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 OutlookThe 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
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, Singapore and Spain.
For more information, please visit SmileDirectClub.com.
Investor Relations:Alison
Sternberg Vice President, Investor
RelationsAlison.sternberg@smiledirectclub.com
Media Relations:Kim
AtkinsonVice President, Communicationspress@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 receivable |
230,244 |
|
|
239,413 |
|
Inventories |
26,101 |
|
|
18,431 |
|
Prepaid and other current
assets |
15,337 |
|
|
14,186 |
|
Total current assets |
644,727 |
|
|
590,488 |
|
Accounts receivable,
non-current |
71,729 |
|
|
106,315 |
|
Property, plant and equipment,
net |
183,430 |
|
|
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 liabilities |
93,308 |
|
|
93,339 |
|
Deferred revenue |
51,851 |
|
|
25,435 |
|
Current portion of long-term
debt |
24,398 |
|
|
35,376 |
|
Other current liabilities |
6,452 |
|
|
— |
|
Total current liabilities |
211,872 |
|
|
206,856 |
|
Long-term debt, net of current
portion |
391,283 |
|
|
173,150 |
|
Operating lease liabilities,
net of current portion |
32,038 |
|
|
— |
|
Other long-term
liabilities |
43,400 |
|
|
47,354 |
|
Total liabilities |
678,593 |
|
|
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, 2019 |
11 |
|
|
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, 2019 |
27 |
|
|
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, |
|
2020 |
2019 |
2020 |
2019 |
Revenue, net |
$ |
156,459 |
|
|
$ |
168,663 |
|
|
$ |
434,796 |
|
|
$ |
522,529 |
|
Financing revenue |
12,042 |
|
|
11,522 |
|
|
37,428 |
|
|
31,185 |
|
Total revenues |
168,501 |
|
|
180,185 |
|
|
472,224 |
|
|
553,714 |
|
Cost of revenues |
49,760 |
|
|
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 profit |
118,741 |
|
|
138,750 |
|
|
313,911 |
|
|
428,699 |
|
Marketing and selling
expenses |
66,722 |
|
|
131,263 |
|
|
243,564 |
|
|
340,409 |
|
General and administrative
expenses |
74,110 |
|
|
389,828 |
|
|
233,828 |
|
|
486,319 |
|
Lease abandonment and
impairment of long-lived assets |
3,960 |
|
|
— |
|
|
28,593 |
|
|
— |
|
Other store closure and
related costs |
1,714 |
|
|
— |
|
|
6,190 |
|
|
— |
|
Loss from operations |
(27,765 |
) |
|
(382,341 |
) |
|
(198,264 |
) |
|
(398,029 |
) |
Interest expense |
15,555 |
|
|
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 |
111,703,080 |
|
|
99,533,877 |
|
|
108,459,488 |
|
|
99,533,877 |
|
Diluted |
385,672,677 |
|
|
379,008,382 |
|
|
384,888,849 |
|
|
379,008,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
SmileDirectClub,
Inc.Consolidated Statements of Cash
Flows(in thousands)
|
Nine Months Ended September 30, |
|
2020 |
2019 |
Operating
Activities |
|
|
Net loss |
$ |
(245,548 |
) |
|
$ |
(440,479 |
) |
Adjustments to reconcile net
loss to net cash used in operating activities: |
|
|
Depreciation and amortization |
39,399 |
|
|
16,237 |
|
Deferred loan cost amortization |
3,021 |
|
|
1,496 |
|
Equity-based compensation |
38,189 |
|
|
332,759 |
|
Loss on extinguishment of debt |
13,594 |
|
|
17,693 |
|
Paid in kind interest expense |
5,118 |
|
|
— |
|
Lease abandonment, impairment of long-lived assets and other store
closure and related charges |
30,903 |
|
|
— |
|
Changes in ROU asset |
5,797 |
|
|
— |
|
Other non-cash operating activities |
— |
|
|
1,783 |
|
Changes in operating assets
and liabilities: |
|
|
Accounts receivable |
43,755 |
|
|
(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
exercise |
922 |
|
|
— |
|
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 |
— |
|
|
6 |
|
Proceeds from HPS Credit
Facility and Warrants, net |
388,000 |
|
|
— |
|
Borrowings on long-term
debt |
16,807 |
|
|
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
equivalents |
54,587 |
|
|
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, |
|
2020 |
2019 |
2020 |
2019 |
|
(unaudited) |
Net loss |
$ |
(43,482 |
) |
|
$ |
(387,564 |
) |
|
$ |
(245,548 |
) |
|
$ |
(440,479 |
) |
Depreciation and
amortization |
14,042 |
|
|
6,514 |
|
|
39,399 |
|
|
16,237 |
|
Total interest expense |
15,555 |
|
|
4,291 |
|
|
29,627 |
|
|
11,682 |
|
Income tax expense |
1,190 |
|
|
479 |
|
|
1,745 |
|
|
596 |
|
Lease abandonment and
impairment of long-lived assets |
3,960 |
|
|
— |
|
|
28,593 |
|
|
— |
|
Other store closure and
related costs |
1,714 |
|
|
— |
|
|
6,190 |
|
|
— |
|
Loss on extinguishment of
debt |
— |
|
|
32 |
|
|
13,781 |
|
|
29,672 |
|
Equity-based compensation |
10,972 |
|
|
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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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