SmileDirectClub (SDC) has been a company taking their industry by storm with strong revenue growth, solid gross margins, high customer satisfaction scores, and a price point on their products that makes aligners attainable to the general public. SDC was finishing up their vertical integration of manufacturing the aligners and working out the kinks to drive further gross margin improvement and driving sales into existing markets and expanding internationally before COVID-19 hit. The pandemic hit SDC hard as revenue and margins compressed significantly. During this period, SDC changed lenders from JPM to HPS Investment Partners, a private investment firm. This article will explore why SDC changed lenders for the second time in three years, what it’s cash flow looks like and how to value the company.

Revenue

2020 was expected to be a strong year for SDC. Revenue was expected to increase to $1Bn, with 70% gross margin profit and positive adjusted EBITDA by the fourth quarter. Many of these items were reasonably achievable given their growth track record, expanding in to Europe, partnering with insurance companies and Walmart, and working out the kinks in their manufacturing facilities.

When the pandemic hit, their customers hoarded cash or purchased teeth alignment correction products and services through their dentist. Products sold and average selling price dipped. The dip in average selling price is partially due to entering new markets and lowering the price to entice new customers.

There has been improvement between May and June in regards to units shipped and they expect to ship between 83M and 87M aligners in the third quarter compared to 57M shipped in April.

Kyle Wailes, CFO stated:

Turning to our results for the quarter. Revenue for the quarter was $107 million, which represents a decrease of 45% over the second quarter of 2019. This decrease was