terms, and we'll update if and when we align on final terms. While macroeconomic headwinds are resulting in a longer lead time due to lender-related dynamics, we are actively negotiating asset purchase agreements with potential buyers for our 33 remaining corporate clinics.

Let's review our marketing efforts. Turning to Slide 6. For Q3, similar to Q2, our patient attrition was on par with last year, and conversions were better. However, Q3 sales comps were less than expected. The main shortfall was due to lower new patient count, which we are addressing by initiating a national marketing refresh, SEO improvements and advanced pricing test. Our research identifies pain as the biggest trigger to seek chiropractic care. Our patient base proves this to be true with 80% of our new patients citing patient pain as the reason for coming to The Joint.

In August, we launched our compelling new brand awareness campaign, Life, Unpaused. We have shifted marketing content from broad wellness-focused communications to a message centered on chiropractic care for pain relief. Our goal is to drive stronger new patient demand and lead generation. While brand awareness initiatives tend to take longer to produce results, they are inclined to attract patients who remain with us longer. We are moving a portion of our marketing efforts to target an earlier stage in the sales funnel, shifting from predominantly local spend to one that also leverages our national scale of 962 locations in 43 states and the District of Columbia, which is equivalent to approximately 57% of metro statistical areas in the U.S. This campaign will educate consumers much earlier on. And before we experience pain that The Joint offers an affordable solution to alleviate pain. The goal is to get individuals at the first sign of discomfort to think, I should visit The Joint, it's convenient, affordable and they can help.

As alluded to last quarter, we have been actively engaging our franchisees regarding our new strategy. I am pleased to report in October, the franchisees elected to reallocate $500 or approximately 1% of their gross sales per clinic per month from local advertising to this new national marketing effort. This adjustment does not increase the total amount contributed by franchisees. It simply redirect existing funds to enhance our national brand awareness and patient activation.

We are also strengthening our digital strategy through accelerated SEO initiatives designed to improve search visibility, page authority and discovery, including within AI-driven search environment. These are all key drivers of organic traffic and leads to our website.

New microsites or localized clinic pages are demonstrating strong early performance. In September, a pilot rollout of 35 clinics averaged a 20% to 40% increase in organic search traffic within the first 2 weeks of launch. A phased refresh of all remaining clinic pages began earlier this week with completion expected before end of the year. In parallel, enhancements to local Google business profiles are increasing engagement. Together, these efforts are expanding our local search presence and improving conversion pathways from search to clinic. At the same time, updates to national website pages are enhancing visibility among early awareness audiences searching for topics such as back pain, neck pain and mobility or lifestyle improvement. These tactics are broadening reach, bringing new users to our website and positioning The Joint chiropractic as a credible trusted authority at the beginning of the consumer decision process. Collectively, these initiatives are designed to reach audiences wherever they search and support the full marketing funnel from awareness to lead generation to wellness plan purchase. These actions are intended to drive new patient count, which, in turn, will help improve cost.

Turning to Slide 7. We are happy to welcome our new Chief Marketing Officer, who will lead their implementation and further fortify our marketing. Debbie Gonzalez started at the beginning of October. She is experienced in transforming global brand strategies and strengthening marketing capabilities across multisite retail and health and wellness businesses. Debbie has served as Chief Marketing Officer in publicly traded, private and consulting companies, where she drove customer acquisition, brand development, performance marketing, digital initiatives and innovation. Also, during her tenure at the franchisor, Massage MV, she led the development of the recurring revenue membership model.

Turning to Slide 8. We have unveiled dynamic revenue management initiatives to drive sales and long-term profitability. In July, we introduced our new Kickstart plan. Our doctors prescribe tailored treatment plans to meet our patients' specific needs. Often, new patients need multiple adjustments a week during the early phase of their care to get out of acute pain. Kickstart offers an attractively priced pack of 4, 8 or 12 adjustments beyond the 4 included in the standard wellness plan. This offering is a real win-win-win as it helps patients get rapid relief affordably and generates more revenue for clinics. Already, approximately 25% of new patients are taking advantage of these packages.

Now we are expanding our core wellness plan pricing analysis to better understand patient sensitivity for revenue optimization. Our latest pilot launched early November test 3 different levels of price increase in 3 different diverse demographic areas. We will monitor performance metrics and analyze trends to help determine next steps for the rest of the system. Based on the results of these pilots, we will optimize our nationwide pricing structure and roll out adjustments across our system.

Turning to Slide 9. We are focused on elevating our patients' experience through improved technology. We believe this will foster referrals and extend the length of time they maintain their wellness. In July, we officially launched our patient-facing mobile app with basic in-clinic check-in functionality. We are excited that the adoption rate among our wellness plan holders has reached 18% of new patients at the end of quarter 3 with over 178,000 downloads. At the end of August, we released our second app version, enabling patients to look up their visit balance, plan type, cycle date, at-a-glance visit history, treatment plan and progress report; download records like receipts and visit and complete a patient experience survey. Upcoming features will enable credit card updates and gamification such as getting badges for adjustments, check-ins or watching a video of the stretches that help with your condition.

With that, I will turn the call to Scott.

Thanks, Sanjiv. Turning to Slide 11, let's discuss our operating metrics. In the third quarter, system-wide sales were down 1.5% to $127 million. Comp sales were down 2%, and adjusted EBITDA for consolidated operations grew 36%.

Turning to Slide 12. Let's discuss our clinics and new clinic performance. We sold 8 franchise licenses in the third quarter compared to 7 sold in Q3 of last year. And at September 30, we had 149 franchise licenses in active development. In the third quarter, we opened 9 franchise clinics, including our first in the state of Delaware and closed 11. Of the 21 clinics opened in 2025, the breakeven point has significantly improved versus clinics opened in recent years, which was due to preopening protocols implemented by our operations team. We closed 3 company-owned or managed clinics, and we refranchised 1 clinic, bringing the year-to-date total to 40 refranchised clinics. At September 30, we had 884 franchised clinics or 92% of the portfolio.

We are also focused on improving new clinic performance through better training and marketing. For example, we are now requiring a minimum number of leads to be generated prior to opening to support strong opening sales momentum. This practice has helped improve our breakeven timing from around 2 years to under 1 year.

Turning to Slide 13. Let's discuss our financials. I'll review continuing operations for the third quarter compared to the same period last year. Revenue grew 6% to $13.4 million, mainly due to the greater number of franchise clinics in operation. Cost of revenues was $2.7 million, down 6% compared to the prior year, reflecting lower regional developer royalties due to the repurchase of the Northwest territory rights in the second quarter. Selling and marketing expenses were $2.8 million, up 13% compared to the prior year, reflecting our digital marketing transformation efforts. Depreciation and amortization increased $100,000, mainly due to software development for our new mobile app. G&A expenses decreased 3% to $7.3 million as we continue to rightsize our cost structure. And income tax expense was $10,000 for the quarter, reflecting an effective tax rate of 3% Q3 consolidated net income was $855,000. This compares to a net loss of $3.2 million at the same period last year, which was mainly due to impairment expenses related to refranchising. Net income from continuing operations was $290,000 or $0.02 per diluted share compared to a loss of $414,000 or $0.03 per basic share in the same period last year. Adjusted EBITDA from consolidated operations improved 36% to $3.3 million. And for continuing operations, adjusted EBITDA was $1.4 million compared to $262,000 in the same period last year.

Turning to Slide 14. Let's discuss our year-to-date financials for the 9 months ended September 30, 2025, compared to the prior year period. Revenue grew 6% to $39.7 million. Consolidated net income increased $7.7 million to $1.9 million. Net loss from continuing operations improved $1.3 million to $1.2 million. Adjusted EBITDA from consolidated operations expanded $1.3 million to $9.4 million, while adjusted EBITDA from continuing operations improved $1.5 million -- improved to $1.5 million compared to $300,000 in the prior year period.

On to Slide 15, I'll review our liquidity and stock repurchase plan. At the end of the third quarter, unrestricted cash was $29.7 million compared to $25.1 million at the end of last year. We maintained our line of credit with JPMorgan Chase for $20 million and had 0 funds drawn during the quarter. In addition, we extended the maturity of the facility an additional 6 months to August 2027. During the third quarter, we repurchased 228,000 shares for $2.3 million, averaging approximately $10 per share. Since quarter end, we bought back an additional 312,000 shares for approximately $2.7 million. Most recently, the Board authorized an additional $12 million for repurchases, continuing to emphasize our confidence in the long-term growth strategy.

On to Slide 16, we are revising our full year 2025 guidance as follows: We expect system-wide sales to range from $530 million to $534 million, which compares to prior guidance of $530 million to $550 million. We expect comp sales to be in the range of negative 1% to flat, which compares to prior guidance of an increase in the low single-digit range. We are maintaining guidance for consolidated adjusted EBITDA to be in the range of $10.8 million to $11.8 million, and we are maintaining our new clinic openings guidance to be in the range of 30 to 35.

Reflecting our refranchising efforts and realignment of our corporate cost structure, we have made significant progress reducing our operating costs. As a result, we expect 2026 continuing operations to be more profitable than 2025. When we report Q4 2025 results, we will provide annual 2026 guidance as well as the key attributes of our go-forward 100% franchise model.

And with that, I'll turn the call back over to Sanjiv.

Thanks, Scott. Turning to Slide 18. I am proud to report that The Joint continues to receive accolades. We were recognized on the Annual Franchise Times Top 400 for the sixth year in the top 200 listing of brands. In 2025, we jumped 11 spots, landing at position 139. We are part of 2 of the fastest-growing industry sectors for 2025, health and medical and personal services.

In summary, we are on track to becoming a pure-play franchisor. Combined with our diligent cost-saving initiatives, we are confident this will lead to improved operating leverage going into 2026 and beyond. And our stock repurchase plan extension demonstrates our strong conviction in the progress we're making toward our long-term goals of growing system-wide sales, comp sales, net new clinic openings and adjusted EBITDA.

With that, operator, I am ready to begin Q&A.

[Operator Instructions] The first question comes from Jeff Van Sinderen from B. Riley FBR.

Just wanted to follow up on getting to the pure franchise. At this point, I realized I think you said you're in 40-some-odd units, you're in some sort of stage, it sounds like due diligence. And then I think you have another 30-some-odd to go after that. What time frame do you think seems feasible to complete all of the refranchising at this point of the corporate clinics?

Jeff, at this stage, like we mentioned on our prepared remarks, we have got an initial asset purchase agreement for 45 clinics in Southern California. We are still negotiating some details around that. And then we've got 33 other clinics which remain that we are also negotiating asset purchase agreements for. I think as a result of the overall macro climate, we found that the lender dynamic was impacted and it impacted our timing as it related to buyers securing lending, added some additional complexity, but we feel confident that we're making progress. And whilst exact timing may be hard to predict, I think we're pretty confident that we'll be able to get this done.

Okay. And then just turning to the steps you're taking to turn around the same-store sales or comps. You mentioned the pricing plan pilot, I think it was. Can you speak more about that? I'm just curious about what you're doing there.

Yes, absolutely. So as you know, we took pricing, any meaningful pricing on our wellness plans going back in March of 2022. So it's been a minute since we've taken pricing. Inflation has gone up since then as a result, eroding some degree of clinic margin. So we've got to figure out the right balance of making sure we're affordable and accessible whilst also taking a fair price increase in line with market. To make sure we understand that thoroughly, given the market dynamic, we have taken 3 different price increase levels, 3 different tiers that reflect 3 different levels of aggressiveness of price increase, if you will. We have -- those tests went -- or pilot markets went live in November itself. And I think over the next few weeks, we expect to learn what is the optimum level of price increase that the market and our patients can bear at the moment and learning from that, the plan is to then scale that out enterprise-wide.

Okay. I guess I'm a little bit -- I'm not sure what the word is, but it seems to me that if your comps are running slightly negative that you might -- that -- I mean, it almost seems counterintuitive to be raising price into the comps running negative. So I'm just wondering how you think about that, how you think about sort of the -- I know you gave a new set of guidance for the year for comps and so forth. But how are you thinking about pricing versus driving comps?

I think it is one of the many levels that we are contemplating. If I was to share with you or recap the levels that we've got that we talked about, I think one is to shift the external messaging to pain, which seems to be the most relevant trigger to bring patients in at the moment. To amplify that message and our new brand campaign, we have worked with our franchisee and agreed that they will shift $500 per clinic per month from local investment in marketing to a national spend that allows us to advertise more effectively and invest behind more high-impact media nationally. So we've just started doing that. I think that will make a significant impact. We are also investing some of that money to accelerate some of the very critical work that needs to happen around addressing change in consumer search behaviors due to AI, which I just enumerated.

And then in the context of some of these other things that we're talking about, including patient and technology, one of the levers, as you might expect, is also pricing. We think there's some room there just to determine what the right level of pricing is instead of doing that without due diligence. That is exactly why we've got 3 different price increase tiers that we're testing to make sure that we're not getting ahead of our skis and the consumer is ready to bear that price increase. So it is one of many other things that I think will help us get into positive comp.

The next question comes from George Kelly from ROTH Capital.

A couple of questions for you. First, on -- I guess, looking for a little more detail. You mentioned in your prepared remarks about certain initiatives aimed to improving the breakeven point. Can you walk through what those look like?

Absolutely, George. I think what we were referring to here is the new clinics, right, achieving that we open, reaching a breakeven point rapidly. And then, of course, from there on, we expect them to get to mature sales level also faster than they have historically done. We have opened 25 clinics thus far. And what we found is that we've used a more robust protocol learning from best practices around our own system on what needs to happen in order to ensure that these clinics open right from day 1 at a higher sales volume and then ramp up faster. So to give you an example, one of the things that we found that makes a very significant impact is to make sure that even before the clinic opens, our franchisees and our operators have achieved a few hundred, and there's a specific number that we target, potential leads. And so the moment we actually open the clinic, we already have a very significant amount of leads, very specific leads that we can then follow through and convert into patients very early in the opening phase of that clinic. That mechanically is done through tools like local tabling where basically our operators who sit within the community set up these tables and collect leads, educating our consumers. So it's really very local community level blocking and tackling that we are codifying, sharing as best practice and enforcing that our clinics open, following those protocols. As we have followed those protocols, we are seeing -- very encouraged by the results we're seeing of the cohort of clinics opening in 2025. So that is what we were referring to earlier in terms of reaching breakeven sales pretty quickly.

Okay. And then I guess I've got a couple more. On comp growth, can you explain at all or give us the trends that you saw during the quarter? And what have you seen post quarter? It seems like your updated guide reflects a step down from 3Q in 4Q. So is that the case?

Yes. Let me give a couple of comments there. So as we looked at current trends, as we ended the quarter, our comps were slightly softer than the average of the quarter. So that was one thing that we considered. But we also looked at last year. So in the third quarter last year, our comps were up about 4%. In the fourth quarter, they're up about 6%. So we have much tougher compares in the fourth quarter than we did in the third quarter. So that's the other component. So a little softer at the end of the quarter and then just tougher compares up against last year.

Okay. And just one last one for me. There was a comment about SG&A expense reductions next year that are planned. And I think you said that you expect to grow income from continuing operations versus 2025. Can you remind me what of your adjusted EBITDA guide is from continuing ops? And can you be more specific? It's been a long time. This plan has been underway for quite a while. I know there was a management change, but can you be more specific about what level of SG&A reductions you're targeting?

Yes. What I can tell you is we have taken a very close look at our G&A structure now versus what it should be post refranchising. And so we've already started to make some adjustments there. And a good point of reference is in our earnings presentation on Slide 13, where it shows you kind of the breakdown of why our adjusted EBITDA was better for continued operations compared to last year. So what's happening there is as we refranchise these units, they come into the GAAP revenue stream with additional royalties and fees. And so that's why revenue -- GAAP revenue was up 6% in the quarter. But if you look at G&A costs, they were actually down 2% against that revenue increase. And so you can kind of see some of the rightsizing starting to happen. There's more to come, and we have the areas targeted that will give us the most reduction. So we're starting to see some benefits come through, which is very encouraging.

Also, I'd point out that cost of revenues was actually down 6% as well against revenue up 6%. So that certainly helps. And that's mainly because we bought back those territory -- regional developer territory rights in the Q2 time frame that we mentioned on our last call. And so that's paying some benefits, right? So we no longer have to pay those RD royalties. And so our cost of revenues is less against higher revenue.

So kind of to answer to your question, so the next steps that we're looking at is continuing to refranchise clinics. As we do that, we'll see some pretty big reductions in big categories like salaries and wages, employee benefits, insurance. If you think about workers' comp insurance, big reduction with fewer employees and then other things like legal fees and travel and some other expenses. And so as we've kind of done a little bit deeper dive in analyzing line items, we have very good plans on how they should be reduced and when as we continue to refranchise these units.

So early days, we're seeing some really good signs, but the bulk of it is yet to come. And so as we continue this transition process, things are fairly fluid, but we kind of have our sights target on where the opportunity areas are. And on our next call in Q4, we'll be able to lay that out in a good amount of detail in terms of what the outlook looks like in a more kind of fully franchised model.

The next question comes from Jeremy Hamblin from Craig-Hallum.

This is Will on for Jeremy. First, I wanted to go back to the pricing. I guess my question is, are you taking a blanket approach to raising price? Or is it -- are you taking price on certain packages and plans maybe to drive customers to different categories?

Yes, I can answer that for you, Will. Almost 80% to 85% of our revenue comes to a recurring revenue model, right? So our patients are on membership plans that are recurring in nature. So that is where the bulk of the opportunity is. That -- those wellness plans are where we are testing 3 different levels of price increase, right? And they range anywhere between $2 to $10 to try and understand what is going to be the patient sensitivity to those price increases, and we're also testing them across a variety of different geographies. We've got approximately 200 clinics in those 3 pilot group. So it's a pretty comprehensive, well-thoughtful test, 3 different price increase levels, lots of different geographies and demographics. We will learn from that on what the most appropriate level of price increases given the current climate, and then we can scale that out nationally. So that is where we are looking at this pricing pilot. Will, does that clarify your question?

Yes, that's helpful. And then just one more for me, going back to the units in Southern California. I guess, are you able to kind of categorize just general performance of those 45 units? I mean, are they kind of average, better, kind of weaker performing units? I'm just trying to get a sense of valuation.

Yes, I can start there. I think in general, those clinics in Southern California are good performing clinics overall as a group. And so as we look to refranchise those, it's critically important that we find good operators. And so that is one of the things that we're really focused on, and we want to make sure that we take the time to get good operators in those clinics because good locations. And in the past, a lot of those clinics have performed quite well, but there's still opportunities there. So it's a good position for a strong operator to step in and continue the good practices that they have, but also enhance what they do to make it even stronger.

The next question comes from Tom McGoverns from Maxim Group.

So this past quarter, you guys sold, I believe you said 8 franchise licenses compared to 7 a year ago. Just trying to get an understanding of where the demand is coming from. Can you give us any insight on whether or not these licenses are being sold to maybe existing franchisees or if they're all new interest, new franchisees?

It's a mix, Tom, both existing franchisees as well as new franchisees.

Understood. The other question I had was on the app. So it looks like you guys have some pretty strong initial data points there. It says in the slide, 178,000 downloads and 18% of new patients are signing up for that. Do you guys have any metrics that you can provide for us now in terms of utilization or engagement through the app? Have you guys seen already an increase in those that have the app scheduling appointments? Or is it just too early to tell?

Tom, it's too early to tell. But the feedback from those patients that we're seeing because we're also, as I indicated, starting to measure patient experience through the app, we're seeing extremely high metrics coming back. So what we're encouraged with, whilst it's early signs that the overall experience that they're having is very strong, and clearly, as we've seen, a strong patient experience typically will lead to longevity, and that's really what we're going after here, making sure that there is lifetime value because there's less friction in the experience. So -- but too early to be able to share data points that are demonstrating those metrics already.

Got you. Appreciate that insight. And final thing for me. So just wanted to kind of piggyback on the pricing question. I see in your slide as well that you guys plan to take pricing in 1Q '26. Is that a steadfast plan? Or is there any reason you might take pricing earlier than that if you have the right insights in the fourth quarter or anything that could possibly push that into the second quarter or later in 2026?

I think at this point, considering that the pricing test just went -- those pilot markets just went live earlier in November, I think the most likely scenario is that we will read them, see the impact and most likely, given the time frames involved that we should be able to activate against them for our system in quarter 1. Now should something emerge from that test that gives us pause and reflection and needs us to pivot and test them more, then of course, we will consider that. But at the moment, given that we have got 3 different options in test, we believe that one of them is more than likely going to be the right option for us to then scale out nationwide sometime in the first quarter.

This concludes our question-and-answer session. I would like to turn the conference back over to Sanjiv Razdan for closing remarks.

Thank you for joining us. Have a really good day. And know that at The Joint, we always have your back. So I appreciate everyone. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.