SDC - Earnings call transcript Q2 2021

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Operator

Greetings, welcome to the SmileDirectClub Second Quarter 2021 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. I will now turn the conference over to your host, Tripp Sullivan of SCR Partners.

begin. may You

Tripp Sullivan

Good operator. Thank afternoon. you,

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

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

Act as We presentation rely refer In our our this statements. call, forward-looking Information not respect certain you of no that flow. on on adjusted call, assumptions financial to non-GAAP based make by for QX to for this of update applicable call included we future to forward-looking a measures, of our obtained and and should website. have You EBITDA will required beliefs discussion statements forward-looking statements by law. the such non-GAAP as including with a events. obligation predictions financial presentation description on is conference undertake information, All are on slides Exchange measures earnings which we Regulation cash also in as except this be XXXX of G free today. can certain the I of such required

to Executive presentation David and We joined you measures. Chief the Officer, am certain by the appropriate this measures Chairman, refer for GAAP I of a on today Kyle Wailes. call non-GAAP Officer also and financial Chief reconciliation to Financial Katzman;

now the call turn me Let over to David.

David Katzman

today. Thanks everyone. you us Tripp, afternoon, joining good and for Thank

manufacturing facility too Unfortunately, country. want begin, all I our Tuesday. to acknowledge in the last we our that incidents Before violence in event of tragic these common are workplace occurred

as they recover. and personnel, members, with their Our families security prayers impacted team to are thoughts our begin and

team to have personnel Metro for containing situation and the Nashville worse. swift Police could our members, onsite our security responding grateful and much that We quickly a in been actions taken are by

you've speak themselves. those not on chance deck. as Now they time had events review to earnings release hope supplemental for going documents comments any I to to of We're and our a spend at hand, the with

telehealth can update on five will I through with the then to in be are for its quarter investments as XXXX. business of want regulatory since directly a we mean call the a will some highlights the developed for color opportunity will every second those vertically we with convenient growth the the smile access first execute fell aspects person that to understanding the business focus are QX touch of missed we have the beaten that also we announcements. So goals on leverage highlight I'd we also proper on QX. with the at today replicate. for making responded to This have EBITDA the I first we stated expectations drive where last and by brief and our we what that mission, us incredibly this attack, provide in launched some today through context that demographics. to democratize adjusted move the both consistently and our sure campaign next several call, today's customer some deserves platform, to On some customer each the Invisalign's well provide the we've to view quarters recent start reasons will quarter and like aspects we and how base of presently, And making our I Other targeted expectations Challenger make quarter QX our targets we and our over our our why is to of the affordable time recent loves unique platform our on I years. as it since against leave what and upstream everyone. walking newly over continued difficult work to happened revenue short quarter. by XXXX, was have impact our wins integrated how our on cyber and as and

targets potential While we multi-year minutes. long-term will the a well details to previously missing each we is will are primarily QX and have profitability we the clearly briefly intact. one company not happy with that continue main this due are the three the positioned provide in factors. outlined. to more results to And is Kyle execute I The in and growth here cover against short-term, then few

anticipated, taking which some and are Germany our than Spain, of of First, markets to COVID. longer new like felt lingering larger effects particularly international markets have scale the

we our the such associated lasting of with on has which Facebook, in high and on time, top costs funnel per the well as iOS metrics associated internal platforms some our with COVID effects update. demographics all and amount of a new research Second, by core believe target social conducted We Apple's weakness been changes economic is effective lead on as demographic. as significant of driven COVID third-party U.S.

and our it following. is deck which of in what highlighted shows we've Some the supplemental

items, categories which Our $XX,XXX household and food. spend outsized significant a utilities capacity like likely pressures has transportation, on core demographic the to inflationary experienced given discretionary their facing headwinds income in median of the non-discretionary

discretionary products spend XX, Through jobless York, XXXX, Florida. in of and New our items states, the given the and emerges our apparel, automobiles, and larger condition four constraint on to the general of capacity goods, over child-centric these pent-up sporting goods. consumer products be four economy nation's economic a pandemic like favoring as states consumer to over XX% Joblessness contributing from services. of July continuing Additionally, Texas, California, claims. shutdown, pervasive and unfavorable a home-related demand Further for target represent remains induced the preference appears spending services, for

unemployment addition, capacity could reduced headwinds. insurance to benefits contributing we additional levels be supplemental believe In of federal

still it but moment Third, a broad conversion impact that note mid-April. as expected quarter, impacts was cyber attack on the associated backlog material of the and I it cyber would our had the rate during up a the would. conversion caught pressure macro attack second through customer the acquisition with ago funnel XXX% the of a we across factors noted combination residual in

the strategy, to have which without period. achieving of focus the growth on per our against in to Especially years Over five macro EBITDA us us our next with generate for end continued the of short-term for critical we growth opportunity and one to term I global moment controlled and maximizing our quarters, XX% quarters six by influences, growth have XX% that mentioned results. average to a singular the margins XX% revenue positions XX% adjusted a year infrastructure past execute focus is now a time ago, invest of the longer targets the to on to

earnings have we not provide quarterly guidance. As to decided result, a

to calls but commentary annual conference performance We quarterly our and around will continue will send have expectations. Q&A with our guidance and

million in a ago relatively are launched years first We short five only with new a our when revenue, XX shop. Smile we company

without We advantage are of take of in learning, us quickly we to opportunities are agile we pressures quarterly can the expectations. front and of the pivot

Let's In XX%. brand strength have and experience, talk sits approximately consumer at are focus customer our how paying aided of we about is off persistent the where remains which SDC continued seen positioned. awareness, eyes we well and in the the and

Google which remains review We positive, ratings all-time at XX% are high. an seeing register also our

remains Twitter, other consumer in blogs, show trends sentiment an Our the positive continue to coverage, forums of consumer at online reviews, trends across all-time and significant channels, and high. analysis sentiment news including multiple online

consumer around roughly All also XX%. remain efforts perception these positively healthy rates are at credibility. full For impacting

and XX% the dentists brand comfort, our convenience. independent believe XXXX of branch most One of general best orthodontists and care consumers record up to certainty QX of And up since in of pillars end and core recent from of network survey year XXXX. XX% the possible our cost XX% the U.S. customers, our consumer alongside population. provides

up respondents to and up our of from QX trusted of and XXXX. over they challenger. that noted incredible period is in SDC Additionally, XX% as a XX% from of XXXX transition time disruptor from a demonstrates This surveyed orthodontic an view short improvement X% brand QX

As our short improvement we on and significant telehealth members only in heightened points such make of doctor-directed percentage in our a to is vast club largely to period our gap this time a area, closing industry-first the Invisalign. gains focus versus This attributable platform. few

on sentiment against Progress we began few member club are challenger continuous in pursuit it's campaign always our closely are credibility weeks improvement, correlated but past in Invisalign front, is that our directly brand a the quarters. experience, pleased associated with ago recently progress this with also to While launched in and of few we over our July.

cost If is functional you Challenger you haven't encourage to spots testimonials sale. I and would per check seen ads, The the and outperforming out. them our campaign

in having rotation helping is awareness. units all raise to Although,

asking. Invisalign up our can why brand the the get driving data should to non-challenger question have Why for campaigns. pay smarter with straightening It to platform. and someone we life. from shows be treatment the to that to clinically will has safe and the and asks a guaranteed to is our life that that be We This can shift would these a we or higher take up as website would Reflect clinically battle for on choose effective for campaign plan marks a That This everyone achieved more of for a one they Invisalign remotely that people safe the to treated telehealth become that challenger spots of offers and when our of $X,XXX XX% pay our three-time And compared a via continue doctors to to the users markup option million the brand are on the minute. reinforce. rumors and affordable messaging half when teeth are guaranteed is option over for that a choice. our effective disruptors SmileDirectClub new percentage less. is question, results

the adult As categories. and income both to demographic teen in ladder up we groups higher scale

we've as file That our recently against the the in efforts Appeals Dental to Turning our care appeals noted Dental have regulatory continued the XXth litigation. positioned The do to and protect to of Court Board earnings of deserve. prior the Circuit not access Georgia the well right we the that consumers in ruled Board. want lawsuit conclusion in are to environment, calls, until pending

also a connection appeal of our with Board filed lawsuit As result, Dental in the appeals board. by XXth Court the has against the Circuit Alabama that denied

in believe We anti-competitive send discovery considering engaging preclude important growth. these lawsuits message other engaging we now boards able been will who with be are our an or that pleased these in to to both conduct in and rulings proceed dental have to of

We continue clinically artificial very and states The care. unsupportive access laws put that see legislative a to from refusing to to trend barriers teledentistry-friendly laws to is more pass laws have much standpoint XXXX up successfully and in help defended other recession. have we in one states And comes seven legislative our existing favor. XX to teledentistry, When states. victories it in since that the passing

practices the by growth Today, partnerships expansion of in with with in to power dental use remain industries. there teledentistry by adoption its the We and dental S national continue to and our numbers the respected of and which is confident more the in than the see of partner even we the orthodontic and the of unique the our and growth X,XXX seeking adoption participating and future. established addition, both community. platform DSOs, many are network because to further dental in value join professional long-term This that well our of we U is testament in built In near foreign countries and assets. inherent underscored more, telehealth by further have

has X.X across one platform the and platform, teledentistry only share core the market us financing, awareness, strengths achieved opportunity planning, have vertically few omni-channel treatment over we uniquely long-term. that of capture manufacturing These we countries medtech this to built million aided short today. capabilities for years, integrated positioned over large XX a scale of combination and club incredible screening. T members a at custom the No presence, Just SmilePay

the digital from analog for As clear screening. as market preferred the shifts braces aligners T choice to away

haven't to has pipeline. our talked tens basis, innovation, this point. annual innovation an publicly of leadership also built On Our we millions into which we about invest on much

teams working We science, machine AI, printing. XD have on and dedicated learnings, material

and oral the continue disruption. automated care our products to This patent XX has types into manufacturing, our variety aligners, treatment resulted in life exciting patents update will of complex technologies, investments a a This introduced U.S. telehealth relating technologies projects smile more other data we capture, the securing areas and very marketplace. quarters cases, products. scanning platform, are planning, business, various monitoring, of in manufacturing, new investment proprietary have future into pending as in and more consumer in to dozens of treatment to and us those come part We enabling you is of on our made the abroad of and

mission our We assets ended the against to enable that ensures us for is we we balance focus strongest powder remain of than success. have more we for one on long-term that with business. quarter our in come. have. dry which confident on million the to many the that This execute attaining And the cash cash of sheet Of success to our course, strong years books, will the $XXX ever

to like I'd growth initiatives we discussed. close, I you update the Before on have previously three

As reminder, expansion. the our expanding demographic are our international channels, teen a they presence our acquisition continuing in customer expanding and

initiative, of the acquisition make we expansion our On channels, to progress continue here. first good

events. have always We We retail partnerships, our and insurance how then as and smile kits, corporate remained started customers pop-up partnerships, to and impression shops journey aligners. now their and with agnostic been doctor-prescribed professional start through purchase locations, channel mass

the new we website. for launched dental On dental now our We available to to members six reach insurers. of and for check relationship way largest new U.S. their and have coverage insurance partnerships, segments on instantly strengthened is have This consumers with a XX our corporate our the recently community. of expanded our

We insurance flow along a to will highly advertising with strategy, be be and being experience. running a it member lead great this believe efficient could

clicking out by the tab sdc.com. You insurance on can test it on

at side, care retail products source highly the are and nationwide serve over a oral brand XX,XXX retail stores opportunity. now as available and On efficient building our lead

drug product mass portfolio channel, through stores, through retail including e-commerce. is stores, stores, ancillary club Our retailers, every available grocery and

we weeks network a continue cadence our channel, anticipate and of professional months. extend the On to over partner the additions ensuing and strong

for part for and partners has extended and having With with network new now members into to practices the drive is than critical scheduled continue in One our one clinical practice free club is our partners, clinical their increase States. over a events partnership. to we into our United to of for their foundational patients across the more data our We that introduce patients X,XXX alone, point SDC exam, which to pop-up them schedule X,XXX success referrals partner already we practice. have a are

new we have before, this current to start journey offering acquisition for who in highlighted our dentist chair. consumers on-ramp a a represents As is channel complementary want to their and

also our On fraction stages the quarter which costs in is outside represents access, convenience, same America and the problem to of only exists exists around we're and XX% America into the We country second of North front, of international first globally. in that North launched XXXX of reflective revenue our early all of opportunity the and QX of already penetration. rest represents countries targeting flat QX, a the total of

in markets awareness the two international XX we our higher it that locations would context is brand market. with to to markets, that market the that into in provide To opportunity, plans of additional much markets specific, our some maturity only in now in are globally this in which and marketing more We we to many years launch Asia investment highlight Latin like America, this in awareness some brand U.S. after next. on the Europe, five be reach earlier throughout in I international evidence in seeing Pacific years and additional off. on seeing are took is the To us paying year are

and our for this to a remain our our will continue will of None our marketing heavily the to turn across regions our making this in long-term We members to you massively will person without building line access And results. future. and capture And smile underserved reflected convenient for to financial thank now, of gains. it brand see And your mission affordable provide of invest laser to every and market. as team and all we and who’ll in on each support the QX club I'll everyone. you deserves, these a call support Kyle, into focused by possible to of item important loves the over this We share work we detailed to democratize Kyle? sales investors. continue maximize be members, overview

Kyle Wailes

the also thanks team, team to week's for sympathy security responders their by offer Thank events first actions. our I to my members you, members would affected last and quick like David. our team heartfelt my and decisive to

Now which our jump that the investor our Please supplemental sure materials we'll to let review be website, cover. provides details additional to me results to for everything and quarter. our right posted

quarter we is which had was result Additionally, by in information of an investors, XX% target attempted driven our decline factors of at basis. are revenue a due each walk growth results. of is of QX additional will year-over-year U.S. supplemental ASP outline up as have shipments X,XXX, sequentially to our This for from breakdown year-over-year. of include I these a X.X% XX% impacted including a of was million, at to primarily to on several earlier. initial X.X% materials, have versus that Revenue The main primarily actual our with which conversations we sequentially, mentioned Canada how and the QX results and aligner up the in three initial a through world. bridge XX,XXX rest and areas $XXX a David detailed and much

As which midpoint pre-cyber-attack. sequential X%, growth X% was million target the sequential off a or use let's QX, starting of $XXX point, X%, our

a our international new COVID. the longer are These Germany in the in have some miss of the anticipated, combined felt second to like quarter. markets than taking particularly and lingering First, $X.X effects larger million of which Spain, markets scale of revenue contributed markets approximately to

as penetration. the examples half countries of Australia penetration relaunched we We and will second the to results that over-investment good markets and in more to other two markets in we year are these Past from expect scaling as drive these with UK of an be relaunching in two the them. see such

levels the to population. a penetration next that, would we XX percentage as expect addressable over of get aligner the similar them months, to Given of

to have top-of-funnel which factors supporting of our $XX everything the scan economic with outlined, of scan. David We scan combination we highlighted miss. earnings in prior contributed the and middle-of-funnel I macro returning to approximately or middle-of-funnel includes supplemental requesting requesting a top-of-funnel weakness deck for means all This metrics data we which showing factors, the high a kit is the in platforms, won't experienced by social and those on as million Facebook, such behind into means highlight have perspective, want believe we call changes the To to rise to I or driven quarter-over-quarter but up conversion. and kit restate kit or with QX. a Second, up this cost-per-lead all-time do data the the to on a continue seen Apple's put we in were metrics the associated iOS our that cost-per-lead over basis a update. XXX%

pressure Lastly, the we complete rate their once member or their kit, scan. saw broad return conversion with

miss. initial of some Implicit reserves of quarter. in driven offset Financing note associated tax backlog to QX. other and were first oral to ahead delivery has to important to a million, $XX which reserve. caused was The higher initial gross impact and cancellation items. don't Providing cyber whitening the the at that issues analyze adjustments, adjustments, aligner lower those quarter in impacts in by maintain our and slightly of it came revenue. were All the the final to came total a separate current came June, retainers, includes Similar April, refunds effect prior up and treatment details ancillary The on to the the we other XX,XXX to in and On on in related million consistent trends, another revenue IPC the the ongoing of we includes was with rebalance associated attack. our regular the reserves of X% quarter concessions Reserves the of is shipments and fully at forecast and the We Smile X,XXX sales revenue delays XX% $XX price month revenue, IPC This It's shipments expect residual flat of Other the kit from $X revenue May. first which the of by really approximately estimated products revenue, reserve attack with initial be caught the quarter. with could the program approximately which of revenue, approximately other Pay reserves our we good call, earnings mid we first million with and quarter, believe products. to quarter our and cyber attack plans. attributed related cancellations. in X,XXX impression which interest at net to care gross although from basis. for aligner net revenue which is was our in consistent

to flat Smile levels. In XXXX, Now at this initial and purchases, of slightly below Smile historical to purchases QX XX% aligner turning Pay QX came is Pay. in

file, in overall, prior credit date rates Pay However, to well in to and and keep delinquency to Smile were flat has QX Because perform a continued we QX card improving our low we quarters. monthly Credit expect collection well. and to continue to we well, focused strategies. continue have and to card and perform remain Smile authorizations operations a payment, perform on Pay on

an Turning business. paying side quarter sequential our point continued almost and Gross for off. results is improvement facilities of the basis manufacturing more focus representing to decline. on basis note, On the to XXXX. positive margin revenue sequential decline QX XXX a X,XXX was streamlining the versus The attributed performance a the entirely is the on XX%, point cost

up XX% XXXX. of QX, from now are approximately the of aligners machines XX% end automation at producing second-generation Our

We end quarter. approximately the percentage expect that of by to the grow third XX% to

attributed the million XX% Marketing to of in the net and as most we revenue. net of investment in consistent revenue a are and higher The While our member, $XX a decline in percentage QX members. still positive XXXX. product to reduction turnaround revenue of very more XX% team selling streamlining trends came importantly, or the compared manufacturing time, and in sequential our in scrap, quarter, our club revenue in superior was early, generate increase for per in at seeing productivity

XX% sales QX in revenue. XXXX, that net and recall of was marketing You'll

locations events generation. That for XXX of at quarters. location fulfillment shop sources have the capacity On up over We made at So and was end as the of leverage course as permanent held smile a and progress shops, centers, over in XXX function primarily QX. past a quarter, as of to XXX fulfill our instead we five XXX is and sites. total a they total supporting of pop-up recall our to XXX smile the through demand functioned to and for pop-up quarter great had resources shop are smile of end aided demand permanent These events awareness, from the the the critical same marketing. end component that fully enable QX coming us of demand, referrals, that

have an or approximately also We XXX pending approximately locations. partner network training locations active X,XXX that are of pipeline in active

we locations. case outlined still in early, While demonstrate seeing our and impact supplemental partner having our positive on we’re are have trends a to study that the materials

the the the and sequential to administrative in That expenses time see opportunity long-term General intact. XXXX. and $X.X we We medical additional was the and where were $XX with plan $X.X million a of quarter XX% issued markets, referenced and $X.X to increase landscape one-time Canada. international and in to from $XX primarily in investments associated vigilant bear leases. million markets in our year. percentage The in the highly of fragmented. in to rest should reclass this by million emphasis. expense where Other to and of reclass that Sales of $XXX,XXX and see and was in G&A the overseas, with brand U.S. invest world in one-time with expect XX% support a driven deferred long-term during $X.X building compared in we remainder the market include quarter to Adjusting sales teams. the significant of revenue XX% expenses our increased that quarter's labor associated from was a stay believe As the G&A lease We you of key and to compared leverage long-term line marketing investment this reflects in marketing to as continue associated up throughout million earlier, of and by expenses and this the selling associated control was was continued remain were revenue the $X right period. comparable was total results expenses benefits million and QX, for growth QX million said, this, the targets not interest costs out selling XX% our convert item. of driven million beyond loan competitive was capital which in with the earlier marketing increase year is $XXX,XXX accounting with to XX% expense cost of

other related closure Additionally, expense our of to and of primarily facility costs store Texas locations. $XXX,XXX retail one-time

world, adjust All million. out $XX of the in $X at came the U.S. produces for Canada all-in negative marketing. and an quarter Breaking $XX adjusted of continue negative million $XX of overinvest and net of with million the regionally, for loss above it million we EBITDA EBIDTA where in rest will negative and to in sales

and for cash negative operations cash for $XX our and cash we quarter flow $XX Cash quarter mainly investing and quarter million. $XXX in $XX labor operations the building capitalized the cash was quarter equivalents. Cash on with spent was second with investing defined cash second sheet, million. was as was negative fourth million, manufacturing software, Free from improvements, associated million balance from the ended the leasehold to automation. the Moving for for fourth

to a our growth. Before revenue allocating closing, key highlight how I would on on we dollars like few points are

research As the family teeth, and search they as their or their they member. they on they online; part three, One, do friend of ask choose. three dentist; which their ask consumers they two, are provider straightening things considering should

our our Challenger quarters. With on we partner brand start the in areas these evidence coming continues the to higher and lastly making across drives significant by And referrals making of consumer significant to make teeth and and quarters. friends investments by will we're treatment. to driven working. Online, off customer credibility is is proposition network investments experience family, a improve, in we in channel coming the and that which GPs, the in be home Campaign, leader credibility to the to our off significant good expect continue become pay organically compelling We brand three the investments sentiment value and in

that long-term Additionally, important continue remind relaunch international in will our with these XX% regions, drive and is particularly over-investment in half order Spain. our capture and you In in is we this this opportunity year the of markets. it to growth, in opportunity to the second Germany of revenue

well with to of the balance and David's we're growth in liquidity clearly short-term. with cash support R&D our liquidity, are earlier on also sheet. the in comment, positioned the ample investing all million This not while approximately us $XXX gives innovation. happy initiatives in of Echoing we results Lastly, here

service of profitability the of make are Q&A. the strengthening points update the this previously to look outlined. the control execute to With call have perception operator credibility, and versus which is turn percentage providing on weeks continuing positioned today. to potential to and made to multi-year by and changes the few progress are our best for and long-term to now laser and Thank have company to we're and targets you back drive you the over days joining working. This and member we profitable our come. remains continuing We I'll remain is growth. the is mantra growth well However, brand The We on a for to within in evidenced everyone club and we against to Invisalign. focused that forward customer continue that, intact, experience,

Operator

proceed first with Instructions] Jon time, And with be will a question. Please And we conducting question-and-answer Stifel. from our your is session. at question this Block [Operator

Jon Block

one guidance tied on of think first I almost the Thanks maybe it visibility one miss give rather when just relative stark. Kyle, had I guys. one, and it weeks to, May guess XX was the follow-up. you seems I'll try to four to

thought I a you June go that just would And had detail? in discuss, then I'll ahead more and that have called timeframe. better you into can early or visibility around So follow-up. ask

Kyle Wailes

into Thanks, and back it Look, back had, March. to think we've best that look other that Yes. as by about and entered I associated weren't payments across call, and and looking we about as execution the with the that. April sort stimulus within kind were factors business months of associated performance macro the saw the obviously backlog Jon. looking did that certainly talked from then March, right, given also perspective, we was May on there. QX with earnings impacted and thinking an attack and QX, but even at we if prior headwind we the cyber the well starting And with last on it overall, April you one ever of coincide in March as and of that

the So until into and magnitude really we happen that until on didn't could really catch up that got June. of backlog we sure the really weren't we

and sort as of well really the late up a months. I thing think that adoption iOS was April the happened ramped few the of change over other that within

that So to up. if you how of ramp ramped, even really the it look July to continue into for that at took towards end June,

with associated to the on associated time the also that took as change well. costs leads impact understand and it so And with that our

it in can be of talked So we back I lumpy about think And funnel, at just a a kind there. March, on the macro within business of weren't the have look on basis on trends the is a about rolling looking acquisition from complexity the you it, more saw the just sort quarterly month-to-month thinking as lot which to that given certainly given we've of to strengths understand past we why QX. perspective, a factor

I magnitude looking it it back a give those think didn't period insight us time great May. on at that happening changes time, of was the it short the are in over So just of

Jon Block

sequentially, of some all no helpful. with Canada results lot misleading? And apologize indicative of a are of really DTC advance the That's DTC seems But down and next results where believe up were results because, your just so U.S. aligner competitor, call the sequentially, track I is asked they Okay. bit I do can math, you And – U.S. guys competitor your details, market? bluntness a is XX% U.S.-based. and the guys real you like XX% gave question. that it there raw were of the in for you enough seems Do that like they're a

So that Thanks. the to called not same talk about competitive you you were the and macro can why most seeing headwinds out the landscape recent specific some of guys they quarter?

David Katzman

Yes, on I that can take Jon.

heard DTC our we about of planning, And TV, they all, to I I low of of think There rumblings they lot the awareness six thrown they're transcript is speculation is no I can do, all they just automated and don't other every time lot specifically, now. numbers probably tell was to multi-channel a of on is we about this, have the like the and There aided Byte numbers in a call all about you're that XXX% you have proof marketing spend published built I around don't was. years myself. we brand these there think it's lot treatment densify any financing part number competitors. earnings quarter, manufacturing, smile attributable about think through single-digits, think, as was Byte. of studies infrastructure without as I XX% talking custom miss being and went like speculation. I the we've don't over First the the inference there of do. what I that no don't there noise do much all shops, is last out that

But So we scale see don't Byte, quite in hear it, and at brand a just do. integration, don't two have we bit. vertical are manufacturing it, that don't planning, are that mentioned treatment which it both don't platform, Candid we like see the – they our automated trackers, the entire custom that we

innovation they're a not not the international, as well. don't So all that them doing that we really the and doing we're threat, as all they're we're things real see

I these just initiatives a now, mentioned. millions dollars have real of XXXs we I and that we think in for headstart So spent of

huge or right start a hear it We're or the I treatment I I now, that's straightening don't Sense, Sculpt, lines, they of there have we're concern themselves a we focused for that, until are capturing ready. Smart what us. going Comfort demographics, – could moving been We ours after. three think We two is years and moving straightening, there share to start on think on, teeth moderate feel iterating on we're they we cases. so, out we're upstream as would real complex our more for into improve to do teeth we're opportunity, our from adult years now, constantly real Invisalign, mild – teens and there. not three And We numbers ready weren't ago those mentioned. us two planning, all that proprietary

Jon Block

Okay. Thanks for the details.

Operator

Our next question is JPMorgan. from question. proceed your with Robbie with Please Marcus

Unidentified Analyst

this for Hi, on actually Robbie. Lily taking the question. is Thanks for

So bit now, headwinds right quarter third have year much in point? in the course ramp prudent can assumption step of you given you quarter that Thanks. a how over confidence out, fourth just called a over is about why up the a this a talk you the at

Kyle Wailes

can I that Lily. Thanks, Yes. one. take

seasonality think I QX historically, So, look a if from yes, than better you perspective, you been QX historically. if at look it's

million as state demographics for going tailwind success which and really don't well. at we're of saw continuation just a the macro us it's be When back a seasonality of ago some thereof, we've in Germany also to are investments the if I given partner within the small need minute million in Challenger TV TV effectively, lot look the details this continuing $XXX into the more there. guidance we're a you we're fall as see Spain, as to and lot lot in lot so, we've year – the network the a of really a combination the at there million Germany but both iOS bit little in really occur, QX in combination that Spain, that But But that we're July supplemental that this. relaunching our well as mentioned right of these channel. of a very Campaign, in those more into $XXX quarter. pickup sort our we just launched making And also in that to and macro spend material that or part impact to fourth have put of you talked about we've Spain we relaunching outlined a we as certainly assuming And assuming million GP we're what a well, all a I at in a our a some think we environment within $XXX of $XXX the and deck Germany that $XXX then and million, this of got well. half the as ramp within latter that ramp, well. of the markets. look headwinds into from pushing now; second would versus on And normal we've Facebook, around a do is occurring of within and QX

here of back So to outlines I us the the sort of half think what then look the all million versus gets when in at year. you million $XXX of that, the $XXX

Unidentified Analyst

Okay, great. Thank you.

Just a quick follow-up.

the it to driver focusing to delays the growth your how over international international the of the be was With does considering ramp, this main near-to-midterm? Thanks. change going that U.S., on sounded strategy like the in just

Kyle Wailes

of stop mean, strategy in were of – more of result a both changes sort of as there. sort markets it think COVID. necessarily isolated certain don't I those associated the those incidents I with Yes, stops

we'd past where we markets of shutdowns those depending to on launch and were. the start the And course of year, we'd both have so over regionally

had at never case markets investment in to looked here Spain. those we got case some more a off And start starting out the pushed open, here as the ground. locations of in real to get get to make just of the QX, closer start to and quarter we and more in second So opportunity QX it in to Germany really the

So doesn't from a anything perspective. it long-term change

it's that right going after, our still the If support is to us the you and it look footprint outlined. we build market the there time we've at that drive outside is for really still massive opportunity our a XX% of long-term we're we think global the help believe U.S., to and growth the opportunity of

Operator

Please our your UBS. more questions next line, with Caliendo question question. from Kevin with there are proceed Robbie's from no As is

Kevin Caliendo

Thanks.

changed struggling to now sort about longest. We're But of what just about is, hitting think proxy of the profitability, the just you some any ramping maybe Can model UK, – to question been margin mean, what in the is way? I about of how your think it international. do is use all you've So in has the kind in country-by-country? same to a think we proper of the longer-term terms you it on targets. that investment the as

David Neumann

– think I Yes,

Kyle Wailes

ahead, in. And Yes, David. go I’ll jump then

David Neumann

what talk over to about Canada going that first to TV. the that of when about, requires UK investments in we here on levels talked with And awareness and just about launched. an made get we along more No, that's up I marketing the Australia a spend marketing multi-channel today the side we and was and over-investment

very I mean, COVID started as Germany – So we that's look international Austria. markets of up hit, our ramp to when in we some other quickly and Netherlands, countries, it XX, open up we start to or February start

pull to really get kinds the coming our and happen that's so, weren't or going have is our Spain. back, we we now a has partner those we're set and of we got and same We playbook first XX that August out Germany in to it, launched, But in going back to and with investments, in how then to of marketing we launched. make days So the to we Germany. understanding doing we networks these for was respond. TV here spend, had launched start clinical what market not shops going lease have partners

about And so, six it how roughly takes two country mature. we to and excuse overspend for goes, months, a nine me, months and the to for years see we market

we profitability. aided UK to awareness seeing saw encouraging. get in that's it's to that? and a We rated you add about are – so awareness Australia But these as mentioned, U.S., anything and a then the faster – such to we seeing as overspend, see want year higher are we the Kyle Kyle, markets two than

Kyle Wailes

could XX we Yes. in population add as aligners the – U.S. within good months particular, it orders way a that population. a a in the have thing of it the look we we to we of after similar that if The about I months, XX UK see look from penetration to look at at you percentage at that, – and of UK percentage aligner we've is, within from country, the done the think both is if levels would in I Australia, as and that get you the only

to still new as a to months. that's population goal into been the plan the a line model, affordability, and the as David markets, ramp over plan. as XX So orders means as of enter these always And that's as we a that percentage well then tested ramp for start population create of XX with or a said, That's to course our up of all been as plan you about newer see we in support markets, sales overinvest in that still as is can we XX revenue. that longer-term growth. we nine significantly, XXX% those the be and in of We're XX% markets those marketing could spend to to to ramp revenue after markets percentage XX a of of profitable for months. months But

Kevin Caliendo

but Is below wouldn't or open to again tougher bought any quick at/or previously. market the in step the here follow-up. management fundamentally, management strategically a the future? structurally, is is answer one and to And at now near price stock be in had there willing why this directly, This maybe in where reason a

David Neumann

I XX% we it, if further can have Kevin, I'll haven't point any or on want day we're We – company largest and to where any than But the myself the at, at time, founders looked don't of given large there own make today, holders, short where it's going, XX% I to look two haven't sound know – company. the at at more at the it look is stock three XX%, investments. the fluctuate in to the position. on looked basis. highly is stock given daily weekly relatively I volatile, it a

invested, this all to So off working we're we're all thing make butts all in, our we're happen.

to commitment, million to how we another $XX buy a so, difference And make million, our million, in believe going to $XX you going have much we it's how this work stock, not company. as the whether on $XX or we're

Kevin Caliendo

you. Thank enough. Fair

Operator

Dylan your William with proceed from question. is question Blair. next Please Our with Carden

Dylan Carden

Thank much. you very

I midpoint I of – kind the back, here on waiting the I the fourth to question spend. kind quarter, and average more X% is think growth a the the and quarter above give function seasonal revenue between XX% longer-term to targets, your guidance guidance you marketing Just higher of your if I'm sequential and of take getting circle obviously of fourth was third guess, that the that's the quarter,

guess follow-up. the I And now? of Just as conservatism, there have one then is – just I kind in stands Thanks. enough it outlook

Kyle Wailes

QX. if a Yes. metrics we're a be today I higher certainly, growth look even built planning certainly that and to support look for mean, able range, to the have as that you at perspective, demand in manufacturing we're around you we're potentially staffed – at perspective from treatment and or base

And so you that care. the just been that little I at today, do, historical demand look that customer at perspective, we've changes that's around brand sentiment something impact a think stand hesitant about But from half we've feel a we've online, given this good if we always and that from if to had year. business the made at you look look at the the the in very manufacturing, where consumer we back and point in credibility time of the

it's it Challenger that tailwind launched if I I be as what a on everything here. into that particular, And a not happen, happen, talked TV change Certainly make it's certainly for would in about, at could of the is macroenvironment half significantly Campaign, think would that really but to there you investing the as just we're demographic July. again, core that you the I sort need look our had of and back at about in in year all the before. this if of look talked

think in people broadly I globally. Spain and Spain, market, for TV there think XX the massive versus I more and a Germany Iberia million a market again, aligners alone, pushing third Facebook is largest clear lot into Germany it's is

markets we're are certainly, ramping then that network year. back into the of our these in partner And adoption. big the So here half

look statistics going we're we've the with invest half think deck, published at we're I that you the of within another heavily the traction area that in to If good that's the here to And GPs. there brand credibility making year. back continue

there. members that that outlined of are really beyond growth all So even us help those you've get could core to that, levers or the

Dylan Carden

next set there. you perfectly up question And Awesome. my

partners, to partners or seeing and kicking kind about sort think as you start the those of to be Can of running X,XXX I far trained. as are to you to the really all get about On And mentioned contribute of model? be maybe you active trained channel this more in XXX does the and them start sort disaggregate component? up when when

Kyle Wailes

Yes.

example, of of X,XXX that that the for a say would signed have we the committed, XXX that include, let's DSO within XXX if X,XXX. So but would practices, so those are the got XXX we've have and part have not committed XXX. large included it's XXX be The

so, start part and sign GPOs of that We've X,XXX part where have we broader and got of other already network. And submitting agreed partners, be locations the agreed their of to and network DSOs we a – as have to companies on cases. XXX

the majority So of are today. live those

phase. in you still few go the practice, are as training got that We have we've week train very pipeline And also so some have got those robust training internationally today of X,XXX we a and pipeline as or pipelines, the well, as have the of pipeline then we and to process. as we that in sales a mentioned, some where and well, we've our domestically look that got phase we've And are in if in international about locations robust both markets at at well. that's another

Dylan Carden

X,XXX the of of balance larger that's just getting far And it taking more low adoption hanging sorry some other signing balance X,XXX or X,XXX kind on would fruit DSOs partners, is as – you and balance, expect percentage as of sort the across of those businesses?

Kyle Wailes

above. the all it's Yes,

in that we're DSO in we're and as data a live. obviously some and So deck as of We on of impact that having some put these great certainly the as show practices. practices have are a large well we've actually supplemental data those

for brands smile deck, already about value referred of example that $X is as approximately $X X,XXX The use lifetime their pre-exams. that million. million So an the in into to patients we've practices outlined we've

see the short certainly We're other within impact network, And And of to launch material so practices. that a that having we're practices sale period here. easier in into as process I the time. pretty better as those makes think a

also DSO from not that's also perspective, to So exclusive a practices, the It's independent bring GPs both on new continuing just but well. as focus.

Dylan Carden

very Excellent. much. Thank you

Operator

our And Please question. from Stephens proceed with question with Incorporated. Chris is your next Cooley

Chris Cooley

just about talked orientation Good more you headwinds on clear and bearing of the that taking the a change here impetus that not about a bit segmentation about viewed to we little a Thank that aligner a kind the bit, little a opportunity about I talked shift Challenger that company incremental in And in seeing We've kind competitor. I a program bit little as sense in different primary progression sentiment the expenditure here afternoon, commentary guess questions. true maybe has larger the this and that why as to quarterly of but result wanted prior appreciate a just think just bit, operations. maybe you're the I much as you. really is think Invisalign and the the and of just, competition the still little now curious much marketplace. behind shift a of greater that the company's a

David Katzman

one. I Yes, that can take

per really people market A of for heavy skew aligners. we clear after So, income really customer year who base. could are demographic clearly And range, – is when get $X,XXX household here the not our is the incremental. underserved we at majority absolutely we we $XX,XXX afford business, first went and it These but or that down up started the income. today and this was braces do

got didn't aligners we Smart I going Sense mentioned, is some I the we we've the customer no that have we proprietary manufacturing. think we didn't make that enjoy Comfort have a IPR. our we the We attachments today technology, way started, have when our Sculpt, buttons of Invisalign or to that or think like technology with

we're and more staging, job, that manufacturing, complex our team is – treatment treatment more a the planning have cutting more the software doing expansion. getting We doing the We're scale, cases. laser doing arch tremendous custom planning

customers mature that of was by So the more macro this something happens facing. started effects way, It's the progressed are in and always the more and the as to your timing we that coincide this with started our We have going just of company is isn't right. XX,XXX capabilities. to of where because after doctors be are about end you and July that And it, engineered when like launch talking we system got not really to manufacturer their part Because selling go to terrific I network. that's from the marking customer. our is to a wholesaler higher the our look it. a disruptor closed have we Invisalign It’s mean, at go product. They're up challenger income not product, doctor,

new have to So – and more on to a price, visits have the really, a out same intermediary XX/X center dental their now the It's consumer. that We questions. contact our That's a It little have it's the a has Invisalign monthly equation. We does. in cost less, get basis the selling didn't direct-to- dental XX/X. product. in-person aligners, is to takes have or at the the think to GP didn't team what service. professionals the to access regular basis They same answer robust to what roughly convenient. selling to the don't actually ortho We go we're superior We consumer. bit for have platform in this didn't the to

super ways think two we're go. educate we're plastic We to aligners, let So teeth. clear excited. going there's know, to consumer, the There's them straightening

go opportunity. doing this the direct customers encourage go some what commercials. saying, watch as to the you of or you can can on a markup campaign the doctor, we're You are Those just our to markup, to go your three-time can pay you tip educate of

macro impact. challenges this customer happens facing answers our this of is And go to launch. be during to as hope more at your coincidentally primed it. right just about So the ready it timing and now We're that question

Chris Cooley

you. Thank

Operator

Group. with Capital our question Nowak Alex question. And Please proceed next from your is with Craig-Hallum

Alex Nowak

Good the for sale. expand playbook everyone. U.S., have company still close but searching brand to is sale? market Can you for good awareness, marketing, to ways In how go close afternoon, the you of that on to seems really marketing awareness the it optimized you to from brand that the

different how does side, and also too? the So this to tactics maybe the you're marketing on apply international taking expand

David Katzman

Yes.

a better even or play. to go is a Unaided person see as we a we consideration tough. our though, We always used awareness. have to funnel branding whether So awareness, XX% not. set, we – be T whenever aided unaided still want TV ads on is awareness thinks screening, high they our about

So we're Facebook shifting a rather lot Facebook, using into of what a we're with conversion doing a TV, than it tool. within also as

We are issues. iOS because the of

more We visitor we're a at we and are to income getting especially that reach thing play, that levels. call introduced shifting the higher That's of doing. more the brand, until people another

robust And so really CRM we have a platform.

phone, or SMS kinds emails really And things. mobile your reach, IVR, see If outbound and the of come do you've community, SDC address the giving that's closer. all into email your and We you'll ever communications.

smile gen going that world – as assessment, enter lot So putting team year, a together soon you know, our our of our technology we're much at. the on coverage that as we that your insurance spent you eligibility, it, lander, over far well go information, encourage I to able your lead know be will We're we be. everyone to is, how the look out-of-pockets what have with take as ones as your call only a to a in we which really the do through instant to through excited about

want going cost you to use If to you. it's SmilePay, what

for our legions convert. all CRM we that are contact our center platforms use those then us So to and

a we're tool difference a that of through doing CRM. branding the between more that's conversion So more of and

Alex Nowak

and right. All across Alabama? briefly and And could play over announcements state in current Georgia that. of California, you then the quarter just go Appreciate then the what's the legal

David Katzman

Kyle, Yes. ahead. go ahead. Go

Kyle Wailes

good we're historically, was Georgia some Chris, we've a and or a from think recent Yes. We're there, big where say from about and and some very to I news wins regulatory so Alabama there's you've discovery. into perspective Alex, recent been seen position both I in there going just right. in moving wins

very all trend much you step The a the all across favor. in. that when from our take legislative and back I think we're cases perspective a is it at look in

in states victories broadly, as we've And teledentistry so in defendant and comes laws we XX session legislative states successfully it when other that to XXXX seven the since won well. helped

there. than the that's from ever the a well. think as on So better we've in side and spots core litigation sort takeaway Very regulatory I been similar are of good perspective

Alex Nowak

All right. Appreciate Thank you. it.

Operator

And with Ryskin with our from is America. proceed Michael next question your of Please question. Bank

Michael Ryskin

Hey, slide how guys. both the from appendix of of questions the all ask appreciate use the of that thanks deck you got some little for around detail. so question, But – was just I one. and some bit some you the XQ around provided my of I'm a the some mean, that I last year. saw impacted outlook forward. taking issues XQ. it COVID – we pressures, a to going macroeconomic just in the it's think macro I of get long in in to clarity for time, one, a the the in hoping the regarding XQ my of and I'll that how been It perspective and XQ, more

changed that there XQ forward, to is and about? else what Varian is think is – curious we'll it XQ factors it, of some changed you're why government over won't of I'm your as back, going specifically that's really got carry in it gone mind but of and anything particularly package Is to that from just not you So XQ to Delta coming then much, away. from you do tied really persist, is my if that now that XQ follow stimulus, have and or hasn't talked see the some risk sort on sort COVID, XQ, seeing XQ those you we've the immediately

we see So of downsides XXX number? million some the

Kyle Wailes

Yes.

some think of think and I I try well, really demographic. our back in but as changed at pointed core the to it what's deck goes you you if this out, we as to outline Michael, look

$XX,XXX core our things household them that's is good inflation QX demographic look So at And on particular, a example. in is median. at to income happened you the if

higher discretionary to in year weighted on where ability and their of than So a think That than as income demographic of of quarter you to last and well. services in limiting X.X% they demographics the and average if spend that cost income we was actually was quarter in higher increase within at the particular, is it goods increased And look relative basket. non-discretionary their all cost the non-discretionary experienced goods services.

the as you up their only of over the quarter just the X%, making an than gas of of if income, so about of XXX,XXX, Whereas that And side. right, in gas. target were that spending goods, So well, consumers an they on more within use that's think as poor on spending the demographic that, demographic impact sort Within that of of that on outsized that sort XXXX. happen second more Similar it's lot doing example, and the you're X% preferences good QX. impact XX% there's to were cost about of within our side, on the if was events replenishing services a customer. quarter of on less within seen was we've to isolated started in some

So apparels another sporting joblessness examples, as cars like think is one. or or when goods or goods home-related things e-sports or I

of was ramp we've Texas, four recent update New at changes the York, iOS the if with across and you states the that, as our of tracking, quarter fully about four which and states, California, limited, certainly trend so well, July if there big look then over look for continued time. for as you XX%, and ad took of Florida, they the to course surveys, look the the at It most adoption it to accounted through the XX% top there there, that occur. talked adoption you associated up That's unemployment has XX. actually about our and claims If nation's

comparison time that So within look, the QX XXX, with I as And isolated about to in is like the macro associated of it's talked we're that certainly obviously, the also I XXX, we within same. then there look by you other assumed perspective, XXX driven macro higher a think from that is to at quarter look all those Michael, remains the periods. QX we're think, today together seasonality. that before we've environment But the in than assumed risk we've

none from in or the And did but we stimulus obviously that's predict the Germany start get support not the adoption that in other QX. was a dollars to difficult in actually not. that And From could or so demographic spending it levers there than we've COVID or there partner consumer macro packages or macro generally the was when kick that like we worse and when certainly here COVID its year, for the a government at better environment of obviously to certainly risk that, worse sort campaign as perspective or to environment Spain, saw say is network whether did Challenger going peak. last gets perspective, and about support we of was us talked environment what of if and our in, so be the potentially peaking that,

Michael Ryskin

much. Thanks so

Operator

Please Nathan from is question next Sachs. our Rich proceed question. Goldman your with And with

Nathan Rich

shifting strategy making went guess, like of Good macro I Thanks. trying that investing the from investments into commentary maybe and of quarters strategy to to both maybe past guess Kyle, couple today. drive here light reaffirm the you're the characterize the more I How growth. in away well environment, long-term you business? a you've decision what I'm future the of as guidance to afternoon. put and from growth you're the as Great. together And the would from it had seems controlled the some of bit the in kind

Kyle Wailes

period. don't The to there. to focus long-term associated we've see was I None that And our business, is mean, player this opportunity, again XX% permanent. opportunity We methodology And QX to the think What over always the X% right. awareness which environment you growth happened the talked permanent look at is or taking that or targets cyber focus. and changed XX% five-year within here we're we targets, From sequential the there's nothing growth brand we've of around a XX% for there. sheer I macro I of short-term, well associated think number markets that perspective, international get at about. nothing environment It's to XX% the goal achieve controlled the but Yes. it's really with with X% very market that see this is starting two – has believe to to and still approach XX% outlined. think of are ultimate attack, sort rate with that what's a we're we market. think the with sort when annual the macro that being an we positioned systemic, a position those the you the We or That's is a that compound those when always associated just missing the look is impermanent. in longer ramp. XX%,

business quarter prospects think our of anything there's long-term that view this on I So don't the can within the that happened changes go. where

Nathan Rich

cash been Makes around then Okay. the sense. And your and just revenue you've flow of could maybe new you talk kind of free about you. guidance year expectations on the EBITDA talking for that about? rest the Thank

Kyle Wailes

Yes.

million a about So quarter we've in as got $XXX cash end.

in manage all as environment, to I think event mode COVID any tougher we us a of of certainly more a the growth that gives need liquidity both the downsides well.

at well, got on balance we've XXX of our the against that. nothing ARR million look you as ARR sheet and we've got If

well. opportunity at future securitize that continue the in as to So point to have we factor some and the certainly

to it's burn on million If XX month sorry. – monthly the about we've burn, guided high to quarterly look XX you in per in end been what at historically, million so

of over a is that just look higher high of in the in be million at that on place And I We came think to the would be, range course good So quarter. year end still low the as QX back in here. high the about XX half the that we XXs. the of end the than

our to that million term think and XX at year liquidity burn against there against XX as So you – we if million puts to outlined. the cash we’ve balance, good targets a half that in from position about the the it look of perspective us in back execute to continue longer

Operator

question final with question. Laura that appears from It Loop comes your Champine Please our with Capital proceed Markets.

Laura Champine

Thanks taking my question. for

quick it'll be I think one. a fairly

what at guide international should for more of you launched so a the we So the expect increases not G&A there. G&A you way specific read it countries on as ton them? sequentially, granularity just more be least those a for increases I couple of that or Can is

Kyle Wailes

Yes, so that's right.

overall, continuing here. look do over of be past to tried we've vigilant you look as the if think to that half quarters. at the back at the we very G&A I several year And we're the

small amount. we've look at the drivers a just at outlined, targets you as growth expecting a the revenue revenue the or increases As being of we're result that higher

as an example, that and So that would the things as as center, contact or the like being so fees payment hit demand able payment G&A. an we fees more grows, revenue to support example have

small a but and our a fairly the And as those time are with international into a G&A, we targets. on a of of increases we basis that. those context of total there then hit little both well, growth think there's associated certainly quarter-over-quarter as as launch lead that's bit certainly markets I in ramp

think of see can I being you total percentage G&A about that here revenue as revenue QX. of a in in XX%

that into. really G&A the in before, not those that a pushing the on then I world, markets. the as to markets year be going already business. will basis we we're of for as that we're expecting And to It's more markets half countries additional growth rest XX% For that we're new the trend about year-to-date markets going globally, within so the into we're in continue new today, in of here expanding also, XX back the said launch be supporting about into that we're

Laura Champine

Got it. Thank you.

Operator

the to of have the we And over end question-and-answer the remarks. call David closing I’ll Katzman turn for reached session. now

David Katzman

Thank the with really I come. next very just joining group we want And to good everyone speaking much. forward to months quarters a and us, over questions. thank you you for of look to

Operator

you today's Thank this your participation. lines your conference. may you for concludes And time. at This disconnect

SmileDirectClub (SDCCQ) 10 Aug 212021 Q2 Earnings call transcript