Smile Direct Club Reports Fourth Quarter and Full Year 2019 Financial Results

Nashville, Tennessee, UNITED STATES


NASHVILLE, Tenn., Feb. 25, 2020 (GLOBE NEWSWIRE) -- SmileDirectClub, Inc. (NASDAQ: SDC) today announced its financial results for the fourth quarter and year-ended December 31, 2019.

Fourth Quarter 2019 Financial Highlights

  • Fourth quarter total revenue increased $68 million, or 53.1%, over the fourth quarter of 2018, to $197 million.
  • Fourth quarter net loss of $(97) million.
  • Fourth quarter Adjusted EBITDA of $(60) million.
  • Fourth quarter diluted EPS of $(0.25).

2019 Financial Highlights

  • FY 2019 total revenue increased $327 million, or 77.3%, over FY 2018, to $750 million.
  • FY 2019 net loss of $(538) million.
  • FY 2019 Adjusted EBITDA of $(103) million.
  • FY 2019 diluted EPS of $(1.14).

Key Operating Metrics

  • Fourth quarter 2019 unique aligner shipments of 115,042, compared to 76,372 in the fourth quarter of 2018; full year 2019 unique aligner shipments of 453,053, compared to 258,278 in the full year 2018.
  • Average aligner gross sales price (“ASP”) of $1,771 for both the fourth quarter and full year 2019, compared to $1,797 and $1,764 in the fourth quarter and full year 2018, respectively.

“As CEO of this business, I am faced with numerous decisions every day, and one important decision that I am making given our club member experience and profitability in Q4, is to control our growth in order to provide the best consumer experience, and reduce our costs to be adjusted EBITDA profitable by Q4 of 2020,” said SmileDirectClub CEO David Katzman.

SmileDirectClub CFO Kyle Wailes added, “As we have stated, 2020 is a year of significant, albeit controlled growth for SmileDirectClub. Our number one priority is to improve our club member experience. We will also increase our focus on the international infrastructure we have already built to best position our business for long-term global growth. Profitability will also be a big focus for us in 2020, and we understand the levers we have to pull to achieve profitability.”

Business Outlook

Our guidance for the fiscal year 2020 is as follows:

  • Revenues are expected to be in the range of $1,000 million to $1,100 million, representing growth of 40% year-over-year at the mid-point of the range.
  • Adjusted EBITDA for the fiscal year is expected between $(50) million to $(75) million.

Conference Call Information

SmileDirectClub Fourth Quarter 2019 Conference Call Details
  
Date:February 25, 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 Tuesday, February 25, 2020 until 11:59 p.m. ET on Tuesday, March 10, 2020 by dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and entering the replay PIN: 136998632. An archived version of the call and a copy of the 2019 full year results supplemental earnings presentation will also be available upon completion on the Investor Relations section of SmileDirectClub’s website at http://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 guarantees 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: 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.

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) is an oral care company and creator of the first direct-to-consumer 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 affordable and convenient care, unleashing the power of a person’s smile to positively impact their place in the world. SmileDirectClub is headquartered in Nashville, Tennessee and operates in the U.S., Canada, Australia, New Zealand, United Kingdom, Ireland, Germany and Hong Kong. For more information, please visit SmileDirectClub.com.

Investor/Media Contact:
Alison Sternberg
Vice President, Investor Relations
310-562-7297
Alison.Sternberg@smiledirectclub.com

 

SmileDirectClub, Inc.
Consolidated Balance Sheets
(in thousands)

 For the Year Ended
December 31,
 20192018
ASSETS  
Cash$318,458 $313,929 
Accounts receivable239,413 113,934 
Inventories18,431 8,781 
Prepaid and other current assets14,186 5,782 
Total current assets590,488 442,426 
Accounts receivable, non-current106,315 60,217 
Property, plant and equipment, net177,543 52,551 
Other assets11,299  
Total assets$885,645 $555,194 
LIABILITIES, TEMPORARY AND PERMANENT EQUITY (DEFICIT)  
Accounts payable$52,706 $25,250 
Accrued liabilities89,824 34,939 
Due to related parties 20,305 
Deferred revenue25,435 19,059 
Current portion of related party debt 16,054 
Current portion of long-term debt35,376 1,866 
Total current liabilities203,341 117,473 
Long-term debt, net of current portion173,150 137,123 
Long-term related party debt 1,799 
Other long-term liabilities46,617 602 
Total liabilities423,108 256,997 
Commitment and contingencies  
Temporary Equity  
Preferred Units 388,634 
Permanent Equity (Deficit)  
Class A common stock, par value $0.0001 and 103,303,674 shares issued and outstanding at December 31, 2019 and 0 shares issued and outstanding at December 31, 201810  
Class B common stock, par value $0.0001 and 279,474,505 shares issued and outstanding at December 31, 2019 and 0 shares issued and outstanding at December 31, 201828  
Additional paid-in-capital452,119 57,677 
Accumulated other comprehensive income (loss)(272) 
Accumulated deficit(114,513)(148,429)
Noncontrolling interest125,165  
Warrants 315 
Total permanent equity (deficit)462,537 (90,437)
Total liabilities, temporary and permanent equity (deficit)$885,645 $555,194 

 

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

 Three months ended December 31,For the Year Ended December 31,
2019201820192018
Revenue, net$184,000 $120,103 $706,529 $398,127 
Financing revenue12,714 8,401 43,899 25,107 
Total revenues196,714 128,504 750,428 423,234 
Cost of revenues52,498 30,344 163,861 98,048 
Cost of revenues—related parties877 7,312 14,529 35,920 
Total cost of revenues53,375 37,656 178,390 133,968 
Gross profit143,339 90,848 572,038 289,266 
Marketing and selling expenses141,059 69,413 481,468 213,080 
General and administrative expenses94,524 44,193 580,843 121,743 
Loss from operations(92,244)(22,758)(490,273)(45,557)
Interest expense4,052 3,249 15,659 12,532 
Interest expense—related parties (73)75 1,173 
Loss on extinguishment of debt  29,672  
Other expense(642)13 (142)15,148 
Net loss before provision for income tax expense(95,654)(25,947)(535,537)(74,410)
Provision for income tax expense1,672 67 2,268 361 
Net loss(97,326)(26,014)(537,805)(74,771)
Net loss attributable to noncontrolling interest(71,109) (423,292) 
Net loss attributable to SmileDirectClub, Inc.$(26,217)$(26,014)$(114,513)$(74,771)
     
Earnings per share of Class A common stock:    
Basic$(0.25)N/A$(1.12)N/A
Diluted$(0.25)N/A$(1.14)N/A
     
Weighted average shares outstanding:    
Basic103,043,244 N/A102,442,525 N/A
Diluted382,517,729 N/A381,917,030 N/A

 

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

 For the Year Ended December 31,
20192018
Operating Activities  
Net loss$(537,805)$(74,771)
Adjustments to reconcile net loss to net cash used in operating activities:  
Depreciation and amortization27,336 8,861 
Deferred loan cost amortization3,969 4,319 
Accrued interest to related parties 1,152 
Fair value adjustment of warrant derivative 14,500 
Equity-based compensation350,122 19,839 
Loss on extinguishment of debt17,693  
Other non-cash operating activities1,783 646 
Changes in operating assets and liabilities:  
Accounts receivable(171,577)(128,811)
Inventories(9,650)(6,058)
Prepaid and other current assets(13,059)(4,612)
Accounts payable(1,182)24,449 
Accrued liabilities13,107 13,494 
Due to related parties(20,305)5,584 
Deferred revenue6,376 6,622 
Net cash used in operating activities(333,192)(114,786)
Investing Activities  
Purchases of property and equipment—related party (15,135)
Purchases of property, equipment, and intangible assets(106,361)(26,706)
Net cash used in investing activities(106,361)(41,841)
Financing Activities  
IPO proceeds, net of discount and related fees1,277,010  
Repurchase of Class A shares and LLC Units(696,489) 
Repurchase of Class A shares to cover employee tax withholdings(85,684) 
Settlement of canceled awards(2,000) 
Issuance of Class A common stock6  
Proceeds from sale of Preferred Units, net 388,634 
Member tax distributions (86)
Borrowings on long-term debt176,000 117,375 
Payments of issuance costs(6,127)(3,514)
Principal payments on long-term debt(193,516) 
Principal payments on related party debt(22,352)(35,532)
Other(2,766)(392)
Net cash provided by financing activities444,082 466,485 
Increase (Decrease) in cash4,529 309,858 
Cash at beginning of period313,929 4,071 
Cash at end of period$318,458 $313,929 

 

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, adjusted to remove derivative fair value adjustments, loss on extinguishment of debt, equity-based compensation and certain other non-operating expenses such as IPO related costs and 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 measures 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,Years ended December 31,
2019201820192018
(unaudited)
Net loss$(97,326)$(26,014)$(537,805)$(74,771)
Depreciation and amortization11,099 3,894 27,336 8,861 
Total interest expense4,052 3,176 15,734 13,705 
Income tax expense1,672 67 2,268 361 
Loss on disposal of property, plant and equipment   617 
Fair value adjustment of warrant derivative   14,500 
Loss on extinguishment of debt  29,672  
Equity-based compensation17,363 6,213 350,122 19,839 
IPO related costs3,746  9,892  
Other(644)13 (142)31 
Adjusted EBITDA$(60,038)$(12,651)$(102,923)$(16,857)