SmileDirectClub, Inc. (NASDAQ: SDC) today announced its financial
results for the first quarter ended March 31, 2020.
First Quarter 2020 Financial Highlights
- First quarter total revenue increased 11%, over the first
quarter of 2019, to $197 million.
- First quarter net loss of $(107) million.
- First quarter Adjusted EBITDA of $(67) million.
- First quarter diluted EPS of $(0.28).
Key Operating Metrics
- First quarter 2020 unique aligner shipments up 12% to 122,751,
compared to 109,894 in the first quarter of 2019.
- Average aligner gross sales price (“ASP”) of $1,770 for the
first quarter of 2020, compared to $1,767 for the first quarter of
2019.
“Despite these challenging times and a
unique and complex operating environment, the SmileDirectClub team
has navigated through the initial obstacles of the global pandemic
by implementing changes to how we operate our business. We
leveraged our teledentistry platform, along with our completely
remote kit business, to continue to serve our Club Members during
these challenging times. Our performance in the quarter, and more
important, since then, validates the strength, durability and
flexibility of our business model,” said SmileDirectClub Chief
Executive Officer David Katzman.
SmileDirectClub Chief Financial Officer Kyle
Wailes added: “The unprecedented events of the past few months have
provided a number of insights about our business. These learnings,
along with our new debt facility with HPS Investment Partners, will
allow us to emerge from this crisis stronger. We believe we are
well capitalized and uniquely positioned to achieve our long-term
growth targets.”
Business Outlook
Since Q1, the Company has seen robust
performance in its impression kit business, despite a significant
reduction in marketing spend. This demonstrates that investments in
brand building and marketing efficiency have begun to pay
dividends. Specifically, although marketing spend was reduced by
approximately 90% over the past 60 days, kit and scan volume was
down by only approximately 40%. Additionally, because the Company
has very few fixed costs and the vast majority of its SmileShops
around the world operate on month-to-month leases, it has been able
to take decisive action, including the temporary closure of all
SmileShops other than those in Hong Kong. The Company has also put
in place several cost management measures, including the suspension
of most of its marketing spend, to position the Company to operate
cash-neutral during this period.
Additionally, SmileDirectClub has entered into a
new debt facility with HPS Investment Partners. After refinancing
the previous debt facility, the Company will have approximately
$420 million in cash on its balance sheet, giving the liquidity
needed to continue its growth plans and manage potential downsides
with COVID-19. This facility improves upon the limitations of the
previous facility by providing a 5-year term that can be refinanced
after one year, and an 85% advance rate on the Company’s
receivables. The agreement also funds both domestic and
international receivables. As the Company considered financing
alternatives, given the leadership team’s conviction in the
long-term equity value appreciation of the business, a top priority
was minimizing equity dilution, and the agreement with HPS achieves
this goal. J.P. Morgan Securities LLC served as lead arranger and
sole placement agent to SmileDirectClub.
Conference Call Information
SmileDirectClub First Quarter 2020
Conference Call Details |
|
|
Date: |
May 13, 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, May 13,
2020 until 11:59 pm ET on Wednesday, May 27,
2020 by dialing 1-844-512-2921 (domestic) or 1-412-317-6671
(international) and entering the replay PIN: 13702683. 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 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 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 March 31, 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
SmileDirectClubSmileDirectClub, Inc. (NASDAQ: SDC)
(“SmileDirectClub”) 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
SternbergVice President, Investor
RelationsAlison.Sternberg@smiledirectclub.com
SmileDirectClub, Inc.Consolidated
Balance Sheets(in thousands)
|
March 31, 2020 |
December 31, 2019 |
ASSETS |
|
|
Cash |
$ |
224,434 |
|
$ |
318,458 |
|
Accounts receivable |
246,959 |
|
239,413 |
|
Inventories |
28,187 |
|
18,431 |
|
Prepaid and other current assets |
10,415 |
|
14,186 |
|
Total current assets |
509,995 |
|
590,488 |
|
Accounts receivable, non-current |
98,348 |
|
106,315 |
|
Property, plant and equipment, net |
184,712 |
|
177,543 |
|
Operating lease right-of-use asset |
43,105 |
|
— |
|
Other assets |
11,608 |
|
11,299 |
|
Total assets |
$ |
847,768 |
|
$ |
885,645 |
|
LIABILITIES AND PERMANENT EQUITY |
|
|
Accounts payable |
$ |
59,748 |
|
$ |
52,706 |
|
Accrued liabilities |
84,374 |
|
93,339 |
|
Deferred revenue |
29,037 |
|
25,435 |
|
Current portion of long-term debt |
37,539 |
|
35,376 |
|
Other current liabilities |
7,156 |
|
— |
|
Total current liabilities |
217,854 |
|
206,856 |
|
Long-term debt, net of current portion |
183,874 |
|
173,150 |
|
Operating lease liabilities, net of current portion |
36,409 |
|
— |
|
Other long-term liabilities |
44,493 |
|
47,354 |
|
Total liabilities |
482,630 |
|
427,360 |
|
Commitment and contingencies |
|
|
Permanent Equity |
|
|
Class A common stock, par value $0.0001 and 108,512,662 shares
issued and outstanding at March 31, 2020 and 103,303,674 shares
issued and outstanding at December 31, 2019 |
11 |
|
10 |
|
Class B common stock, par value $0.0001 and 276,454,886 shares
issued and outstanding at March 31, 2020 and 279,474,505 shares
issued and outstanding at December 31, 2019 |
27 |
|
28 |
|
Additional paid-in-capital |
461,046 |
|
447,866 |
|
Accumulated other comprehensive income (loss) |
12 |
|
(272 |
) |
Accumulated deficit |
(143,763 |
) |
(114,513 |
) |
Noncontrolling interest |
47,805 |
|
125,166 |
|
Total permanent equity |
365,138 |
|
458,285 |
|
Total liabilities and permanent equity |
$ |
847,768 |
|
$ |
885,645 |
|
SmileDirectClub, Inc.Consolidated
Statements of Operations(in thousands, except
share and per share amounts)
|
Three Months Ended March 31, |
2020 |
2019 |
Revenue,
net |
$ |
183,928 |
|
$ |
168,626 |
|
Financing revenue |
12,722 |
|
9,110 |
|
Total revenues |
196,650 |
|
177,736 |
|
Cost of revenues |
59,777 |
|
40,471 |
|
Cost of revenues—related parties |
— |
|
8,444 |
|
Total cost of revenues |
59,777 |
|
48,915 |
|
Gross profit |
136,873 |
|
128,821 |
|
Marketing and selling expenses |
142,324 |
|
95,733 |
|
General and administrative expenses |
91,029 |
|
49,459 |
|
Loss from operations |
(96,480 |
) |
(16,371 |
) |
Interest expense |
4,022 |
|
3,896 |
|
Interest expense—related parties |
— |
|
75 |
|
Other expense |
4,924 |
|
118 |
|
Net loss before provision for income tax expense |
(105,426 |
) |
(20,460 |
) |
Provision for income tax expense |
1,974 |
|
20 |
|
Net loss |
(107,400 |
) |
(20,480 |
) |
Net loss attributable to noncontrolling interest |
(78,150 |
) |
— |
|
Net loss attributable to SmileDirectClub, Inc. |
$ |
(29,250 |
) |
$ |
(20,480 |
) |
|
|
|
Earnings per share of Class A common
stock: |
|
|
Basic |
$ |
(0.28 |
) |
N/A |
|
Diluted |
$ |
(0.28 |
) |
N/A |
|
|
|
|
Weighted average shares outstanding: |
|
|
Basic |
104,595,081 |
N/A |
|
Diluted |
383,855,705 |
N/A |
|
SmileDirectClub, Inc.Consolidated
Statements of Cash Flows(in
thousands)
|
Three Months Ended March 31, |
2020 |
2019 |
Operating Activities |
|
|
Net loss |
$ |
(107,400 |
) |
$ |
(20,480 |
) |
Adjustments to reconcile net loss to net cash used in operating
activities: |
|
|
Depreciation and amortization |
11,442 |
|
4,655 |
|
Deferred loan cost amortization |
628 |
|
176 |
|
Equity-based compensation |
16,396 |
|
7,827 |
|
Other non-cash operating activities |
1,971 |
|
1,811 |
|
Changes in operating assets and liabilities: |
|
|
Accounts receivable |
421 |
|
(52,119 |
) |
Inventories |
(9,756 |
) |
(3,548 |
) |
Prepaid and other current assets |
3,459 |
|
(513 |
) |
Accounts payable |
20,348 |
|
(6,322 |
) |
Accrued liabilities |
(11,506 |
) |
38,824 |
|
Due to related parties |
— |
|
(17,171 |
) |
Deferred revenue |
3,602 |
|
8,076 |
|
Net cash used in operating activities |
(70,395 |
) |
(38,784 |
) |
Investing Activities |
|
|
Purchases of property, equipment, and intangible assets |
(28,123 |
) |
(20,601 |
) |
Net cash used in investing activities |
(28,123 |
) |
(20,601 |
) |
Financing Activities |
|
|
Payment of IPO related costs |
(1,155 |
) |
— |
|
Proceeds from warrant exercise |
922 |
|
— |
|
Repurchase of Class A shares to cover employee tax
withholdings |
(3,067 |
) |
— |
|
Borrowings on long-term debt |
15,800 |
|
— |
|
Principal payments on long-term debt |
(6,733 |
) |
(12,778 |
) |
Payments on finance leases |
(2,497 |
) |
(354 |
) |
Other |
1,224 |
|
(228 |
) |
Net cash provided by (used in) financing activities |
4,494 |
|
(13,360 |
) |
Decrease in cash |
(94,024 |
) |
(72,745 |
) |
Cash at beginning of period |
318,458 |
|
313,929 |
|
Cash at end of period |
$ |
224,434 |
|
$ |
241,184 |
|
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 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)
|
Three Months
Ended March 31, |
2020 |
2019 |
(unaudited) |
Net loss |
$ |
(107,400 |
) |
$ |
(20,480 |
) |
Depreciation and amortization |
11,442 |
|
4,655 |
|
Total interest expense |
4,022 |
|
3,971 |
|
Income tax expense |
1,974 |
|
20 |
|
Equity-based compensation |
16,396 |
|
7,827 |
|
Unrealized foreign currency adjustments |
5,188 |
|
107 |
|
Other non-operating general and administrative costs |
1,396 |
|
11 |
|
Adjusted EBITDA |
$ |
(66,982 |
) |
$ |
(3,889 |
) |
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