They’ve already expressed interest to us that they’re interested in expanding their market area or into other markets just because they believe so much in the business. That doesn’t mean that we wouldn’t also be open to selling to qualified new franchisees new to The Joint. But again, the key is you want to make sure that you are selling your franchise to quality businessmen and women who really know and effectively can run clinics. So that’s going to be the criteria for us. As we said, this is not a fire sale. This isn’t okay. We have to have these off our books by x date. These are valuable assets that we believe that given the market conditions that we’re in, some of the challenges on the margins with increased patient-incurred labor is that this is an effective strategy for this organization.
Operator: Your next question comes from Jeremy Hamblin from Craig-Hallum Capital Group. Please go ahead.
Jeremy Hamblin : Thanks for taking my question. So first, just in terms of the multiples. Just — sorry, if you’ve covered this already. But in terms of the kind of value that you are looking to achieve, is it a multiple of the 4-wall cash flow that’s being generated? Or is it a multiple of the revenue of the clinic? How are you determining what the appropriate valuations are, especially given that financing is tougher to come by and more expensive for potential franchisees that might be looking to acquire?
Jake Singleton: Sure, Jeremy, great question. We’ve really gone on a clinic-by-clinic basis across a range of valuation methodologies. So, looking at the performance on a clinic-by-clinic basis, running individual DCF models, looking at a range of different valuation, multiple techniques, whether it’s sales, earnings, cash flow, et cetera, and it’s certainly given us an idea and some negotiating ranges on a per clinic basis. There is a range of performance across the portfolio. So, we do have high-performing clinics that will command higher sales proceeds in-demand areas that might tick up from a multiple’s perspective. And then that ranges all the way to a small subset of underperformers. And then we’ve got young clinics that are still ramping.
So, each of those has a unique way to view valuation. And for competitive reasons, we probably won’t put out metrics on what those multiple targets are or anything of that nature. But we have done a very detailed analysis to give us a basis for what they think they’re worth. And then we’ll continue those negotiations with the related prospective buyers.
Jeremy Hamblin : And so, in terms of the prospective buyer, can you give us a sense for — are you looking for, like mid-tier franchisee types? Are you looking for clinicians maybe that already have competing chiropractic clinics? What type of — kind of — what’s your type that you’re looking for?
Peter Holt: It’s a great question. And I would say that it’s probably all of the above. If you look at the network today, is roughly 35% of our franchise communities, the doctor chiropractic is, in fact, the franchisee. And then the majority of them, obviously, are businessmen and women who are hiring the doctor. And so, I think that absolutely, there’s opportunities for doctors to be able to buy a clinic or clinics. And again, they — especially if they’re in the business, they understand the business and can be effective in running it, that’s very — those are all positive attributes that would help us in that process to continue to make sure those clinics perform. I think that what I’ve learned over the years in franchising is you know better than your operators.
And so that you’re looking for quality business people who know how to run a business. Yes, this is The Joint and it’s always better, if they come directly from The Joint experience because then you don’t have that same learning curve. But you’ve got some very successful franchisees in other concepts that have also shown that they can run The Joint very effectively. So, we’re going to be looking very much at the quality to be able to run a business as a criteria for the sale.
Jeremy Hamblin : Got it. And then just coming back to this process, and it can be challenging to go through a refranchising effort. And really, to be matching the lost revenue versus the embedded corporate costs, in particular. Can you give us a sense for what’s a reasonable time frame if the majority, in terms of the number of companies-operated clinics, like 136 at the end of the quarter? Is it feasible to do 25% of those in one year? Or is that just too aggressive in terms of the timing? Is there a range you might be able to provide us with in terms of what you think can happen in year one, year two?
Jake Singleton: Yes. I can appreciate the desire to want to hone that in. I think it’s important to reiterate that these are clinics of value, right? This is not a fire sale. We’re not going to be rushed through this process. So, it’s really hard to put a defined timeline on that, Jeremy. So, we probably won’t state anything publicly as it relates to that. We’ve got…
Peter Holt: Until we get further into the process.
Jake Singleton: Absolutely.
Peter Holt: Jeremy, as we get further into this, we’ll be much more able to talk about kind of timelines and time frames. But at this stage is that it’s a little harder to give you, okay, it’s going to take x amount of time, or x percentage will be sold by a certain time frame. It’s a priority. It’s important to us that this is absolutely an adjustment in our strategic focus, where we’re focusing on the franchisees and selling off as the majority of our corporate portfolio. But it’s — but again, these are important assets that we are — we will be putting in the hands of great franchisees who can continue to run them effectively.
Operator: Your next question comes from Aaron Lockman from Lake Street Capital Markets. Please go ahead.
Unidentified Analyst : This is Aaron on the line for Brooks. Are you able to hear me okay?
Peter Holt: Yes, no problem at all, Aaron.
Unidentified Analyst : So just recognizing that the majority of your revenue and earnings come from the corporate side. How do you think moving to a primarily franchise concept, excuse me, will affect your public investors? Just in a general sense, trying to trying to get a bit more color on your thoughts there.
Peter Holt: Sure. I think that — what I would say is that when we went down this path of — when public to create a portfolio of corporate units, okay, we obviously accelerate that growth as we went into ’21 and ’22. And I think, as I reflect on kind of where we are and some of the challenges we face, both externally in terms of some of these market economic trends that have impacted our business. And at the same time, we’ve seen some increase in the cost, particularly labor. And so, I think that environment has changed enough that it makes sense for us to rethink that strategy of that corporate portfolio. You certainly see franchise systems from time to time, go back and forth on whether they want to have a lot of corporate units or they want to pull back on the corporate units.
