Refranchising And Flat Revenues Will Shape A Cautious Yet Stable Future Outlook

Catalysts

About Joint

The Joint Corp. franchises chiropractic clinics that focus on affordable, routine care for pain relief and wellness.

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

• Although the refranchising push toward a pure-play model is intended to simplify operations, the process depends on buyers securing financing in a slower lending environment. This could extend the time before higher royalty revenue and leaner G&A are fully reflected in earnings.
• While the national Life, Unpaused campaign and SEO upgrades aim to capture more of the large back pain spend, the recent 1.5% system-wide sales decline and 2% comp sales decline show that lower new patient counts remain a risk to revenue if marketing does not translate into sustained visit growth.
• Although app adoption of 178,000 downloads and 18% of new patients using it points to stronger digital engagement, it is still early to know whether these tools will meaningfully lengthen membership tenure and support recurring revenue or simply add depreciation and tech-related costs that pressure net margins.
• While the wellness plan pricing pilots and Kickstart packages are intended to offset inflation and support clinic economics, raising prices when comps are slightly negative could dampen visit frequency or conversion rates. This would weigh on system-wide sales and potentially compress clinic-level margins.
• Although improved preopening protocols and lead generation are shortening new clinic breakeven times from around 2 years to under 1 year, clinic closures outpacing openings in the latest quarter highlight execution risk that could limit net new clinic growth and constrain future royalty revenue and adjusted EBITDA.

Assumptions

This narrative explores a more pessimistic perspective on Joint compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Joint's revenue will remain fairly flat over the next 3 years.
• The bearish analysts assume that profit margins will increase from -0.4% today to 23.9% in 3 years time.
• The bearish analysts expect earnings to reach $12.8 million (and earnings per share of $0.76) by about January 2029, up from $-218.9 thousand today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 12.0x on those 2029 earnings, up from -674.5x today. This future PE is lower than the current PE for the US Healthcare industry at 23.5x.
• The bearish 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?

• If the national Life, Unpaused campaign, SEO work and clinic microsites continue to lift organic traffic and improve conversion from search to clinic visits over time, new patient growth and system-wide sales could trend higher than recent 1.5% sales and 2% comp declines suggest, which would support stronger revenue and potentially higher earnings.
• The refranchising push toward a 100% franchise model, combined with rightsizing G&A and lower regional developer royalties, is already reflected in a 6% rise in revenue from continuing operations and a 36% improvement in consolidated adjusted EBITDA. Further progress on this path could expand net margins and earnings beyond what a flat share price would imply.
• Faster breakeven for new clinics, moving from around 2 years to under 1 year for the 2025 cohort, along with continued franchise license sales and a 92% franchised portfolio, could support a healthier and more profitable clinic base over the long term. This could benefit royalty revenue and adjusted EBITDA.
• High cash of US$29.7 million, an undrawn US$20 million credit facility, and an expanded US$12 million repurchase authorization give the company financial flexibility to keep investing in marketing, technology and refranchising while also reducing the share count. This could support earnings per share and influence the share price over time.
• Growing digital engagement through the mobile app, with 178,000 downloads and 18% of new patients using it, plus planned features aimed at improving the patient experience, may extend membership duration and increase visit frequency. This could lift recurring revenue and net margins if these tools translate into higher lifetime value per patient.

Valuation

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

• The assumed bearish price target for Joint is $9.0, which represents up to two standard deviations below the consensus price target of $10.67. This valuation is based on what can be assumed as the expectations of Joint's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• 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 more bearish analyst cohort, you'd need to believe that by 2029, revenues will be $53.6 million, earnings will come to $12.8 million, and it would be trading on a PE ratio of 12.0x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $9.93, the analyst price target of $9.0 is 10.3% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.