SmileDirectClub Reports Second Quarter 2020 Financial Results

August 12, 2020 4:06 PM EDT

Get instant alerts when news breaks on your stocks. Claim your 1-week free trial to StreetInsider Premium here.

NASHVILLE, Tenn., Aug. 12, 2020 (GLOBE NEWSWIRE) -- SmileDirectClub, Inc. (Nasdaq: SDC) today announced its financial results for the second quarter ended June 30, 2020.

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 $(43) million related to lease abandonment, impairment of long-lived assets, other related charges, and loss on extinguishment of debt. Excluding such charges, second quarter net loss was $(52) million and second quarter diluted EPS was $(0.13).

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 SmileDirectClub Chief Executive Officer David Katzman.

SmileDirectClub Chief Financial Officer Kyle Wailes added: “Similar to the first quarter, the tenacity of our business model served us well in Q2. In the quarter, we made great progress against our growth initiatives, and remain on track to achieve our Q4 Adjusted EBITDA profitability target, positioning us well to continue to gain share in this massively under-served market.”

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:August 12, 2020
Time:4:30 p.m. ET (1:30 p.m. PT)
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 Securities and Exchange Commission, including but not limited to our Annual Report on Form 10-K for the year ended December 31, 2019 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020.

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 SmileDirectClub
SmileDirectClub, Inc. (Nasdaq: SDC) (“SmileDirectClub”) is an oral care company and creator of the first MedTech platform for teeth straightening, now also offered directly via dentist and orthodontists’ offices. Through our cutting-edge teledentistry technology and vertically integrated model, we are revolutionizing the oral care industry, from clear aligner therapy to our affordable, premium oral care product line. SmileDirectClub’s mission is to democratize access to a smile each and every person loves by making it affordable and convenient for everyone. SmileDirectClub is headquartered in Nashville, Tennessee and operates in the U.S., Canada, Australia, New Zealand, United Kingdom, Ireland, Germany, Austria, Hong Kong and Singapore. For more information, please visit SmileDirectClub.com.

Investor Relations:
Alison Sternberg
Vice President, Investor Relations
Alison.sternberg@smiledirectclub.com

Media Relations:
press@smiledirectclub.com 


SmileDirectClub, Inc.
Consolidated Balance Sheets
(in thousands)

 June 30,
2020
December 31,
2019
ASSETS  
Cash and cash equivalents388,971 318,458 
Accounts receivable232,337 239,413 
Inventories28,571 18,431 
Prepaid and other current assets16,902 14,186 
Total current assets666,781 590,488 
Accounts receivable, non-current79,504 106,315 
Property, plant and equipment, net174,892 177,543 
Operating lease right-of-use asset33,120  
Other assets11,291 11,299 
Total assets965,588 885,645 
LIABILITIES AND PERMANENT EQUITY  
Accounts payable34,487 52,706 
Accrued liabilities85,652 93,339 
Deferred revenue41,519 25,435 
Current portion of long-term debt30,815 35,376 
Other current liabilities7,572  
Total current liabilities200,045 206,856 
Long-term debt, net of current portion389,513 173,150 
Operating lease liabilities, net of current portion34,338  
Other long-term liabilities43,768 47,354 
Total liabilities667,664 427,360 
Commitment and contingencies  
Permanent Equity  
Class A common stock, par value $0.0001 and 110,123,999 shares issued and outstanding at June 30, 2020 and 103,303,674 shares issued and outstanding at December 31, 201911 10 
Class B common stock, par value $0.0001 and 275,376,789 shares issued and outstanding at June 30, 2020 and 279,474,505 shares issued and outstanding at December 31, 201927 28 
Additional paid-in-capital470,838 447,866 
Accumulated other comprehensive income (loss)42 (272)
Accumulated deficit(170,562)(114,513)
Noncontrolling interest(20,052)125,166 
Warrants17,620  
Total permanent equity297,924 458,285 
Total liabilities and permanent equity965,588 885,645 


SmileDirectClub, Inc.
Consolidated Statements of Operations
(in thousands, except share and per share amounts)

 Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
Revenue, net94,409 185,241 278,337 353,867 
Financing revenue12,664 10,553 25,386 19,663 
Total revenues107,073 195,794 303,723 373,530 
Cost of revenues48,776 31,767 108,553 72,238 
Cost of revenues—related parties 2,898  11,342 
Total cost of revenues48,776 34,665 108,553 83,580 
Gross profit58,297 161,129 195,170 289,950 
Marketing and selling expenses34,518 113,413 176,842 209,146 
General and administrative expenses68,689 47,031 159,718 96,490 
Lease abandonment and impairment of long-lived assets24,633  24,633  
Other store closure and related costs4,476  4,476  
Income (loss) from operations(74,019)685 (170,499)(15,686)
Interest expense10,050 3,420 14,072 7,316 
Interest expense—related parties   75 
Loss on extinguishment of debt13,781 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 SmileDirectClub, Inc.(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:    
Basic109,048,411N/A106,819,870 N/A
Diluted385,133,303N/A384,492,628 N/A


SmileDirectClub, Inc.
Consolidated Statements of Cash Flows
(in thousands)

 Six Months Ended June 30,
20202019
Operating Activities  
Net loss$(202,066)$(52,915)
Adjustments to reconcile net loss to net cash used in operating activities:  
Depreciation and amortization25,357 9,723 
Deferred loan cost amortization1,666 475 
Equity-based compensation27,217 8,262 
Loss on extinguishment of debt13,594 17,693 
Paid in kind interest expense1,771  
Lease abandonment and impairment of long-lived assets25,915  
Changes in ROU asset4,070  
Other non-cash operating activities 1,783 
Changes in operating assets and liabilities:  
Accounts receivable33,887 (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 revenue16,084 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 exercise922  
Repurchase of Class A shares to cover employee tax withholdings(4,529) 
Proceeds from HPS Credit Facility and Warrants, net388,000  
Borrowings on long-term debt16,807 151,300 
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) 
Other1,263 (976)
Net cash provided by (used in) financing activities204,213 (28,801)
Increase (decrease) in cash and cash equivalents70,513 (164,841)
Cash and cash equivalents at beginning of period318,458 313,929 
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.


SmileDirectClub, Inc.
Reconciliation of Net Loss to Adjusted EBITDA
(in thousands)

(in thousands)Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
(unaudited)
Net loss$(94,666)$(32,435)$(202,066)$(52,915)
Depreciation and amortization13,916 5,068 25,357 9,723 
Total interest expense10,050 3,420 14,072 7,391 
Income tax (benefit) expense(1,419)97 555 117 
Lease abandonment and impairment of long-lived assets24,633  24,633  
Other store closure and related costs4,476  4,476  
Loss on extinguishment of debt13,781 29,640 13,781 29,640 
Equity-based compensation10,821 435 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 


Serious News for Serious Traders! Try StreetInsider.com Premium Free!

You May Also Be Interested In





Related Categories

Globe Newswire, Press Releases

Related Entities

Dividend, Earnings, Definitive Agreement, IPO