SmileDirectClub Reports Second Quarter 2020 Financial Results

August 12, 2020 at 4:05 PM EDT

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 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 $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, 2019 11   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, 2019 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  


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

  Three Months Ended
June 30,
Six Months Ended
June 30,
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 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:        
Basic 109,048,411 N/A 106,819,870   N/A
Diluted 385,133,303 N/A 384,492,628   N/A


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

  Six Months Ended June 30,
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.


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

(in thousands) Three Months Ended
June 30,
Six Months Ended
June 30,
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  

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Source: SmileDirectClub