The Joint Corp. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Commitments and Contingencies

Commitments and Contingencies

9 Months Ended

Sep. 30, 2024

Commitments and Contingencies Disclosure [Abstract]

Leases

The table below summarizes the components of lease expense and income statement location for the three and nine months ended September 30, 2024 and 2023:


	Line Items in the Company's Condensed Consolidated	Three Months Ended September 30,				Nine Months Ended September 30,
	Income Statements	2024		2023		2024		2023
Finance lease costs:
Amortization of assets	Depreciation and amortization	$	7,570	$	7,570	$	22,710	$	22,709
Interest on lease liabilities	Other income (expense), net	499		760		1,686		2,473
Total finance lease costs		8,069		8,330		24,396		25,182
Operating lease costs	General and administrative expenses	797,102		1,633,469		2,476,377		4,910,181
Total lease costs		$	805,171	$	1,641,799	$	2,500,773	$	4,935,363

Supplemental information and balance sheet location related to leases (excluding amounts related to leases classified as held for sale) was as follows:


	September 30, 2024		December 31, 2023
Operating Leases:
Operating lease right-of -use asset	$7,727,105		$12,413,221
Operating lease liability - current portion	$3,222,887		$3,756,328
Operating lease liability - net of current portion	6,157,147		10,914,997
Total operating lease liability	$9,380,034		$14,671,325
Finance Leases:
Property and equipment, at cost	$151,389		$151,396
Less accumulated amortization	(140,635)		(117,932)
Property and equipment, net	$10,754		$33,464
Finance lease liability - current portion	26,312		25,491
Finance lease liability - net of current portion	18,172		38,016
Total finance lease liabilities	$44,484		$63,507
Weighted average remaining lease term (in years):
Operating leases	4.6		4.8
Finance lease	1.7		2.4
Weighted average discount rate:
Operating leases	5.3	%	5.4	%
Finance leases	4.3	%	4.3	%

Supplemental cash flow information related to leases was as follows:


	Nine Months Ended September 30, 2024		Nine Months Ended September 30, 2023
Cash paid for amounts included in measurement of liabilities:
Operating cash flows from operating leases	$	2,945,217	$	5,263,092
Operating cash flows from finance leases	1,686		2,473
Financing cash flows from finance leases	19,013		18,227

Non-cash transactions: ROU assets obtained in exchange for lease liabilities
Operating lease	$	2,049,597	$	4,287,622
Finance lease	—		—

Maturities of lease liabilities as of September 30, 2024 are as follows, excluding amounts related to leases classified as held for sale:


	Operating Leases		Finance Lease
2024 (remainder)	$	932,730	$	6,900
2025	3,584,268		27,600
2026	2,019,667		11,500
2027	1,735,137		—
2028	1,118,433		—
Thereafter	1,139,140		—
Total lease payments	$	10,529,375	$	46,000
Less: Imputed interest	(1,149,341)		(1,516)
Total lease obligations	9,380,034		44,484
Less: Current obligations	(3,222,887)		(26,312)
Long-term lease obligation	$	6,157,147	$	18,172

During the third quarter of 2024, the Company held an operating lease that has not yet commenced for space to be used by the Company’s new corporate clinic. The lease is expected to result in additional ROU assets and liabilities of approximately $0.6 million. This lease is expected to commence during the fourth quarter of 2024, with a lease term of ten years.

Guarantee in Connection with the Sale of the Divested Business

In connection with the sale of a company-managed clinic in 2022, the Company guaranteed one future operating lease commitment assumed by the buyers. The Company is obligated to perform under the guarantee if the buyers fail to perform under the lease agreement at any time during the remainder of the lease agreement, which expires on May 31, 2027. At the date of sale, the undiscounted maximum potential future payments totaled $0.2 million. As of September 30, 2024, the undiscounted remaining lease payments under the agreement totaled $0.1 million. The Company had not recorded a liability with respect to the guarantee obligation as of September 30, 2024, as the Company concluded that payment under the lease guarantee was not probable.

Litigation

In the normal course of business, the Company is party to litigation and claims from time to time. The Company maintains insurance to cover certain litigation and claims.

During Q2 2024, the Company entered into settlement agreements from litigation related to employment matters of $1.5 million that was outside the normal course of business. Additionally, ongoing litigation related to a medical injury claim between a patient ("the Claimant") and the Company filed on September 5, 2023 has progressed to mediation. Although the Company intends to defend the claims vigorously, the Claimant and the Company recently agreed to participate in non-binding mediation of their dispute before a neutral mediator. At this time, the mediation process between the Claimants and the Company is ongoing with a range of possible settlement outcomes between $0.9 million and $6.0 million. As of September 30, 2024, the Company has accrued $0.9 million as an estimate of settlement costs related to the matter. The expense from the accrual is fully offset by a receivable recorded as the estimated settlement is within the Company's insurance plan.

During the three and nine months ended September 30, 2024, the Company incurred litigation expenses, including settlement costs related to employment matters and a medical injury claim that were outside the normal course of business of $0.0 million and $1.5 million, respectively, included as general and administrative expenses on the condensed consolidated income statement.