SmileDirectClub, the creator of clear retainers that allow people to complete orthodontic treatment by mail, released reports of its fourth quarter performance in 2020 on March 4, 2021.
The report also covered SmileDirectClub’s financial details for the entire 2020 calendar year.
SmileDirectClub’s Fourth Quarter Performance in 2020
The oral care company reported four pieces of financial data related to its performance between September 1 and December 31, 2020. Compared to the third quarter of 2020, SmileDirectClub saw a revenue increase of $185 million. The fourth quarter of 2020 also brought a net loss of $33 million, which was an improvement of 24 percent over the third quarter.
Other performance indicators for SmileDirectClub improved between the third and fourth quarter as well. EBITDA, which stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, rose $7 million dollars over third quarter. The increase represented a change of 137 percent. Fourth quarter diluted earnings per share (EPS) was $(0.09), an improvement of 18 percent from the previous quarter.
From a metrics perspective, SmileDirectClub shipped 101,794 unique aligners to its customer base for the final quarter of 2020. The average cost of aligners sent during fourth quarter was $1,820.
Key Financial Highlights for 2020
SmileDirectClub reported revenue for calendar year 2020 of $657 million dollars with a net loss of $278 million dollars. The adjusted EBITDA for the year was $77 million dollars, and the annual diluted EPS was $(0.72).
SmileDirectClub’s Predictions for First Quarter 2021
With the first quarter of 2021 closing in days, SmileDirectClub is anticipating revenue to increase by five to seven percent. Although the company expects profitability for its adjusted EBITDA for first quarter 2021, it is unlikely to surpass the performance of fourth quarter 2020.
The reason for the first quarter decline is that SmileDirectClub intends to take advantage of lower advertising rates during the first quarter to gets its product offering in front of more people. However, the expectation is that SmileDirectClub will build its lead tunnel throughout the first quarter and pay for its ad spend during subsequent quarters this year.
The marketing dollars SmileDirectClub spends during the first quarter fall under the category of long-tail. During fourth quarter 2020, 15 percent of orders from new customers came from leads the company first captured at least 24 months prior to when the customer signed up to receive clear aligners by mail to straighten their teeth.
Company Performed Well Despite Coronavirus Pandemic
The sudden nature of the coronavirus pandemic in March 2020 and continued uncertainty around it challenged every business, and SmileDirectClub was no exception. Despite this, the company’s March 4, 2021 report expresses confidence in its 18-month-old business model. SmileDirectClub did not lose its focus on growth and profitability, though it pursued these goals in a more controlled manner than usual. Chief Executive Officer David Katzman states that SmileDirectClub prepared its current business model to take effect in the fourth quarter of 2019 and its execution has continued uninterrupted.
Kyle Wailes, the company’s Chief Financial Officer, added onto Katzman’s statement. He explained that the fourth quarter closed out 2020 during a year that SmileDirectClub made measurable progress toward its plan of controlled growth and profitability. Wailes credits this achievement with the scalability and flexibility of the company’s business model that allowed it to exceed expectations. Wailes feels that SmileDirectClub remains on target toward its long-term financial goals despite the pandemic.
SmileDirectClub’s Objectives Moving Forward
The company’s focus of providing the best orthodontic experience for its club members has not changed since its inception. The desire to achieve controlled growth and profitability has also remained the same. Compared to in-person providers of orthodontic treatment with removable retainers, SmileDirectClub continues to offer the lowest prices in the industry. Other factors that favor the company include:
- Large brand presence
- No significant competitors in the mail-order orthodontic model
- No pricing pressures
SmileDirectClub plans to continue to invest strategically in the professional channel, penetrating new markets and expanding the demographics it serves, and growing the international market. The company’s expectation is that it will pursue all these things while continuing to meet its goals for continued profitability.
Kyle Wailes contributed further to the discussion on SmileDirectClub’s future when he described favorable dynamics within the healthcare and dental industries. The coronavirus pandemic has brought increased use and acceptance of telehealth, including remote dental examinations for orthodontic planning purposes. All brands of clear aligners are gaining market share, which Wailes sees as a positive indication towards the ability to meet future financial goals.
Technological Advancements
SmileDirectClub has developed a second-generation automation system to produce up to 60 percent of its clear aligners. The company plans to increase that to 90 percent by the end of second quarter 2021. The expectation at SmileDirectClub is that increased manufacturing efficiency will decrease costs and drive profits. However, these goals and expectations do not supersede the company’s commitment to maintain its brand promise and provide a consistently positive experience for its customers.
Sales and Marketing
SmileDirectClub currently operates 114 SmileShops that function as order fulfillment centers rather than demand generation centers. At the end of fourth quarter 2020, 82 of those 114 shops were in North America. The company also hosted pop-up events 104 times during the last four months of 2020, bringing the total to 218 permanent and temporary SmileShops.
Each setup has provided SmileDirectClub with a distinct advantage. The permanent SmileShops have performed well and see higher utilization while the pop-up locations have enabled the company to meet customer demand without the need to take on the costs associated with a permanent location.
SmileDirectClub reports positive liquidity for 2020 with $500 million dollars remaining on the balance sheet near the close of first quarter 2021. The $500 million figure is after payment of debt over the next several months. The positive liquidity works in the company’s favor if the coronavirus pandemic continues to impact its operations. As the impact lessens, SmileDirectClub hopes to spend more of its available funds on research and development in an environment of higher growth.
SmileDirectClub maintains its primary facility in Nashville, Tennessee, with additional locations throughout the United States, Canada, and 10 other countries.