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Form 8-K SmileDirectClub, Inc. For: Aug 08

August 8, 2022 4:02 PM EDT
FALSE000177562500017756252022-08-082022-08-08

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 8-K
 

 
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
Date of report (Date of earliest event reported): August 8, 2022
 

 
SmileDirectClub, Inc.
(Exact Name of Registrant as Specified in its Charter)
 

 
Delaware 001-39037 83-4505317
(State or Other Jurisdiction
of Incorporation)
 (Commission
File Number)
 (IRS Employer
Identification No.)
 
414 Union Street
Nashville, Tennessee
 37219
(Address of Principal Executive Offices) (Zip Code)
 
(800) 848-7566
(Registrant’s telephone number, including area code)
 
Not applicable
(Former Name or Former Address, if Changed Since Last Report)
 

 Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425).
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12).
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)).
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)).
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 
Emerging growth company



 If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Securities registered pursuant to Section 12(b) of the Exchange Act:
 
Title of each class Trading symbol Name on each exchange on which registered
Class A common stock, par value $.0001 per share SDC The NASDAQ Stock Market LLC

Item 2.02.  Results of Operations and Financial Condition.
 
On August 8, 2022, SmileDirectClub, Inc. issued a press release announcing its financial results for the second quarter ended June 30, 2022. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.

The information in this Current Report on Form 8-K, including the information set forth in Exhibit 99.1 attached hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended. In addition, this information shall not be deemed incorporated by reference in any filing of SmileDirectClub, Inc. with the Securities and Exchange Commission, except as expressly set forth by specific reference in any such filing.
 
Item 9.01. Financial Statements and Exhibits.
 
(d) Exhibits.
 
Exhibit No. Description
99.1  
104 
Cover Page Interactive Data File (embedded within the Inline XBRL document)
SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 SMILEDIRECTCLUB, INC.
  
  
 By:/s/ Troy Crawford
  Troy Crawford
 Chief Financial Officer
 
 
Date: August 8, 2022



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SmileDirectClub Reports Second Quarter 2022 Financial Results
Adjusted EBITDA and CapEx Improvements Drove Improving Cash Flow

NASHVILLE, Tenn., August 8, 2022 -- SmileDirectClub, Inc. (Nasdaq: SDC), the next generation oral care company with the first medtech platform for teeth straightening, today announced its financial results for the second quarter ended June 30, 2022.

Second Quarter 2022 Financial Highlights

Total revenue of $126 million, a 17.0% decrease over the first quarter of 2022 and a decrease of 27.8% over the prior year period.
Net loss of $(65) million, an improvement of $8 million over the first quarter of 2022 and a decrease of $10 million over the prior year period.
Adjusted EBITDA of $(23) million, a $11 million improvement over the first quarter of 2022, and a decrease of $1 million over the prior year period.
Diluted EPS of $(0.17), an improvement of $0.02 over the first quarter of 2022, and a decrease of $0.03 over the prior year period.
Net cash used in operating activities was $(18) million, an improvement of $43 million over the first quarter of 2022 and an improvement of $13 million over the prior year period.
Free Cash Flow defined as net cash used in operating activities less net cash used in investing activities of $(36) million, an improvement of $41 million compared to the first quarter of 2022 and an improvement of $18 million over the prior year period

Key Operating Metrics and Strategic Highlights

Second quarter unique aligner shipments of 62,705, a 17.8% sequential decrease over 76,254 shipments in the first quarter of 2022.
Second quarter average aligner gross sales price (“ASP”) of $1,917 compared to $1,890 for the first quarter of 2022.

“Despite top line challenges, our cost control actions taken in the first quarter reduced our expense base and minimized the impact to our bottom-line, while delivering an improving cash flow result during the second quarter,” said David Katzman, Chief Executive Officer and Chairman of SmileDirectClub. “We recognize that reengaging top-line growth through innovation is important to the long-term success of our business. A key step in leveraging our technology innovations will be the rollout of our mobile scanning app for 3D treatment planning as part of our “SmileMaker Platform.” This is our proprietary smartphone-based scanning app with AI technology that allows customers to scan their teeth using their smartphone to see their 3D draft treatment plan for their new smile, learn how long it will take to straighten their teeth, and purchase within minutes of downloading our application. This technology delivers on the original vision of our founders for making it easy to get started with treatment, and no other clear aligner option out there can do what we have developed. This transformative innovation improves the customer experience and reduces the timeline between site visit and purchase decision that exists today. This new Go-to-Market strategy transforms SDC from a marketing led company for growth to a technology led company with a pipeline of new innovations that will be introduced into the market in future quarters. In addition to our SmileMaker Platform, we will continue to focus on executing on our key strategic growth initiatives, including expanding our customer reach through our partner network, investing in proprietary technologies and product innovations, developing and launching our SDC+ solution and pursuing profitable SmileShop expansion.”



Business Outlook

SmileDirectClub’s mission is to democratize access to a smile each and every person loves and deserves by making it affordable and convenient for everyone. The aspirational vision of our organization is to become the “world’s leading oral health brand by helping more people realize the life changing potential of a confident smile.” Our vision and mission are much greater than manufacturing and marketing clear aligners. Every decision and investment the Company has made is to support and expand this mission and enable its long-term growth potential. For us to realize our vision through our mission, we must expand our reach within and beyond our existing core customer base. Expanding reach comes through continuously bringing transformative innovation to the market across an entire portfolio of both consumer facing and non-consumer facing innovations through our focus on partner network, aligner product innovations, SDC+, oral care solutions and SmileShop expansion. SmileDirectClub possesses the unique assets and innovation to disrupt the incumbents, the agility to adjust to the needs of its customer, and a sustainable brand that is top of mind with consumers.

The Company has been issued 43 patents and counting for its innovations in orthodontic treatment planning, aligner manufacturing, smile scanning technologies, its proprietary telehealth platform and a variety of other areas. There are many more patents pending and in the pipeline in both the US and abroad on various technologies relating to data capture, 3D image capture, intraoral scanning, monitoring, manufacturing, and consumer products. In addition, the Company has enabled treatment for over 1.7 million customers, built the only end-to-end vertically integrated platform for the consumer at scale, created a Dental Partner Network with 690 global practices that are live or pending training, created oral care products available at over 16,300 retail stores worldwide, and remains the strongest teledentistry brand with 57% aided awareness.

When consumers are considering straightening their teeth, they typically do one or all of the following: One, they search online to understand their options; two, they might ask a dentist; and three, they might ask a friend or family member which option they should choose. Based on the Company’s research, consumers have noted its product and customer experience is nearly identical to Invisalign, less expensive, and more convenient. For other teledentistry platforms, its research showed that significantly fewer customers would recommend those brands compared with SmileDirectClub customers. The U.S. Brand Tracker first quarter survey separately noted that the Company’s unaided and aided brand awareness continued its separation from its teledentistry competitors and closer awareness compared to Invisalign. Additionally, the Company’s pioneering telehealth platform was recently recognized by MedTech Breakthrough, winning the “Best Telehealth Platform” award in 2022.

In addition to these investments to create the next generation of oral care and influence consumer decision making, the Company will continue to make strategic investments in penetrating new demographics to drive controlled growth, while also executing against its profitability goals. Lastly, favorable industry dynamics continue to increase with broader acceptance of telehealth and specifically teledentistry, minimal penetration against the total addressable market, a number of recent regulatory wins that should help remove barriers to access to care, and clear aligners gaining share in the overall industry.

Revised Full Year 2022 Guidance

Challenges to consumer spending accelerated faster than we anticipated during the quarter which, combined with reduced stimulus, sustained high inflation, and a shift in discretionary spending towards services have resulted in less predictable demand curves and lower overall expected demand for the balance of the year.

For the year ended December 31, 2022, the Company expects total revenue to be in the range of $450 million to $500 million. The full year 2022 costs and capital outlook include (see Company’s supplemental earnings presentation for more insights regarding these assumptions):

Gross margin range (as a percentage of total revenues) of 69.5% to 71.5%
Adjusted EBITDA range of ($180 million) to ($140 million)
CapEx range of $60 million to $70 million
One-time costs range of $20 million to $25 million
Year-end cash balance between $120 million to $160 million

Revenue and expense guidance updates now include contributions and investments for accelerated expansion of the Partner Network and SmileShop footprint expansion.





Conference Call Information
SmileDirectClub Second Quarter 2022 Conference Call Details
Date:August 9, 2022
Time:8:00 a.m. Eastern Time (7:00 a.m. Central 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 the same day from 11 a.m. Eastern Time on Tuesday, August 9, 2022 until 11:59 p.m. Eastern Time on Tuesday, August 16, 2022 by dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and entering the replay PIN: 13730975. A copy of the second quarter 2022 results supplemental earnings presentation and an archived version of the call, when completed, will also be available 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 ongoing assessment of the cyber incident, material legal, financial and reputational risks resulting from such incident and the related operational disruptions; 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, 2021 and our Form 10-Q for the period ended March 31, 2022.

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. Through its cutting-edge telehealth technology and vertically integrated model, SmileDirectClub is revolutionizing the oral care industry. SmileDirectClub’s mission is to democratize access to a smile each and every person loves by making it affordable and convenient for everyone. For more information, please visit SmileDirectClub.com.

Investor Relations:
Jesse Weaver
Global Head, FP&A and Investor Relations

Jonathan Fleetwood
Director, Investor Relations
investorrelations@smiledirectclub.com

Media Relations:
Kim Atkinson
Senior Vice President, Global Communications
press@smiledirectclub.com




SmileDirectClub, Inc.
Condensed Consolidated Balance Sheets
(in thousands)

June 30,December 31,
20222021
ASSETS
Cash $158,264 $224,860 
Accounts receivable, net
166,528 184,558 
Inventories43,110 40,803 
Prepaid and other current assets23,816 17,519 
Total current assets391,718 467,740 
Accounts receivable, net, non-current
55,093 59,210 
Property, plant and equipment, net210,574 227,201 
Operating lease right-of-use assets
23,825 24,927 
Other assets19,350 15,480 
Total assets$700,560 $794,558 
LIABILITIES AND EQUITY (DEFICIT)
Accounts payable$33,780 $19,922 
Accrued liabilities91,062 122,066 
Deferred revenue17,352 20,258 
Current portion of long-term debt6,189 10,997 
Other current liabilities5,921 4,997 
Total current liabilities154,304 178,240 
Long-term debt, net of current portion785,961 729,973 
Operating lease liabilities, net of current portion18,482 20,352 
Other long-term liabilities349 347 
Total liabilities959,096 928,912 
Equity (Deficit)
Class A common stock, par value $0.0001 and 120,995,922 shares issued and outstanding at June 30, 2022 and 119,280,781 shares issued and outstanding at December 31, 202112 12 
Class B common stock, par value $0.0001 and 268,823,501 shares issued and outstanding at June 30, 2022 and 269,243,501 shares issued and outstanding at December 31, 202127 27 
Additional paid-in-capital460,820 448,867 
Accumulated other comprehensive income967 293 
Accumulated deficit(338,207)(295,321)
Noncontrolling interest(399,775)(305,852)
Warrants17,620 17,620 
Total equity (deficit)
(258,536)(134,354)
Total liabilities and equity (deficit)
$700,560 $794,558 



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

Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Revenue, net$116,802 $162,587 $259,314 $351,389 
Financing revenue8,994 11,594 18,128 22,253 
Total revenues125,796 174,181 277,442 373,642 
Cost of revenues34,075 45,860 77,141 93,821 
Gross profit91,721 128,321 200,301 279,821 
Marketing and selling expenses71,191 95,943 167,902 193,066 
General and administrative expenses72,320 85,042 143,113 166,120 
Lease abandonment and impairment of long-lived assets— — 1,232 — 
Restructuring and other related costs3,168 536 14,700 1,664 
Loss from operations(54,958)(53,200)(126,646)(81,029)
Interest expense4,454 1,939 6,010 19,505 
Loss on extinguishment of debt— — — 47,631 
Other expense5,818 130 7,241 1,042 
Net loss before provision for income tax expense (benefit)(65,230)(55,269)(139,897)(149,207)
Provision for income tax expense (benefit)256 (12)(1,207)1,695 
Net loss(65,486)(55,257)(138,690)(150,902)
Net loss attributable to noncontrolling interest(45,181)(38,377)(95,804)(105,113)
Net loss attributable to SmileDirectClub, Inc.$(20,305)$(16,880)$(42,886)$(45,789)
Earnings (loss) per share of Class A common stock:
Basic
$(0.17)$(0.14)$(0.36)$(0.39)
Diluted
$(0.17)$(0.14)$(0.36)$(0.39)
Weighted average shares outstanding:
Basic
120,818,400118,344,050120,507,211 117,656,599
Diluted
389,665,923387,609,677389,483,239 387,246,120



SmileDirectClub, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
Six Months Ended June 30,
20222021
Operating Activities
Net loss$(138,690)$(150,902)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization38,496 33,169 
Deferred loan cost amortization2,329 3,041 
Equity-based compensation13,866 27,167 
Loss on extinguishment of debt— 47,631 
Paid in kind interest expense— 3,324 
Asset impairment and related charges6,300 — 
Other non-cash operating activities1,102 798 
Changes in operating assets and liabilities:
Accounts receivable22,147 3,726 
Inventories(2,307)(3,701)
Prepaid and other current assets(6,377)(6,572)
Accounts payable16,726 (11,998)
Accrued liabilities(29,790)(2,990)
Deferred revenue
(2,906)(2,044)
Net cash used in operating activities(79,104)(59,351)
Investing Activities
Purchases of property, equipment, and intangible assets(32,872)(45,303)
Net cash used in investing activities(32,872)(45,303)
Financing Activities
Repurchase of Class A shares to cover employee tax withholdings(2,340)(6,260)
Proceeds from stock purchase plan429 632 
Repayment of HPS Credit Facility— (396,497)
Payment of extinguishment costs— (37,701)
Borrowings of long-term debt54,920 747,500 
Payments of issuance costs(5,426)(21,179)
Purchase of capped call transactions— (69,518)
Final payment of Align arbitration— (43,400)
Principal payments on long-term debt— (4,609)
Payments of finance leases(4,808)(5,182)
Other
2,553 (83)
Net cash provided by financing activities45,328 163,703 
Effect of exchange rates change on cash and cash equivalents52 875 
Increase (decrease) in cash(66,596)59,924 
Cash at beginning of period
224,860 316,724 
Cash at end of period
$158,264 $376,648 



Use of Non-GAAP Financial Measures

This earnings release contains certain non-GAAP financial measures, including adjusted EBITDA (“Adjusted EBITDA”) and Free Cash Flow. We provide a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures 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 Free Cash Flow and Adjusted EBITDA, to evaluate our actual operating performance and for the planning and forecasting of future periods.

We define Free Cash Flow as net cash used in operating activities less net cash used in investing activities.

We define Adjusted EBITDA as net loss, plus depreciation and amortization, interest expense, income tax expense (benefit), equity-based compensation, loss on extinguishment of debt, impairment of long-lived assets, abandonment and other related charges and certain other non-operating expenses, such as one-time store closure costs associated with our real estate repositioning strategy, severance, retention and other labor costs, certain one-time legal settlement 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 is 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 both Free Cash Flow and Adjusted EBITDA to net loss, the most directly comparable GAAP financial measure for Adjusted EBITDA, is set forth below.


SmileDirectClub, Inc.
Reconciliation of Free Cash Flow
(in thousands)

Three Months Ended
June 30, 2022March 31, 2022June 30, 2021
Net Cash used in operating activities $(17,840)$(61,264)$(31,013)
Net Cash used in investing activities (17,754)(15,118)(22,322)
  Free Cash Flow $(35,594)$(76,382)$(53,335)







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

Three Months Ended Six Months Ended
June 30, 2022March 31, 2022June 30, 2021June 30, 2022June 30, 2021
Net loss$(65,486)$(73,204)$(55,257)$(138,690)$(150,902)
Depreciation and amortization19,580 18,916 16,709 38,496 33,169 
Total interest expense4,454 1,556 1,939 6,010 19,505 
Income tax expense (benefit)256 (1,463)(12)(1,207)1,695 
Lease abandonment and impairment of long-lived assets— 1,232 — 1,232 — 
Restructuring and other related costs3,168 11,532 536 14,700 1,664 
Loss on extinguishment of debt— — — — 47,631 
Equity-based compensation8,560 5,306 12,008 13,866 27,167 
Other non-operating general and administrative losses6,306 1,684 1,601 7,990 2,513 
Adjusted EBITDA
$(23,162)$(34,441)$(22,476)$(57,603)$(17,558)




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