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 third quarter ended
September 30, 2022.
Third Quarter
2022 Financial Highlights
- Total revenue of $107 million, a
15.1% decrease over the second quarter of 2022 and a decrease of
22.5% over the prior year period.
- Net loss of $(70) million, an
increased loss of $4 million over the second quarter of 2022 and an
improvement of $20 million over the prior year period.
- Adjusted EBITDA of $(30) million, a
$7 million decrease over the second quarter of 2022, and an
improvement of $24 million over the prior year period.
- Diluted EPS of $(0.18), a decrease
of $0.01 over the second quarter of 2022, and an improvement of
$0.05 over the prior year period.
- Net cash used in operating activities was $(24) million, an
increase of $6 million over the second quarter of 2022 and an
improvement of $15 million over the prior year period.
- Free Cash Flow defined as net cash used in operating activities
less net cash used in investing activities of $(35) million, an
improvement of $1 million over the second quarter of 2022 and an
improvement of $29 million over the prior year period
Key Operating Metrics and Strategic
Highlights
- Third quarter unique aligner shipments of 52,367, a 16.5%
sequential decrease over 62,705 shipments in the second quarter of
2022.
- Third quarter average aligner gross sales price (“ASP”) of
$1,902 compared to $1,917 for the second quarter of 2022.
“Our team delivered both revenue and bottom-line
results that are on track with our updated outlook provided on our
second quarter call. We are raising our full year 2022 midpoint
guidance for revenue and adjusted EBITDA based on better traction
with customers driven by improving marketing efficiencies. Our
disciplined cost management enabled us to produce improved
year-over-year bottom line results despite top line headwinds,”
said David Katzman, Chief Executive Officer and Chairman of
SmileDirectClub. “During the third quarter, our team made great
progress on our key growth initiatives. Our innovative SmileMaker
mobile scanning app for 3D treatment planning is on track to launch
in a test market in the fourth quarter with an expanded geographic
release in early 2023. Our in-person, premium aligner offering
SmileDirectClub Care+ is targeted for test market release in the
first quarter of 2023. This solution and value proposition has
resonated well within the dental industry as we continue to build
scale in our partner network by adding 260 new partners in the
third quarter, with growing provider interest in joining the
network even before the official launch of Care+.”
Business Outlook
SmileDirectClub’s mission is to democratize
access to a smile each and every person loves and deserves by
making it affordable and convenient for everyone. The aspirational
vision of the Company’s organization is to become the “world’s
leading oral health brand by helping more people realize the life
changing potential of a confident smile.” SmileDirectClub’s vision
and mission are much greater than manufacturing and marketing clear
aligners. Every decision and investment the Company has made is to
support and expand this mission and enable its long-term growth
potential. For SmileDirectClub to realize the Company’s vision
through its mission, the Company must expand its reach within and
beyond the Company’s existing core customer base. Expanding reach
comes through continuously bringing transformative innovation to
the market across an entire portfolio of both consumer facing and
non-consumer facing innovations through the Company’s focus on
Partner Network, aligner product innovations, Care+ and oral care
solutions. SmileDirectClub possesses the unique assets and
innovation to disrupt the incumbents, the agility to adjust to the
needs of its customer, and a sustainable brand that is top of mind
with consumers.
The Company has been issued 46 patents and
counting for its innovations in orthodontic treatment planning,
aligner manufacturing, smile scanning technologies, its proprietary
telehealth platform and a variety of other areas. There are many
more patents pending and in the pipeline in both the U.S. and
abroad on various technologies relating to data capture, 3D image
capture, intraoral scanning, monitoring, manufacturing, and
consumer products. In addition, the Company has enabled treatment
for over 1.8 million customers, built the only end-to-end
vertically integrated platform for the consumer at scale, created a
Dental Partner Network with 950 global practices that are live or
pending training, created oral care products available at over
16,300 retail stores worldwide, and remains the strongest
teledentistry brand with 58% aided awareness. Demand for medical
professionals to join SmileDirectClub’s Partner Network has been
strong with 260 new partners added in the third quarter and a
robust pipeline of additional practice interest even before the
launch of the Care+ offering.
When consumers are considering straightening
their teeth, they typically do one or all of the following: search
online to understand their options; ask a dentist; ask a friend or
family member which option they should choose. Based on the
Company’s research, consumers have noted its product and customer
experience is nearly identical to Invisalign, less expensive, and
more convenient. Compared to other teledentistry platforms,
research showed that significantly fewer customers would recommend
those brands to their friends and family compared with
SmileDirectClub customer recommendations. A first quarter consumer
brand survey separately noted that the SmileDirectClub’s unaided
and aided brand awareness continues to increase from and surpass
its teledentistry competitors and close in on the brand awareness
recognition of category originator Invisalign. Additionally, the
Company’s pioneering telehealth platform was recently recognized by
MedTech Breakthrough, winning the “Best Telehealth Platform” award
in 2022.
In addition to these investments to create the
next generation of oral care and influence consumer decision
making, the Company will continue to make strategic investments 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 teledentistry, minimal penetration
against the total addressable market, a number of recent regulatory
wins that helped remove barriers to access to care, and clear
aligners gaining share in the overall industry.
Revised Full Year 2022 Guidance
Challenges to consumer spending and sustained
high inflation continue to impact our overall expected demand for
the balance of the year. Our third quarter results were as expected
and with only two months left in the year, we are tightening our
full year 2022 outlook.
For the year ended December 31, 2022, the
Company expects total revenue to be in the range of $470 million to
$500 million.
The full year 2022 costs and capital outlook
include (see Company’s supplemental earnings presentation for more
insights regarding these assumptions):
- Gross margin range (as a percentage of total revenues) of 70.5%
to 71.5%
- Adjusted EBITDA range of ($155 million) to ($135 million)
- CapEx range of $55 million to $60 million
- One-time costs range of $20 million to $25 million
- Year-end cash balance between $110 million to $130 million
Year-end cash guidance includes an estimated $60
million to $70 million from outside funding, primarily coming from
utilization of the outstanding HPS facility.
Conference Call Information
SmileDirectClub Third
Quarter 2022 Conference Call Details |
|
|
Date: |
November 8, 2022 |
Time: |
8:00 a.m. Eastern Time (7:00
a.m. Central Time) |
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 the same
day from 11 a.m. Eastern Time on Tuesday, November 8, 2022
until 11:59 p.m. Eastern Time on Tuesday, November 15, 2022 by
dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international)
and entering the replay PIN: 13733253. A copy of the third quarter
2022 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, 2021 and our Form 10-Q for the
period ended September 30, 2022.
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.
SmileDirectClub’s mission is to democratize access to a smile each
and every person loves by making it affordable and convenient for
everyone. For more information, please visit
SmileDirectClub.com.
Investor Relations:Jesse Weaver
Senior Vice President, Finance and Treasury
Jonathan FleetwoodDirector, Investor
Relationsinvestorrelations@smiledirectclub.com
Media Relations:Kim
AtkinsonSenior Vice President, Global
Communicationspress@smiledirectclub.com
SmileDirectClub, Inc.Condensed
Consolidated Balance Sheets(in
thousands)(unaudited)
|
September 30, |
December 31, |
|
2022 |
|
|
2021 |
|
ASSETS |
|
|
Cash |
$ |
120,181 |
|
$ |
224,860 |
|
Accounts receivable, net |
|
152,531 |
|
|
184,558 |
|
Inventories |
|
44,242 |
|
|
40,803 |
|
Prepaid and other current
assets |
|
21,085 |
|
|
17,519 |
|
Total current assets |
|
338,039 |
|
|
467,740 |
|
Accounts receivable, net,
non-current |
|
49,249 |
|
|
59,210 |
|
Property, plant and equipment,
net |
|
202,514 |
|
|
227,201 |
|
Operating lease right-of-use
assets |
|
22,810 |
|
|
24,927 |
|
Other assets |
|
19,184 |
|
|
15,480 |
|
Total assets |
$ |
631,796 |
|
$ |
794,558 |
|
LIABILITIES AND EQUITY
(DEFICIT) |
|
|
Accounts payable |
$ |
36,097 |
|
$ |
19,922 |
|
Accrued liabilities |
|
86,258 |
|
|
122,066 |
|
Deferred revenue |
|
14,507 |
|
|
20,258 |
|
Current portion of long-term
debt |
|
4,217 |
|
|
10,997 |
|
Other current liabilities |
|
6,703 |
|
|
4,997 |
|
Total current liabilities |
|
147,782 |
|
|
178,240 |
|
Long-term debt, net of current
portion |
|
788,164 |
|
|
729,973 |
|
Operating lease liabilities,
net of current portion |
|
16,973 |
|
|
20,352 |
|
Other long-term
liabilities |
|
746 |
|
|
347 |
|
Total liabilities |
|
953,665 |
|
|
928,912 |
|
Equity
(Deficit) |
|
|
Class A common stock, par
value $0.0001 and 121,420,358 shares issued and outstanding at
September 30, 2022 and 119,280,781 shares issued and
outstanding at December 31, 2021 |
|
12 |
|
|
12 |
|
Class B common stock, par
value $0.0001 and 268,823,501 shares issued and outstanding at
September 30, 2022 and 269,243,501 shares issued and
outstanding at December 31, 2021 |
|
27 |
|
|
27 |
|
Additional
paid-in-capital |
|
467,946 |
|
|
448,867 |
|
Accumulated other
comprehensive income |
|
741 |
|
|
293 |
|
Accumulated deficit |
|
(359,881 |
) |
|
(295,321 |
) |
Noncontrolling interest |
|
(448,334 |
) |
|
(305,852 |
) |
Warrants |
|
17,620 |
|
|
17,620 |
|
Total equity (deficit) |
|
(321,869 |
) |
|
(134,354 |
) |
Total liabilities and equity (deficit) |
$ |
631,796 |
|
$ |
794,558 |
|
SmileDirectClub, Inc.Condensed
Consolidated Statements of
Operations(in thousands, except share and per
share amounts)(unaudited)
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Revenue, net |
$ |
98,524 |
|
$ |
126,796 |
|
$ |
357,838 |
|
$ |
478,185 |
|
Financing revenue |
|
8,246 |
|
|
10,887 |
|
|
26,374 |
|
|
33,140 |
|
Total revenues |
|
106,770 |
|
|
137,683 |
|
|
384,212 |
|
|
511,325 |
|
Cost of revenues |
|
31,995 |
|
|
39,412 |
|
|
109,136 |
|
|
133,233 |
|
Gross profit |
|
74,775 |
|
|
98,271 |
|
|
275,076 |
|
|
378,092 |
|
Marketing and selling
expenses |
|
58,212 |
|
|
96,175 |
|
|
226,114 |
|
|
289,241 |
|
General and administrative
expenses |
|
75,507 |
|
|
85,658 |
|
|
218,620 |
|
|
251,778 |
|
Lease abandonment and
impairment of long-lived assets |
|
197 |
|
|
1,378 |
|
|
1,429 |
|
|
1,378 |
|
Restructuring and other
related costs |
|
3,169 |
|
|
95 |
|
|
17,869 |
|
|
1,759 |
|
Loss from operations |
|
(62,310 |
) |
|
(85,035 |
) |
|
(188,956 |
) |
|
(166,064 |
) |
Interest expense |
|
5,360 |
|
|
1,772 |
|
|
11,370 |
|
|
21,277 |
|
Loss on extinguishment of
debt |
|
— |
|
|
— |
|
|
— |
|
|
47,631 |
|
Other expense |
|
1,323 |
|
|
2,695 |
|
|
8,564 |
|
|
3,737 |
|
Net loss before provision for income tax expense (benefit) |
|
(68,993 |
) |
|
(89,502 |
) |
|
(208,890 |
) |
|
(238,709 |
) |
Provision for income tax
expense (benefit) |
|
739 |
|
|
(119 |
) |
|
(468 |
) |
|
1,576 |
|
Net loss |
|
(69,732 |
) |
|
(89,383 |
) |
|
(208,422 |
) |
|
(240,285 |
) |
Net loss attributable to
noncontrolling interest |
|
(48,058 |
) |
|
(61,991 |
) |
|
(143,862 |
) |
|
(167,104 |
) |
Net loss attributable to SmileDirectClub, Inc. |
$ |
(21,674 |
) |
$ |
(27,392 |
) |
$ |
(64,560 |
) |
$ |
(73,181 |
) |
|
|
|
|
|
Earnings (loss) per
share of Class A common stock: |
|
|
|
|
Basic |
$ |
(0.18 |
) |
$ |
(0.23 |
) |
$ |
(0.53 |
) |
$ |
(0.62 |
) |
Diluted |
$ |
(0.18 |
) |
$ |
(0.23 |
) |
$ |
(0.53 |
) |
$ |
(0.62 |
) |
|
|
|
|
|
Weighted average
shares outstanding: |
|
|
|
|
Basic |
|
121,163,578 |
|
|
118,918,072 |
|
|
120,729,146 |
|
|
118,081,711 |
|
Diluted |
|
389,987,079 |
|
|
388,161,573 |
|
|
389,654,332 |
|
|
387,554,625 |
|
SmileDirectClub, Inc.Condensed
Consolidated Statements of Cash
Flows(in
thousands)(unaudited)
|
Nine Months Ended September 30, |
|
2022 |
|
|
2021 |
|
Operating
Activities |
|
|
Net loss |
$ |
(208,422 |
) |
$ |
(240,285 |
) |
Adjustments to reconcile net
loss to net cash used in operating activities: |
|
|
Depreciation and amortization |
|
57,609 |
|
|
51,655 |
|
Deferred loan cost amortization |
|
4,239 |
|
|
4,069 |
|
Equity-based compensation |
|
21,559 |
|
|
37,659 |
|
Loss on extinguishment of debt |
|
— |
|
|
47,631 |
|
Paid in kind interest expense |
|
626 |
|
|
3,324 |
|
Asset impairment and related charges |
|
2,905 |
|
|
1,378 |
|
Other non-cash operating activities |
|
2,117 |
|
|
977 |
|
Changes in operating assets
and liabilities: |
|
|
Accounts receivable |
|
41,988 |
|
|
30,845 |
|
Inventories |
|
(3,439 |
) |
|
(9,706 |
) |
Prepaid and other current assets |
|
(3,548 |
) |
|
(10,062 |
) |
Accounts payable |
|
18,106 |
|
|
(20,984 |
) |
Accrued liabilities |
|
(34,693 |
) |
|
9,827 |
|
Deferred revenue |
|
(5,751 |
) |
|
(4,395 |
) |
Net cash used in operating activities |
|
(106,704 |
) |
|
(98,067 |
) |
Investing
Activities |
|
|
Purchases of property,
equipment, and intangible assets |
|
(40,168 |
) |
|
(70,284 |
) |
Net cash used in investing activities |
|
(40,168 |
) |
|
(70,284 |
) |
Financing
Activities |
|
|
Repurchase of Class A shares
to cover employee tax withholdings |
|
(2,953 |
) |
|
(9,055 |
) |
Proceeds from stock purchase
plan |
|
481 |
|
|
632 |
|
Repayment of HPS Credit
Facility |
|
— |
|
|
(396,497 |
) |
Payment of extinguishment
costs |
|
— |
|
|
(37,701 |
) |
Borrowings of long-term
debt |
|
54,920 |
|
|
747,500 |
|
Payments of issuance
costs |
|
(5,482 |
) |
|
(21,179 |
) |
Purchase of capped call
transactions |
|
— |
|
|
(69,518 |
) |
Final payment of Align
arbitration |
|
— |
|
|
(43,400 |
) |
Principal payments on
long-term debt |
|
— |
|
|
(4,609 |
) |
Payments of finance
leases |
|
(6,780 |
) |
|
(8,046 |
) |
Other |
|
1,820 |
|
|
684 |
|
Net cash provided by financing activities |
|
42,006 |
|
|
158,811 |
|
Effect of exchange rates change on cash and cash equivalents |
|
187 |
|
|
464 |
|
Decrease in cash |
|
(104,679 |
) |
|
(9,076 |
) |
Cash at beginning of
period |
|
224,860 |
|
|
316,724 |
|
Cash at end of period |
$ |
120,181 |
|
$ |
307,648 |
|
Use of Non-GAAP Financial
Measures
This earnings release contains certain non-GAAP
financial measures, including adjusted EBITDA (“Adjusted EBITDA”)
and Free Cash Flow. We provide a reconciliation of these non-GAAP
financial measures to the most directly comparable GAAP financial
measures 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 Free Cash Flow and Adjusted EBITDA, to evaluate our
actual operating performance and for the planning and forecasting
of future periods.
We define Free Cash Flow as net cash used in
operating activities less net cash used in investing
activities.
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, retention and other labor costs,
certain one-time legal settlement 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 both Free Cash Flow and
Adjusted EBITDA to net loss, the most directly comparable GAAP
financial measure for Adjusted EBITDA, is set forth below.
SmileDirectClub, Inc.Reconciliation of
Free Cash Flow(in
thousands)
|
Three Months Ended |
September 30, 2022 |
June 30, 2022 |
September 30, 2021 |
Net Cash used in operating activities |
$ |
(24,100 |
) |
$ |
(17,840 |
) |
$ |
(38,716 |
) |
Net Cash used in investing
activities |
|
(10,796 |
) |
|
(17,754 |
) |
|
(24,981 |
) |
Free Cash Flow |
$ |
(34,896 |
) |
$ |
(35,594 |
) |
$ |
(63,697 |
) |
SmileDirectClub, Inc.Reconciliation of
Net Loss to Adjusted
EBITDA(in thousands)
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Net loss |
$ |
(69,732 |
) |
$ |
(89,383 |
) |
$ |
(208,422 |
) |
$ |
(240,285 |
) |
Depreciation and
amortization |
|
19,113 |
|
|
18,486 |
|
|
57,609 |
|
|
51,655 |
|
Total interest expense |
|
5,360 |
|
|
1,772 |
|
|
11,370 |
|
|
21,277 |
|
Income tax expense
(benefit) |
|
739 |
|
|
(119 |
) |
|
(468 |
) |
|
1,576 |
|
Lease abandonment and
impairment of long-lived assets |
|
197 |
|
|
1,378 |
|
|
1,429 |
|
|
1,378 |
|
Restructuring and other
related costs |
|
3,169 |
|
|
95 |
|
|
17,869 |
|
|
1,759 |
|
Loss on extinguishment of
debt |
|
— |
|
|
— |
|
|
— |
|
|
47,631 |
|
Equity-based compensation |
|
7,693 |
|
|
10,492 |
|
|
21,559 |
|
|
37,659 |
|
Other non-operating general
and administrative losses |
|
3,788 |
|
|
3,264 |
|
|
11,778 |
|
|
5,777 |
|
Adjusted EBITDA |
$ |
(29,673 |
) |
$ |
(54,015 |
) |
$ |
(87,276 |
) |
$ |
(71,573 |
) |
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