Document

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): November 16, 2020
 

 
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:
 
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425).
 
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12).
 
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)).
 
o 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 ý
 
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. o
 
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 November 16, 2020, SmileDirectClub, Inc. issued a press release announcing its financial results for the third quarter ended September 30, 2020. 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  
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/ Kyle Wailes
   
 Name:Kyle Wailes
 Title:Chief Financial Officer
 
Date: November 16, 2020


Document

SmileDirectClub Reports Third Quarter 2020 Financial Results

NASHVILLE, Tenn., November 16, 2020 -- SmileDirectClub, Inc. (Nasdaq: SDC) today announced its financial results for the third quarter ended September 30, 2020.
Third Quarter 2020 Financial Highlights

Third quarter total revenue of $169 million.
Third quarter net loss of $(43) million.
Third quarter Adjusted EBITDA of $3 million.
Third quarter diluted EPS of $(0.11).
Key Operating Metrics

Third quarter 2020 unique aligner shipments of 93,301.
Average aligner gross sales price (“ASP”) of $1,794 for the third quarter of 2020, compared to $1,788 for the third quarter of 2019.
Adjusted EBITDA of $3 million for the third quarter of 2020, compared to $(45) million for the third quarter of 2019, an improvement of 106.7%.

“Our performance in Q3 was continued validation of the strength of our business model, and the power of the competitive moats around our platform. It also demonstrated our continued focus on controlled growth with profitability. We outlined this strategy in the fourth quarter of 2019, and we have been executing against it in the three quarters since,” said SmileDirectClub Chief Executive Officer David Katzman

SmileDirectClub Chief Financial Officer Kyle Wailes added, “Similar to the second quarter, the flexibility and scalability of our business model served us well, allowing us to make meaningful progress against our growth initiatives, alongside advancements on the cost side driving Adjusted EBITDA profitability one quarter ahead of our plan.”
Business Outlook
The Company remains laser focused on providing the best Club Member experience, while driving controlled and profitable growth. Within the third quarter, the Company made meaningful progress against this plan and the associated 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 turned AEBITDA profitable one quarter ahead of plan through continued advancement in automating its manufacturing and treatment planning operations, continued discipline around the deployment of marketing and selling dollars, and ongoing cost discipline across the business.

The Company expects to continue to see favorable industry dynamics with broader acceptance of telehealth and specifically teledentistry, minimal penetration against the total addressable market, no real competitor that provides an end-to-end vertically integrated platform for the consumer, and clear aligners gaining share in the overall industry. The Company would expect these dynamics to accrue to more efficient customer acquisition costs, as the Company continues to execute against its 20-30% annualized revenue growth targets.

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 Third Quarter 2020 Conference Call Details
  
Date:November 16, 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 Monday, November 16, 2020 until 11:59 pm ET on Monday, November 30, 2020 by dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and entering the replay PIN: 13711961. An archived version of the call and a copy of the 2020 third 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 September 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, Singapore and Spain. For more information, please visit SmileDirectClub.com.
Investor Relations:



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

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





SmileDirectClub, Inc.
Consolidated Balance Sheets
(in thousands)

September 30,
2020
December 31,
2019
ASSETS
Cash and cash equivalents$373,045 $318,458 
Accounts receivable230,244 239,413 
Inventories26,101 18,431 
Prepaid and other current assets
15,337 14,186 
Total current assets644,727 590,488 
Accounts receivable, non-current71,729 106,315 
Property, plant and equipment, net183,430 177,543 
Operating lease right-of-use asset
30,564 — 
Other assets
11,461 11,299 
Total assets
$941,911 $885,645 
LIABILITIES AND PERMANENT EQUITY
Accounts payable$35,863 $52,706 
Accrued liabilities93,308 93,339 
Deferred revenue51,851 25,435 
Current portion of long-term debt
24,398 35,376 
Other current liabilities6,452 — 
Total current liabilities211,872 206,856 
Long-term debt, net of current portion391,283 173,150 
Operating lease liabilities, net of current portion
32,038 — 
Other long-term liabilities
43,400 47,354 
Total liabilities678,593 427,360 
Commitment and contingencies
Permanent Equity
Class A common stock, par value $0.0001 and 113,105,780 shares issued and outstanding at September 30, 2020 and 103,303,674 shares issued and outstanding at December 31, 201911 10 
Class B common stock, par value $0.0001 and 272,787,403 shares issued and outstanding at September 30, 2020 and 279,474,505 shares issued and outstanding at December 31, 201927 28 
Additional paid-in-capital
479,419 447,866 
Accumulated other comprehensive income (loss)59 (272)
Accumulated deficit(183,152)(114,513)
Noncontrolling interest(50,666)125,166 
Warrants
17,620 — 
Total permanent equity
263,318 458,285 
Total liabilities and permanent equity
$941,911 $885,645 



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

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Revenue, net$156,459 $168,663 $434,796 $522,529 
Financing revenue12,042 11,522 37,428 31,185 
Total revenues168,501 180,185 472,224 553,714 
Cost of revenues49,760 39,125 158,313 111,363 
Cost of revenues—related parties— 2,310 — 13,652 
Total cost of revenues
49,760 41,435 158,313 125,015 
Gross profit118,741 138,750 313,911 428,699 
Marketing and selling expenses66,722 131,263 243,564 340,409 
General and administrative expenses74,110 389,828 233,828 486,319 
Lease abandonment and impairment of long-lived assets3,960 — 28,593 — 
Other store closure and related costs1,714 — 6,190 — 
Loss from operations(27,765)(382,341)(198,264)(398,029)
Interest expense15,555 4,291 29,627 11,607 
Interest expense—related parties— — — 75 
Loss on extinguishment of debt— 32 13,781 29,672 
Other (income) expense
(1,028)421 2,131 500 
Net loss before income tax expense(42,292)(387,085)(243,803)(439,883)
Income tax expense
1,190 479 1,745 596 
Net loss
(43,482)(387,564)(245,548)(440,479)
Net loss attributable to noncontrolling interest
(30,892)(299,268)(176,909)(352,183)
Net loss attributable to SmileDirectClub, Inc.
$(12,590)$(88,296)$(68,639)$(88,296)
Earnings per share of Class A common stock:
Basic
$(0.11)$(0.89)$(0.63)$(0.89)
Diluted
$(0.11)$(0.89)$(0.64)$(0.89)
Weighted average shares outstanding:
Basic
111,703,08099,533,877108,459,488 99,533,877
Diluted
385,672,677379,008,382384,888,849 379,008,382



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

Nine Months Ended September 30,
20202019
Operating Activities
Net loss$(245,548)$(440,479)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization39,399 16,237 
Deferred loan cost amortization3,021 1,496 
Equity-based compensation38,189 332,759 
Loss on extinguishment of debt13,594 17,693 
Paid in kind interest expense5,118 — 
Lease abandonment, impairment of long-lived assets and other store closure and related charges30,903 — 
Changes in ROU asset5,797 — 
Other non-cash operating activities— 1,783 
Changes in operating assets and liabilities:
Accounts receivable43,755 (137,509)
Inventories(8,456)(5,852)
Prepaid and other current assets(2,844)(6,205)
Accounts payable(9,441)(4,475)
Accrued liabilities(8,559)45,880 
Due to related parties— (19,177)
Deferred revenue
26,416 5,834 
Net cash used in operating activities(68,656)(192,015)
Investing Activities
Purchases of property, equipment, and intangible assets(68,768)(66,355)
Net cash used in investing activities(68,768)(66,355)
Financing Activities
Payment of IPO related costs(1,155)1,285,759 
Proceeds from warrant exercise922 — 
Repurchase of Class A shares and related fees— (696,489)
Repurchase of Class A shares to cover employee tax withholdings(6,976)(81,603)
Settlement of canceled awards (2,000)
Issuance of Class A common stock— 
Proceeds from HPS Credit Facility and Warrants, net388,000 — 
Borrowings on long-term debt16,807 176,000 
Payments of loan costs(11,784)(6,127)
Principal payments on long-term debt(187,579)(159,047)
Principal payments on related party debt— (24,581)
Payments on finance leases(7,543)— 
Other
1,319 86 
Net cash provided by financing activities
192,011 492,004 
Increase in cash and cash equivalents54,587 233,634 
Cash and cash equivalents at beginning of period
318,458 313,929 
Cash and cash equivalents at end of period
$373,045 $547,563 



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 other related charges, and certain other non-operating expenses such as one-time store closure costs associated with our real estate repositioning strategy, 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)

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
(unaudited)
Net loss$(43,482)$(387,564)$(245,548)$(440,479)
Depreciation and amortization14,042 6,514 39,399 16,237 
Total interest expense15,555 4,291 29,627 11,682 
Income tax expense1,190 479 1,745 596 
Lease abandonment and impairment of long-lived assets3,960 — 28,593 — 
Other store closure and related costs1,714 — 6,190 — 
Loss on extinguishment of debt— 32 13,781 29,672 
Equity-based compensation10,972 324,497 38,189 332,759 
IPO related costs
— 6,146 — 6,146 
Other non-operating general and administrative (gains) losses
(930)421 3,775 502 
Adjusted EBITDA$3,021 $(45,184)$(84,249)$(42,885)