Franchising Shift And Membership Demand Will Drive Long Term Earnings Power

Catalysts

About Joint

Joint operates a nationwide network of franchised chiropractic clinics focused on affordable, convenient, membership-based care.

What are the underlying business or industry changes driving this perspective?

• Refranchising the remaining corporate clinics into a 100 percent franchise model should materially lower G&A, salaries, and insurance costs while increasing high margin royalty revenue. This may support sustained expansion in adjusted EBITDA and net income.
• Growing consumer preference for lower cost, noninvasive pain management in a 20 billion dollar back pain market aligns with Joint's walk in, subscription model. This may position the brand to capture more recurring membership revenue and improve same store sales over time.
• National brand marketing centered on pain relief, combined with franchisee funded reallocation from local to national spend, is expected to lift brand awareness and new patient count. This may drive system wide sales growth and support healthier revenue per clinic.
• Enhanced digital infrastructure, including SEO upgrades, clinic microsites, and a feature rich mobile app that improves patient experience and retention, should lengthen membership duration and increase revenue visibility. This may also support margin leverage from fixed corporate costs.
• Disciplined revenue management through wellness plan price optimization and the Kickstart treatment packages, already adopted by roughly a quarter of new patients, can expand average revenue per patient and help restore clinic level margins and earnings growth despite modest traffic softness.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Joint's revenue will grow by 2.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.4% today to 23.2% in 3 years time.
• Analysts expect earnings to reach $13.6 million (and earnings per share of $0.83) by about December 2028, up from $-218.9 thousand today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 13.6x on those 2028 earnings, up from -591.6x today. This future PE is lower than the current PE for the US Healthcare industry at 23.7x.
• Analysts expect the number of shares outstanding to decline by 2.03% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.96%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Negative same store sales trends and softer comps exiting the quarter, combined with tougher prior year comparisons, suggest that demand may be weaker than expected and could pressure system wide sales growth and revenue.
• Price increases on wellness plans being tested across multiple markets while comps are already slightly negative may prompt higher patient attrition or lower new patient conversion, which would undermine recurring membership revenue and clinic level net margins.
• System wide sales declined 1.5% despite marketing and digital investments, and an environment of macroeconomic headwinds and lender related delays could slow refranchising progress and brand momentum, limiting operating leverage improvements and earnings growth.
• Net clinic openings remain modest with openings offset by closures, and the need for stronger operators in key markets such as Southern California indicates execution risk in scaling the network, which may constrain future royalty revenue and adjusted EBITDA expansion.
• Elevated selling and marketing expenses from national campaigns, SEO work and app development ahead of fully proven returns, coupled with only incremental gains in usage and engagement so far, could keep overhead high relative to revenue and limit improvements in net income margins.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $10.75 for Joint based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $14.0, and the most bearish reporting a price target of just $9.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $58.5 million, earnings will come to $13.6 million, and it would be trading on a PE ratio of 13.6x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $8.71, the analyst price target of $10.75 is 19.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.