SmileDirectClub Reports Fourth Quarter and Full Year 2020 Financial Results

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 )

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