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Edited Transcript of JYNT earnings conference call or presentation 8-Mar-18 10:00pm GMT

Q4 2017 Joint Corp Earnings Call

SCOTTSDALE May 14, 2018 (Thomson StreetEvents) -- Edited Transcript of Joint Corp earnings conference call or presentation Thursday, March 8, 2018 at 10:00:00pm GMT

TEXT version of Transcript


Corporate Participants


* Kirsten Chapman

The Joint Corp. - IR, LHA Investor Relations

* Peter Holt

The Joint Corp. - CEO

* John Meloun

The Joint Corp. - CFO


Conference Call Participants


* Mike Malouf

Craig-Hallum Capital Group - Analyst

* Peter Rabover

Artko Capital LP - Analyst




Operator [1]


Good day, ladies and gentlemen, and welcome to the Q4 and full-year 2017 The Joint Corp. earnings conference call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Kirsten Chapman at LHA Investor Relations. Ma'am, you may begin.


Kirsten Chapman, The Joint Corp. - IR, LHA Investor Relations [2]


Thank you, Ashley. Good afternoon, everyone. This is Kirsten Chapman of LHA Investor Relations. On the call today, President and CEO Peter Holt will review our fourth-quarter and year-end 2017 operating metrics and our 2018 growth strategy. CFO John Meloun will detail our financial performance and Peter will close with our long-term vision and open the call for questions. Please note, we are using a slide presentation that can be found at ir.thejoint.com, events and presentations, upcoming events.

Today after the close of market, The Joint Corp. issued its financial results for the quarter ended December 31, 2017. If you've not already received a copy of this press release, it can be found in the investor relations section of the Company's website at www.thejoint.com.

As provided on slide 2, please be advised today's discussion includes forward-looking statements, including predictions, expectations, estimates, and other information that may be considered forward-looking. Throughout today's discussion, we will present some important factors relating to our business that could affect those forward-looking statements.

The forward-looking statements are also subject to risks and uncertainties that may cause actual results to differ materially from statements we make today. As a result, we caution you against placing undue reliance on these forward-looking statements and would encourage you to review our filings with the SEC for a discussion of the factors and other risks that may affect our future results or the market price of our stock. Finally, we are not obligating ourselves to revise our results or publicly release any updates to these forward-looking statements in light of any new information or future events.

Management uses EBITDA and adjusted EBITDA, which are non-GAAP financial measures. These are presented because they are important measures used by management to assess financial performance, as management believes they provide a more transparent view of the Company's underlying operating performance and operating trends. A reconciliation of net loss to EBITDA and adjusted EBITDA is presented in the press release and in the accompanying presentation.

The Company defines adjusted EBITDA as EBITDA before acquisition-related expenses, bargain purchase gain, loss on disposition or impairment, and stock-based compensation expenses. The Company defines EBITDA as net income or loss before net interest, tax, depreciation, and amortization expenses. It should be noted that the revenue and adjusted EBITDA guidance metrics provided for 2018 already reflect the financial accounting standards for Accounting Standards Codification 606 impact.

Now turning to slide 3, it's my pleasure to turn the call over to Peter Holt. Please go ahead, sir.


Peter Holt, The Joint Corp. - CEO [3]


Thank you, Kirsten, and thank you all for joining the call today. Our business is alleviating pain and moving our patients toward a healthier lifestyle, the sweet spot of a growing health and wellness industry. And our 2017 achievements highlight our significant progress.

We delivered eight consecutive quarters of financial improvement. We continue to experience strong same-store sales, and we are building our regional developer network, essentially a coiled spring for future development.

In the nearly 24 months that I've been at The Joint, we have rebuilt the management team with a franchise-centric focus. Together, we have addressed the financing concerns, managed the necessary clinic transition in Chicago, implemented standard operating procedures to improve efficiencies both corporate and for franchise clinics, bettered our relationships with our franchisees, and reinvigorated the regional developer program.

In 2017, we opened 41 new franchise clinics, bringing the year-end total to 399 clinics. We partnered with 10 regional developers, more than doubling the regional developer territories to 18. We achieved a positive adjusted EBITDA for two consecutive quarters. We established a $5 million non-dilutive line of credit to support our working capital and implemented procedures that improve the time to breakeven for newly opening clinics.

Turning to slide 4, when I joined The Joint, my one major concern with our business model was the time that our clinics were taking to reach breakeven. And you can see here that the 2016 class, following our historical ramp, took an average of 18 months to achieve profitability, which increased the risk of franchisees running out of cash.

Through our efforts and recommended centerization, the 2017 class of those 41 newly franchised clinics reached our estimated breakeven on average in nine months, which of course means some did it faster. Thus, we improved the time to profitability for our franchisees, which has positive implications for corporate greenfield clinics as well. Simply put: during 2017, we have moved beyond stabilizing the business. We've positioned the business so that we can accelerate growth in 2018 and beyond.

Turning to slide 5, I'd like to quickly review some important metrics for 2017 compared to 2016. Systemwide sales grew 29%, delivering a 77% 8-year compounded annual growth. Systemwide comp sales, or retail sales of the same clinics that have been open for at least 13 months, increased 21%, demonstrating the continued validation of our business model.

Our revenue grew 23%, our net loss improved $11.9 million, and adjusted EBITDA improved $7.6 million over the last year. Combined with positive results for the third and fourth quarters, we are demonstrating that the drive toward sustainable profitability has taken hold.

Further, at December 31, 2017, cash and cash equivalents reached $4.2 million, up from $3 million compared to December 31, 2016. The increase includes $1 million from our new line of credit, but more importantly, over $200,000 of cash was generated over the year.

These are all driven by strong operational metrics. We increased our unique patients served to nearly 1.4 million by the end of 2017. We performed nearly 5 million adjustments, with 22% of our patients new to chiropractic care. And adding the strength of the business model, 76% of our systemwide growth sales were generated from monthly memberships.

Turning to slide 6, as our performance continues to draw interest from new investors, I'd like to take a moment and provide an overview of our business. The Joint Corp.'s purpose is to improve quality of life for patients we serve by providing quality and affordable chiropractic care.

Our doctors focus on patient care on pain relief and ongoing wellness to promote a healthy lifestyle. We do this in a convenient retail setting that uses no appointment, walk-in only, no insurance, membership-based services.

Our network of clinics is comprised of franchised and Company-owned and managed clinics. This hybrid model enables us to expand on a capital-light fashion, which in turn is quite powerful in helping to build the brand awareness and name recognition, establish a predictable revenue stream, and increase scale at an accelerating pace.

We are excited that we have achieved that significant milestone of opening up our 400th clinic this past January. During 2017, The Joint clinics were serviced by over 1,000 fully licensed chiropractic doctors who performed those nearly 5 million chiropractic adjustments.

We have a broad patient base and demographic profile that when extrapolated creates a significant basis for growth. And turning to slide 7, we serve a dynamic yet fragmented market, influenced by several drivers.

First, the market is estimated to include 39,000 independent practitioners. Chiropractic care itself continues to move to the mainstream population. 62 million Americans saw a chiropractor in the last 5 years, 35.5 million in the last 12 months. And millennials, who are looking for more noninvasive, natural, holistic alternatives, are the largest segment leading that pack.

Today, pain cost this nation more than $650 billion annually. $90 billion is spent on back pain alone and $15 billion is spent in chiropractic care. People are actively looking for better solutions for pain. This is tragically reflected on the statistic that more than 64,000 people died of an opioid overdose in 2016 or 7 people an hour.

According to the Gallup poll recently conducted by Palmer College of Chiropractic, nearly 80% of the public surveyed want a non-pharmacological approach to physical pain.

The traditional medical community is also increasingly acknowledging that prescription drugs are not necessarily the most effective solution for back pain management. The study titled Association Between Utilization of Chiropractic Services for Treatment of Low-Back Pain and Use of Prescription Opioids among patients with low back pain found a 55% reduction in the likelihood of people filling prescriptions for opioids for those who receive chiropractic care compared to those who did not.

Turning to slide 8, during the fourth quarter, franchise openings increased 12 units, up from 6 in the third quarter. We closed 2 franchise clinics in the quarter. During the year, we opened 41 clinics, bringing the December 31, 2017, total of franchise clinics to 352 or 88% of our portfolio of 399 clinics.

And as noted earlier, in January of 2018, we passed that 400 clinic mark. This is important, as studies show that the 1,000 franchise units tend to be a tipping point for national recognition that can further drive accelerated growth. Our growth indicators remain strong, as we sold 37 franchise licenses in 2017, 68% more than we did in 2016. This increase bodes well for our 2018 growth.

Turning to slide 9, during the fourth quarter, we continued to expand our regional developer program. As a reminder, we sell regional developers the rights to open a minimum number of clinics in a defined territory. They in turn help us identify and qualify new potential franchisees in that territory and assist us in providing field training, clinic opening, and ongoing support. And for that assistance, we share part of the initial franchise fee collected and part of the ongoing royalties.

Now, this program had been deemphasized prior to my tenure. And I truly believe, and studies support, that regional developers when effectively managed accelerate the ramp to scale. I'm excited to report that during the quarter, we signed two additional regional developer territory agreements, bringing the total to 18 territories, which is more than double our regional developer count compared to the end of 2016.

Both of our new regional developer territories are with existing successful franchisees who wanted to expand their reach. The first regional developer license paired a successful multi-clinic franchisee in North Carolina with an existing regional developer to purchase the RD rights for the state of Tennessee. The second developer license sold the balance of the RD rights to Texas and the state of Oklahoma.

With these additions, we ended the year with a combined development schedule of these 10 new regional developers requiring them to open and operate a minimum of 259 clinics over the 10 years of their regional developer terms. Collectively, the territories encompass Chicago, Minneapolis/St. Paul, Philadelphia, Central Florida, Maryland and DC, Northern New Jersey, Ohio, Tennessee, Texas, Oklahoma, and Washington State.

Turning to slide 10, franchising at its core is an exercise in brand building. And in 2018, we are focused on elevating our brand awareness and name recognition to drive long-term growth using three revenue acceleration strategies.

First, we will continue to accelerate franchise sales. We have made great progress in 2017 with our new VP of Franchise Sales Eric Simon, who has nearly 20 years' experience in franchise development. Earlier this year, we were delighted to welcome Jason Greenwood as our new VP of Marketing. Jason also has nearly 20 years of franchise marketing experience.

Next, we will continue to build on our regional developer strategy. We added 10 new RDs in 2017 and today roughly one-third of the country is covered under RD agreement and we will continue to expand that in 2018.

Finally, as our transformation efforts achieved a positive adjusted EBITDA in our corporate clinic segment, we will return to expanding this portfolio. Initially, we will look at strategically acquiring buyback clinics and secondarily building greenfields. The target sites will be in clustered locations in which we already operate Company-owned or managed clinics, leveraging the marketing and operational infrastructure support of existing corporate clinics already in place.

And with that, I'd like to turn the call over to John to review our financial results.


John Meloun, The Joint Corp. - CFO [4]


Thank you, Peter. We have provided detail on our financial performance for the fourth quarter of 2017 compared to the fourth quarter of 2016. I will take a few moments to discuss some of the highlights broken down by the two operating segments, corporate clinics and franchise operations, as well as our unallocated corporate overhead.

Turning to slide 11, this segment data will be available in our 10-K, which we will file on Friday, March 9. As a reminder, for a retail concept, two of the most important health measures of the business are overall systemwide comp sales and revenue growth.

As Peter mentioned, our metrics comparing fourth quarter 2017 to 2016 were strong, further reflecting the growth of our business. Gross sales for all clinics opened for any amount of time grew 32% to $36.1 million. Systemwide comp sales for all clinics opened 13 months or more increased 26% in Q4. And more significantly, systemwide comp sales for mature clinics opened 48 months or more increased 17%, further pushing the boundaries of our business model.

Our corporate clinic segment, which consists of 47 clinics -- 31 are buybacks, meaning we bought them from existing franchisees, and 16 are greenfields, which we built from the ground up. This segment adjusted EBITDA income was $[0.3] million and now positive for the second consecutive quarter.

Gross sales of our corporate clinics since the month prior to when they were acquired have increased on average 68% through Q4 of 2017 compared to 58% in Q3, demonstrating our capacity to successfully manage our clinic portfolio.

Turning to slide 12, revenue in the fourth quarter of 2017 grew 20% to $6.9 million from $5.8 million in the same period last year. Of the $1.1 million increase, corporate clinics contributed 53% and franchise operations 47%. The improvements in both our corporate clinic and franchise operation segment revenues are driven by the increasing comp sales that our clinics continue to experience as they mature.

Increased sales in our corporate clinic portfolio is attributed to the marketing and operational improvements we have implemented in our clinics, resulting in revenue growth. Franchise operation segment revenue growth was due to higher sales from both existing clinics and from adding 41 clinics since the end of the fourth quarter of 2016.

Cost of revenues in the fourth quarter of 2017 was $1 million, increasing 30% over the same period last year, primarily due to higher regional developer royalties from increased gross sales of franchise clinics in their respective territories. Gross profit was $5.9 million, increasing 18%.

Selling and marketing expenses were $1.3 million in the fourth quarter of 2017 and $1.2 million in the fourth quarter of 2016. The 4% increase reflects slightly higher marketing expense related to our national marketing program.

General and administrative expenses were $4.4 million, more than 50% lower than the $8.9 million in Q4 of 2016, which included a $3.5 million loss on disposition or impairment related to the closure from Company-managed clinics in Chicago and New York and nonoperating lease costs for temporarily halting greenfield clinic development.

The increase also reflects lower payroll and occupancy costs due to 14 fewer corporate clinics operating in the fourth quarter of 2017 compared to the prior year. Total depreciation and amortization expenses also decreased due to the already-mentioned 14 fewer corporate clinics this year.

Consolidated loss from operations improved $226,000, up $5.5 million from a consolidated loss from operations of $5.7 million in the fourth quarter of 2016, which included the already-mentioned $3.5 million in greenfield clinic loss or disposition impairment.

Net loss in the fourth quarter of 2017 was $213,000 or $0.02 per share compared to a net loss of $5.8 million or $0.45 per share in the same quarter last year. Total adjusted EBITDA income in the fourth quarter of 2017 was $419,000, improving $1.8 million compared to the adjusted EBITDA loss of $1.4 million in the same quarter last year. Of the $1.8 million improvement, corporate clinics contributed 60% or $1.1 million, franchise operations contributed 22% or $414,000, and unallocated corporate overhead contributed 18% or $328,000.

Now turning to slide 13, for the full year of 2017 compared to 2016, gross systemwide sales were up $126.9 million (sic, up to $126.9 million), up 29%. Systemwide comp sales for all clinics opened 13 months or more increased 21%. Systemwide comp sales for mature clinics opened 48 months or more increased 13%.

Revenues were up $25.2 million, growing 23%. Gross profit was $21.9 million, increasing 24%. General and administrative expenses were $18.5 million, improving 28%, noting that G&A as a percent of revenue has now decreased from 125% in 2016 to 74% in 2017, demonstrating improving operating leverage that we expect to continue with the maturing of our total system.

Net loss improved 78% to $3.3 million from $15.2 million or $0.25 per share for the full year compared to $1.20 per share in 2016. Adjusted EBITDA loss was $91,000 compared to a loss of $7.7 million last year, representing a 99% improvement, demonstrating that our drive towards sustainable profitability has taken hold.

As of December 31, 2017, cash and cash equivalents were $4.2 million compared to $3 million December 31, 2016. Pursuant to the terms of our credit agreement, during the first quarter of 2017, the Company borrowed $1 million as required on its line of credit. This balance remains unused on the balance sheet at year-end.

As Peter noted, we generated over $200,000 in cash during the year. And with our line of credit, increased our liquidity position and approved our balance sheet by $1.2 million at year-end.

Now turning to slide 14 to discuss our guidance for 2018. The growth indicators for 2018 remain strong. First, we sold 37 franchise licenses in 2017, which is 68% more than 2016. Second, we now have 18 regional developers, more than double that of last year, who are committed to opening a minimum of 259 clinics over their 10-years terms to retain their development rights.

And finally, since we achieved our goal of adjusted EBITDA positive performance from our corporate clinics portfolio, we are now re-engaging in an opportunistic buyback and/or greenfield strategy.

With that, I will provide our 2018 guidance. Total new clinic openings are expected to be in the range of 40 to 52, including 40 to 50 new franchise clinics, up to 2 corporate owned or managed greenfield clinics, and up to 3 buyback clinics, which are existing clinics acquired from franchisees and therefore neutral to the total clinic count.

We expect revenue to be between $31 million and $32 million compared to $25.2 million in 2017. And we expect positive adjusted EBITDA to range between $2.5 million to $3.5 million, improving from a loss of $91,000 in 2017.

It should be noted that the revenue and adjusted EBITDA guidance metrics provided for 2018 already reflect the financial accounting standards for Accounting Standards Codification 606 impact, known as ASC 606. ASC 606 changes the revenue and cost recognition of franchise and regional developer licenses from an event-based recognition to a time-based recognition, essentially spreading the revenues and costs over the term of their respective agreements. We will be providing additional details related to ASC 606 and its impact on our financials in the Form 10-K being filed tomorrow, March 9.

Thanks, everyone, for your time. And I will now turn the call back over to Peter.


Peter Holt, The Joint Corp. - CEO [5]


Thanks, John. Now turning to slide 15, The Joint is a unique brand in a small-box retail franchise environment. Because we offer healthcare services, we have access to a level of customer detail that most franchise systems could only dream about possessing.

Each and every one of our patients are required to provide as detailed information about themselves, including their name, home address, their employer, hobbies, pain. And we document every time that they use our services as a part of their medical records.

With this information, we know that we have a very broad demographic profile. Our patients come from all walks of life. They skew slightly female, similar to the US population. They index higher among Hispanics and Asians.

They are between 25 and 55 years old, and they are doing aerobic exercise. They are more likely to possess a bachelor's degree or more and they are both white-collar and blue-collar. And the family household income is typically between $50,000 and $100,000 annually.

Turning to slide 16, this data is a gold mine to help fuel growth. Our data analytics team utilizes our patient profiles to extrapolate and then very specifically determine the best locations of future growth. Based on our detailed analysis, we believe we have a minimum 1,700-clinic opportunity in the United States.

Frankly, we expect our patient demographic to continue to expand as The Joint and chiropractic care both become better known and more widely accepted. According to our most recent survey, 22% of our patients that have visited The Joint for the first time have never seen a chiropractor before.

In addition to increasing the footprint of our clinics, we will continue our emphasis on professionalizing our standard procedures and controlling costs. Our goal is to remain our focus on improving profitability through ongoing lead generation, marketing, and expense management. Further, we will unceasingly work with our franchise community to share these best practices.

To that end, we expect to invest further in our infrastructure in 2018. Projects include digital intake forms, mobile apps for check-in and wait time estimates, and a general software upgrade to a proprietary software platform to enable scale and enhance functionality, stability, and security.

Turning to slide 17, overall, we continue to execute on our long-term vision, which is to be the premier provider of chiropractic care in wellness and health plans. To accelerate our footprint through corporate and franchise strategy. To be the career path of choice for chiropractors. To build a world-class organizational culture. To foster a robust regional developer community, and to build and maintain a world-class IT platform.

Over the past year, we have made significant progress toward addressing the key challenges that face this Company: rebuilding our franchise development strategy, improving our corporate clinic performance, increasing our new patient counts, stabilizing and improving the security of our IT platform, preserving cash, obtaining non-dilutive financing to strengthen our balance sheet, achieving Companywide EBITDA profitability, and increasing shareholder value. Most importantly, our progress would not be possible without the commitment and hard work of our franchise community and our employees.

Before I open it up to Q&A, I would like to note that we will be at the ROTH Capital Partners annual conference in Dana Point, California, next week. If you have any questions or would like a meeting, please reach out to LHA Investor Relations. And if you would like a complementary adjustment, just come by our booth.

Ashley, I'm now ready to begin the Q&A.


Questions and Answers


Operator [1]


(Operator Instructions) Mike Malouf, Craig-Hallum.


Mike Malouf, Craig-Hallum Capital Group - Analyst [2]


Thanks for taking my questions and well done this year. If I could start off on that chart that you put up with regards to getting to breakeven, 9 months for all 41. That's a significant change of where you were.

Can you talk a little bit about how you've gotten there and whether you think that's a sustainable model of what you've done? I remember talking to you about some of your existing centers still sort of lagging a little bit, so I'd love to hear about that.


Peter Holt, The Joint Corp. - CEO [3]


Sure. And we have really looked at the whole process of what we were doing for our grand opening design in that we went out there and we took best practices from some of our clinics that were in fact opening in that short amount of time.

We took those practices and then we rolled it into a program. We started making sure to enforce that full grand opening spend so that a franchisee in that really kick-off period has to spend that $15,000 for that grand opening period. And then we have really put together the whole program on how to spend those dollars.

Another thing that we have done is our whole SEO strategy. Because what happens is this isn't a frozen yogurt concept where, okay, if you're doing a grand opening, when do you start that? Well, you start it just before you're going to open. Because you don't need to create all this level of awareness when your clinic or your store won't be open for three or four months.

But we are chiropractic care. And so what happens is when somebody comes in to utilize our services, that's not going to -- that's going to only happen when they are in pain if they're initial new patient. And so what we are doing is a much more effective outreach once we have identified the location itself long before it's opened so that you are building on that awareness of the people who live, work, and travel in that 5- to 50-minute radius around that clinic. And so that that accelerates the number of patients in a much shorter period of time.


Mike Malouf, Craig-Hallum Capital Group - Analyst [4]


Okay, that's great. That's great. And then the RD network has really ramped up. How long do you think that will take to start -- that whole network to start really ramping up the number of clinics opened? Are they sort of taking two to three years to start get going and slow at first or do you think it will happen sooner that?


Peter Holt, The Joint Corp. - CEO [5]


Well, I think there's no question there's a ramp-up to it is that if you're starting a new RD territory, okay, they are required to open up their first pilot center or pilot clinic, that gives them the set of experience when they really aggressively selling franchises and helping getting those franchises open and operating. So that you are going to see time to get those first couple clinics open.

One thing that I think will accelerate it, if you look at those 10 new RDs that we sold, of the 10, only 1 came completely from outside The Joint community. So like I mentioned to you this quarter, they were existing franchisees or an existing RD coupling with or pairing with one of our multiunit franchisees.

So in a way, that accelerates our understanding of this business model and how to build it out and how to support it. So I would expect compared to a more traditional -- if I just had 10 brand-new regional developers that I'm putting into the market, because they are so experienced in our own business model, I would expect a faster development. But it still takes that two years, one to two years to really start getting that in the market and then that's when you start seeing the accelerated growth.


Mike Malouf, Craig-Hallum Capital Group - Analyst [6]


Got it, okay. And then with regards to Company-owned clinics, it sounds like you are entertaining perhaps buying back some of these clinics or a few of them. And I'm just wondering if you could talk a little bit about is there a pent-up demand for sale?

Because obviously, you are the first buyer for these clinics. And I know before, you are buying them back here and there, but it's been a while since you've bought any back. And I would imagine that there might be some, for all different reasons, that might be interested in selling.


Peter Holt, The Joint Corp. - CEO [7]


The short answer is yes. I don't know if I would call it a pent-up demand. Because a franchisee can sell their clinic whether we acquire it or not. So that's something that any franchise can do in any network.

Typically, and certainly we retain that right, that every franchisor has the first right of refusal of once that franchisee decides to sell their clinic. And we certainly retain that right in all of our franchise units.

I would say that for all the reasons that are out. There my experience over time has been franchise have different reasons to sell and every system I've been in has a certain amount for sale at any given time, whether it's a health issue, whether they want to pass it on to their children, whether they want to exercise the value they've created in the clinic. I've seen all those happen. And I don't expect it from a percentage to be any different than what we face here at The Joint.


Mike Malouf, Craig-Hallum Capital Group - Analyst [8]


Okay. All right, great. And then as far as greenfield ramps, do you have some identified right now?


Peter Holt, The Joint Corp. - CEO [9]


Well, we are just starting to look at that. I mean, obviously, just based on the experience that we have had with our greenfields and buybacks is there's no question that the buybacks are immediately accretive to our balance sheet. That we have got a track record of being able to take them over and run them profitability.

And that we know that greenbacks (sic) take more capital -- I don't want to say more capital, but they certainly take more time to get to that point of breakeven. And that I feel fully confident that this team can build a greenfield and run it profitably and get it into breakeven time in a very short period of time. But that's also something that we are going to work into.

Most importantly, when we go into this marketplace, we are going to go where we already have strength. We're not to go right into a brand-new market that we have never touched before. We're going to take the three markets that we are in -- Arizona, New Mexico, and California -- and really leverage our existing network to add whether it's a buyback or a greenfield in those markets. And so yes, we have started to do the work on that.


Mike Malouf, Craig-Hallum Capital Group - Analyst [10]


Okay, great. And then just a final sort of follow up. Roughly what is the average age of the clinics at this point?


John Meloun, The Joint Corp. - CFO [11]


The total portfolio is averaging about 45 months in age right now. The buybacks are just about 56 and our greenfields are averaging 24 months in operation.


Mike Malouf, Craig-Hallum Capital Group - Analyst [12]


Okay, great. All right, thanks a lot for the help. Appreciate it.


Operator [13]


(Operator Instructions) Peter Rabover, Artko Capital.


Peter Rabover, Artko Capital LP - Analyst [14]


So I wanted to talk a little bit about the guidance. So you had -- so your revenue guidance increase is about $5.3 million to $6.3 million and your delta for the EBITDA increase is $2.6 million to $3.6 million.

So I guess -- which is about a 45% to 50% flow-through. And so I'm just wondering what are the increases in costs that are making that flow-through less than 100%?


John Meloun, The Joint Corp. - CFO [15]


When you look into 2018 and beyond, one of the things that you have to take into account compared to the historical 2017 numbers we presented is the 2018 guidance now takes into account the new ASC 606 accounting standards. So it's a slightly different lens from which you would look at how the openings and the RDs impact our revenue.

As we move forward into 2018 and we look at the P&L in total from an operating expense standpoint as we return to developing corporate clinics, there is some additive costs related to some costs that we'd have to put in place to support building out greenfields. So that plays into not from a material standpoint, but there is additional costs there that we have budgeted in for greenfields and the cost of buybacks. So those are some of the variables that kind of sway into the topside increase, but some of the additional costs we need to add for developing clinics.


Peter Rabover, Artko Capital LP - Analyst [16]


Okay. That's great. And so if I'm just looking at your slide, if you go again at your guidance from $31 million to $32 million, is that -- once you get to $31 million, the next million goes -- it's 100% flow-through? Is that the way to look at it?


John Meloun, The Joint Corp. - CFO [17]


Yes, it's probably a safe way to look at it. I mean, one of the things that -- our clinics are still leveraging. And when you look at the existing portfolio of clinics that we have, the 47, they are not at the point where they are fully leveraged from an operating cost standpoint.

So we still have some opportunity, as I mentioned in my script, that the general and administrative costs as a percent of revenue have improved greatly from 2016 to 2017 and we expect see that from 2017 to 2018 as well.


Peter Rabover, Artko Capital LP - Analyst [18]


Okay. Great. I think that's all I have for now. Thanks.


Operator [19]


And I'm showing no further questions in queue at this time. I'd like to turn the call back to Peter for any closing remarks.


Peter Holt, The Joint Corp. - CEO [20]


Thank you, Ashley. Again, I want to thank all of you for your interest. We are making chiropractic services accessible to communities that never had them before.

Patients frequently report that this impact is life-changing and at least in one instance lifesaving. Recently, a 48-year-old fitness buff and a membership plan patient came to one of our clinics for an adjustment to alleviate some calf pain.

Our doctor of chiropractic quickly assessed the situation as a potential blood clot and immediately arranged for transportation to an emergency room. Our patient recognized that without our doctor's quick intervention, that clot could have traveled to his lungs and caused injury or even death. He stated, and I quote, that's a big deal any way you slice it. She diagnosed it and saved my life.

We are proud to contribute to patients' well-being and we continue our pursuit to deliver quality, convenient, and affordable chiropractic care. We are accelerating growth and plan to use direct franchise sales as well as potential new Company-owned and managed clinics to achieve scale. Again, thank you for your time today and stay well adjusted.


Operator [21]


Ladies and gentlemen thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day.