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SmileDirectClub Reports Fourth Quarter and Full Year 2020 Financial Results

SmileDirectClub
·15-min read

NASHVILLE, Tenn., March 04, 2021 (GLOBE NEWSWIRE) -- 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 fourth quarter and year ended December 31, 2020.

Fourth Quarter 2020 Financial Highlights

  • Fourth quarter total revenue of $185 million, up 10% over the third quarter.

  • Fourth quarter net loss of $(33) million, a 24% improvement over the third quarter.

  • Fourth quarter Adjusted EBITDA of $7 million, up 137% over the third quarter.

  • Fourth quarter diluted EPS of $(0.09), an 18% improvement over the third quarter.

2020 Financial Highlights

  • FY 2020 total revenue of $657 million.

  • FY 2020 net loss of $(278) million.

  • FY 2020 Adjusted EBITDA of $(77) million.

  • FY 2020 diluted EPS of $(0.72).

Key Operating Metrics

  • Fourth quarter 2020 unique aligner shipments of 101,794.

  • Average aligner gross sales price (“ASP”) of $1,820 for the fourth quarter of 2020.

  • Adjusted EBITDA of $7 million for the fourth quarter of 2020.

Guidance

  • In Q1, we expect revenue to be in line with our long-term targets on a sequential basis, meaning up 5-7% over Q4 2020.

  • We expect Adjusted EBITDA to be profitable, but not at Q4 2020 levels, as we continue to ramp marketing spend in quarters like Q1 where the ad rates are lower and we can build our lead funnel, which we expect to pay off in future quarters.

  • As a reminder, marketing dollars we spend now have a long tail. Over 15% of our orders in Q4 became a lead at least 24 months ago.

“Despite the swift onset of the pandemic and the macro uncertainty throughout 2020, our performance throughout the year was continued validation of the strength of our business model, and the power of the competitive moats around our platform. It also demonstrated our ability to deliver on our continued focus of controlled growth with profitability. We outlined this strategy in Q4 of 2019, and we have been executing against it in the four quarters since,” said SmileDirectClub Chief Executive Officer David Katzman.

SmileDirectClub Chief Financial Officer Kyle Wailes added, “Our results in the fourth quarter close out a year where we made meaningful progress against our plan of controlled growth with profitability. Similar to the rest of 2020, in Q4, the flexibility and scalability of our business model served us well, allowing us to come in ahead of expectations and on track toward our long-term financial targets.”

Business Outlook
We remain laser focused on providing the best club member experience, and our mantra continues to be to drive controlled and profitable growth. We remain 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 we have said in previous quarters, and as recently demonstrated, we will continue to make strategic investments in the professional channel, international growth, and in penetrating new demographics to drive controlled growth, while also executing against our profitability goals. Lastly, we continue to see favorable industry dynamics with broader acceptance of telehealth and specifically tele-dentistry, minimal penetration against our total addressable market, and clear aligners gaining share in the overall industry. All of these position us well for long-term success.

On COGS, we are making good progress on manufacturing automation with our 2nd Generation manufacturing now live and producing approximately 60% of our aligners. We plan to increase that percentage significantly over the course of the year, and we expect production of over 90% of our aligners by the end of Q2. As we have often stated, we believe streamlining our cost profile through operational efficiencies, will not only improve our margin profile, but more importantly, will provide a consistently superior customer experience that meets our expectations and upholds our brand promise.

On Sales & Marketing, as previously stated our SmileShops function primarily as fulfillment centers, not as sources of demand generation. As of quarter end, we had 114 permanent shops open, with 82 of those in North America; and held over 104 pop-up events over the course of the quarter – for a total of 218 location sites. We continue to see our shops performing well with higher utilization, which is a key part of meeting our long-term financial targets. Additionally, we have seen great success with our strategy of pop-up locations, which allows us to fulfill demand without the addition of fixed locations and associated costs.

On liquidity, we are well positioned with approximately $500 million of cash on our balance sheet after repayment of our outstanding debt facility in the coming months. This gives us ample liquidity to manage through a protracted COVID environment, or alternatively, to spend faster in a higher growth environment, while also investing in strategic initiatives and R&D.

Conference Call Information

SmileDirectClub Fourth Quarter 2020 Conference Call Details

Date:

March 4, 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.

A replay of the call may be accessed from 7:30 p.m. ET on Thursday, March 4, 2021 until 11:59 pm ET on Thursday, March 18, 2021 by dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and entering the replay PIN: 13716490. An archived version of the call and a copy of the 2020 fourth quarter and year end 2020 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, 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 orthodontist offices. Through its proprietary technology and vertically integrated model, SmileDirectClub is revolutionizing the oral care industry, offering consumers the ability to get the same clinically safe and effective treatment but without the 3x markup associated with traditional orthodontics. SmileDirectClub’s mission is to democratize access to a smile each and every person loves by making it affordable and convenient for everyone, from clear aligner therapy to premium oral care products. SmileDirectClub is headquartered in Nashville, Tennessee and operates in the U.S., Canada, Australia, New Zealand, United Kingdom, Ireland, Germany, Austria, Spain, Netherlands, Hong Kong and Singapore. 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)
(unaudited)

December 31,
2020

December 31,
2019

ASSETS

Cash and cash equivalents

$

316,724

$

318,458

Accounts receivable

221,973

239,413

Inventories

29,247

18,431

Prepaid and other current assets

12,832

14,186

Total current assets

580,776

590,488

Accounts receivable, non-current

71,355

106,315

Property, plant and equipment, net

189,995

177,543

Operating lease right-of-use asset

31,176

Other assets

11,487

11,299

Total assets

$

884,789

$

885,645

LIABILITIES AND PERMANENT EQUITY

Accounts payable

$

36,848

$

52,706

Accrued liabilities

100,589

93,339

Deferred revenue

26,619

25,435

Current portion of long-term debt

15,664

35,376

Other current liabilities

6,821

Total current liabilities

186,541

206,856

Long-term debt, net of current portion

392,939

173,150

Operating lease liabilities, net of current portion

27,771

Other long-term liabilities

43,400

47,354

Total liabilities

650,651

427,360

Commitment and contingencies

Permanent Equity

Class A common stock, par value $0.0001 and 115,429,319 shares issued and outstanding at December 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 270,908,566 shares issued and outstanding at December 31, 2020 and 279,474,505 shares issued and outstanding at December 31, 2019

27

28

Additional paid-in-capital

483,393

447,866

Accumulated other comprehensive income (loss)

(102

)

(272

)

Accumulated deficit

(192,879

)

(114,513

)

Noncontrolling interest

(73,932

)

125,166

Warrants

17,620

Total permanent equity

234,138

458,285

Total liabilities and permanent equity

$

884,789

$

885,645


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

Three Months Ended December 31,

Year Ended December 31,

2020

2019

2020

2019

Revenue, net

$

172,577

$

183,999

$

607,373

$

706,529

Financing revenue

11,979

12,714

49,407

43,899

Total revenues

184,556

196,713

656,780

750,428

Cost of revenues

48,539

52,498

206,852

163,861

Cost of revenues—related parties

877

14,529

Total cost of revenues

48,539

53,375

206,852

178,390

Gross profit

136,017

143,338

449,928

572,038

Marketing and selling expenses

79,355

141,059

322,919

481,468

General and administrative expenses

78,154

94,525

311,982

580,843

Lease abandonment and impairment of long-lived assets

(3,136

)

25,457

Other store closure and related costs

844

7,034

Loss from operations

(19,200

)

(92,246

)

(217,464

)

(490,273

)

Interest expense

15,383

4,052

45,010

15,659

Interest expense—related parties

75

Loss on extinguishment of debt

13,781

29,672

Other (income) expense

(3,009

)

(644

)

(878

)

(142

)

Net loss before income tax expense

(31,574

)

(95,654

)

(275,377

)

(535,537

)

Income tax expense

1,377

1,672

3,122

2,268

Net loss

(32,951

)

(97,326

)

(278,499

)

(537,805

)

Net loss attributable to noncontrolling interest

(23,224

)

(71,109

)

(200,133

)

(423,292

)

Net loss attributable to SmileDirectClub, Inc.

$

(9,727

)

$

(26,217

)

$

(78,366

)

$

(114,513

)

Earnings per share of Class A common stock:

Basic

$

(0.09

)

$

(0.25

)

$

(0.71

)

$

(1.12

)

Diluted

$

(0.09

)

$

(0.25

)

$

(0.72

)

$

(1.14

)

Weighted average shares outstanding:

Basic

114,008,652

103,043,244

109,854,360

102,442,525

Diluted

386,128,446

382,517,729

385,200,442

381,917,030


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

Year Ended December 31,

2020

2019

Operating Activities

Net loss

$

(278,499

)

$

(537,805

)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

56,390

27,336

Deferred loan cost amortization

4,407

3,969

Equity-based compensation

44,903

350,122

Loss on extinguishment of debt

13,594

17,693

Paid in kind interest expense

8,450

Lease abandonment, impairment of long-lived assets and other store closure and related charges

27,767

Other non-cash operating activities

10,071

1,783

Changes in operating assets and liabilities:

Accounts receivable

52,400

(171,577

)

Inventories

(11,602

)

(9,650

)

Prepaid and other current assets

(378

)

(13,059

)

Accounts payable

(7,670

)

(1,182

)

Accrued liabilities

(4,585

)

13,107

Due to related parties

(20,305

)

Deferred revenue

1,184

6,376

Net cash used in operating activities

(83,568

)

(333,192

)

Investing Activities

Purchases of property, equipment, and intangible assets

(97,141

)

(106,361

)

Net cash used in investing activities

(97,141

)

(106,361

)

Financing Activities

IPO proceeds, net of discount and related fees

(1,155

)

1,277,010

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

(9,901

)

(85,684

)

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

(194,439

)

(193,516

)

Principal payments on related party debt

(22,352

)

Payments on finance leases

(10,138

)

(3,017

)

Other

663

251

Net cash provided by financing activities

178,975

444,082

Increase in cash and cash equivalents

(1,734

)

4,529

Cash and cash equivalents at beginning of period

318,458

313,929

Cash and cash equivalents at end of period

$

316,724

$

318,458

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 December 31,

Year Ended
December 31,

2020

2019

2020

2019

(unaudited)

Net loss

$

(32,951

)

$

(97,326

)

$

(278,499

)

$

(537,805

)

Depreciation and amortization

16,991

11,099

56,390

27,336

Total interest expense

15,383

4,052

45,010

15,734

Income tax expense

1,377

1,672

3,122

2,268

Lease abandonment and impairment of long-lived assets

(3,136

)

25,457

Other store closure and related costs

844

7,034

Loss on extinguishment of debt

13,781

29,672

Equity-based compensation

6,714

17,363

44,903

350,122

IPO related costs

3,746

9,892

Other non-operating general and administrative (gains) losses

1,943

(644

)

5,718

(142

)

Adjusted EBITDA

$

7,165

$

(60,038

)

$

(77,084

)

$

(102,923

)