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Press release content from Globe Newswire. The AP news staff was not involved in its creation.

Smile Direct Club Reports Third Quarter 2019 Financial Results

November 12, 2019

NASHVILLE, Tenn., Nov. 12, 2019 (GLOBE NEWSWIRE) -- SmileDirectClub, Inc. (NASDAQ: SDC) today announced its financial results for the quarter ended September 30, 2019.

Third Quarter 2019 Financial Highlights

-- Third quarter total revenue increased $60.5 million, or 50.6%, over the third quarter of 2018, to $180.2 million. -- Third quarter net loss of $(387.6) million. -- Third quarter Adjusted EBITDA of $(45.2) million. -- Third quarter diluted EPS of $(0.89).

Key Operating Metrics

-- Third quarter unique aligner shipments of 106,070, compared to 72,387 in the third quarter of 2018. -- Average aligner gross sales price (“ASP”)1 of $1,788 compared to $1,773 in the third quarter of 2018.

“Post-IPO, our team is laser focused on execution. Our results for the quarter, all of which exceeded management’s expectations, are a testament to the strength and momentum of the underlying business,” said Kyle Wailes, SmileDirectClub’s CFO.

SmileDirectClub’s Chairman and CEO, David Katzman continued, “Q3 was a good quarter. We were able to demonstrate our ability to execute. We have an incredible team, the best I have ever worked with. Overall, our business is better positioned than ever to capitalize on the massive market opportunity in front of us, and we look forward to demonstrating that in the quarters to come.”

Business Outlook

Our guidance for the fiscal year 2019 is as follows:

-- Revenues are expected to be in the range of $750.0 million to $755.0 million, representing growth of 78% year-over-year at the mid-point of the range. -- Adjusted EBITDA for the fiscal year is expected between $(73) million to $(80) million.

Conference Call Information

SmileDirectClub Third Quarter 2019 Conference Call Details Date: Tuesday, November 12, 2019 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, November 12, 2019 until 11:59 p.m ET on Tuesday, November 26, 2019 by dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and entering the replay PIN: 136904923. An archived version of the call and a copy of the 2019 Q3 Results supplemental earnings presentation will also be available upon completion on the Investor Relations section of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 Quarterly Report on Form 10-Q for the quarter ended September 30, 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 SmileDirectClubSmileDirectClub, Inc. (NASDAQ: SDC) is the industry pioneer as the first direct-to-consumer med-tech platform for transforming smiles. Through our cutting-edge teledentistry technology and vertically integrated model, we are revolutionizing the oral care industry. SmileDirectClub’s mission is to unleash the power of people’s smiles to empower them to positively impact their place in the world. SmileDirectClub was founded by Alex Fenkell and Jordan Katzman in partnership with Camelot Venture Group. Available in the U.S., Canada, Australia, New Zealand, the UK, and Ireland. SmileDirectClub is headquartered in Nashville, Tennessee. For more information, visit SmileDirectClub.com

Investor/Media Contact:

Alison Sternberg Vice President, Investor Relations 310-562-7297Alison.sternberg@smiledirectclub.com

SmileDirectClub, Inc.

Consolidated Balance Sheet

(in thousands)

September 30 December 2019 31, 2018 ------------- ----------- ASSETS Cash $ 547,563 $ 313,929 Accounts receivable 224,360 113,934 Inventories 14,633 8,781 Prepaid and other current assets 11,987 5,782 ----------- - --------- - Total current assets 798,543 442,426 Accounts receivable, non-current 87,299 60,217 Property, plant and equipment, net 119,130 52,551 Other assets 6,269 — ----------- - --------- - Total assets $ 1,011,241 $ 555,194 - --------- - - ------- - LIABILITIES, TEMPORARY AND PERMANENT EQUITY (DEFICIT) Accounts payable $ 40,561 $ 25,250 Accrued liabilities 129,434 34,939 Due to related parties 1,128 20,305 Deferred revenue 24,893 19,059 Current portion of related party debt — 16,054 Current portion of long-term debt 29,737 1,866 ----------- - --------- - Total current liabilities 225,753 117,473 Long-term debt, net of current portion 189,648 137,123 Long-term related party debt — 1,799 Other long-term liabilities 45,230 602 ----------- - --------- - Total liabilities 460,631 256,997 Commitment and contingencies Temporary Equity Redeemable Series A Preferred Units — 388,634 Permanent Equity (Deficit) Class A common stock, par value $0.0001 and 102,807,291 shares issued and outstanding at September 30, 2019 and 0 shares issued and outstanding at December 10 — 31, 2018 Class B common stock, par value $0.0001 and 279,474,505 shares issued and outstanding at September 30, 2019 and 0 shares issued and outstanding at December 28 — 31, 2018 Additional paid-in-capital 441,855 57,497 Accumulated deficit (88,296 ) (148,249 ) Noncontrolling interest 197,013 — Warrants — 315 ----------- - --------- - Total permanent equity (deficit) 550,610 (90,437 ) ----------- - --------- - Total liabilities, temporary and permanent equity (deficit) $ 1,011,241 $ 555,194 - --------- - - ------- -

SmileDirectClub, Inc.

Consolidated Statements of Operations

(in thousands, except share and per share amounts)

Three months ended Nine months ended September 30, September 30, 2019 2018 2019 2018 ----------- ----------- ----------- ----------- Revenue, net $ 168,663 $ 112,508 $ 522,529 $ 278,024 Financing revenue 11,522 7,158 31,185 16,706 --------- - --------- - --------- - --------- - Total revenues 180,185 119,666 553,714 294,730 Cost of revenues 39,125 25,837 111,363 67,704 Cost of revenues—related parties 2,310 10,098 13,652 28,608 --------- - --------- - --------- - --------- - Total cost of revenues 41,435 35,935 125,015 96,312 --------- - --------- - --------- - --------- - Gross profit 138,750 83,731 428,699 198,418 Marketing and selling expenses 131,263 57,210 340,409 143,667 General and administrative expenses 389,828 30,249 486,319 77,550 --------- - --------- - --------- - --------- - Loss from operations (382,341 ) (3,728 ) (398,029 ) (22,799 ) Interest expense 4,291 4,352 11,607 9,283 Interest expense—related parties — 293 75 1,246 Loss on extinguishment of debt 32 — 29,672 — Other expense 421 6,493 500 15,135 --------- - --------- - --------- - --------- - Net loss before provision for income tax expense (387,085 ) (14,866 ) (439,883 ) (48,463 ) Provision for income tax expense 479 85 596 294 --------- - --------- - --------- - --------- - Net loss (387,564 ) (14,951 ) (440,479 ) (48,757 ) --------- - --------- - --------- - --------- - Net loss attributable to noncontrolling interest (299,268 ) — (352,183 ) — --------- - --------- - --------- - --------- - Net loss attributable to SDC Inc. $ (88,296 ) $ (14,951 ) $ (88,296 ) $ (48,757 ) - ------- - - ------- - - ------- - - ------- - Earnings per share of Class A common stock: Basic $ (0.89 ) N/A $ (0.89 ) N/A - ------- - ----------- - ------- - ----------- Diluted $ (0.89 ) N/A $ (0.89 ) N/A - ------- - ----------- - ------- - ----------- Weighted Average Shares Outstanding: Basic 99,533,877 N/A 99,533,877 N/A ----------- ----------- --------- - ----------- Diluted 379,008,382 N/A 379,008,38 N/A 2 ----------- ----------- --------- - -----------

SmileDirectClub, Inc.

Consolidated Statements of Cash Flows

(in thousands)

Nine months ended September 30, 2019 2018 ------------ ----------- Operating Activities Net loss $ (440,479 ) $ (48,757 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 16,237 4,966 Deferred loan cost amortization 1,496 461 Accrued interest to related parties — 884 Fair value adjustment of warrant derivative — 14,500 Equity-based compensation 332,759 13,626 Loss on extinguishment of debt 17,693 — Other non-cash operating activities 1,783 3,305 Changes in operating assets and liabilities: Accounts receivable (137,509 ) (97,005 ) Inventories (5,852 ) (3,963 ) Prepaid and other current assets (6,205 ) (2,233 ) Accounts payable (4,475 ) 11,935 Accrued liabilities 45,880 9,926 Due to related parties (19,177 ) 306 Deferred revenue 5,834 8,869 ---------- - --------- - Net cash used in operating activities (192,015 ) (83,180 ) Investing Activities Purchases of property and equipment—related party — (4,722 ) Purchases of property, equipment, and intangible assets (66,355 ) (15,231 ) Net cash used in investing activities (66,355 ) (19,953 ) Financing Activities IPO proceeds, net of discount and related fees 1,285,759 — Repurchase of Class A shares and LLC Units (696,489 ) — Repurchase of Class A shares to cover employee tax withholdings (81,603 ) — Settlement of canceled awards (2,000 ) — Issuance of Class A common stock 6 — Proceeds from sale of Preferred Units, net — 298,549 Borrowings on long-term debt 176,000 117,375 Payments of issuance costs (6,127 ) (3,174 ) Principal payments on long-term debt (159,047 ) — Principal payments on related party debt (24,581 ) (34,376 ) Other 86 — ---------- - --------- - Net cash provided by financing activities 492,004 378,374 ---------- - --------- - Increase in cash 233,634 275,241 Cash at beginning of period 313,929 4,071 ---------- - --------- - Cash at end of period $ 547,563 $ 279,312 - -------- - - ------- -

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

Three months ended Nine months ended September 30, September 30, 2019 2018 2019 2018 ------------ ----------- ------------ ----------- (in thousands) (unaudited) Net loss $ (387,564 ) $ (14,951 ) $ (440,479 ) $ (48,757 ) Depreciation and amortization 6,514 2,232 16,237 4,966 Total interest expense 4,291 4,645 11,682 10,529 Income tax expense 479 85 596 294 Fair value adjustment of warrant derivative — 5,876 — 14,500 Loss on extinguishment of debt 32 — 29,672 — Equity-based compensation 324,497 5,754 332,759 13,626 IPO related costs 6,146 — 6,146 — Other 421 617 502 635 ---------- - --------- - ---------- - --------- - Adjusted EBITDA $ (45,184 ) $ 4,258 $ (42,885 ) $ (4,207 ) ------------------------------------------- - -------- - - ------- - - -------- - - ------- -

1 We define average aligner gross sales price (“ASP”) as gross revenue, before implicit price concession and other variable considerations and exclusive of sales tax, from aligner orders shipped divided by the number of unique aligner orders shipped.