SmileDirectClub Reports Fourth Quarter and Full Year 2022 Financial Results
For the full year 2022, our disciplined cost management allowed us to deliver a
Fourth Quarter 2022 Financial Highlights
- Total revenue of
$87 million , a 19.0% decrease from the third quarter of 2022 and a decrease of 31.5% over the prior year period. - Net loss of
$(69) million , consistent with the third quarter of 2022 and an improvement of$26 million over the prior year period. - Adjusted EBITDA of
$(47) million , an$18 million decrease over the third quarter of 2022, and an improvement of$14 million over the prior year period. - Diluted EPS of
$(0.18) , consistent with the third quarter of 2022, and an improvement of$0.07 over the prior year period. - Net cash used in operating activities was
$(51) million , an increase of$27 million over the third quarter of 2022 and an increase of$8 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
$(63) million , a decrease of$28 million from the third quarter of 2022 and an improvement of$16 million over the prior year period.
2022 Financial Highlights
- Total revenue of
$471 million , a 26.2% decrease from the prior year. - Net loss of
$(278) million , an improvement of$58 million over the prior year. - Adjusted EBITDA of
$(135) million , a$1 million decrease from the prior year. - Diluted EPS of
$(0.71) , an improvement of$0.16 over the prior year. - Net cash used in operating activities was
$(158) million , an increase of$17 million over the prior year. - Free Cash Flow of
$(210) million , an improvement of$38 million over the prior year.
Key Operating Metrics and Strategic Highlights
- Fourth quarter unique aligner shipments of 41,462, a 20.8% sequential decrease over 52,367 shipments in the third quarter of 2022.
- Fourth quarter average aligner gross sales price (“ASP”) of
$1,960 , a 3% improvement compared to$1,902 for the third quarter of 2022.
“Our team delivered financial results that were on track with our updated outlook provided on our third quarter call and our preliminary outlook provided in our realignment press release issued in late January,” said
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
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
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
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.
Full Year 2023 Guidance
Challenges to consumer spending and sustained high inflation continue to impact our overall expected demand in 2023. For the year ending
The full year 2023 costs and capital outlook for the core business include (see Company’s supplemental earnings presentation for more insights regarding these assumptions):
- Gross margin range (as a percentage of total revenues) of 72.0% to 75.0%
- Adjusted EBITDA range of (
$35 million ) to ($5 million ), with positive Adjusted EBITDA by Q3 2023 - CapEx range of
$35 million to$45 million - One-time costs range of
$12 million to$15 million
Revenue and Adjusted EBITDA guidance represents core business only and excludes any contributions from the 2023 SmileMaker Platform rollout or launch of the CarePlus program. As these initiatives are introduced to the market at scale, the Company will provide more details and additional full-year expectations in the future.
In addition to the guidance for our core business, the Company has provided some insights regarding the potential contributions from 2023 growth initiatives, including SmileMaker Platform and CarePlus. Collectively, the growth initiatives have the potential of delivering
Conference Call Information
| Date: | |
| 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
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; 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
About
Investor Relations:
Vice President, Finance
Director, Investor Relations
investorrelations@smiledirectclub.com
Media Relations:
Senior Vice President,
press@smiledirectclub.com
Consolidated Balance Sheets (in thousands, except share and per share amounts) (unaudited) |
||||||
| Years Ended | ||||||
| 2022 | 2021 | |||||
| ASSETS | ||||||
| Cash | $ | 93,120 | $ | 224,860 | ||
| Accounts receivable, net | 143,082 | 184,558 | ||||
| Inventories | 44,387 | 40,803 | ||||
| Prepaid and other current assets | 16,830 | 17,519 | ||||
| Total current assets | 297,419 | 467,740 | ||||
| Restricted cash | 25,278 | — | ||||
| Accounts receivable, net, non-current | 45,168 | 59,210 | ||||
| Property, plant and equipment, net | 190,087 | 227,201 | ||||
| Operating lease right-of-use assets | 21,141 | 24,927 | ||||
| Other assets | 17,970 | 15,480 | ||||
| Total assets | $ | 597,063 | $ | 794,558 | ||
| LIABILITIES AND EQUITY (DEFICIT) | ||||||
| Accounts payable | $ | 30,513 | $ | 19,922 | ||
| Accrued liabilities | 65,937 | 122,066 | ||||
| Deferred revenue | 13,646 | 20,258 | ||||
| Current portion of long-term debt | — | 10,997 | ||||
| Other current liabilities | 6,704 | 4,997 | ||||
| Total current liabilities | 116,800 | 178,240 | ||||
| Long-term debt, net of current portion | 849,379 | 729,973 | ||||
| Operating lease liabilities, net of current portion | 16,082 | 20,352 | ||||
| Other long-term liabilities | — | 347 | ||||
| Total liabilities | 982,261 | 928,912 | ||||
| Commitment and contingencies | ||||||
| Equity (Deficit) | ||||||
| Class A common stock, par value |
12 | 12 | ||||
| Class B common stock, par value |
27 | 27 | ||||
| Additional paid-in-capital | 475,034 | 448,867 | ||||
| Accumulated other comprehensive income | 430 | 293 | ||||
| Accumulated deficit | (381,725 | ) | (295,321 | ) | ||
| Noncontrolling interest | (496,596 | ) | (305,852 | ) | ||
| Warrants | 17,620 | 17,620 | ||||
| Total equity (deficit) | (385,198 | ) | (134,354 | ) | ||
| Total liabilities and equity (deficit) | $ | 597,063 | $ | 794,558 | ||
Consolidated Statements of Operations (in thousands, except share and per share amounts) (unaudited) |
||||||||||||
| Three Months Ended |
Years Ended |
|||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Revenue, net | $ | 79,127 | $ | 116,507 | $ | 436,965 | $ | 594,692 | ||||
| Financing revenue | 7,404 | 9,779 | 33,778 | 42,919 | ||||||||
| Total revenues | 86,531 | 126,286 | 470,743 | 637,611 | ||||||||
| Cost of revenues | 33,754 | 44,364 | 142,890 | 177,597 | ||||||||
| Gross profit | 52,777 | 81,922 | 327,853 | 460,014 | ||||||||
| Marketing and selling expenses | 64,117 | 99,209 | 290,231 | 388,450 | ||||||||
| General and administrative expenses | 60,158 | 73,791 | 278,778 | 325,569 | ||||||||
| Lease abandonment and impairment of long-lived assets | (140 | ) | 103 | 1,289 | 1,481 | |||||||
| Restructuring and other related costs | 1,799 | 2,039 | 19,668 | 3,798 | ||||||||
| Loss from operations | (73,157 | ) | (93,220 | ) | (262,113 | ) | (259,284 | ) | ||||
| Interest expense | 6,591 | 1,877 | 17,961 | 23,154 | ||||||||
| Loss on extinguishment of debt | — | — | — | 47,631 | ||||||||
| Other expense (income) | (10,143 | ) | 576 | (1,579 | ) | 4,313 | ||||||
| Net loss before provision for income tax expense (benefit) | (69,605 | ) | (95,673 | ) | (278,495 | ) | (334,382 | ) | ||||
| Provision for income tax expense (benefit) | (174 | ) | (308 | ) | (642 | ) | 1,268 | |||||
| Net loss | (69,431 | ) | (95,365 | ) | (277,853 | ) | (335,650 | ) | ||||
| Net loss attributable to noncontrolling interest | (47,587 | ) | (66,104 | ) | (191,449 | ) | (233,208 | ) | ||||
| Net loss attributable to |
$ | (21,844 | ) | $ | (29,261 | ) | $ | (86,404 | ) | $ | (102,442 | ) |
| Earnings (loss) per share of Class A common stock: | ||||||||||||
| Basic | $ | (0.18 | ) | $ | (0.25 | ) | $ | (0.71 | ) | $ | (0.87 | ) |
| Diluted | $ | (0.18 | ) | $ | (0.25 | ) | $ | (0.71 | ) | $ | (0.87 | ) |
| Weighted average shares outstanding: | ||||||||||||
| Basic | 123,028,115 | 119,188,971 | 121,312,580 | 118,360,801 | ||||||||
| Diluted | 391,851,616 | 388,432,472 | 390,210,985 | 387,775,890 | ||||||||
Consolidated Statements of Cash Flows (in thousands) (unaudited) |
||||||
| Years Ended |
||||||
| 2022 | 2021 | |||||
| Operating Activities | ||||||
| Net loss | $ | (277,853 | ) | $ | (335,650 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||
| Depreciation and amortization | 74,395 | 70,113 | ||||
| Deferred loan cost amortization | 5,897 | 5,148 | ||||
| Equity-based compensation | 26,608 | 44,628 | ||||
| Loss on extinguishment of debt | — | 47,631 | ||||
| Paid in kind interest expense | 1,292 | 3,324 | ||||
| Asset impairment and related charges | 2,902 | 1,481 | ||||
| Other non-cash operating activities | 3,786 | 372 | ||||
| Changes in operating assets and liabilities: | ||||||
| Accounts receivable | 55,518 | 49,560 | ||||
| Inventories | (4,227 | ) | (11,775 | ) | ||
| Prepaid and other current assets | 689 | (8,733 | ) | |||
| Accounts payable | 14,242 | (11,296 | ) | |||
| Accrued liabilities | (54,811 | ) | 10,039 | |||
| Deferred revenue | (6,612 | ) | (6,361 | ) | ||
| Net cash used in operating activities | (158,174 | ) | (141,519 | ) | ||
| Investing Activities | ||||||
| Purchases of property, equipment, and intangible assets | (51,996 | ) | (106,567 | ) | ||
| Net cash used in investing activities | (51,996 | ) | (106,567 | ) | ||
| Financing Activities | ||||||
| Repurchase of Class A shares to cover employee tax withholdings | (2,599 | ) | (10,028 | ) | ||
| Proceeds from sale of Class A common stock under public offerings | 1,916 | — | ||||
| Proceeds from stock purchase plan | 622 | 1,031 | ||||
| Repayment of 2020 HPS Credit Facility | — | (396,497 | ) | |||
| Payment of extinguishment costs | — | (37,701 | ) | |||
| Borrowings of long-term debt | 114,920 | 747,500 | ||||
| Payments of issuance costs | (5,426 | ) | (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 | (6,447 | ) | (11,055 | ) | ||
| Other | 462 | 1,173 | ||||
| Net cash provided by financing activities | 103,448 | 155,717 | ||||
| Effect of exchange rates change on cash flow activities | 260 | 505 | ||||
| Decrease in cash and restricted cash | (106,462 | ) | (91,864 | ) | ||
| Cash and restricted cash at beginning of period | 224,860 | 316,724 | ||||
| Cash and restricted cash at end of period | $ | 118,398 | $ | 224,860 | ||
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
Reconciliation of Free Cash Flow (in thousands) |
|||||||||||||||
| Three Months Ended | Year Ended | ||||||||||||||
2022 |
2022 |
2022 |
2022 |
2022 |
|||||||||||
| $ | (64,764 | ) | $ | (17,840 | ) | $ | (24,100 | ) | $ | (51,470 | ) | (158,174 | ) | ||
| (11,618 | ) | (17,754 | ) | (10,796 | ) | (11,828 | ) | (51,996 | ) | ||||||
| Free Cash Flow | $ | (76,382 | ) | $ | (35,594 | ) | $ | (34,896 | ) | $ | (63,298 | ) | $ | (210,170 | ) |
| Three Months Ended | Year Ended | ||||||||||||||
2021 |
2021 |
2021 |
2021 |
2021 |
|||||||||||
| $ | (28,338 | ) | $ | (31,013 | ) | $ | (38,716 | ) | $ | (43,452 | ) | $ | (141,519 | ) | |
| (22,981 | ) | (22,322 | ) | (24,981 | ) | (36,283 | ) | (106,567 | ) | ||||||
| Free Cash Flow | $ | (51,319 | ) | $ | (53,335 | ) | $ | (63,697 | ) | $ | (79,735 | ) | $ | (248,086 | ) |
Reconciliation of Net Loss to Adjusted EBITDA (in thousands) |
||||||||||||
| Three Months Ended |
Years Ended |
|||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Net loss | $ | (69,431 | ) | $ | (95,365 | ) | $ | (277,853 | ) | $ | (335,650 | ) |
| Depreciation and amortization | 16,786 | 18,458 | 74,395 | 70,113 | ||||||||
| Total interest expense | 6,591 | 1,877 | 17,961 | 23,154 | ||||||||
| Income tax expense (benefit) | (174 | ) | (308 | ) | (642 | ) | 1,268 | |||||
| Lease abandonment and impairment of long-lived assets | (140 | ) | 103 | 1,289 | 1,481 | |||||||
| Restructuring and other related costs | 1,799 | 2,039 | 19,668 | 3,798 | ||||||||
| Loss on extinguishment of debt | — | — | — | 47,631 | ||||||||
| Equity-based compensation | 5,049 | 6,969 | 26,608 | 44,628 | ||||||||
| Other non-operating general and administrative losses (gains) | (7,817 | ) | 4,596 | 3,961 | 10,373 | |||||||
| Adjusted EBITDA | $ | (47,337 | ) | $ | (61,631 | ) | $ | (134,613 | ) | $ | (133,204 | ) |
Source: SmileDirectClub, LLC