SmileDirectClub, Inc. (Nasdaq: SDC), the next generation oral care
company with the first medtech platform for teeth straightening,
today announced its financial results for the second quarter ended
June 30, 2021.
Second Quarter 2021 Financial Highlights
- Total revenue of $174 million, an
improvement of 62.7% over the prior year period.
- Net loss of $(55) million, an
improvement of 41.6% over the prior year period.
- Adjusted EBITDA of $(22) million, a
decrease of $2 million over the prior year period.
- Diluted EPS of $(0.14), a 44.0%
improvement over the prior year period.
Key Operating Metrics
- Unique aligner shipments of
90,006.
- Average aligner gross sales price
(“ASP”) of $1,885 for the second quarter of 2021, compared to
$1,817 for the second quarter of 2020.
“We have a singular focus on maximizing our
global opportunity and extending our leading telehealth platform
for orthodontia through a persistent emphasis on customer
experience, improving consumer perception around credibility,
driving positive sentiment with our Challenger campaign, and
investing in innovation,” said David Katzman, Chief Executive
Officer and Chairman of SmileDirectClub.
SmileDirectClub Chief Financial Officer Kyle
Wailes added, “The short-term headwinds from residual impacts of
the April cyber-attack, the lasting economic effects from COVID on
our target demographic and the slower scaling of some of our new
international markets due to COVID prevented us from achieving our
anticipated second quarter results. Our planned overinvestment in
marketing to relaunch in Germany and Spain later this year,
combined with continued execution on expanding customer acquisition
channels, in particular the professional channel, should help us
drive controlled and profitable growth consistent with our
long-term targets.”
Business Outlook
While there continue to be short-term headwinds
associated with macroeconomic factors and impacts associated with
the cyber-attack, SmileDirectClub’s long-term revenue growth
targets as well as the opportunity to leverage its vertically
integrated platform and unique, difficult-to-replicate assets
remain unchanged. The focus continues to be to provide the best
Club Member experience, and to drive controlled and profitable
growth. SmileDirectClub remains the low-cost provider, with brand
presence, no pricing pressure, and no real competitor that provides
an end-to-end vertically integrated platform for the consumer.
As consumers are considering straightening their
teeth, they do three things as part of their research on which
provider they should choose: one, they search online, two, they ask
their dentist, and three, they ask a friend or family member. The
Company continues to make significant investments across these
three areas to organically become the leader in teeth
straightening. Online, it is making significant investments in
brand credibility, driven by the Challenger campaign, which drives
home its compelling value proposition, and evidenced by its
consumer sentiment and brand credibility, is working. With
dentists, the partner network is off to a good start, and the
Company will be making significant investments in the channel in
the coming quarters. And lastly, on friends and family, our
customer experience continues to improve, and we expect that to pay
off in higher referrals in the coming quarters.
In addition to these investments in influencing
consumer decision making, the Company will continue to make
strategic investments in international growth and in penetrating
new demographics to drive controlled growth, while also executing
against its profitability goals. Lastly, favorable industry
dynamics continue to increase with broader acceptance of telehealth
and specifically tele-dentistry, minimal penetration against the
total addressable market, a number of recent regulatory wins that
should help remove barriers to access to care, and clear aligners
gaining share in the overall industry.
Full Year 2021 Guidance
For the year ended December 31, 2021, the
Company expects total revenue to be in the range of $750 million to
$800 million. While macroeconomic trends persisted into July 2021
from a demand perspective, the Company notes that its business can
be highly variable on a month-to-month or quarter-to-quarter basis.
For example, March 2021 was one of the best months SmileDirectClub
has had for gross orders, which the Company believes was correlated
with the timing of stimulus payments, along with other factors.
The assumptions underlying the $750 million
revenue estimate include:
- Expectations for a higher Q4 than
Q3, driven by typical seasonality experienced in Q4, along with a
small ramp in Germany and Spain.
- A continuation of the macroeconomic
headwind that was evident in the latter half of Q2 into Q3.
The assumptions underlying the $800 million
revenue estimate include (Note that this does not assume all of
these occur, but that there is some combination of the factors
below):
- As noted above, expectations for a
higher Q4 than Q3, driven by typical seasonality experienced in
Q4.
- Return of normal consumer spending
patterns for the Company’s target demographic (return to a normal
macroeconomic environment).
- Success with its Challenger
Campaign – which officially launched in July 2021 with the
Company’s TV spots.
- Success with reallocating marketing
dollars from Facebook to TV.
- Success in Germany and/or Spain as
the Company relaunches those markets with enhanced marketing spend
in the second half of this year.
- Greater Partner Network adoption.
The Company has a professional network of dental partners with
1,800 locations and 500 of them are already active or pending
training. SmileDirectClub plans to invest significantly in the
Partner Network in the second half of this year.
The full year 2021 margin outlook is based on
the following:
- On COGS, SmileDirectClub is making
good progress on manufacturing automation, with its
second-generation machines producing approximately 85% of all
aligner orders and plans to manufacture approximately 90% of all
orders on the Gen2 line by the end of Q3. Streamlining the cost
profile through operational efficiencies will improve the Company’s
margin profile and will provide a consistently superior customer
experience that upholds the brand promise.
- Gross margin (as a percentage of
total revenues) in the mid-70% range through the second half of
2021.
- Sales & marketing (as a
percentage of total revenues) in the range of 50% to 55% through
the second half of 2021. The SmileShops function primarily as
fulfillment centers instead of sources of demand
generation. As of quarter end, the Company had 135
permanent shops open, and held 153 pop-up events over the course of
the quarter for a total of 288 location sites.
SmileDirectClub continues to see its shops performing well with
higher utilization, a key part of meeting the Company’s long-term
financial targets. The strategy of temporary pop-up locations has
been successful, allowing SmileDirectClub to fulfill demand without
the addition of fixed locations and associated costs. Additionally,
marketing and selling expenses in the quarter reflect significant
investment in brand building to support long-term growth in
international markets. Revenue from rest of world markets (defined
as markets outside the U.S. and Canada, “ROW”) came in at
approximately 16.4% of total revenue for Q2, which was impacted by
the slower scaling of some the Company’s larger markets due to
lingering effects from COVID. SmileDirectClub intends to overinvest
in international markets during the second half of 2021, which will
include relaunching in Germany and Spain, and into 2022. This level
of investment will temporarily place the Company above its
long-term target range. SmileDirectClub is focused on investment
overseas, where 75% of the total market opportunity lies and where
the competitive landscape is highly fragmented.
- General and administrative expenses
(expressed in dollars) are expected to slightly grow seasonally to
support growth in the second half of 2021 and in preparation for Q1
2022 growth.
- On liquidity, SmileDirectClub
retains approximately $377 million of cash on the balance sheet,
providing ample liquidity to support its growth initiatives, while
also investing in R&D and innovation.
Conference Call Information
SmileDirectClub Second Quarter 2021 Conference Call
Details |
|
|
Date: |
August 9, 2021 |
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 or a direct link to
the webcast. |
A replay of the call may be accessed
from 7:30 p.m. ET on Monday, August 9,
2021 until 11:59 pm ET on Monday,
August 23, 2021 by dialing 1-844-512-2921 (domestic) or
1-412-317-6671 (international) and entering the replay PIN:
13721598. A copy of the 2021 second quarter results supplemental
earnings presentation and an archived version of the call, when
completed, will also be available 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 ongoing assessment of the cyber incident, material
legal, financial and reputational risks resulting from such
incident and the related operational disruptions; 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, 2020 and our Quarterly Report
on Form 10-Q for the quarter ended June 30, 2021.
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. Through its
cutting-edge telehealth technology and vertically integrated model,
SmileDirectClub is revolutionizing the oral care industry, offering
consumers the ability to get clinically safe and effective
treatment but without the 3x markup. 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, Spain and Mexico. For more
information, please visit SmileDirectClub.com.
Investor Relations:Tripp
Sullivan SCR Partners,
LLCinvestorrelations@smiledirectclub.com
Media Relations:Kim
AtkinsonVice President,
Communicationspress@smiledirectclub.com
SmileDirectClub, Inc.Condensed
Consolidated Balance Sheets(in
thousands)
|
June 30, |
December 31, |
2021 |
2020 |
ASSETS |
|
|
Cash |
$ |
376,648 |
|
|
$ |
316,724 |
|
|
Accounts receivable |
214,316 |
|
|
221,973 |
|
|
Inventories |
32,948 |
|
|
29,247 |
|
|
Prepaid and other current
assets |
18,092 |
|
|
12,832 |
|
|
Total current assets |
642,004 |
|
|
580,776 |
|
|
Accounts receivable,
non-current |
75,286 |
|
|
71,355 |
|
|
Property, plant and equipment,
net |
199,944 |
|
|
189,995 |
|
|
Operating lease right-of-use
asset |
30,378 |
|
|
31,176 |
|
|
Other assets |
12,772 |
|
|
11,487 |
|
|
Total assets |
$ |
960,384 |
|
|
$ |
884,789 |
|
|
LIABILITIES AND
EQUITY |
|
|
Accounts payable |
$ |
22,638 |
|
|
$ |
36,848 |
|
|
Accrued liabilities |
98,788 |
|
|
100,589 |
|
|
Deferred revenue |
24,575 |
|
|
26,619 |
|
|
Current portion of long-term
debt |
10,681 |
|
|
15,664 |
|
|
Other current liabilities |
6,814 |
|
|
6,821 |
|
|
Total current liabilities |
163,496 |
|
|
186,541 |
|
|
Long-term debt, net of current
portion |
733,414 |
|
|
392,939 |
|
|
Operating lease liabilities,
net of current portion |
26,584 |
|
|
27,771 |
|
|
Other long-term
liabilities |
2,814 |
|
|
43,400 |
|
|
Total liabilities |
926,308 |
|
|
650,651 |
|
|
Commitment and
contingencies |
|
|
Equity |
|
|
Class A common stock, par
value $0.0001 and 118,672,409 shares issued and outstanding at
June 30, 2021 and 115,429,319 shares issued and outstanding at
December 31, 2020 |
12 |
|
|
11 |
|
|
Class B common stock, par
value $0.0001 and 269,243,501 shares issued and outstanding at
June 30, 2021 and 270,908,566 shares issued and outstanding at
December 31, 2020 |
27 |
|
|
27 |
|
|
Additional
paid-in-capital |
433,927 |
|
|
483,393 |
|
|
Accumulated other
comprehensive loss |
(128 |
) |
|
(102 |
) |
|
Accumulated deficit |
(238,668 |
) |
|
(192,879 |
) |
|
Noncontrolling interest |
(178,714 |
) |
|
(73,932 |
) |
|
Warrants |
17,620 |
|
|
17,620 |
|
|
Total equity |
34,076 |
|
|
234,138 |
|
|
Total liabilities and equity |
$ |
960,384 |
|
|
$ |
884,789 |
|
|
SmileDirectClub, Inc.Condensed
Consolidated Statements of Operations(in
thousands, except share and per share amounts)
|
Three Months Ended June 30, |
Six Months Ended June 30, |
2021 |
2020 |
2021 |
2020 |
Revenue, net |
$ |
162,587 |
|
|
$ |
94,409 |
|
|
$ |
351,389 |
|
|
$ |
278,337 |
|
|
Financing revenue |
11,594 |
|
|
12,664 |
|
|
22,253 |
|
|
25,386 |
|
|
Total revenues |
174,181 |
|
|
107,073 |
|
|
373,642 |
|
|
303,723 |
|
|
Cost of revenues |
45,860 |
|
|
48,776 |
|
|
93,821 |
|
|
108,553 |
|
|
Gross profit |
128,321 |
|
|
58,297 |
|
|
279,821 |
|
|
195,170 |
|
|
Marketing and selling
expenses |
95,943 |
|
|
34,518 |
|
|
193,066 |
|
|
176,842 |
|
|
General and administrative
expenses |
85,042 |
|
|
68,689 |
|
|
166,120 |
|
|
159,718 |
|
|
Lease abandonment and
impairment of long-lived assets |
— |
|
|
24,633 |
|
|
— |
|
|
24,633 |
|
|
Other store closure and
related costs |
536 |
|
|
4,476 |
|
|
1,664 |
|
|
4,476 |
|
|
Loss from operations |
(53,200 |
) |
|
(74,019 |
) |
|
(81,029 |
) |
|
(170,499 |
) |
|
Interest expense |
1,939 |
|
|
10,050 |
|
|
19,505 |
|
|
14,072 |
|
|
Loss on extinguishment of
debt |
— |
|
|
13,781 |
|
|
47,631 |
|
|
13,781 |
|
|
Other expense (income) |
130 |
|
|
(1,765 |
) |
|
1,042 |
|
|
3,159 |
|
|
Net loss before provision for income tax expense (benefit) |
(55,269 |
) |
|
(96,085 |
) |
|
(149,207 |
) |
|
(201,511 |
) |
|
Provision for income tax
expense (benefit) |
(12 |
) |
|
(1,419 |
) |
|
1,695 |
|
|
555 |
|
|
Net loss |
(55,257 |
) |
|
(94,666 |
) |
|
(150,902 |
) |
|
(202,066 |
) |
|
Net loss attributable to
noncontrolling interest |
(38,377 |
) |
|
(67,867 |
) |
|
(105,113 |
) |
|
(146,017 |
) |
|
Net loss attributable to SmileDirectClub, Inc. |
$ |
(16,880 |
) |
|
$ |
(26,799 |
) |
|
$ |
(45,789 |
) |
|
$ |
(56,049 |
) |
|
|
|
|
|
|
Earnings (loss) per
share of Class A common stock: |
|
|
|
|
Basic |
$ |
(0.14 |
) |
|
$ |
(0.25 |
) |
|
$ |
(0.39 |
) |
|
$ |
(0.52 |
) |
|
Diluted |
$ |
(0.14 |
) |
|
$ |
(0.25 |
) |
|
$ |
(0.39 |
) |
|
$ |
(0.53 |
) |
|
|
|
|
|
|
Weighted average
shares outstanding: |
|
|
|
|
Basic |
118,344,050 |
109,048,411 |
117,656,599 |
|
|
106,819,870 |
Diluted |
387,609,677 |
385,133,303 |
387,246,120 |
|
|
384,492,628 |
SmileDirectClub, Inc.Condensed
Consolidated Statements of Cash Flows(in
thousands)
|
Six Months Ended June 30, |
2021 |
2020 |
Operating
Activities |
|
|
Net loss |
$ |
(150,902 |
) |
|
$ |
(202,066 |
) |
|
Adjustments to reconcile net
loss to net cash used in operating activities: |
|
|
Depreciation and amortization |
33,169 |
|
|
25,357 |
|
|
Deferred loan cost amortization |
3,041 |
|
|
1,666 |
|
|
Equity-based compensation |
27,167 |
|
|
27,217 |
|
|
Loss on extinguishment of debt |
47,631 |
|
|
13,594 |
|
|
Paid in kind interest expense |
3,324 |
|
|
1,771 |
|
|
Asset impairment and related charges |
— |
|
|
25,915 |
|
|
Changes in ROU asset |
798 |
|
|
4,070 |
|
|
Changes in operating assets
and liabilities: |
|
|
Accounts receivable |
3,726 |
|
|
33,887 |
|
|
Inventories |
(3,701 |
) |
|
(10,140 |
) |
|
Prepaid and other current assets |
(6,572 |
) |
|
(4,009 |
) |
|
Accounts payable |
(11,998 |
) |
|
(6,001 |
) |
|
Accrued liabilities |
(2,990 |
) |
|
(13,184 |
) |
|
Deferred revenue |
(2,044 |
) |
|
16,084 |
|
|
Net cash used in operating activities |
(59,351 |
) |
|
(85,839 |
) |
|
Investing
Activities |
|
|
Purchases of property,
equipment, and intangible assets |
(45,303 |
) |
|
(47,861 |
) |
|
Net cash used in investing activities |
(45,303 |
) |
|
(47,861 |
) |
|
Financing
Activities |
|
|
IPO proceeds, net of discount
and related fees |
— |
|
|
(1,155 |
) |
|
Proceeds from warrant
exercise |
— |
|
|
922 |
|
|
Repurchase of Class A shares
to cover employee tax withholdings |
(6,260 |
) |
|
(4,529 |
) |
|
Proceeds from stock purchase
plan |
632 |
|
|
— |
|
|
Repayment of HPS Credit
Facility |
(396,497 |
) |
|
— |
|
|
Payment of extinguishment
costs |
(37,701 |
) |
|
— |
|
|
Proceeds from HPS Credit
Facility and Warrants, net |
— |
|
|
388,000 |
|
|
Borrowings of long-term
debt |
747,500 |
|
|
16,807 |
|
|
Payments of issuance
costs |
(21,179 |
) |
|
(11,336 |
) |
|
Purchase of capped call
transactions |
(69,518 |
) |
|
— |
|
|
Final payment of Align
arbitration |
(43,400 |
) |
|
— |
|
|
Principal payments on
long-term debt |
(4,609 |
) |
|
(180,762 |
) |
|
Payments of finance
leases |
(5,182 |
) |
|
(4,997 |
) |
|
Other |
(83 |
) |
|
1,263 |
|
|
Net cash provided by financing activities |
163,703 |
|
|
204,213 |
|
|
Effect of exchange rates change on cash and cash equivalents |
875 |
|
|
— |
|
|
Increase in cash |
59,924 |
|
|
70,513 |
|
|
Cash at beginning of
period |
316,724 |
|
|
318,458 |
|
|
Cash at end of period |
$ |
376,648 |
|
|
$ |
388,971 |
|
|
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
(benefit), equity-based compensation, loss on extinguishment of
debt, 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 is 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 June 30, |
Six Months Ended June 30, |
2021 |
2020 |
2021 |
2020 |
(unaudited) |
Net loss |
$ |
(55,257 |
) |
|
$ |
(94,666 |
) |
|
$ |
(150,902 |
) |
|
$ |
(202,066 |
) |
|
Depreciation and
amortization |
16,709 |
|
|
13,916 |
|
|
33,169 |
|
|
25,357 |
|
|
Total interest expense |
1,939 |
|
|
10,050 |
|
|
19,505 |
|
|
14,072 |
|
|
Income tax expense
(benefit) |
(12 |
) |
|
(1,419 |
) |
|
1,695 |
|
|
555 |
|
|
Lease abandonment and
impairment of long-lived assets |
— |
|
|
24,633 |
|
|
— |
|
|
24,633 |
|
|
Other store closure and
related costs |
536 |
|
|
4,476 |
|
|
1,664 |
|
|
4,476 |
|
|
Loss on extinguishment of
debt |
— |
|
|
13,781 |
|
|
47,631 |
|
|
13,781 |
|
|
Equity-based compensation |
12,008 |
|
|
10,821 |
|
|
27,167 |
|
|
27,217 |
|
|
Other non-operating general
and administrative losses (gains) |
1,601 |
|
|
(1,880 |
) |
|
2,513 |
|
|
4,705 |
|
|
Adjusted EBITDA |
$ |
(22,476 |
) |
|
$ |
(20,288 |
) |
|
$ |
(17,558 |
) |
|
$ |
(87,270 |
) |
|
SmileDirectClub (NASDAQ:SDC)
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