Smile Direct Club Reports Fourth Quarter and Full Year 2019 Financial Results

February 25, 2020 at 4:03 PM EST

NASHVILLE, Tenn., Feb. 25, 2020 (GLOBE NEWSWIRE) -- SmileDirectClub, Inc. (NASDAQ: SDC) today announced its financial results for the fourth quarter and year-ended December 31, 2019.

Fourth Quarter 2019 Financial Highlights

  • Fourth quarter total revenue increased $68 million, or 53.1%, over the fourth quarter of 2018, to $197 million.
  • Fourth quarter net loss of $(97) million.
  • Fourth quarter Adjusted EBITDA of $(60) million.
  • Fourth quarter diluted EPS of $(0.25).

2019 Financial Highlights

  • FY 2019 total revenue increased $327 million, or 77.3%, over FY 2018, to $750 million.
  • FY 2019 net loss of $(538) million.
  • FY 2019 Adjusted EBITDA of $(103) million.
  • FY 2019 diluted EPS of $(1.14).

Key Operating Metrics

  • Fourth quarter 2019 unique aligner shipments of 115,042, compared to 76,372 in the fourth quarter of 2018; full year 2019 unique aligner shipments of 453,053, compared to 258,278 in the full year 2018.
  • Average aligner gross sales price (“ASP”) of $1,771 for both the fourth quarter and full year 2019, compared to $1,797 and $1,764 in the fourth quarter and full year 2018, respectively.

“As CEO of this business, I am faced with numerous decisions every day, and one important decision that I am making given our club member experience and profitability in Q4, is to control our growth in order to provide the best consumer experience, and reduce our costs to be adjusted EBITDA profitable by Q4 of 2020,” said SmileDirectClub CEO David Katzman.

SmileDirectClub CFO Kyle Wailes added, “As we have stated, 2020 is a year of significant, albeit controlled growth for SmileDirectClub. Our number one priority is to improve our club member experience. We will also increase our focus on the international infrastructure we have already built to best position our business for long-term global growth. Profitability will also be a big focus for us in 2020, and we understand the levers we have to pull to achieve profitability.”

Business Outlook

Our guidance for the fiscal year 2020 is as follows:

  • Revenues are expected to be in the range of $1,000 million to $1,100 million, representing growth of 40% year-over-year at the mid-point of the range.
  • Adjusted EBITDA for the fiscal year is expected between $(50) million to $(75) million.

Conference Call Information

SmileDirectClub Fourth Quarter 2019 Conference Call Details
   
Date: February 25, 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 Tuesday, February 25, 2020 until 11:59 p.m. ET on Tuesday, March 10, 2020 by dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and entering the replay PIN: 13698632. An archived version of the call and a copy of the 2019 full year results supplemental earnings presentation will also be available upon completion on the Investor Relations section of SmileDirectClub’s website at http://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 guarantees 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: 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.

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) is an oral care company and creator of the first direct-to-consumer 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 affordable and convenient care, unleashing the power of a person’s smile to positively impact their place in the world. SmileDirectClub is headquartered in Nashville, Tennessee and operates in the U.S., Canada, Australia, New Zealand, United Kingdom, Ireland, Germany and Hong Kong. For more information, please visit SmileDirectClub.com.

Investor/Media Contact:
Alison Sternberg
Vice President, Investor Relations
310-562-7297
Alison.Sternberg@smiledirectclub.com

 

SmileDirectClub, Inc.
Consolidated Balance Sheets
(in thousands)

  For the Year Ended
December 31,
  2019 2018
ASSETS    
Cash $ 318,458   $ 313,929  
Accounts receivable 239,413   113,934  
Inventories 18,431   8,781  
Prepaid and other current assets 14,186   5,782  
Total current assets 590,488   442,426  
Accounts receivable, non-current 106,315   60,217  
Property, plant and equipment, net 177,543   52,551  
Other assets 11,299    
Total assets $ 885,645   $ 555,194  
LIABILITIES, TEMPORARY AND PERMANENT EQUITY (DEFICIT)    
Accounts payable $ 52,706   $ 25,250  
Accrued liabilities 89,824   34,939  
Due to related parties   20,305  
Deferred revenue 25,435   19,059  
Current portion of related party debt   16,054  
Current portion of long-term debt 35,376   1,866  
Total current liabilities 203,341   117,473  
Long-term debt, net of current portion 173,150   137,123  
Long-term related party debt   1,799  
Other long-term liabilities 46,617   602  
Total liabilities 423,108   256,997  
Commitment and contingencies    
Temporary Equity    
Preferred Units   388,634  
Permanent Equity (Deficit)    
Class A common stock, par value $0.0001 and 103,303,674 shares issued and outstanding at December 31, 2019 and 0 shares issued and outstanding at December 31, 2018 10    
Class B common stock, par value $0.0001 and 279,474,505 shares issued and outstanding at December 31, 2019 and 0 shares issued and outstanding at December 31, 2018 28    
Additional paid-in-capital 452,119   57,677  
Accumulated other comprehensive income (loss) (272 )  
Accumulated deficit (114,513 ) (148,429 )
Noncontrolling interest 125,165    
Warrants   315  
Total permanent equity (deficit) 462,537   (90,437 )
Total liabilities, temporary and permanent equity (deficit) $ 885,645   $ 555,194  

 

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

  Three months ended December 31, For the Year Ended December 31,
2019 2018 2019 2018
Revenue, net $ 184,000   $ 120,103   $ 706,529   $ 398,127  
Financing revenue 12,714   8,401   43,899   25,107  
Total revenues 196,714   128,504   750,428   423,234  
Cost of revenues 52,498   30,344   163,861   98,048  
Cost of revenues—related parties 877   7,312   14,529   35,920  
Total cost of revenues 53,375   37,656   178,390   133,968  
Gross profit 143,339   90,848   572,038   289,266  
Marketing and selling expenses 141,059   69,413   481,468   213,080  
General and administrative expenses 94,524   44,193   580,843   121,743  
Loss from operations (92,244 ) (22,758 ) (490,273 ) (45,557 )
Interest expense 4,052   3,249   15,659   12,532  
Interest expense—related parties   (73 ) 75   1,173  
Loss on extinguishment of debt     29,672    
Other expense (642 ) 13   (142 ) 15,148  
Net loss before provision for income tax expense (95,654 ) (25,947 ) (535,537 ) (74,410 )
Provision for income tax expense 1,672   67   2,268   361  
Net loss (97,326 ) (26,014 ) (537,805 ) (74,771 )
Net loss attributable to noncontrolling interest (71,109 )   (423,292 )  
Net loss attributable to SmileDirectClub, Inc. $ (26,217 ) $ (26,014 ) $ (114,513 ) $ (74,771 )
         
Earnings per share of Class A common stock:        
Basic $ (0.25 ) N/A $ (1.12 ) N/A
Diluted $ (0.25 ) N/A $ (1.14 ) N/A
         
Weighted average shares outstanding:        
Basic 103,043,244   N/A 102,442,525   N/A
Diluted 382,517,729   N/A 381,917,030   N/A

 

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

  For the Year Ended December 31,
2019 2018
Operating Activities    
Net loss $ (537,805 ) $ (74,771 )
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 27,336   8,861  
Deferred loan cost amortization 3,969   4,319  
Accrued interest to related parties   1,152  
Fair value adjustment of warrant derivative   14,500  
Equity-based compensation 350,122   19,839  
Loss on extinguishment of debt 17,693    
Other non-cash operating activities 1,783   646  
Changes in operating assets and liabilities:    
Accounts receivable (171,577 ) (128,811 )
Inventories (9,650 ) (6,058 )
Prepaid and other current assets (13,059 ) (4,612 )
Accounts payable (1,182 ) 24,449  
Accrued liabilities 13,107   13,494  
Due to related parties (20,305 ) 5,584  
Deferred revenue 6,376   6,622  
Net cash used in operating activities (333,192 ) (114,786 )
Investing Activities    
Purchases of property and equipment—related party   (15,135 )
Purchases of property, equipment, and intangible assets (106,361 ) (26,706 )
Net cash used in investing activities (106,361 ) (41,841 )
Financing Activities    
IPO proceeds, net of discount and related fees 1,277,010    
Repurchase of Class A shares and LLC Units (696,489 )  
Repurchase of Class A shares to cover employee tax withholdings (85,684 )  
Settlement of canceled awards (2,000 )  
Issuance of Class A common stock 6    
Proceeds from sale of Preferred Units, net   388,634  
Member tax distributions   (86 )
Borrowings on long-term debt 176,000   117,375  
Payments of issuance costs (6,127 ) (3,514 )
Principal payments on long-term debt (193,516 )  
Principal payments on related party debt (22,352 ) (35,532 )
Other (2,766 ) (392 )
Net cash provided by financing activities 444,082   466,485  
Increase (Decrease) in cash 4,529   309,858  
Cash at beginning of period 313,929   4,071  
Cash at end of period $ 318,458   $ 313,929  

 

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, adjusted to remove derivative fair value adjustments, loss on extinguishment of debt, equity-based compensation and certain other non-operating expenses such as IPO related costs and 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 measures 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)

  Three months ended December 31, Years ended December 31,
2019 2018 2019 2018
(unaudited)
Net loss $ (97,326 ) $ (26,014 ) $ (537,805 ) $ (74,771 )
Depreciation and amortization 11,099   3,894   27,336   8,861  
Total interest expense 4,052   3,176   15,734   13,705  
Income tax expense 1,672   67   2,268   361  
Loss on disposal of property, plant and equipment       617  
Fair value adjustment of warrant derivative       14,500  
Loss on extinguishment of debt     29,672    
Equity-based compensation 17,363   6,213   350,122   19,839  
IPO related costs 3,746     9,892    
Other (644 ) 13   (142 ) 31  
Adjusted EBITDA $ (60,038 ) $ (12,651 ) $ (102,923 ) $ (16,857 )

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Source: SmileDirectClub