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 first quarter ended
March 31, 2023. Revenue for the first quarter of 2023 increased
38.4% compared to the fourth quarter of 2022 with gross profit up
64.6% for the same period.
For the first quarter 2023, disciplined cost management allowed
the Company to deliver a $7 million improvement in Net Loss and an
$8 million improvement in Adjusted EBITDA compared to the first
quarter of 2022 despite a decline in revenue year-over-year. Net
Cash used in operating activities decreased $29 million, driving a
$36 million improvement in free cash flow in the quarter compared
to the first quarter of 2022. The leverage that SmileDirectClub has
built in its operating model reflects a more efficient organization
that is better positioned to achieve profitability and execute at a
high level on the Company’s mission to democratize access to a
smile each and every person loves by making it affordable and
convenient for everyone.
First Quarter
2023 Financial Highlights
- Total revenue of $120 million, a
38.4% increase from the fourth quarter of 2022.
- Net loss of $(66) million, a $4
million improvement from the fourth quarter of 2022 and an
improvement of $7 million over the prior year period.
- Adjusted EBITDA of $(26) million, a
$21 million improvement over the fourth quarter of 2022, and an
improvement of $8 million over the prior year period.
- Diluted EPS of $(0.16), a $0.02
improvement from the fourth quarter of 2022, and an improvement of
$0.03 over the prior year period.
- Net cash used in operating activities was $(33) million, a
decrease of $19 million over the fourth quarter of 2022 and a
decrease of $29 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 $(41) million, an
improvement of $23 million from the fourth quarter of 2022 and an
improvement of $36 million over the prior year period.
Key Operating Metrics and Strategic
Highlights
- First quarter unique aligner shipments of 59,645, a 43.9%
sequential increase over 41,462 shipments in the fourth quarter of
2022.
- First quarter average aligner gross sales price (“ASP”) of
$1,949 compared to $1,960 for the fourth quarter of 2022.
- Negotiations with certain holders of convertible notes issued
in 2021 have progressed with respect to a potential
transaction.
“We delivered financial results and completed
operating benchmarks positioning us well to achieve our full year
financial outlook,” said David Katzman, Chief Executive Officer and
Chairman of SmileDirectClub. “Our core business continued to
perform well despite the continuing macroeconomic challenges, and
we have progressed on our key growth initiatives with the
successful launch of our hybrid in-person and remote premium
aligner product, SmileDirectClub CarePlus, in four key U.S. pilot
markets. This initial launch has been well received, and we are
planning the second wave of additional markets by the end of the
third quarter. Additionally, our innovative SmileMaker mobile
scanning app for 3D treatment planning continues to perform well in
Australia, and we remain on target to release SmileMaker in the U.S
in the next two weeks. We are also tracking on our path to
achieving EBITDA profitability in the third quarter and positive
cash flow run rates by the end of the year. We remain optimistic on
our business outlook for 2023 and beyond.”
Business Outlook
SmileDirectClub’s mission is to democratize
access to a smile each and every person loves 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, including the Company’s SmileMaker
mobile scanning app for 3D treatment planning, its hybrid aligner
offering CarePlus, the SmileDirectClub Partner Network, aligner
product innovations, and oral care solutions, including our
industry leading whitening and flosser products. SmileDirectClub
possesses the unique assets and innovation to disrupt the
incumbents, the agility to adjust to the needs of our customers,
and a sustainable brand that is top of mind with
consumers.
The Company has been issued 47 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 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
1.9 million customers, built the only end-to-end vertically
integrated platform for the consumer at scale, created a dental
Partner Network with over 1,000 global practices that are live or
pending training, delivered oral care products available at over
16,300 retail stores worldwide, and remains the strongest
teledentistry brand with continued high brand awareness.
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 2022 consumer brand
survey separately noted that 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.
As disclosed in a recent 8K filing at the end of March,
SmileDirectClub’s leadership team has been negotiating with certain
of the holders of its convertible notes that were issued in
2021. SmileDirectClub is pleased to inform its investors that
those negotiations have progressed with respect to a potential
transaction. We anticipate being able to share more in the
very near term. Any financing transaction the Company would enter
into will be focused on improving our capital structure by bringing
in additional funding and lowering our overall debt.
Full Year 2023 Guidance
The Company reaffirmed its guidance as well as
its assumptions underlying that guidance for the year ended
December 31, 2023, previously provided on February 28, 2023.
Conference Call Information
SmileDirectClub First
Quarter 2023 Conference Call Details |
|
|
Date: |
May 10, 2023 |
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 Wednesday, May 10, 2023 until
11:59 p.m. Eastern Time on Wednesday, May 24, 2023 by dialing
1-844-512-2921 (domestic) or 1-412-317-6671 (international) and
entering the replay PIN: 13737531. A copy of the first 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 current noncompliance with the minimum bid
requirement pursuant to the Nasdaq Listing Rules; our ability to
consummate our convertible note exchange and secure additional
financing, 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, 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. SmileDirectClub is headquartered in Nashville, Tennessee,
USA. For more information, please visit
SmileDirectClub.com.
Investor Relations:Michael
BrykVice President, Finance
Jonathan FleetwoodDirector, Investor
Relationsinvestorrelations@smiledirectclub.com
Media Relations:Kim
AtkinsonSenior Vice President, Global
Communicationspress@smiledirectclub.com
SmileDirectClub,
Inc.Consolidated Balance
Sheets(in thousands, except share and per share
amounts)(unaudited)
|
March 31, |
|
December 31, |
2023 |
|
2022 |
ASSETS |
|
|
|
|
|
|
|
Cash |
$ |
59,125 |
|
|
$ |
93,120 |
|
Accounts receivable, net |
|
135,708 |
|
|
|
143,082 |
|
Inventories |
|
40,031 |
|
|
|
44,387 |
|
Prepaid and other current
assets |
|
16,725 |
|
|
|
16,830 |
|
Total current assets |
|
251,589 |
|
|
|
297,419 |
|
Restricted cash |
|
27,129 |
|
|
|
25,278 |
|
Accounts receivable, net,
non-current |
|
47,809 |
|
|
|
45,168 |
|
Property, plant and equipment,
net |
|
181,739 |
|
|
|
190,087 |
|
Operating lease right-of-use
assets |
|
18,826 |
|
|
|
21,141 |
|
Other assets |
|
18,514 |
|
|
|
17,970 |
|
Total assets |
$ |
545,606 |
|
|
$ |
597,063 |
|
LIABILITIES AND EQUITY
(DEFICIT) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
$ |
34,880 |
|
|
$ |
30,513 |
|
Accrued liabilities |
|
53,815 |
|
|
|
65,937 |
|
Deferred revenue |
|
16,837 |
|
|
|
13,646 |
|
Other current liabilities |
|
6,711 |
|
|
|
6,704 |
|
Total current liabilities |
|
112,243 |
|
|
|
116,800 |
|
Long-term debt, net of current
portion |
|
860,197 |
|
|
|
849,379 |
|
Operating lease liabilities,
net of current portion |
|
14,618 |
|
|
|
16,082 |
|
Other long-term
liabilities |
|
421 |
|
|
|
— |
|
Total liabilities |
|
987,479 |
|
|
|
982,261 |
|
Equity
(Deficit) |
|
|
|
|
|
|
|
Class A common stock, par
value $0.0001 and 130,974,872 shares issued and outstanding at
March 31, 2023 and 124,785,562 shares issued and outstanding
at December 31, 2022 |
|
13 |
|
|
|
12 |
|
Class B common stock, par
value $0.0001 and 268,623,501 shares issued and outstanding at
March 31, 2023 and 268,823,501 shares issued and outstanding
at December 31, 2022 |
|
27 |
|
|
|
27 |
|
Additional
paid-in-capital |
|
483,511 |
|
|
|
475,034 |
|
Accumulated other
comprehensive income |
|
529 |
|
|
|
430 |
|
Accumulated deficit |
|
(403,144 |
) |
|
|
(381,725 |
) |
Noncontrolling interest |
|
(540,429 |
) |
|
|
(496,596 |
) |
Warrants |
|
17,620 |
|
|
|
17,620 |
|
Total equity (deficit) |
|
(441,873 |
) |
|
|
(385,198 |
) |
Total liabilities and equity (deficit) |
$ |
545,606 |
|
|
$ |
597,063 |
|
SmileDirectClub,
Inc.Consolidated Statements of
Operations(in thousands, except share and per
share amounts)(unaudited)
|
Three Months Ended March 31, |
2023 |
|
2022 |
Revenue, net |
$ |
112,835 |
|
|
$ |
142,512 |
|
Financing revenue |
|
6,942 |
|
|
|
9,134 |
|
Total revenues |
|
119,777 |
|
|
|
151,646 |
|
Cost of revenues |
|
32,892 |
|
|
|
43,066 |
|
Gross profit |
|
86,885 |
|
|
|
108,580 |
|
Marketing and selling
expenses |
|
72,201 |
|
|
|
96,711 |
|
General and administrative
expenses |
|
65,164 |
|
|
|
70,793 |
|
Lease abandonment and
impairment of long-lived assets |
|
947 |
|
|
|
1,232 |
|
Restructuring and other
related costs |
|
7,754 |
|
|
|
11,532 |
|
Loss from operations |
|
(59,181 |
) |
|
|
(71,688 |
) |
Interest expense |
|
7,709 |
|
|
|
1,556 |
|
Other expense (income) |
|
(1,484 |
) |
|
|
1,423 |
|
Net loss before provision for income tax expense (benefit) |
|
(65,406 |
) |
|
|
(74,667 |
) |
Provision for income tax
expense (benefit) |
|
321 |
|
|
|
(1,463 |
) |
Net loss |
|
(65,727 |
) |
|
|
(73,204 |
) |
Net loss attributable to
noncontrolling interest |
|
(44,308 |
) |
|
|
(50,623 |
) |
Net loss attributable to SmileDirectClub, Inc. |
$ |
(21,419 |
) |
|
$ |
(22,581 |
) |
|
|
|
Earnings (loss) per
share of Class A common stock: |
|
|
Basic |
$ |
(0.17 |
) |
|
$ |
(0.19 |
) |
Diluted |
$ |
(0.16 |
) |
|
$ |
(0.19 |
) |
|
|
|
Weighted average
shares outstanding: |
|
|
Basic |
|
129,769,504 |
|
|
|
120,191,790 |
|
Diluted |
|
398,588,561 |
|
|
|
389,297,928 |
|
SmileDirectClub,
Inc.Consolidated Statements of
Cash Flows(in
thousands)(unaudited)
|
Three Months Ended March 31, |
|
2023 |
|
2022 |
Operating
Activities |
|
|
|
|
|
Net loss |
$ |
(65,727 |
) |
|
$ |
(73,204 |
) |
Adjustments to reconcile net
loss to net cash used in operating activities: |
|
|
|
|
|
Depreciation and amortization |
|
15,873 |
|
|
|
18,916 |
|
Deferred loan cost amortization |
|
1,591 |
|
|
|
1,078 |
|
Equity-based compensation |
|
6,630 |
|
|
|
5,306 |
|
Paid in kind interest expense |
|
1,227 |
|
|
|
— |
|
Asset impairment and related charges |
|
1,015 |
|
|
|
1,367 |
|
Other non-cash operating activities |
|
1,560 |
|
|
|
1,079 |
|
Changes in operating assets
and liabilities: |
|
|
|
|
|
Accounts receivable |
|
4,733 |
|
|
|
3,241 |
|
Inventories |
|
4,288 |
|
|
|
1,785 |
|
Prepaid and other current assets |
|
(498 |
) |
|
|
(7,258 |
) |
Accounts payable |
|
4,750 |
|
|
|
(2,137 |
) |
Accrued liabilities |
|
(11,210 |
) |
|
|
(11,012 |
) |
Deferred revenue |
|
3,191 |
|
|
|
(425 |
) |
Net cash used in operating activities |
|
(32,577 |
) |
|
|
(61,264 |
) |
Investing
Activities |
|
|
|
|
|
Purchases of property, plant
and equipment |
|
(8,041 |
) |
|
|
(15,118 |
) |
Net cash used in investing activities |
|
(8,041 |
) |
|
|
(15,118 |
) |
Financing
Activities |
|
|
|
|
|
Repurchase of Class A shares
to cover employee tax withholdings |
|
(638 |
) |
|
|
(1,847 |
) |
Proceeds from sale of Class A
common stock under public offerings |
|
798 |
|
|
|
— |
|
Borrowings of long-term
debt |
|
8,000 |
|
|
|
— |
|
Payments of finance
leases |
|
— |
|
|
|
(2,404 |
) |
Other |
|
278 |
|
|
|
562 |
|
Net cash provided by (used in) financing activities |
|
8,438 |
|
|
|
(3,689 |
) |
Effect of exchange rates change on cash flow activities |
|
36 |
|
|
|
(42 |
) |
Decrease in cash and
restricted cash |
|
(32,144 |
) |
|
|
(80,113 |
) |
Cash and restricted cash at
beginning of period |
|
118,398 |
|
|
|
224,860 |
|
Cash and restricted cash at end of period |
$ |
86,254 |
|
|
$ |
144,747 |
|
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
do not provide a reconciliation of forward-looking Adjusted EBITDA
to the most directly comparable GAAP financial measure (net loss),
as the reconciliation to the corresponding GAAP measure is not
available due to the variability, complexity and limited visibility
of the non-cash items that are excluded from forward-looking
Adjusted EBITDA.
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 Free Cash Flow and Adjusted
EBITDA to Net Cash used in operating activities and net loss,
respectively, the most directly comparable GAAP financial measures,
is set forth below.
SmileDirectClub, Inc.Reconciliation of
Free Cash Flow(in thousands)
|
Three Months Ended |
|
March 31, 2023 |
December 31, 2022 |
March 31, 2022 |
Net Cash used in operating activities |
$ |
(32,577 |
) |
$ |
(51,470 |
) |
$ |
(61,264 |
) |
Net Cash used in investing
activities |
|
(8,041 |
) |
|
(11,828 |
) |
|
(15,118 |
) |
Free Cash Flow |
$ |
(40,618 |
) |
$ |
(63,298 |
) |
$ |
(76,382 |
) |
SmileDirectClub,
Inc. Reconciliation of Net
Loss to Adjusted
EBITDA(in thousands)
|
Three Months Ended |
(in thousands) |
March 31, 2023 |
December 31, 2022 |
March 31, 2022 |
Net loss |
$ |
(65,727 |
) |
$ |
(69,431 |
) |
$ |
(73,204 |
) |
Depreciation and
amortization |
|
15,873 |
|
|
16,786 |
|
|
18,916 |
|
Total interest expense |
|
7,709 |
|
|
6,591 |
|
|
1,556 |
|
Income tax expense
(benefit) |
|
321 |
|
|
(174 |
) |
|
(1,463 |
) |
Lease abandonment and
impairment of long-lived assets |
|
947 |
|
|
(140 |
) |
|
1,232 |
|
Restructuring and other
related costs |
|
7,754 |
|
|
1,799 |
|
|
11,532 |
|
Equity-based compensation |
|
6,630 |
|
|
5,049 |
|
|
5,306 |
|
Other non-operating general
and administrative losses (gains) |
|
22 |
|
|
(7,817 |
) |
|
1,684 |
|
Adjusted EBITDA |
$ |
(26,471 |
) |
$ |
(47,337 |
) |
$ |
(34,441 |
) |
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