SDC - Earnings call transcript Q3 2019

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Operator

Greetings. Welcome to SmileDirect Third Quarter 2019 Earnings Call. At this time, all participants are in a listen only mode. A question-and-answer session will follow the formal presentation [Operator Instructions]. Please note this conference is being recorded.

the for to SmileDirectClub. turn President Sternberg, now Relations Investor will conference Alison over Vice I Thank you you, may begin.

Alison Sternberg

Good afternoon.

Before remind includes we you that this me begin, conference forward-looking statements. let call

the on please risk information described therein. filings, additional For factors refer to including company's SmileDirectClub, the SEC

forward-looking not are All our based today. and as applicable that should on future update our rely I statements on description except of We a such statements. obligation of to for of on assumptions presentation as You we Slide refer of by make predictions required forward-looking forward-looking events. information, statements call X law. as no you this beliefs certain undertake to

also of non-GAAP financial In with obtained flow. free presentation on of our a such cash discussion financial the respect site. this required to included EBITDA be is this slides will which certain Regulation by exchange for and conference call, Information call, act G have the in measures, we measures non-GAAP including Web adjusted can

We appropriate also certain to of measures this non-GAAP financial you reconciliation the XX for a presentation measures. of to GAAP refer Slide

I'm and David Kyle Chief Officer, Chairman the Wailes. today Chief Katzman Executive Financial call joined and on Officer, by

the turn to now me over Let David. call

David Katzman

the of all for Thanks, thanks Alison. And to joining call us you on today.

club to the to also I hard commitment IPO their their excited confidence I'd our SmileDirectClub our want are in on to our company. report as new the their Company. results like for investors process We and team endless to first work thanks a public quarterly to our extend special thank team and for members. our

our business. on this from the quarter, few trends a focus address I'll mostly but highlights overall in we'll

that, our take some share And will discuss our then will turn want call After your to is we to SmileDirectClub and about over financial the philosophy. our time I guidance. results also story this to first call, questions. you tell Kyle As I to operating the earnings take and

laser remains results our for focused on execution team the IPO, quarter. Post our and

of exceeded financial business. the testament will expectations greater which momentum provide highlights. the underlying are some strength and here in of a Kyle are later All management's call, but to the detail

Revenue year-over-year efficiencies. orders, ASP as manufacturing year-over-year for year-over-year. margin in-house XX% automation our of discipline compared an manufacturing, million. This our of unique improvement XX% a the points our improve chain grew XX%, continued up of the basis to for result XXX% portion XXXX, margin We shipped at aligner quarter. up $X,XXX XXX,XXX was for aligners a well is quarter over XXX to QX Gross outsourcing manufacturing in of as supply and QX $XXX

continued ahead will Finally, capture the adjusted million, that at position negative long reflecting opportunity. believe $XX EBITDA came us in favorably investments expectations market management's to of term we

million. fiscal revenue be economics $XX these growth XX% we following; to year year the be for $XX unit strong. to EBITDA expect year-over-year of between light midpoint results negative is to between the remain In the fiscal adjusted the million, for range; $XXX representing of of negative and at million expected Our to million very XXXX, $XXX

pleased QX very our with are We results.

against metrics to business core customer possible our continue Our positively are best experience. opportunity we as the untapped delivering execute through trending massive

and public first our discuss like a take is this as step a SmileDirectClub company, I'd call to Since earnings back story. the

forward and smile of person chapter everyone. convenient access years accomplish we since each look the our to We next for to over the our with company We're affordable life. a founding, mission we've and course just by able are making every it pleased loves the of to to and very been on what democratize five

$XXX,XXX, but changing safe, affordable to $XXX,XXX to convenient to who those that with afford pay and limited For too long, teeth-straightening are solution. a we was can

support in the team country XXX are a of this X, day. are across members team abroad, every of mission We united and who

from about club about our day, and member and confidence receive never are experiencing have better. changed the their We messages on the of passionate Every impact make them we for constantly thinking to ways members lives how we our better, lives had work new that their giving have and they our we before.

in smile grinners be rewarding is positive We and club not we life thank for are and the could impact SmileDirectClub. prouder changing them have have we our members. confidence, changing had their a someone's It hiders impact we showing in to incredibly of on trust to

can underserved form treatment We achieve malocclusion. of access, unmet market operate upon XX% believe have people to over longstanding our consumer differentiated annually. XX% and Yet, category. We of where this With roughly a than are treated in population of in a some smile. help less our convenience aligner large we and are cost, address the needs founded better this positioned value proposition uniquely X%

XXX,XXX innings And despite traction strengths visitors, significant unique because members confident inception. since term very gaining X already with monthly long in being we in are key this over Web site a early motes. of treated trajectory of our competitive our opportunity, We're million and and approximately

a driven SmileShop More we friends and come to today and recommend of brand a experience through First have than positive serving XX% our our experience. foremost, members would of member referrals. with mission our approximately members XX%

likes XX% presence Google over growing Out placing of us media reviews, sentiment, We well positive DSO of and social followers reflect a on with Instagram. Facebook, XXX,XXX XXX,XXX ahead other providers. also on enjoy large on traditional XX,XXX over and over

Web stars our scale. rating out on of reviews five a site, XXX,XXX reflects on star average our X.X Lastly, approximately

that incredible SmileDirectClub. extremely see, of can are team This and proud results. members members you direct reflection As our at happy a have these of we are we very the is

members an in XXX retailers. utilize or of pursuing a home, to approach, prescribed to Walgreens with products through visit doctor our their our those are and impression in kit partner opportunity to mailed including our allowing plus one locations our CVS, a SmileShops, other omnichannel we Secondly, our

operate, maintaining highest which us operate Third, have at while in dentists comprised of our affiliated exclusive to every we we allowing an within standards-of-care. licensed the model orthodontists state network doctor and scale

financing, removes limiting SmilePay as which our price factor offer a members. captive we Next, for

we together SmileCheck. in a our Finally, proprietary our all bring software medtech vertically integrated platform by strengths completely empowered

experience end-to-end manufacturing, throughout process to pain from initial and the Web against feedback. members' to the the of through rapidly points visits us and fulfillment positions control innovate Our treatment, ultimately member aligner throughout site their

we integrated to differentiating. the and individually company industry, only consumer motes a to are summary, allow achieve unit are what We us collectively, preserve scale. which economics delivers competitive fully these highly they're In grow or true significant end-to-end and incredible as continue experience. But

drivers. Turning to growth

platform. our grow who've using members While we with to progress are to-date, approximately very gotten XXX,XXX believe beyond plus they significant love our opportunity pleased there's we smile

have through and total through opportunity, continue omnichannel at to advancements market continue aided every technology will X% CRM improve to educational efforts, the at engagement member touch our than point driven is to we focus across on Given of which we XX% acquisition captured and funnel. our data strategies, And our awareness, less up conversion expect today. we marketing approach insights,

month, the and launched the our international third third November our International in expansion launched is with and last our we we Canada Zealand the driver of second the continue Australia, in market, market, into outside And also first us XXXX; footprint. of international XX% to just obviously a growth U.S., We for in approximately UK, international market focus our the quarter international market, New of of key Ireland. XXXX. second of on quarter expanding XXXX;

into regions and a the this of to robust into international plans have roadmap next We additional throughout end launch with year. year

And globally. to performance is that U.S. these access, to are of great brand countries business is unique problems a Our and so in not convenience consumers driven model and all our with costs, off it start, resonates and mission

remain development. We focused also on product

launched we more innovative including balm, and they which Clear We to launched their an our teeth In very sleep, series retainers, nighttime-only only already Aligner have premium ancillary product, July, of and a our while products, come. whitening bright late light. accelerator to enables there's LED members lip straighten on

research resources revenue. development also deploy continue in stream our relationships of of efforts We support to lengthening members, while with and our recurring our our enhancing towards

CVS and U.S., driver to and also arrangements Drug continued SmileShop expanding Warehouse with rollout is the Mart suchas in Walgreens conversion, in and including Chemist Shoppers Australia Canada. access Our retail our in key in care partners, improving

corporate in-network and other will who no This reimbursement. basis. Healthcare an longer Looking recently plans these partnerships, submit into to need in United on include members participate to with have at agreements Aetna we our for means coverage insurance entered retroactively

our that to support manufacturing production lab expected meaningfully our also like is have Tennessee plans also to This in to add expansion we announced new increase of facilities. a while providing to our capacity, I'd exciting Texas. new recently in growth, dental establish redundancy Kyle,

location the online expect come early We or to XXXX. new QX QX of end the towards

businesses a we regulatory and not operate. is want previously Before take to industry face I address disappear within from and something nor scaling a is building conclude, disruptive new an reactions my us a it that entrenched do has been This climate disruptor, will spent career challenged. I which not the moment as I as is company not this overnight. to uncommon that for to

are defend effort believe anti continue behavior. markets, an successfully anti-competitive activated All various our to tactics We our by high. of have regulatory proactive against several their efforts to We [beaten] compliance we to lobbying have mission have in national [XX.XX] effort and their we who in prices and to power. international resorted advance a in attempts each consumer enact with will keep competitive organizations preserve pricing and agendas to and requirements

support us continue fight this opportunity patient access protect the we to convenient consumers That the order low partner to welcome expect to with community the cost in said, want in access can cure continue deserve. and You to to care. that dental providing of to

incredibly success today to we as Last proud of are has but work result we where the a which of team to of. our talented not a be of hard come least, in part are a getting

delivering experience at demonstrated margins resulted has gross through an Our expanding has improved growth efficiencies. execution and team, in also scale exceptional customer that while operating

Thank attention today. you for your

turn will more Kyle, results, QX our will I financial a provide walk the our detailed through to of mand you call who outlook. review over Now,

Kyle Wailes

Thank David. you,

our we're mentioned, As David with the performance third in quarter. pleased very

of produced execution the In have the month in previously headwinds allowed September, in cited. of and focused SmileDirectClub. in we outperformance plan, highest Our despite September to revenue which particular, was come August us ahead the our history

pressure As sequential on a in put specific some QX, softness business, some normal seasonality that which addition quarter downward reminder, the had we our issues in conversion. earlier produces the in of two to

delayed social our we in First, ultimately digital rates, a exchange we new issue in to experimented marketing larger that aided within and experienced members. technical the to of treatment messaging with given action delivery specifically And our a of one second, channels. media, some referral awareness plans call

to change While bookings, accompany nice this not conversion we aligner the sales. produced see in lift did messaging

producing moment a We're able by the behind mentioned both the is highest as very ago, to both issues optimize This revenue that vertically our was to us them to in very in performance. and of see quickly month platform September reinforced allows great also our and is example a address medtech This rapidly history. how identify as fact much and order completely our us. integrated pivot I manage

was increase XXX,XXX of modest let's an increase for primarily Now the million, XX% statement. XXXX. at driven aligner which quarter in in turn which Revenue represents year-over-year at of was in the came $XXX This in to increase in X,XXX. increase by and ASP, income third a which XX% shipments, quarter came the

on our the margin the by was our processes. as quarter in-house, our XXX% continued prior core manufacturing focused manufacturing very XXX discipline over improve gross versus aligners through in basis and improvement as margin strong further for advancements chain driven our automation and efficiencies. automation our to year. was manufacturing XX%, This of of all improving remain point profile Gross technology an supply continued We

net to compared expenses revenue Marketing in $XXX QX revenue the net XXXX. and XX% in XX% quarter selling of of million were of or

build strategic both we During already order digital demand the to to as strong significant footprint our make continued ensure in to and investments brand best to and media quarter, with are expanding our fulfill our said, of advertising U.S., we on we been currently the begin we we strategies in recognition. expect positioned our investing particular In and rollout in growing top continue and cover to and the XXXX have in SmileShops, the efforts. domestically DMAs footprint within our with That on XXX overseas to focused leverage we this emphasis beyond. both heavily marketplace, the

$X one-time costs the million and specific expenses the expenses were million administrative million $XXX period. period in to year during one-time equity QX G&A a based year General include in related other the million and $XX $XXX compared to quarter. of current prior charge of third compensation in IPO

expense As related a expected we our mentioned one-time compensation we to third a to at charge IPO. SX, have of the quarter result in as

legal in which within a increase within experienced quarter, operate. also climate We significant expenses regulatory a the resulting from we

second expenses quarter quarter. legal to XXXX compared the Our the of third in doubled

we continue mission can quarter to access proactive to consumer into see maintain as support the You care. this our our fourth our stance expect defend to to to

continue science, finance, functions. capital is in we for growth. Additionally, focused across to marketing, technology, human our on invest analytics, company data long-term the This preparation and in data corporate other investment

loss was million net to in QX million $XX loss XXXX. $XXX net compared QX

just our $XXX QX QX EBITDA I $XX IPO approximately adjusted negative to million. increased costs to our million of As by loss ahead compared loss mentioned, decrease related $XX million, a of even target QX XXXX. at net

margin XX%. EBITDA negative Our was adjusted

SX. Moving This and for cash included set IPO payments $XXX $XXX distributions approximately million ended our third in expenses future balance We and referenced equivalents. to sheet. for with the or quarter in million as aside cash

from investment was negative take cash SmileShops third us the negative through and launch our cash third manufacturing million. investing the third on as defined profitability the continued in balance I Free operations point to infrastructure. flow current associated like for with from cash investment expected million, quarter from XX Cash $XXX $XX the with mainly was Cash for flow negative to the $XX cash cash that was out million. quarter of for is sheet would flow quarter operations

card remaining with per from is aligners. Quickly purchase to XX% financed XX covers more manufacturing over in $XX required down month. average credit cost With QX a is using elected QX our payment upfront, is of XX% an SmilePay, turning than months down of on-file at cost which SmilePay, members in the SmilePay, of XXXX. XXXX, which The the cost $XXX

Over the treat have seen to our trends positive tenure we of metrics rates. as and such program, time and loss delinquencies

profitable of a XXXX, X% APR total XXXX. as for of is with down down be of to price since concessions with price an program. from trended associated than the with associated offsetting also any in QX the program average business percentage QX continues revenue rate SmilePay concessions XX% our a Further, in inception, has Implicit implicit more delinquency revenue which

the As long-term David steps that noted, to our barrier next have evaluate securitization success to built, unique strategy. SmilePay's we continue we and for

and to life clarity focus. we begin operate that we as to provide a transparency we ensure as while our our we long-term want As company, the how to balancing public business shareholders

taking customers, and quarterly these Balancing will team maximize Our growth members long-term and annual move ability on our a to quickly value adjusted thoughtful on deliberate to revenue for guidance our and to capitalize opportunities shareholders. our EBITDA. approach priorities, we're and

so in We're committed to being quarters to transparent about both our performance, as and well decisions. and as the come, our operating understand are informed investments shareholders their years

As David opportunity. massive of very mentioned innings earlier, untapped we're a in early the

and gain medtech vertically with and deliver to to we Our scalable experience and believe platform the unit we in superior share integrated uniquely to are continue a allows us strong meaningful consumer positioned economics, abroad. U.S.

and to upcoming turn remainder outlook quarter With that the the like the in mind, I'd to of year. regarding our

representing EBITDA million, million be million is revenue year guidance XX plan We midpoint of $XXX range; the in to at first our adjusted quarter of of For for following; quarter call fiscal discuss to expected $XXX the our expect $XX the XXXX, growth between on the negative year-over-year negative fourth we the earnings year million. between to XXXX to XXXX. XX%

very We're conclude our early that for by me pleased in to on the results, over the the that, and closing turn call reporting future and to stages of With with our to remarks. our progress in excited growth. that were believe forward Let David we're back I'll quarters look we we come. QX our saying about

David Katzman

and when to of ability XXX% We everyone to good able our were things go call thank demonstrate a QX way. even to you our joining today. execute didn't Kyle, quarter. our Thanks, for was

an We worked of we better than our to incredible the front best that massive businesses on Overall, demonstrating the ever capitalize market the to I've have is with. team, us, in forward quarters to look positioned ever in come. and opportunity

execute business focused call, and to to all As do that, over the on smiles nothing more are people I for we turn to of at With the up over to the it operator every start back than laser mission. I We and us the our makes our will show bring day. excited stated world, questions. this

Operator

[Operator instructions]. Thank you

Marcus question JPMorgan. is with proceed. Robbie first from Please Our

Robbie Marcus

Maybe I Kyle, hoping start. could you was

for one give about little strongest flavor company's it us give more July, clarity more a the us there were little how being September? You how August, But know in history. talked pre-IPO quarter September third the you you just progressed, July. of quarters issues some Can maybe progressed? in a disclosed I

Kyle Wailes

from for quarter so QX strongest So new about is as and the perspective, New the talked seasonality demand Year, seasonality down effect. as July with a us we we've always QX a entered always is before, in into

that QX in two in QX typically and was the in other result year. that Our had of again and discussed perspective the that hop down issues July, QX ultimately we small from quickly flat and in saw were a addressed past that about is with backup to this month we've July. resolved particular demand we In

August So that mentioned, month September we for in we've had very was as And best back company. the come I the revenue history saw nicely. of

Robbie Marcus

One launch you internationally. started more just here, the

add countries month. going, any past say you countries added that are You've look Australia, in And forward would you which are to? now if that the talk Canada, more you to to recent? two midterm UK, launches over How can the can plan the near to

Kyle Wailes

very going are launches the Yes, well.

and same that globally. U.S. here the exist exist problems the cost, in access, convenience So around

quick new that and markets, zero as Australia aided and in Canada into great seeing and year, that and within up Aided markets today And U.S. awareness the is Canada with similar a a other XX% so awareness well. UK, country. is in as into entered into in entered we Canada enter we've traction these We just to we're example.

we more that for this for as we've look the year of countries you well. year, additional and got countries planned at As remainder planned next QX,

Robbie Marcus

And then for, I'll last into queue. jump back

Aetna early. I how and typically it's an impact, you are having is But cash any or data points, with can this insurance us it's point these seeing wins trends, with agreements You coverage? But know on signs signed and know Thanks. to early I United recently. and what you or pay.

Kyle Wailes

with point, still those. very early your To of both

on partnership with the those with expanding do. well, as ultimately to longer a having self the in and employers goal ortho to wage much front we employers network roads of coverage. think continue that also in term overall that's companies, long-term move to us were in I great actively care for insurance insured strategy with access self insured them, We're adopt of

And so we're closely working that mission. them with on

Operator

Please next question Securities. is Guggenheim with from Our proceed. Glen Santangelo

Glen Santangelo

Kyle, that We're guidance, suggesting questions for XQ getting being the the just up September about history. company's in a revenue lower maybe the comment, little past implied expected. a revenues follow on that the some than bit

the I at over. so revenue kind visibility level was just quarter all may be curious, and you half And at how at you to guidance point? about we're having are implied trending things conviction of Can maybe this of quarter-to-date, the XQ comment and maybe

Kyle Wailes

absolutely. Yes,

really quarter That the XX% of you mentioned, represents sequentially in the you million XXXX as which in growth So well. as $XXX at we to year-over-year, got to in XX% saw fourth context quarter-over-quarter, what expectations. think about growth think represents exactly $XXX is ahead million. in QX, which our as coming is I of think we of the about year, Revenue, full it

at we're $XXX very expectations those looking as to really in big $XXX our picture we the feel year about million it beating the full numbers. at QX, good million. So think of the about But

Glen Santangelo

you change they'll any worth the whether somewhat release for that any have model. your received in and bill? you Obviously, on that's current on would talk of bit that are you, that lot any And David, little around call? are that What Alabama? In Georgia that the ABXXXX Could maybe talk of you maybe again, touched you not more mentioning think regulatory legislation a or the your maybe your reiterated to other changes any don't one be other detail in complaints satisfies updates or that about necessary. pending you attention aware gives state a business board you require then your bill California model language California on in operations? of like kind the Or confidence environment.

David Katzman

was we been as compliance legislature. anticipated. that So the laws why first businesses in really It's as We're the it's because brought important not it made our no you're on of should States. presently the all, note with objection United regulatory compliance in if we think legislations, stated to or as to do across there's up, on It all by to be clinical with object that impact decisions the California, you specific the patient do based it. principle well

treating should decision Medical up and doctor. the we made left to and clinical

So if today or requiring network most health if their recent our patient needed, history, today, how X-rays that scan, doctors intra a set oral do their photo we patient's X-ray complete and reviewing our an determine operate and get is they that that new X-rays. review we -- and after from to the clearance

legislature, and really up doctor the in And state being to full it's as our it opposition for treating compliance we're bill. far the today. compliance, as So in stands was not that as the

Newsom over has the X-rays this. it's resident way, The necessary deny in not right Remember overexposure It's debate the be risk. cause not the health a they And citizen if health California to bill, practice. governor or good a is think he by there'll in California, that governor, when a said X-rays, of good thing. signed a not could

question, in outstanding. the second and asking there's than other nothing As your far Alabama Georgia as the cases, plaintiff

we stated, contact first I've disruptive in business, that lens fight. still been the fighting in, we're as Listen, even my involved not the this business is

XX over inquiries. single those, dental for We care we've There cleared. has one Every continue no will board action. been we've been access of fight for adverse customers and to state had to our

out, think which investors a disruptive have I barrier it's nature understand respects. this of a you lot will keeps competitors out that's that we the really so as -- in of to there, And business, what which -- is

Operator

with Block Stifel. Please Jon proceed. from is question next Our

Jon Block

about and XQ? Any percent details about more to when see what time one pipeline. aligners, Maybe in quarter, And where the current and then the those do aligner more even the on it the rounding time, how the that got on current of you night other just follow of a out pipeline, for in the night where guys approximation earmarked talk opportunities? In words, portfolio, of the ancillary you And side then an is first some is I future up. are future cases you talk focused? it things or just quick

Kyle Wailes

we're So lot their inconvenience a The excited shown lot. of is the this. into around wearing of did that day, new so may customer pleased very a it's about. What we're into specific never Pretty night new the here the customers otherwise far. teeth-straitening with to adoption have top speak looked to time, They it's which occupation. the funnel, a much the at done in due swinging is all brought research may aligners happening might that research chef. their what what's be They funnel of we very

as have far we a As R&D, now. team full

week, products. speak down opportunities, wear new doing all in we far in We planning as there they're our Costa and new adult for at have as looking -- advancements products in technology as actually, we're down this they're treatment where aligner therapy Rica

in technologies R&D healthcare products company. company We're a you'll to and innovation. XXXX. to that's and we're other So coming out And commit going see a

Jon Block

then I it's a think but push focal regulatory, investors. hate obviously on I point And do for to

to of seem need that dental in a specifically words, just X-ray model? an that out needed you business Clear -- just with as clear, question any other In proceeding before to take performed of made have to So therapy? think to tweaks don't other speaks And world clear, to the need is changes be XXXX I different be or FTC's Aligner current to and interpretation? were this guess be parties the the just is there to

David Katzman

treating clear we it's as require says performed it there'll the have ABXXXX dentist have a doctor the last to recent What bone therapy. visit a We But do over. order debate it, customers to within have and new Aligner the or orthodontia. must X-ray X-ray So a consumers read recent and that set our for legislation to does in review gene as lot get a recent we be months, today. Clear their a other very to suitable the that require to of read six of not X-rays. We

So is there. all that information

the parties feel don't just feel we in not to right with we're other debate to governor it's company what as and as of But is as our other far does teledentistry. this compliance. that legislatures care, we we So as founded legislature. -- It's going -- anything far in which model. being compliance, on But are to it our fully access is

Kyle Wailes

And I'll just add quickly, to that Jon.

nothing put So in if worst possible any to X-ray impact terms economics incredibly that the we business, that. doesn't case impact all in sort if or ABXXXX, the other of powerful shop, would an also that about. unit to within there's at economics the that even what's about talked of that, had It’s and you go in we've always the think scenario unit event, it legislation

Operator

Demko with is Citigroup. question Stephanie next Our from

Stephanie Demko

the we've to fourth touched want dig quarter, just I a deeper into on already. I little know

spend takes, of Just build are How an stronger then? [indiscernible] much for the also is there's stronger the so or -- and extra being quarter combating September there getting month and given fourth seen regulation, you some far. to puts quarter still the we've how

Kyle Wailes

our we what Look today. conservatism, as as on about and we're about we talked look -- at think the we doing call,

year-over-year, before, full you look said at today basis, the the business changes and really Like So into I is into at that in year did we're have on looking factoring we conversion it got that the our building that's quarter-over-quarter, in assumptions. into not assumptions. we're if of countries we which new our look at in and We're QX. in model. going what sequentially you XX% We're Again, execution exactly what's in a not I XXXX. to up think terms XX%,

the QX profitability on think look for at side, then if you second. And I a

So a obviously, managed Profitability QX, outcome. us, our profitability came ahead it's expectations. of for in really

overall. profitability on it So lot gross margin, of think us we a provides flexibility XX% versus with growth how an about

side, a XX% the aided XX% for and marketing invest up in awareness. we're On up Aided us just that's to over in goes drive awareness today, continuing from to year.

On we've several and invested we the already have. XXX the years the top DMAs over past quarters today, SmileShops side, that covered footprint and that we into

before, markets, and about We in XX% We've near as significantly aided that months as today. to we international the these which into for leverage in marketing we sales expect launch talked drive do six well. when to in awareness Canada and start to invested to I the But first over-invest new is future beyond. footprint up

future investing the growth. we're for G&A side, On

that So that's it's were products we're also international product time mentioned which R&D product R&D, our other minute our again. from David that on. the forecast focused expecting night in legal to but data well, QX QX IT, ago expenses with QX R&D, and with in marketing, and we're analytics, team, occur compared manufacturing it's as the our double to new QX, as had a

of the profitability we in So about expectations about long-term out still for as EBITDA being that our ahead and thinking to very summary, targets margins. there quarter, we're XX% investing it we and growth feel put the for XX% we're good

Stephanie Demko

the and isn't just baked And over go year when we think What year? going for of you in in coming about ahead. that give the upside extra long-term shock kind targets, a

Kyle Wailes

new countries that We we're variety of other working there's of we're lot lot on products as and lots a today we're focused have into, working on ancillary a initiatives. on that of expanding that

Stephanie Demko

it to When of possibly to your this? you shop. mentioned think you for in about for like Or Last that having the something it after near-term you're all would going more to, you the an me, about? the to with be on dust have and to done settles add if would be is something X-ray one think defense ABXXXX,

David Katzman

right We the in not doctor do written, we're the to ABXXXX do We have today in have an a way put to in X-ray shop. is Well, compliance. shop. don't the

So we're good it. with

want And They a so about what know people as are Once as mentioned, scenario. case understand it. I again talking worst far on to disruptive focused think I very it. Kyle business, he's been

different trying the and are states -- all at at Alabama, Georgia, look you boards, regulatory some enact, environment regulatory these to California. what If the dental of the

those have a of plus brick-and-mortar this we shops, all have footprint we that do in we fact there. have shops, The to XXX is dentist smile put

in and in think this, and like fighting if why a do that's to Dental, there don't the just or if dental why breath we'll that's in Georgia, we there, to any have fight Heartland or continue to and oh, says, access fight other, Alabama California for residents. put we Aspen takes and is is. feel what everyone's care dentist But a I we're So you for that, it's California

not be a of X-ray say, you But taken doesn't idea. there was and in by was consumer. originally opposition, good there X-ray way, a bill, they there it, health read that's is tried the because to new unnecessary must that a changed, lots risk if that Taking it put that a to

dental photo orthodontists and dentists the our is intra-oral of make sets, office exam if all is no determination of which a a scan, the different all network an So in and today. they than health review our a the thorough do very history, even revealing X-ray

and local scan, he'll your make warranted gums, an buy determination your necessary, into Invisalign, a looks and your is not office dental X-ray you’re he walk teeth And or not. it and want whether determines it's if scan If at good. you that's to

if is to have that And started I much you originally better it X-ray out. see get written, think outcome to. language it's that's you an the don't than the You why way a unless want

Operator

Couillard is Please next Jefferies. Brandon with from Our proceed. question

Brandon Couillard

locations have ramped start the sales started progressed like relationship. just and six months? you happy months with SmileShops, I'd and CVS over now where or David, they've X-ray where it's we of of And you've or and in since stand some signage are terms sites? front kind last with been house, those been [indiscernible] of perhaps the back of sort if maybe in to that of sort six initially Are about how on the for where and color

David Katzman

It is, what was just it you, call. maybe progressing. else But it's little I think CVS asking me. on a don't everyone if hear the to the hard I how was relationship, you're

going of relationship with pieces ahead CVS, great store members co-marketing we of -- other marketing both the rolling our So mail, We're team email, yes, CVS team in great out that within have terms some partners, members. collateral. to done with further We're doing Walgreens. yet, and direct not start we're and their

study have our We excited now with should will XXXX right these we a continue that. interesting into so shops about actually expansion We're really only that with CVS. through information we're next And about so very in where week. should,

about little being share probably you that with will call. QX these thoughtful a more we and So locations, on our

Brandon Couillard

assumed And quarter, of the that follow-up kind steps what us back third out and Kyle. for gross in Thanks. metric you the the for the to then step [indiscernible] both quarter in one third in in account terms [indiscernible]? Any can color you for with ASP share down of

David Katzman

to was it hear hard again. little Yes,

quarter. asking I in third the and the up ASP think about you're step

down that with if So business. associated X,XXX saw QX we step XXXX ASP trending international third the you in and at was in the quarter, to the look QX

So Canada the last year. launched QX towards end of we

then launch six that in we of out take enter we equation. countries, to we with to ASP in As international raise slightly later, these lower the three, months a And price. price tend

Canada. as other in that we're It's well. the launching that in into seen you've countries So same plan

into similar would within we've we and the those into So enter bigger those as down that them. a there to as of But trends international ASP, expect for what pitch becomes small be countries we're business I had will launching of portion each countries, QX.

Operator

Caliendo question Our next from is with UBS. Kevin

Kevin Caliendo

a or than they third Is change mix, the I the quarters. in noticed that that and in couple overall than slower trend quarter? revenues in revenues you the financing slower grew third over to first actually quarter reflection talk of that of grew can certainly had

Kyle Wailes

in financing jumped $XX with from about that's overall, did where the you per and month, well. year, think we associated to a So $XX price it earlier there revenue as have change as in

bit. look little it come a If you SmilePay, at has down

last total mentioned, was trend and I versus down quarter-over-quarter. out today, there year seen XX% of XX that customers we've So

impact an that's on having So that as well.

Kevin Caliendo

bit And debt would trend at talk in -- What that to third saw just to the that X% you all happy number came to revenue? you refunds quarter in the quarter. a the the about net hear closer about little can bad down your part of

Kyle Wailes

Yes.

reserve flat seen of doesn't what We refund. refund So X% historically. revenue a any we've type percentage approximately as for of keep to

Operator

Our with from question William is Kreger Blair. next John

John Kreger

ramping typical relationships any think the coming if up volume Thanks. I'm How sort payers at should adding January payer the your seasonality -- up. a Just step in curious about the there that curious all? additional you of expect And of question. enrollment? related Do if and after of a Aetna beyond feel kind changes newer with we months? United do you

David Katzman

really an impact. one, So small the first now it's too see to think right on I

change that we little bit. focused New than the The business, I of anything years. more might growth really important grow a negotiations continue currently and think future absolutely, seasonality as effect a we the else as our component that it to on more is as seasonality with think about variety well, other being and see in in other players payers, we're Year to

Kyle Wailes

we road phenomenal It's the really get network to a build. a there. we talked on And were show, the as it's and took in while

on customer lay services build of have be for been are with it's and and that a covered. the become But will hand-in-hand out will these road treatment will and so Our where it pay always for it's Aetna to But in they're insurance after and soon been United out the these the only reimbursed. effective into be This of companies. pocket $XXX real have cash the $XXX, customers come really And we others, with selling get the a rest. XXXX. bonus

exciting start into real path. of numbers when our it's we'll it's I to the but any not that's today. baked see think But

John Kreger

I might that's you impact? true an Thanks. pressure. I Can in think And for margins. and we new there's like some margin. key Also through the just takes? longer go Texas sounds Kyle, know rolling one international how have more, roll if downward sort as term into in as said of about It know don't ASP. puts you you curious maybe markets, plant so in

David Katzman

in So is change in today. so margin, long there here sit as XX% of that terms we margins, assumption no term our gross

grow I us manufacturing business. are we really XX% power automation, on we from up the where that to focus automation plan think additional continued what's going expect to purchasing is we the today get the walk treatment and as that on is

change out there. On and no or sales that to the put XX% marketing we side, the XX%

period we go we internationally, do we as grow months into. six point, over-invest a of for your each about country To that in

assumption no international our XX% term but thing that as a XX% So will long to to and percentage as no impact growing on to the that XX% of change being the have is and then sales term marketing the we side, quickly, see change short on assumptions. revenue, same G&A an there

to EBITDA out All of XX% we that there. margin that you're the XX% driving to put

Operator

Please proceed. question next from comes Loop with Champine Capital. Our is Laura

Laura Champine

utilization to expect facilities. end of be It's get the what of expect year? running about to your roughly Texas Where Tennessee by capacity of And at in do you the do year? level have utilization next you you middle up time this and

David Katzman

month So the about plans sit million we have. capacity, as per produce today, here in aligners can we we X.X that

really the so business. have going to as that on that facility, monthly do math redundancy. we Kyle, in approximately you that, significant support launch If revenue, is today providing XXX capacity the we million on that's to Texas, be focused

as our redundancy across Kyle, happen And two in building plants. Antioch full would Texas those to in in were something redundancy facility here have well. if So we're

Operator

[Operator with of America. instructions] Our Please Ryskin next question Bank is proceed. from Michael

Michael Ryskin

one how get some then Kyle, picture up about a a and David. talked the profile have there marketing. margin and kind for quick long of follow gross on sales you sort bridge I you bigger term Kyle, just for, of the of line and and

of marketing sort a and versus If higher But gradually about And costs, think marketing in you still there's customer lower as the of revenue terms a realized terms of sales pieces sales talked lot growth. you trending in I terms there. growth. international of percent you're expenses of year-over-year of of acquisition in and some moving

awareness? achieve just confidence in you you at being couple years. spend. moving in some the that just that the next sort of able XX the a target target in if And direction Does exclude the do overtime? that you hurdle international to right that you sizable really rates, of of If to talk visibility there. about look Kind gives to inflection what XX with towards or Are There aided your U.S.? is

Kyle Wailes

the versus number. marketing say investment what the purposeful going obviously a not making. is we're number split But sales we're I'll it's that out to So

support that awareness. year the a long So the to on that's really really we today, the drive in growth ago in We're and selling term aided thing going up going XX% same and from marketing investing that drive we're today side. that's XX% business, to to have

you investments both of utilization the and we're beyond. SmileShops in to the and within that of those leverage have we've out in shops start going made If today, get our look at that to we XXXX

XX% really because XX% said and it's that And very sales investments before XX% which to for confident us, about because as growth of we're flexibility our an profitability. gives with on And gross a so our that today. purposeful I a managed making we we long versus -- profitability, approximately it feel XX% as us target, marketing outcome term how margin, starting we're our margins lot is a think about for

Michael Ryskin

a at headlines about David, to of legal picture, And continue some thinking California Alabama, we've regulatory seen just the come big the Georgia, and up in risks, one time.

next for on and the do and happen of the offensive of you regulatory of overhang? that these these to persist change taking can You years? dates one think the to coming remove challenges strategy legal at a a some more up do talked And what legal time continue Because sort needs can the time of about see some keep on you now? side this and to over some couple action playing out How issues.

David Katzman

we good inquiries. first to very That's started recently, a up point. we these state until and oriented When really were reaction new

we've part that of out Senator Board proactive, through us on Bill with the of abroad. went And and both then really that. for early same doing -- good is, got the as now. of the lobby on Teladoc. fight also they expense got a team, is as As really of is he's And our late, our the helped well we've finally playbook reason Chairman board and they and legal Frist, we're who the in the U.S. in increase for

So in we're teledentistry a legislation, here. and of the curve ahead of states getting acting handful

to after us. waiting the come not state we're for So next

is country, it's this five, And We really feel the going seen it very for favorable. about the the telehealth industry. years paved six in -- way hear real. ago. it because after it. telehealth today don't wasn't that states you very to what, and about and Thanks as us, good It's case, Teladoc the

So there. we're taking a playbook

own come that far X-ray. include you an interpreting It's devices plaintiff You'll laws imaging might as know It's also as say about there. -- mentioned and They scanner, talking proactive on an But out. to that not see I'll -- start not legislation the imaging were Alabama, Georgia, device series will when the again, just it like true. is iTero of these more which a you we're photographs.

And So became we a got is ahead it. there. of of getting that one plaintiff we and ahead that

really So first listen, has came When XX state went years nothing we guys out, we changed. when around. inquires. ago, we But first had we five off started

the XX front our of it's over of understand provided started were just person, to here. boards doing all what and and And the compliance. totally different them dental some on it. And have some of as within information, model we in we in they And states, all phone. We requested go

into licensed we transfer the and to that we -- had orthodontists or them building them we I put ELPs, have, And network to is think would in concern. huge that every no call, like dentists network we dentist would are take of, every and this state. in if there's what So our affiliated we don't said of a And that put we shops. going actually happen. But and single

consumers really not So but It's huge want how how it's just the our are affected. not not we up transact. to a It's model. the increase build to cost economics not us, unit

what fight to right. is continue believe we we So for

Operator

the And like turn Ladies reached to we comments. management of to question-and-answer have conference I'd and end back gentlemen, that for session. closing our over

David Katzman

right. All

you. of look and you big call. we to We'll our lot I number, which Thank I I'm about with week. guys the happy in We days. so, coming and there's think, thank of And to lot of we're again glad everyone want to calls rest is earnings for so I a a people the business. interest. good. throughout know to following we're heard our I a XX discuss first or we talking up inbound get you inquiries, forward be XXX had to

Operator

concludes This you. today's conference. Thank

thank your You may time. this lines And you your for at disconnect participation.

SmileDirectClub (SDCCQ) 13 Nov 192019 Q3 Earnings call transcript