SmileDirectClub Reports Second Quarter 2020 Financial Results
Second Quarter 2020 Financial Highlights
- Second quarter total revenue of
$107 million . - Second quarter net loss of
$(95) million .(1) - Second quarter Adjusted EBITDA of
$(20) million . - Second quarter diluted EPS of
$(0.25) .(1)
(1) Includes one-time charges of approximately
Key Operating Metrics
- Second quarter 2020 unique aligner shipments of 57,136.
- Average aligner gross sales price (“ASP”) of
$1,817 for the second quarter of 2020, compared to$1,761 for the second quarter of 2019. - Sales and marketing expense of
$35 million in the second quarter, or 32% of revenue, compared to 72% of revenue in Q1 2020, a 55% improvement sequentially.
“Our performance in the quarter, and more importantly since the quarter, reflects the strength of our teledentistry platform, along with the flexibility and agility of our business model; both in the context of our COVID-19 recovery efforts, and our traction towards our long-term growth and margin targets,” said
Business Outlook
Since Q2, and in the context of a complex operating environment, the Company has continued to see robust performance across the business. Most notably, the Company has seen consistently strong demand with efficient sales and marketing spend. In particular, approximately 60% of Club Members who purchased aligners in the quarter were never a lead before, which is consistent with where it has been historically. This demonstrates that investments in brand building and marketing efficiency continue to pay dividends while also positioning the Company to advance further toward its stated long-term revenue growth and margin targets. Within the quarter, the Company made meaningful progress across three future growth drivers; specifically, expanding the core customer acquisition channels, extending the value proposition to the teen demographic, and international expansion. On the cost side, the Company is making good progress towards its Q4 Adjusted EBITDA profitability goals through continued advancement in automating its manufacturing and treatment planning operations, continued discipline around the deployment of marketing and selling dollars including a focus on pushing more demand through the existing Smile Shop network and leveraging the Company’s referrals and aided awareness, and with ongoing cost discipline across the business.
As the low-cost provider with brand presence and no pricing pressure, and in an increasingly favorable climate for telehealth, the Company is well positioned to continue to gain share in the massively underserved market for clear aligners.
Conference Call Information
| SmileDirectClub First Quarter 2020 Conference Call Details | |
| Date: | |
| Time: | |
| Dial-In: | 1-877-407-9208 (domestic) or 1-201-493-6784 (international) |
| Webcast: | Visit “Events and Presentations” section of the company’s IR page at http://investors.smiledirectclub.com. |
A replay of the call may be accessed from 7:30 p.m. ET on Wednesday, August 12, 2020 until 11:59 pm ET on Wednesday, August 26, 2020 by dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and entering the replay PIN: 13707082. An archived version of the call and a copy of the 2020 first quarter results supplemental earnings presentation will also be available upon completion on the Investor Relations section of SmileDirectClub’s website at investors.smiledirectclub.com.
Forward-Looking Statements
This earnings release contains forward-looking statements. All statements other than statements of historical facts may be forward-looking statements. Forward-looking statements generally relate to future events and include, without limitation, projections, forecasts and estimates about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans, and objectives. Some of these statements may include words such as “expects,” “anticipates,” “believes,” “estimates,” “targets,” “plans,” “potential,” “intends,” “projects,” and “indicates.”
Although they reflect our current, good faith expectations, these forward-looking statements are not a guarantee of future performance and involve a number of risks, uncertainties, estimates, and assumptions, which are difficult to predict. Some of the factors that may cause actual outcomes and results to differ materially from those expressed in, or implied by, the forward-looking statements include, but are not necessarily limited to: the duration and magnitude of the COVID-19 pandemic and related containment measures; our management of growth; the execution of our business strategies, implementation of new initiatives, and improved efficiency; our sales and marketing efforts; our manufacturing capacity, performance, and cost; our ability to obtain future regulatory approvals; our financial estimates and needs for additional financing; consumer acceptance of and competition for our clear aligners; our relationships with retail partners and insurance carriers; our R&D, commercialization, and other activities and expenditures; the methodologies, models, assumptions, and estimates we use to prepare our financial statements, make business decisions, and manage risks; laws and regulations governing remote healthcare and the practice of dentistry; our relationships with vendors; the security of our operating systems and infrastructure; our risk management framework; our cash and capital needs; our intellectual property position; our exposure to claims and legal proceedings; and other factors described in our filings with the
New risks and uncertainties arise over time, and it is not possible for us to predict all such factors or how they may affect us. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. We are under no duty to update any of these forward-looking statements after the date of this earnings release to conform these statements to actual results or revised expectations. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this earnings release.
About
Investor Relations:
Vice President, Investor Relations
Alison.sternberg@smiledirectclub.com
Media Relations:
press@smiledirectclub.com
Consolidated Balance Sheets
(in thousands)
2020 |
2019 |
|||
| ASSETS | ||||
| Cash and cash equivalents | 388,971 | 318,458 | ||
| Accounts receivable | 232,337 | 239,413 | ||
| Inventories | 28,571 | 18,431 | ||
| Prepaid and other current assets | 16,902 | 14,186 | ||
| Total current assets | 666,781 | 590,488 | ||
| Accounts receivable, non-current | 79,504 | 106,315 | ||
| Property, plant and equipment, net | 174,892 | 177,543 | ||
| Operating lease right-of-use asset | 33,120 | — | ||
| Other assets | 11,291 | 11,299 | ||
| Total assets | 965,588 | 885,645 | ||
| LIABILITIES AND PERMANENT EQUITY | ||||
| Accounts payable | 34,487 | 52,706 | ||
| Accrued liabilities | 85,652 | 93,339 | ||
| Deferred revenue | 41,519 | 25,435 | ||
| Current portion of long-term debt | 30,815 | 35,376 | ||
| Other current liabilities | 7,572 | — | ||
| Total current liabilities | 200,045 | 206,856 | ||
| Long-term debt, net of current portion | 389,513 | 173,150 | ||
| Operating lease liabilities, net of current portion | 34,338 | — | ||
| Other long-term liabilities | 43,768 | 47,354 | ||
| Total liabilities | 667,664 | 427,360 | ||
| Commitment and contingencies | ||||
| Permanent Equity | ||||
| Class A common stock, par value |
11 | 10 | ||
| Class B common stock, par value |
27 | 28 | ||
| Additional paid-in-capital | 470,838 | 447,866 | ||
| Accumulated other comprehensive income (loss) | 42 | (272 | ) | |
| Accumulated deficit | (170,562 | ) | (114,513 | ) |
| Noncontrolling interest | (20,052 | ) | 125,166 | |
| Warrants | 17,620 | — | ||
| Total permanent equity | 297,924 | 458,285 | ||
| Total liabilities and permanent equity | 965,588 | 885,645 | ||
Consolidated Statements of Operations
(in thousands, except share and per share amounts)
| Three Months Ended |
Six Months Ended |
|||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||
| Revenue, net | 94,409 | 185,241 | 278,337 | 353,867 | ||||||
| Financing revenue | 12,664 | 10,553 | 25,386 | 19,663 | ||||||
| Total revenues | 107,073 | 195,794 | 303,723 | 373,530 | ||||||
| Cost of revenues | 48,776 | 31,767 | 108,553 | 72,238 | ||||||
| Cost of revenues—related parties | — | 2,898 | — | 11,342 | ||||||
| Total cost of revenues | 48,776 | 34,665 | 108,553 | 83,580 | ||||||
| Gross profit | 58,297 | 161,129 | 195,170 | 289,950 | ||||||
| Marketing and selling expenses | 34,518 | 113,413 | 176,842 | 209,146 | ||||||
| General and administrative expenses | 68,689 | 47,031 | 159,718 | 96,490 | ||||||
| Lease abandonment and impairment of long-lived assets | 24,633 | — | 24,633 | — | ||||||
| Other store closure and related costs | 4,476 | — | 4,476 | — | ||||||
| Income (loss) from operations | (74,019 | ) | 685 | (170,499 | ) | (15,686 | ) | |||
| Interest expense | 10,050 | 3,420 | 14,072 | 7,316 | ||||||
| Interest expense—related parties | — | — | — | 75 | ||||||
| Loss on extinguishment of debt | 13,781 | 29,640 | 13,781 | 29,640 | ||||||
| Other (income) expense | (1,765 | ) | (37 | ) | 3,159 | 81 | ||||
| Net loss before provision for income tax expense | (96,085 | ) | (32,338 | ) | (201,511 | ) | (52,798 | ) | ||
| Income tax (benefit) expense | (1,419 | ) | 97 | 555 | 117 | |||||
| Net loss | (94,666 | ) | (32,435 | ) | (202,066 | ) | (52,915 | ) | ||
| Net loss attributable to noncontrolling interest | (67,867 | ) | — | (146,017 | ) | — | ||||
| Net loss attributable to |
(26,799 | ) | (32,435 | ) | (56,049 | ) | (52,915 | ) | ||
| Earnings per share of Class A common stock: | ||||||||||
| Basic | $ | (0.25 | ) | N/A | $ | (0.52 | ) | N/A | ||
| Diluted | $ | (0.25 | ) | N/A | $ | (0.53 | ) | N/A | ||
| Weighted average shares outstanding: | ||||||||||
| Basic | 109,048,411 | N/A | 106,819,870 | N/A | ||||||
| Diluted | 385,133,303 | N/A | 384,492,628 | N/A | ||||||
Consolidated Statements of Cash Flows
(in thousands)
| Six Months Ended |
||||||
| 2020 | 2019 | |||||
| Operating Activities | ||||||
| Net loss | $ | (202,066 | ) | $ | (52,915 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||
| Depreciation and amortization | 25,357 | 9,723 | ||||
| Deferred loan cost amortization | 1,666 | 475 | ||||
| Equity-based compensation | 27,217 | 8,262 | ||||
| Loss on extinguishment of debt | 13,594 | 17,693 | ||||
| Paid in kind interest expense | 1,771 | — | ||||
| Lease abandonment and impairment of long-lived assets | 25,915 | — | ||||
| Changes in ROU asset | 4,070 | — | ||||
| Other non-cash operating activities | — | 1,783 | ||||
| Changes in operating assets and liabilities: | ||||||
| Accounts receivable | 33,887 | (100,937 | ) | |||
| Inventories | (10,140 | ) | (4,968 | ) | ||
| Prepaid and other current assets | (4,009 | ) | (5,772 | ) | ||
| Accounts payable | (6,001 | ) | 15,436 | |||
| Accrued liabilities | (13,184 | ) | 28,461 | |||
| Due to related parties | — | (16,862 | ) | |||
| Deferred revenue | 16,084 | 1,729 | ||||
| Net cash used in operating activities | (85,839 | ) | (97,892 | ) | ||
| Investing Activities | ||||||
| Purchases of property, equipment, and intangible assets | (47,861 | ) | (38,148 | ) | ||
| Net cash used in investing activities | (47,861 | ) | (38,148 | ) | ||
| Financing Activities | ||||||
| Payment of IPO related costs | (1,155 | ) | — | |||
| Proceeds from warrant exercise | 922 | — | ||||
| Repurchase of Class A shares to cover employee tax withholdings | (4,529 | ) | — | |||
| Proceeds from HPS Credit Facility and Warrants, net | 388,000 | — | ||||
| Borrowings on long-term debt | 16,807 | 151,300 | ||||
| Payments of loan costs | (11,336 | ) | (6,127 | ) | ||
| Principal payments on long-term debt | (180,762 | ) | (152,400 | ) | ||
| Principal payments on related party debt | — | (20,598 | ) | |||
| Payments on finance leases | (4,997 | ) | — | |||
| Other | 1,263 | (976 | ) | |||
| Net cash provided by (used in) financing activities | 204,213 | (28,801 | ) | |||
| Increase (decrease) in cash and cash equivalents | 70,513 | (164,841 | ) | |||
| Cash and cash equivalents at beginning of period | 318,458 | 313,929 | ||||
| Cash and cash equivalents at end of period | $ | 388,971 | $ | 149,088 | ||
Use of Non-GAAP Financial Measures
This earnings release contains certain non-GAAP financial measures, including adjusted EBITDA (“Adjusted EBITDA”). We provide a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure below and in our Current Report on Form 8-K announcing our quarterly earnings results, which can be found on the SEC’s website at www.sec.gov and our website at investors.smiledirectclub.com.
We utilize certain non-GAAP financial measures, including Adjusted EBITDA, to evaluate our actual operating performance and for planning and forecasting of future periods.
We define Adjusted EBITDA as net loss plus depreciation and amortization, interest expense, income tax expense, equity-based compensation, impairment of long-lived assets, abandonment and certain other non-operating expenses such as one-time severance and other labor costs, and unrealized foreign currency adjustments. We use Adjusted EBITDA when evaluating our performance when we believe that certain items are not indicative of operating performance. Adjusted EBITDA provides useful supplemental information to management regarding our operating performance and we believe it will provide the same to members/stockholders.
We believe that Adjusted EBITDA will provide useful information to members/stockholders about our performance, financial condition, and results of operations for the following reasons: (i) Adjusted EBITDA would be among the measures used by our management team to evaluate our operating performance and make day-to-day operating decisions and (ii) Adjusted EBITDA is frequently used by securities analysts, investors, lenders, and other interested parties as a common performance measure to compare results or estimate valuations across companies in our industry.
Adjusted EBITDA does not have a definition under GAAP, and our definition of Adjusted EBITDA may not be the same as, or comparable to, similarly titled measures used by other companies. Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. A reconciliation of Adjusted EBITDA to net loss, the most directly comparable GAAP financial measure, is set forth below.
Reconciliation of Net Loss to Adjusted EBITDA
(in thousands)
| (in thousands) | Three Months Ended |
Six Months Ended |
||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||
| (unaudited) | ||||||||||||
| Net loss | $ | (94,666 | ) | $ | (32,435 | ) | $ | (202,066 | ) | $ | (52,915 | ) |
| Depreciation and amortization | 13,916 | 5,068 | 25,357 | 9,723 | ||||||||
| Total interest expense | 10,050 | 3,420 | 14,072 | 7,391 | ||||||||
| Income tax (benefit) expense | (1,419 | ) | 97 | 555 | 117 | |||||||
| Lease abandonment and impairment of long-lived assets | 24,633 | — | 24,633 | — | ||||||||
| Other store closure and related costs | 4,476 | — | 4,476 | — | ||||||||
| Loss on extinguishment of debt | 13,781 | 29,640 | 13,781 | 29,640 | ||||||||
| Equity-based compensation | 10,821 | 435 | 27,217 | 8,262 | ||||||||
| Other non-operating general and administrative (gains) losses | (1,880 | ) | (37 | ) | 4,705 | 81 | ||||||
| $ | (20,288 | ) | $ | 6,188 | $ | (87,270 | ) | $ | 2,299 | |||
Source: SmileDirectClub
