M.Cap: $257 million

The Joint Corp is a rapidly growing franchisor and operator of chiropractic clinics that uses a private pay, non-insurance, cash-based model.

Bandera Partners
The company accounts for 14.45% of the total portfolio – Rank #2

SIGNS OF MOAT

(1) Unique business model: No insurance, no prior booking, and cheaper than industry average.

Non-insurance/cash-only model:  The company only accept cash or major credit cards in return for its services, does not accept insurance, and does not provide Medicare covered services. By limiting the administrative burden of insurance processing, the company’s business model allows chiropractors to focus on patients, instead of performing administrative duties related to insurance reimbursement. Moreover, this model saves overhead expenses associated with maintaining the capability to process third-party reimbursement.

No prior booking: Patients arrive at the company’s clinics without appointments at times convenient to their schedules. After a patient has joined its system, and returns for treatment, they simply swipe their membership card at a card reader at the reception desk to announce their arrival.

Cheaper: For spinal manipulation, the company charges approximately $27, which is roughly 65% lower than the industry average.

Higher number of new patients per clinic: The company attracted an average of 1,041 new patients per clinic (for all clinics open for the full twelve months of 2018) during the year ended December 31, 2018, as compared to the 2018 chiropractic industry average of 359 new patients per year for traditional insurance-based non-multidisciplinary or integrated practices, according to a 2018 Chiropractic Economics survey.

(2) Franchise model

As of December 31, 2018, the company had 442 franchised or company-owned or managed clinics in operation in 32 states.

An immediate question pops up; can a newbie copy the low-cost, asset-light franchisee model, and compete against the company? Well, even though there is nothing to prevent a company from emulating the concept, it will not be easy.

(a) Brand: The Joint Corp is a top franchise brand in the chiropractic sector. The company was included in Entrepreneur magazine’s Franchise 500® list. Categorized under the “Health” section, The Joint Corp was rated 109, overall.

An investment of $180K to $342K (including working capital and franchise fee) is typically required to become a franchisee of the company. Moreover, the success of a franchisee is also tied to the business brand. As such, franchisees are less likely to choose a new or unknown franchise brand, simply to save a few additional thousand dollars. For chiropractors considering a franchise model, rather than opening their own clinic, “The Joint Corp” would be a compelling option.

On October 1, 2019, the company launched a nationwide brand campaign titled “You’re Back, Baby.” The campaign includes television, outdoor, print and online ads, website platforms, retail channels and social media assets. It is hard for a new entrant to spend money on expensive advertisement campaigns to spread its brand.

(3) Competitors are either small or declining

The company cites only three competitors in its 10-K – Healthsource, AlignLife and Chiro One.

• According to entrepreneur.com, the total number of locations are declining for “HealthSource Chiropractic”. The number of U.S. franchises declined from 395 in 2013 to 172 in 2019.
• Alignlife runs 27 U.S franchises. Source.
• Chiron One currently runs in 57 locations. Source. I suggest you read this old article about Chiro One, which ran into financial trouble. https://www.chicagobusiness.com/article/20140715/NEWS03/140719985/chiro-one-wellness-centers-to-auction-its-assets

Suggested further reading

https://www.nytimes.com/2017/05/01/upshot/for-bad-backs-its-time-to-rethink-biases-about-chiropractors.html