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 OutlookSince 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 StatementsThis 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 SmileDirectClubSmileDirectClub, 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 SternbergVice
President, Investor
RelationsAlison.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
MeasuresThis 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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