Q1 2020 Earnings Call
Greetings and welcome to Smile direct club first quarter 2020 earnings Conference call. At this time all participants are in listen only mode. A question and answer session will follow the formal presentation instructions will be given at that time, if anyone's require operator assistance during the conference. Please press star zero on your.
Telephone keypad. Please note this conference call is being recorded.
It is now my pleasure to introduce your host for today's call Alison Sternberg, Vice President Investor Relations Smile direct club. Thank you you may begin.
Thank you operator, good afternoon before we begin let me remind you that this conference call include forward looking statements for additional information on Smile direct club. Please refer to the company FCC filings, including a risk factors described herein.
You should not rely on are forward looking statements as predictions of future.
All forward looking statements that we will make on this call are based on assumptions and beliefs as of today.
I refer you to our Q1 2020 earnings presentation or description of certain forward looking statements. We undertake no obligation to update such information, except as required by applicable law.
In this conference call. We will also have a discussion of certain non-GAAP financial measures, including adjusted EBITDA and free cash flow.
Information required by regulation G., if the exchange act with respect to such non-GAAP financial measures is included in the presentation slides for this call, which can be obtained on our website.
We also refer you to this presentation for a reconciliation of certain non-GAAP financial measures to be appropriate GAAP measures.
I'm joined on the call today, I, Chairman and Chief Executive Officer, David Kathryn and Chief Financial Officer, Kyle well.
Let me now turn the call over to date.
Thanks, Elsa and good afternoon, everyone.
I hope that you in your families are well. Thank you for joining us on a call today.
I speak for the entire STC team and extending our thoughts and well wishes to those communities and individuals, especially healthcare workers on first responders Oh steeply impacted by the covert 19 crisis.
Despite a difficult time for the world at a very unique and complex operating environment.
Smile direct club team rose to the challenge and achieved strong performance in the first quarter.
Our performance in this quarter and more importantly sense that validates the strength.
Our ability of flexibility of our business model.
For today's call I'd like to first call out some of the notable highlights from the quarter followed by an overview of the trends, we're seeing in our business and how we're positioned ourselves to continue to execute against our long term revenue gross margin targets.
Although difficult I will also try to quantify the impact that covert had on our business during the first quarter.
I will then turn it over to call to walk through our financial results and outlook in more detail.
As a reminder, on March 21st as a result of coal that we closed our small shops, except for the ones we have in Hong Kong.
Pivoted to an impression could only business serving new club members. In addition to existing members already in treatment.
It's temporary close our manufacturing facilities on March Twentyth, we opened them on a more limited basis on April six.
Personal protective equipment, mainly fish yields on our fleet of 60, Threed printers and to service our aligner customers.
Mark Chip business saw it continues to see robust performance both in the U.S. and abroad.
Fight in approximately 90% reduction and marketing spend.
Now turning to highlights within the quarter in Q1, we shipped approximately 123000 unique aligner orders up 12% year over year at an ASP Seventeennine hundred $70.
Adjusted for covert shutdown, we estimate we would have shipped over 141000 unique a lighter orders up 29% year over year.
We achieved 197 million in that revenue up 11% year over year.
Adjusted for covered we estimate that revenue would have been over 235 million up 33% year over year.
Our smell pay collections continues to perform very well and it's in line if not better than it has been historically.
Adjusted EBITDA was negative 67 million for the quarter, but only negative 5 million in February we expect that similar performance remarks without the impact of Covis.
As demonstrated in the numbers outlined above prior to the impact of call that we were tracking to our full year revenue and adjusted EBITDA guidance is provided on our fourth quarter call.
Since Q1, we have had many great developments, specifically, we announced the issuance of the U.S. patent protection or small shop, IP and treatment process from any competitor for 18 years.
Announced a partnership with anthem and its network of Blue Cross Blue Shield insurance programs across the U.S. joining that.
Health care, providing orthodontic coverage out an in network basis.
We formalized our independent clinical advisory Board made up of some of the best Orthodontists and Dennis around the globe.
That will report directly to our board of directors.
The same never board will focus on enabling us to continue setting industry standards for clear aligner therapy, using a tell dentistry model.
Advise on the sharing of best uses of our clinical data and help us strategies for continuous quality improvement among other things.
They held their first meeting on May 7th and we're excited to work with its a steam group.
We launched our enhanced tele dentistry platform with advanced features including the new updated video chat to approve the clinical experience for members.
And lastly, I'm pleased to share that we have successfully entered into a new five year 500 million dollar debt facility with H.B.S. investment partners.
Given our uncertain times in the possibility of a covered return in the fall we felt it was prudent to strengthen our cash position, while also minimizing shareholder dilution.
The steel accomplishes both of those objectives. The deal provides significant cash removes the near term repayments liability with the previous MBS facility.
Funds, our international growth and allows us to continue to optimize our long term capital market strategy of balancing low cost of funds against the liquidity needs of the business.
Additionally, we will continue to consider appropriate ABS are factoring facilities for our smile pay programs execute against that strategy.
All the competitive moat that we often speak of our complete end to end vertical integration.
Any channel approach captive financing program.
And our strong brand equity with consumers were truly puts a test since the onslaught of cold it.
And their collective strength allowed us to achieve performance above our expectations in spite of a very fluid and rapidly evolving situation.
With few fixed cost in our business, we were able to take decisive action over the course in the quarter.
Including the temporary closure of all of our small shops other than those in Hong Kong. The vast majority of our shops around the world our month to month leases.
A suspension of most of our marketing spend along with many other cost management measures to position ourselves to operate cash neutral during this period.
As a result, we have had minimal cash burn since the middle of March.
Equally notable we were able to do this while engaging in multiple initiatives to aid in the fight against covert 19, including manufacturing and selling it costs more than 50000 face yields to various organizations and hospitals.
Joining partners such as HP in Westrock and these efforts don't even medical supplies, including latex gloves, a mass to our partners at more than 120 CBS locations.
Opening our tele health platform to all Dennis and Orthodontists and the United States in Canada to allow them to communicate with patients remotely and maintain their care.
We have had thousands of providers expressed interest in this offering.
We donated free P P to Dennis North of data. So they can continue to provide care as needed.
Actively seeking organizations that have been deemed essential and D. P. P to continue to serve the public.
We have provided supplies organizations from the Tennessee Department of Health the hospital for six to six children and try to in a variety of others.
As I've said it before we're fortunate to be able to help those need at this time, but in many different ways and we will continue to do everything we can to help alleviate the strain of these unexpected circumstances.
Now turning to our current performance given the uncertain times, we felt it was important to provide a brief snapshot of our performance since the end of Q1.
Let me start with Smile pace.
Smell pay it's been an incredible program for Smile direct club over the past five years. It expands access to care make straightening your teeth affordable to almost everyone.
Smile paying members pay $250 upfront, which more than covers our cost of goods sold.
That $85 per month over 24 months.
Our delinquency rates through April were flat to March which was consistent with the prior 12 months.
Because we keep a credit card on file and it has a low monthly payments, we expect smile paid a continued to perform well during a downturn in the economy.
Our success rates on credit card at times, which is a proxy for monthly payments.
I see no degradation since covert started.
Further since the onset of coal that we've seen only a 1.7% of customers requesting a payment deferral far below the 4% to 5% deferral request that you would see other lenders facing today.
I referenced earlier, the robust performance of our impression kit business. Despite a significant reduction in marketing spend.
This demonstrates that our investments in brand building, a marketing efficiency have begun to pay dividends.
Specifically from March to April we saw our cost per sales declined by 60%.
And as Cowell elaborate on later normalized for the impact of Coven Q1.
We saw sales and marketing as a percentage of revenue dropped 600 basis points sequentially quarter over quarter.
Additionally, over the past 30 days, even though our marketing spend is down approximately 90% are kitting scan volume is only down approximately 40%.
We ship 10500 unique aligner orders in April and are expecting a shift 11 to 15000 a day.
It is too early to know, but if our impression kit orders over the past 30 days mature out to normal conversion.
We would expect that to be closer to 22000 shipments.
We're pleased with this level of demand off of virtually no marketing spend.
Especially during these uncertain economic times.
Additionally, we have seen strong performance within our ancillary product portfolio, largely driven by our partnership with Walmart.
This represents a productive acquisition channel for us while also increasing the lifetime value of our club members.
These factors set the stage for future deployment of acquisition dollars to support growth, while also driving increasingly strong unit economics.
This is consistent with what we articulated in the past as one of the major levers to drive margin expansion overtime and we are pleased with our traction today.
As we contemplate the timing of reopening our shops, we remain focused on driving more demand through our existing network and monetizing that the math for a variety of ancillary products. In addition to our layer therapy.
With the strength of our impression kit business, a little marketing spend the strength of our balance sheet and the flexibility of our month to month leases I most for locations where in a unique position to ensure demand is there for our smile shops before reopening.
Another important lever we have discussed as advancement in automating the streamlining our manufacturing and treatment planning operations. We continue to see progress here and we're currently on track for the roll off the second generation automation machines by Q4 this year.
As referenced that our prior earnings call. This puts us on track for the 200 basis point improvement I cost of goods sold in the back half of this year and equally as important ensures a more seamless customer experience, which is the cornerstone of our business.
Turning to the regulatory environment. There was no doubt a positive spotlight has been cast in the merits of Tele health during this environment.
This is a welcome dialogue for us.
We have always first and foremost spent a tele health business and we're excited to see the growing level of understanding and acceptance of the importance of tele health, especially for dentistry.
We believe there will only be increased consumer a clinical adoption of the telehealth model from here.
Continue invest in our proprietary platform and features to innovate against unmet consumer needs and pain points.
As I noted earlier, we now have a new and more robust video chat capability to allowing greater connectivity between the club member and they're treating Dr and clinical team.
We feel well positioned in our continued efforts to protect the access to care that consumers wanted deserve and we're very pleased to see progress being made and supported these efforts.
Specifically the American Association of della boards recently delivered guidelines to state della boards that embraced tell dentistry and they access to care. It provides.
Additionally, we have started to see state legislatures, passing legislation that specifically permits told dentistry in their respective states and rejecting proposed legislation that have sought to conclude this much needed form of remote care.
As you can see we're starting to reap the benefits of our continued investment in proactive legal and lobbying efforts, which combined with a climate of ever increasing receptivity and adoption of tele health represent very positive momentum toward continued validation of our model and the care provided by our affiliated network of Dennis North of Dallas.
We also continue to partner with a broader dental community as tell dentistry is becoming more important than their practices and <unk> and have already launched several initiatives, including producing P. P for the dental community for use in any in office procedures.
At no cost providing the use of our tell dentistry app to all license Dennis North of data so that they can consult remotely with patients as well as making our at home impression kit available for their dental patients who cannot come into the office.
We're continuing to extend our office direct program with our wholesale mild to be fully rolled out overtime and there's more to come.
We look forward to continuing to finding new ways to work together with a broader range of clinical partners.
Notwithstanding what has been a very disruptive an unusual period for our business. We are overall quite pleased with the performance in the quarter.
More importantly, since the quarter.
We believe this affirms the flexibility and durability of our business model.
Although the timeline to real no country, it's still a known as previously stated the demand for our products and services is strong we continue to operate in a cash neutral position, we have a strong balance sheet to other unforeseen circumstances and smile pay continues to perform well.
The fundamentals of our business in our tele dentistry platform position us uniquely to continue gaining market share.
While also driving toward our long term growth and margin targets.
In closing we remain laser focused on our mission the democratize access to a smile, each and every person loves, but making at affordable and convenient for everyone.
Now more than ever extending a value proposition that triangulate between convenience accessing costs.
One is delivered through a dynamic proprietary and high touch Tele health platform.
And as a lowest cost provider in the category.
Puts us well in the path to capture this massively under served market.
Before I turn over the cow I want to personally thank all of our Smile direct club team members, who quickly roasted occasion across all areas of the company to help out with this terrible pandemic by being one of the first companies to redeploy our facilities.
To make personal protective equipment.
To help out our customers, while the middle of treatment and continue to perform everyday to bring access to care to everyone. It deserves a smile they love.
I have never worked with a more dedicated and passionate group of people.
Now I'll turn the call over the cow, who will provide a detailed overview of our Q1 results and our financial outlook Kyle.
Thank you David.
As David mentioned, we're pleased with our accomplishments over the course of the corridor and since the quarter ended.
Notwithstanding the challenging environment in which we operate.
The tenacity ever business models put to the test as we balance continuing to serve our club members, while pulled me appropriate levers to manage through the cobot crisis.
Even more notably we believe we're well positioned to emerge from this crisis well capitalize.
And uniquely positioned to achieve the long term growth in revenue targets, we had previously outlined.
Turning to our results for the quarter.
Revenue for the quarter was 197 million.
Which represents an increase of 11% over the first quarter of 2019.
This year over year increase was driven primarily by 12% year over year increase in a lighter shipments which came in at a 122751.
Hey, S.P. came in at $1770, which was relatively flat year over year.
It is important to highlight that exiting February we're on track to exceed our revenue targets for the quarter prior to the temporary closure ever smile shops, and manufacturing facilities as a result them to covert 19 crisis.
As David noted without the impact of coated we estimate revenue would've been approximately 235 million for the first quarter up 33% year over year.
Turning to expenses in margins.
Gross margin for the quarter was 70%.
I 288 basis point decline versus prior year.
Sequentially gross margin was down by 326 basis points.
These declines were largely driven by cost incurred through the end of March even though we closed facilities on March twentyth.
For example, we paid her team members through the payroll on April 10.
The great proxy to normalize this is February.
As it came in with the gross margin of 74%.
We would have expected similar gross margins in March had it not been for the cobot crisis.
Additionally, we continue to focus on streamlining our manufacturing facilities and as David alluded earlier. We're currently on track for the rollout of second generation automation machines by Q4 this year.
Completing this role as a key component of becoming adjusted EBITDA positive.
Marketing and selling expenses came in at 142 million or 72% of net revenue in quarter compared to 54% of net revenue in Q1 of 2019.
Sequentially marketing and selling a percentage of revenue was flat.
Adjusting for the impact of Cogan marketing and selling expenses as a percentage of revenue would've been approximately 66% of net revenue for the quarter.
Presenting a 600 basis points sequential improvement.
It was 56% of net revenue in February supporting our 66% estimate for the quarter.
Over the course of Q1, we saw and have continued to see drastic declines in sales and marketing as a percentage of revenue.
Confirming our belief in the cycle or is this the nature of our business model and pointing to increased efficiency, even sales and marketing.
General and administrative expenses were 91 million in Q1 compared to 49 million in the prior year period.
DNA expenses were down 3.5 million sequentially.
You get more insight to the savings we discussed on our last call DNA expenses in January were down 2% in December 32 million.
Down 4% February to 31 million.
Down another 9% smarts and 28 million.
Approximately 7 million about 28 million noncash expenses, such as stock based compensation and depreciation and amortization.
We plan to continue to stay vigilant with cost control throughout the remainder of the year beyond.
And you can expect to see continued leverage from this line item.
Other expenses include interest of 4 million.
This is a 2 million and other expenses of 5 million.
Which is mostly non cash currency gains and losses associated with a foreign entities.
All the above producers Q1, net losses of 107 million compared to a 20 million that loss in Q1 or 2019.
Moving to the balance sheet, we ended the fourth quarter with 224 million in cash and cash equivalents.
Pro forma for the new debt facility, we have approximately 420 million of cash on the balance sheet after refinancing or prior ABS facility.
Cash from operations for the quarter was negative 70 million, which represents a 50% improvement in our cash burn rate quarter over quarter.
Cash rents on investing for the first quarter with 28 million, mainly associated with leasehold improvements capitalized software and building our manufacturing automation.
Cash spent on investing decreased 12 million quarter over quarter.
Free cash flow for the first quarter to find a cash from operations of Cashman Best thing was negative 99 million.
Which represents a 46% improvement in our cash burn rate quarter over quarter.
Now turning to Smile Pat.
Q1, 2020, 66% of our members elected to purchase using smile pay which is down from 68% in Q1 2019.
This percentage has also helped steady in April and May and we have not seen material increases and smile pay as percentage of total purchases to date.
In Q1, we took a conservative approach through implicit price concessions and increased our reserves by approximately 12 million given the uncertainty ever economic outlook.
Again, as David mentioned, our delinquency rates through April were flat to March which was consistent with the prior 12 months.
Because we keep a credit card on file and it is low monthly payment, we expect smile pay to continue to perform well.
Our success rates on credit card attempts, which is a proxy for monthly payments I see no degradation since cobot started.
Farther since that same time, we've seen only 1.7% of customers requesting a payment deferral.
Which is far below the 4% to 5% deferral requests you see other lenders facing today.
In closing as David mentioned, the unprecedented events of the past few months have provided a number of learnings about our business.
These learnings will allow us to emerge from this crisis, even more well positioned to achieve our long term revenue growth and margin targets.
Although we won't be providing full year 2020 guidance until we better understand consumer behavior in the months ahead.
We're proud of the accomplishments we have a cheap and believe we are well positioned to capture market share in the future.
In particular.
On a cobot adjusted basis Q1 was a strong quarter for revenue growth and we also saw great improvement in sales and marketing as percentage of revenue.
We're making good progress on manufacturing automation and achieving our goals by the fourth quarter 2020.
As we've stated before we believe streamlining our cost profile through operational efficiencies well not only improve our margin profile, but more importantly provide a consistently superior customer experience that meets our demanding expectations.
We have approximately 420 million a cash on our balance sheet, giving us ample liquidity to manage a continuing crisis or alternatively, it's been faster and higher growth environment.
And lastly, we have been pleasantly surprised by the level of demand we have seen even minimum marketing spend over the past 60 day.
Especially with all of our small shops other than those in Hong Kong being closed.
You'll recall that our small shops function, primarily fulfillment centers not as sources of demand generation.
Accordingly during the quarter wherever it very quickly pivot to an impression kit only business you continue to serve new and existing club members with minimal disruption.
This reinforces the importance of our differentiated omni channel approach with kits and smile shops and positions us well for a future where virtual health care will be ever more important and prevalent.
Additionally, this illustrates the strength of our brands in the marketplace and the resilience of our product offering.
Provides us the opportunity to test into a leaner smile shot footprint, which we believe we can achieve with little to no impact to revenue, thereby enhancing the margin profile of our business.
I would also like to reemphasize that our long term objectives have not changed.
We remain laser focused on providing the best club member experience supported by strategically positioning ourselves around the world.
As we have cited before we have agreed head start in the U.S. will be over invested to gain market share in a few short years and believe that investment will continue to pay off in referrals aided awareness and margin expansion in the future.
We have already seeing this materialize through our performance in coated with little marketing spend.
We are the low cost provider with brand presence and no pricing pressure and increasingly favorable climate for tele health.
We will continue to make strategic investments in professional channel international growth manufacturing innovation in penetrating new demographic to drive control growth well also executing against the profitability goals.
We look forward to continuing to update you on progress in days and weeks the town.
Thank you everyone for joining today.
With that I'll turn the call back over to the operator for today.
Thank you at this time will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Confirmation tome indicate your line is in the question Q.
You May press star to if you'd like to remove your question from the Q <unk>.
Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please why we poll for questions.
My first question comes from Robbie Marcus with JP Morgan. Please proceed with your question.
Great and <unk>. Thanks for taking the question on maybe I'll start.
With that second quarter and your thoughts on the recovery path way you know David if I do the math on the number of liners, you laid out for second quarter I'm coming out to a down 16% year over year is that the way we should be thinking about it may be down a little bit versus the past 60 days and how.
Are you thinking as you set your base plans for the company with unemployment, where it is with shops closed about the reopening process and how you're thinking about the balance. It 2020, realizing you haven't giving formal guidance.
Yeah, so as far as you know.
Being down 60% over last year or quarter over quarter, I mean were and new water share Ravi. So we're looking at it is a bottom up builds.
It's things open up we're actually testing to markets right now our first two.
What markets do you have age and U.S., So that's really up to that.
Governments and they have the municipalities.
Yeah. This pandemic highlighted the advantages and convenience tele health, which is really important to us so you'd have to say there aren't too many people over the last 60 days that haven't heard of or the Nexpose now to tele health.
This will help with more consumers, who will entertain our platform versus traditional brick and mortar dr. offices that would have in the past.
It's also going to provide a better regulatory environment.
The states as we continue to push our model to tell a dentistry legislation in all 50 states going forward and make a big push for that's going to take advantage of the situation.
Our kids business has been really reinvigorated Oh, it was less than 10% of our total business the shops dominated with over 400 shops, what we're looking at as we do this bottom a bill now and rebuild the company. We're looking for that chip business, what people wanting to stay at home.
He safe and stay at home is that that's going to be a stronger percentage of the overall business, which means we may not have to have quite the shot footprint that we used to have and we're going to be able to leverage.
The the shops more with higher utilization, which ultimately decreases expenses on the piano so from a profitability standpoint, and that's that's the number one mantra here at Smile direct club is controlled growth of profitability, we're going to build this for the bottom up whatever the marketplace will give us and demand will take we'll continue to open.
On up these shops and test them, but we remain very confident that we can grow this to the levels at the marketplace will accept at a profitable basis.
Okay and then.
One just a if you could confirm that the math is correct and the delta versus what you've seen versus the past 60 days and then Kyle if you could walk us through how we think about cash flow and balance sheet dynamics here as you still have a healthy amount a smile.
Hey revenue coming through each month, even though sales there can be down how should we think about the balance sheet. The cash flow dynamics in just a if you could draw on your thoughts on your liquidity here. After that then new deal in out thanks.
Yeah happy too so to answer your your first question. So if you look at April as an example, a as we've talked about we shipped about 10000.
500 unique Lord <unk> unique aligner orders in April.
Recently, we were closed through the first week right. So we were close from March 20 or through the end of the first week in April.
Even as we started to ramp back up.
We haven't put new health and safety measures in place.
To ensure that the health and safety of our team members and so it took US a couple of weeks to ramp back up to get to more of a normal state as well. If you look at what we're expecting for for May as we called out its in the range of 11 to 15000, but if you look at actual demand a and again you know our marketing spend is down about.
90% from where it was before a you know our demand overall being only down about 40% and so off of that on a normalized basis, what normal conversion and it's too early to know ultimately how these can how the kits convert l. too, but that would be closer to about 22000.
Shipments on a monthly basis and so that's how we think about run rate right now with normal conversion a in again and that's with marketing spend being very very little ER and I think what what that highlights as David said is really the omni channel presence in the strength of our tele dentistry platform.
If you move up and it took to cash flow, obviously, we announced the refinancing of the JPM facility.
If you look at that on a pro forma basis. It leaves us with about 120 million a cash on the balance sheet. So gives us more than enough liquidity to both managed one any downside with co. Good I just goes on for an extended period of time or if there's a resurgence in the fall or alternatively in more of a growth mode. A as you know with smile pay the quicker we grew.
Oh, there's a cash burn associated with that we feel that for 20 gives us sufficient liquidity.
To manage you know really really both sides of that and believe that we're in a a great position overall as we thought about that back cast facility or that the debt facility in the refinancing overall, yeah. As I mentioned that those were two of the priority is associated with that.
But it does a variety of other things for us as well Robby right. So the current facility that we had or the prior facility was coming due later this year. This new deals the five year term that we could finance after one year.
It's got an 85% advance rate, which is much higher than where we were before which was closer to a a 50% advance rate that we're actually getting on those receivables now this funds, both our domestic and our international Oh growth or receivables worthy. The prior facility only fund at the domestic receivables and.
It's really enhances the overall liquidity, but the number one priority that we had was to minimize a equity dilution you know we're big believers in the long term equity of this company in the conviction, we have around that and so we really wanted to focus around minimizing that dilution and we believe this facility accomplishes all those goals so.
<unk> <unk> lots of cash on the balance sheet, we're in a good position, especially given that our current cash burn is effectively neutral.
Great. Thanks, a lot [noise].
Our next question is from Jon Block with Stifel. Please proceed with your question.
Thanks, guys. Good afternoon College basing your last comment it seems like you're going to run close to cash flow neutral in the near term but.
How does your marketing spend plans changed longer term you know called due to the learnings on acid in yield if you would during the cold shutdown. It seems like you might not reopen I think into slide that 418 shops is it. The ended the first quarter is it fair to think that you don't reopen them all in over the life come back on as you think about optimize.
I think the footprint and then it's got to follow.
Yeah. So you know I think what what this has a proven John is really the the variability and flexibility of our model right. So as we talked about no demand has been strong with very little marketing spend.
Effectively all of our shops are closed outside of a Hong Kong.
There are all on month to month leases or almost all of them. So we can we can be very flexible there.
And as we see demand come back a weekend, we can ramp those those shops up again, but.
It goes back to what we've said before and we've always said you have a shops themselves don't drive demand. We've got an omnichannel presence, where dr. man through aided awareness through referrals through our marketing spend and people are going to the web site and choosing if they want to order an impression kit.
Well if they want to book is scan at one of our small shops.
And I think what this has really proven a is that the power of the tele dentistry platform that we have we can be much more effective with the kit business and with the reduced shop count than we have historically, a it's always been part of our plan as we've talked about some leverage that shop, count and really be more profitable by by driving the utilization up a in the shops that we built.
And I think what we've learned as a result, the best as well on the marketing side. We can be you know much more efficient than we've been historically you can see that in the numbers right February was 56% of revenue as I mentioned on the call. A if you look at it on a kobin adjusted basis, we were 66% in a quarter.
We're down about 600 basis points quarter over quarter Ah. So it's really all of those together John as we think about the future, but again it goes back to what we think we have the opportunity based on these learnings to be much more efficient.
Okay. So maybe just a follow up to that one then just talk on the second question I guess the follow up is.
If the keep it this is doing well and you might not need all 418 longer term what does it say if anything about the partnership with Cvs and Walgreens or those altered in any way longer term and then the follow up where the second question sorry, Kyle just the idea is piece came in better than we thought I think your initial guidance for 2020 toward that end implied is.
Be give or take around 17 30, I think it was 17 70 in change for the quarter. So what accounts for the better than expected Dsps and does that trend continue called throughout the balance of 2020. Thanks guys.
Yeah. So ASP I was 17 25 is what we had put out in the last call obviously.
Came in better than that for the quarter, we have put a big focus around reducing discounts in price decreases I think if you look at the market overall, yeah as we've talked about in the past you know where the low cost provider in the space with with the best unit economics, and so we're trying to be more disciplined.
Around how we think about offering up price discounts both in Q1, but also in the future as well.
In terms of the the CBS and the Walgreens relationships you know, it's it's still an important part of the model overall.
You know as Weve talked about all long if you look at the small shop footprint. It is a a point of destination right. The shops are not driving demand a and so we want to be in the right locations within cities that are convenient for people to get to once they book an appointment.
In the retail partners you know plant play an important role in that.
Thank you guys.
Our next question comes from Steve will show with Wolfe Research. Please proceed with your question.
Hi Inn and thanks for the time here I Wonder if you could speak a little bit too some of the operational steps that you're taking to drive.
Demand in an environment, where are the stores are not open you given the duration of the company and your ecommerce platform and your historical AD spend have a pretty sizable new database of potential customers can you talk about how you're leveraging that database to to try to to mine the well if you.
Well as you have a pretty good sense through potential customers are and then I do have a follow up.
Yeah, [laughter] excuse me as David I'll take that one so that's basically after we turned off the marketing so roughly 90% Facebook Snapchat TV was completely turned off what we did was we started after several weeks of getting stabilized and reopening our manifest.
Sorry, reaching out to our customer base, we have millions and millions of leads and emails and so what we found was that customers, who normally would not have transacted by way of an impression Kid. It was the perfect solution for stay at home.
Environment.
And so that kit business like like how said you know really at all we have as two shops in Hong Kong. So the vast majority of our kits and scans are the kits and that is only down about 40%. So we're still maintaining 60% of that business. We've always talked about as a long lead cycle people have to have a reason to jump off and enjoying the.
So you know and become a member of Smile direct club and so what we saw was even during this crisis people are sitting home, they're very interested we now.
One of things we have to do with the build up our kids in take business, we were doing far less than we're doing today and we didn't have the labor. We didn't have those models to bring that kit business through the got less and so we've built that up over the last four weeks, we're now starting to ramp up marketing for the first time.
We're back on Facebook, we're actually going to be launching TV on Friday with a a kit type business. So we'll see where it goes but there's a lot of other ecommerce companies have seen during this crisis their models of flourished for the stay at home or customer and we think the saying we think that we can get that at least in this environment now as people start to come.
Out of their homes and start get back into the a into the community. The shops will serve their purpose for what we feel what we're seeing is that the footprint doesn't have to be as large that we can you get more utilization. How these shops. It get business that was less than 10%, we haven't modeled out to be almost 30% or higher going forward, so that becomes a more profitable.
Business for us less costly than the shops, so still an omni channel approach, but I think I think I think that won't be the beneficiary of this stay at home.
Be safe environment that were if.
Much appreciate it that's a good thing I wanted to ask about is somewhat related and it has to do with the the lead up to entering treatment.
With smile direct so in in a varies a little bit from place to place, but there are requirements for folks to get.
Imaging requirements folks to get a checkups normally you know really not that big a challenge, but would practices close down I Wonder is this something you want to try to enable is it something you might need to enable by the stores to give people easy access to check ups or imaging to make sure that they meet all the protocol.
In an environment, where so many dental practices or have been closed for awhile and it's a little unclear how they'll they'll go about opening thinks about.
Yeah, well listen our whole our whole business was built on the fact that you can you can do this through a tele health platform. So we have requirements that our customers upload photos 60 days 90 day photo check ins that they don't have to go to a shop as matter of fact, what I said another surprise was the fab.
Access.
People, who wanted to do a mid course correction or refine that at the end of treatment. We offer those free of charge, if they're not satisfied the one a little tweak it's not uncommon to the clear aligner business to do that we thought that they would possibly wait for a shaft open people. It started the journey to shop once they found out that shop was closed but what we found was that people.
We had no problem, having to send them a fresh and kid at home.
Get their new scan and get there I'm just seem refinements. So that's that it was another a pleasant surprise, so it's totally not necessary and what we have done as we've we've doubled down on our platform. We as we sit on the call. We just launched a really robust video chat capability that really just.
Yeah, we've always had the tell us dentistry tools.
To service our customers at home, but this new video chat some of the features that it has it allows the dennis or the dental team.
To take control the customers falls and they can then zoom in into the mouth and work all the different tools are the phone, including pretty now the flashlight ticket annotate right on the screen. They can record the call in the session I think over with the customer after the fact, so really powerful I'd call. It the goals.
Standard for a bus tele health platform and so that's something that we've we've just recently launch I think it's really going to help a lot of these customers who don't want to go back into a small shop and want to can continue to do they have treatment from the comfort of her home.
Very cool very cool. Thank you for the time here.
Yep.
Our next question comes from John Kreger with William Blair. Please proceed with your question.
Hi, Thanks, very much I gave you can you just talk a little bit more about you know the vision of the operating model a once were beyond the crisis you name it sounds like you're thinking about fewer smile shops at all so it seems like you're talking more about kind of that stronger explicit relationships with with providers, how do you envision.
Matt versus let's say, where the company was a year ago and and I guess the related question is as you come out of the crisis should we be thinking about cash burn kind of ramping again or do you think you can kind of hold that sort of cash neutral or better operating position. Thanks.
Yeah, so as far as the pillars and our initiatives that we set out at the end of last year for 2020, those still remain the same international expansion.
Expansion into the team market, which once again, we think this plays well for us it enhances that that's a ability to get into the team market and then you know continued innovation and R&D spend there what you've got some really cool things coming out.
So that you know nothing has changed your international's continuing on its really a factor of the Covance situation, we're supposed to be launching in Singapore in June we've got Austria in the works, Germany, which we had just launch we have to shutdown is gonna be reopening. The next couple of weeks. So we've got four or five countries. There will be opening up over the next couple of months as soon as.
Ah stay at home orders are lifted so we're excited about that as far as partnerships go no. We just announced another partnership with anthem. So we continue to.
Penetrate the insurance market with our in network.
Solution, which we're really excited about.
And you know from that standpoint, it doesn't change I think what what's changed coming out of this.
As Tele health is is a household work, though and so people want to I think a lot of people experienced it for the first time that use this both Intel dentistry and tele health, so that the Windsor or backs here, which we were facing a lot of headwinds both regulatory and from the dental communities are tele dentistry platform. So I think.
That has really helped open up and a lot of people are looking at this platform, who otherwise wouldn't have used it.
So that along with the kids business, which allows us to control some expenses on the on the sales and marketing side being the sale side, which is primarily the shops. If we can we can leverage more. These ah you know the slots and getting better utilization it'll that expense comes right out of the piano I can tell you that were.
Hyper hyper focused on profitability, we've got great unit economics, we absolutely should be profitable or building the models and the good thing is that we can grow into it as demand or is there and we can you can take that the man in the marketplaces States open up we can we can we can build from there. So it gave us the ability.
I mean, we always even before Cove, and we had set our sights on being profitable by the end of the year and that's what we told you guys in the last call we feel even more confident about it now where the cash neutral position. The only burns is that really should happen going forward is if the business grows even faster than we have planned because the burn.
Comes from the Smile.
Where EBITDA positive, which we plan on being this year then there was no cash burn from that there's capex, which is about 100 million here and then there's the swap so growing the business as long as you give it a positive it up more rapid rate and bring more cash is not a bad thing because there's financing lots of financing out there to support that smile pace program.
You want to anything cow.
Yeah, I think you said it well I think it in the near term as David said, our marketing expenses very low we've got almost no small shop expense and you know about 55% of our team is furloughed and so we're in a very good spot to manage our cashwell and because the model and so flexible we can ramp up slowly.
Pets different cities and then spend into that if if certain geography by geography is performed well and we're growing in converting well.
Then we'll spend more in grow into that but we're not going to have a risk of.
Opening everything up a way too soon and having a large casper and associated with that as David said as we get back to growth volumes like we've talked about before.
And where we thought we'd be in Q4, and then the longer term targets that we put out there being 20 to 30 plus percent per year. There is a cash burn associate it with smile pay.
But from an EBITDA less capex perspective, yeah profitable near future in the burn associate it with smile pay by 2022, a would go away when we get EBITDA to a high enough point that were cash flow positive even associated with that so yeah. I think the main take away and cobot really prove this out the models it incredibly flexible we've been.
But to be in a cash neutral state a with a good level demand that almost no marketing spend and will ramp that up slowly to make sure that we're preserving overall liquidity that we have as a business I'm sure that demand is there before we continue to spend into that.
That's helpful. Thank you.
Our next question comes from Nathan Ritchie with Goldman Sachs. Please proceed with your question.
Hi, good afternoon, and thanks for the question maybe can you maybe talk about what the conversion rate and kind of time to purchase as looks like for the kids business historically relative to the smile shops and have you seen any change in that that conversion.
In the past 60 days without the marketing spend there.
Yeah. Good question. So we don't give specific conversion numbers, but I can tell you that as we looked at some of the key.
Metric. So we look at our current return rates. That's that's number one you know we ship out that the kits, there's a certain percentage of people that don't even return on.
What we're seeing is that is off over call. It the last six months. So the kit return rate is higher so you can rationalize that by saying people are at home they've got a lot of time on their hands.
I think we sort of expected that you know what happens when someone or as a kitten today.
We actually ship it out overnight because you know there hop they want to get this thing done.
And there's always a reason when it come off from work I can't do it Tonight I can't do it takes about 2030 minutes and so when we start calling them to get these kids facts. There's always these excuses I just haven't had the types of tip return rates are up.
We got bottlenecked, you know for pretty much when someone returned a kit in the past because it was a pretty steady state business is less than 10% of our volumes. We could turn these kits around within a few days get it get a treatment plan to the customer and get the kit and get the Aligners ordered within a matter of a couple of weeks were backed up over a month right now because of the off.
Slots that we had and we had higher up we have to train especial software that is required it goes through a lot of steps to get that person. The treatment plant. We're now finally getting through the web theres, a huge amount of with down in Costa Rica.
Our plant in the and Aniak, Tennessee is ready.
It's fired up and the orders literally in the last three or four days of really started to accelerate so from a day a kit return rate it's off except when rates are about the same there's an acceptance rate metrics that we go through there's a certain number of people just can't get the kit right and we said I'm not a re ticket we're still doing that.
And then the conversion off of that once they pass through that gauntlet their accepted they have a good impression that that metric is about the same it's almost identical to where it wasn't a pass the same amount of smile pay same amount of full pay all that people don't go through this whole process not to buy so once once they come through that.
The conversions are pretty high if they get through the acceptance rates.
Okay, Great and then David did I hear you see that you still expect to be EBITDA positive by the ended the year.
And if so could you maybe just talk through the different factors, obviously, a lot of uncertainty, but just you know how you kind of manage bringing back on the sales and marketing spend and the time difference between when you make that spend and when you start to see purchases ramp up.
Yeah, but like Kyle Cfos take that that question on but yeah. We feel we feel confident before coated coming out of this we feel even more so because we're leveraging our shops better where you would definitely gonna get more utilization how these shops, because we're getting more kit business and ours our marketing.
As we started to get better leverage out of that even in Q1 before Kobe, we feel that coming out of this.
We can target of 45% type number between sales and marketing, which really is the big factor and getting to EBITDA positive unit economics at selling your gross margins are terrific. If a really good ASP, there's no pricing pressure.
And you've got you start out with a really high gross margin now it's a matter of controlling the rest of the piano I'll, let see how address some of that.
Yeah. So yeah I mentioned this before as well so we ship like I said 10500 April somewhere between 11 and 15000 in May and if you look at normalized.
Yeah conversion, we would expect the current run rate to be around 22000.
Shipments in a 30 day period that 22000 is somewhere around 40 41 million in revenue. Yeah. We can we can certainly be profitable at that level, right and and I think the right balance there is making sure we're not sacrificing long term growth at the expense of that and so it goes back to what we said before it's controlled growth.
Driving up the profitability.
And and we look at the near future and we end up in an environment, where cobot could go on for a very extended period of time, a and because about it would put a potential ceiling on on what the growth could be.
You know we could be we can be profitable off the levels of revenue that you're seeing today, what we're planning for a as the business ramp ramps back up we think the right level of sort of balancing that growth versus profitability is about 65 million monthly revenue.
Well when that happens I think it's still to be determined based on how the world reopens.
But we think that's the right level to balance our growth versus profitability now, obviously that sooner than where we had been historically or you can look at what we did in revenue last year.
Not being profitable and that's that's all the result of the the changes we've made in the business from Q4 till now you know starting with with a cost of goods sold but also the the.
Economies of scale, we're getting out of DNA in the efficiencies, we're seeing in sales and marketing as well.
But again, it's it's about balancing sort of that controlled growth of profitability. We think there right metric is around 65, but if that's you know at a point that's too far out in the future because of co bid, we can easily pivot as demonstrated and be profitable sooner than that.
Thanks for the questions.
Our next question comes from Aaron right with Credit Suisse. Please proceed with your question.
Great. Thanks, you mentioned limited changing the delinquency rates and co bad or more recently, how confident are you that that is sustainable on and that sort of environment.
Yeah, that's right Aaron so that if you look at Smile pay overall, you know we feel very good about the performance that we've seen both in Q1, but also since cobot started in call. It Middle of March you know as mentioned on the call about 6% of our members overall purchase using smile pay that's down from about 68% a.
The prior year period in Q1, it's pretty flat is well to where we were in the fourth quarter of last year and it's been flat in April and it was flatmates, we haven't seen a lot of changes with that yeah. We put this on the call as well, but because we keep a card on file and there's a little monthly payment. We do expect it to continue to perform well we haven't seen changes in.
Write offs are delinquency rates.
Over the past couple of months, either and I think that the best leading indicator that we have.
It is the overall success rate that we have on credit card authorizations.
And that's really a proxy for monthly payments. So we have the card on file we try to card every month, we've seen no change in the performance of that if anything it's actually slightly better and we posted a a page to the earnings presentation on our website as well where you'll see those stats and that's the best leading indicator that we had so you know given that and it's been almost two months.
Now we haven't seen a change in the off rate performance. We continue to feel good about that performance overall I think another good indicator is the overall deferral requests. So we've had about 1.7% of customers, where they can actually call in asked to extend their payment for for 30 days.
For us that's been about 1.7%, we think that the industry norms that other lenders have seen had been closer to 4% to 5% overall as well. So we're performing performing well there, but obviously that the best leading indicator is gonna be that credit card authorizations, a and that continues to be on par with where it's been historically.
Okay got it that's helpful and then on the retail strategy with Walmart I guess, what sort of tracking are you seeing without relationship how material <unk>, that's where you at the moment kind of financial perspective. Thanks.
Yeah, I'll take I'll take that one cow. So overall, the new product portfolio is driving incremental growth for us. It's clearly a in the revenue line, it's not material compared to what our aligner businesses at southern 50 million, although it's growing and <unk> at some point in time it will be.
You know all the products are our strong, but the product, it's really outperforming expectations and as the number one growth contributor to total whitening sales in the U.S. as our whitening product.
It exceeded our expectations I think it exceeded walmarts expectations Walmart spent a great partner, who is the right choice to launch our products. We are going to we and we recently just at a added the drug channel with our partnership with CBS. They added 3000 doors and took on our product lines and we're talking to other retailers.
As well that we're in negotiations with for the back half of this year it and into the resets. The Q1. The me what we wanted these retail products for <unk>.
It was one brand building another another channel for brand building, we all know.
In terms of traffic they go through a Walmart store, but we also saw from our own sales on our website that when someone bought whitening first that that led into an aligner sale and we have we have metrics on that and what we've done with all these products. If you. If you buy one from Walmart are now CBS inside the box, we have a little coupon in every single product.
That that introduces uses smile direct club and invite you to come.
Hi, kit or book of scan, we'll give you little discount on the line or sale and so we're now starting to track that they're out in a while for the last couple of months and we're seeing good conversion on that.
So we believe that over time, they will stay will drive a certain amount of aligner revenue to us besides being good revenue and profitable. It's the actual retail sales are profitable they bring down our overall margins are aligned emerges themselves are up over 80%.
Overall, we're into the mid to upper.
Upper seventys, but that's dragged down by some of that.
That retail margin, but it's still profitable to us.
Okay. Thank you.
Our next question comes from Kevin Caliendo with UBI. Yes. Please proceed with your question.
Thanks, Thanks for taking my call can we talk a little bit more about the hsp facility the interest rates on it any covenants or default triggers that are on it.
And we'll it will it be formerly filed will we get to see that like we did with the previous bank line.
Yeah, Hey, Kevin This is kinda like and I can take that so we will be filed a it was filed with the 10-Q by Friday of this week.
The rates on the facility itself. So as we set our our main focus as we looked at this facility was to make sure that we minimize equity dilution overall.
Yeah with with for 20 years of cash on the balance sheet as I said before it gives us a protection to manage the downside risk with kogut or in more of a growth mode as well. So we want it to make sure we're maximizing flexibility associated with that so it's a it's a five year deal or we can refinance after one year or theres an 85.
Present advance rate on the receivables, both domestic and international as well.
Ratestar L plus 750 in cash.
325, and pick a and there was 1% for its associate it with the deal as well.
Okay. That's that's great. That's helpful you talk about.
Maximizing the stores here in the U.S., but I believe the international expansion was expected to be a 100 stores has that changed in any way shape or form and can you talk about sort of the outlook for that how we should think about modeling store growth internationally in sort of what countries you're focused on.
Besides Hong Kong and sure England, Yeah look I think overall you know similar to the U.S., it's very much.
In in sort of flux right now right ever every country around the world has a you know sort of different rules and even within those countries cities have different rules for what the reopening timeline looks like.
Yeah, we are still pushing forward with countries. Later this year, we've got six to eight that are on the road map.
We haven't disclosed publicly what those countries are and what the timing of those are.
I would say you're just given cobot it it's about half of where it was initially overall and that's a function of just you know what operationally what we can we can roll out in the back half of the year with it because he met up today, so still a very important component to the growth strategy.
And as you think about sort of shops versus gets its a very same similar strategy to what we have here in the U.S. as well and in North America.
Between kits and scans.
Yes, it's David I'll, just add that the same reception that the that's a really strong reception to our kids business as we've seen in every single country.
Strictly a Canada UK.
Exceptional kit business going on in the UK Ireland.
There are a couple of countries I announced earlier in the call that we can tell you about because they're opening up four weeks and there's some back in Q4 that were not birds.
I mentioned right now, but we're getting ready to launch those as well so Singapore, we'll be opening and Jones, we've got a Spain.
His opening.
End of June beginning of July we got Australia, not a strike, Austria opening up it's a adjunct or call. It a spoke of Germany, Germany being the hub and then Germany is gonna be Germany, which is a huge market bigger than the UK. We had one shop opened in than we have to shut down very quickly. It was right before covert so that's.
Going to reopen.
Partly so.
I don't know you had mentioned on the question was 100 shops enough was 100 shops and I think we're kind of targeting 100 million of revenue coming out of those international markets I like how so that'll probably be down a little bit.
But the kit business is still strong in those markets, there's still a large.
A percentage of the population that want to transact this way from the units from the pricing that we have ever convenience factor I think it applies wherever we go.
Yeah.
Thanks, so much.
Yeah.
Our next question comes some Laura Champine with loop capital markets. Please proceed with your question.
Thanks for taking it down so you commented that you back on Facebook, you've got TB coming how quickly would you ramp back your marketing spend and what signposts, what you'd be looking for to make those decisions.
Yeah. So we're all excited about it we've been where a marketing company and marketing driven company and we've been off the air and then off digital for almost two months now so.
We weren't going to watch spend money until we got that funnel that scholars that I called.
I've talked about on the kids side were there we have we're ready for the good customer experience, we've reduced the timeline, so we're going to spend slowly.
And when we're going to have a very disciplined CAC.
There were no we're targeting and we're not going to go above that cash no right. Now we are I mean, yeah. As we started ramping up this weekend and Facebook and Instagram. We are so far below that so we have a lot of runway.
And keep in mind, what you've got this base of business, we're doing 60% of what we were doing.
60% of of the kits and scans, we're doing with no shops.
And no marketing so.
We feel really good in this environment that we could be.
A lot like these other ecommerce companies that took advantage of this opportunity for stay at home now that we're ready to ramp up that kit business, what we'll see I mean, we're starting to.
Fraction of what we were on TV.
Starts on Friday.
But we're very optimistic that there's there's a lot of runway that we can get this business up and running with without having to leave your home without having a shop hope.
And I get that the kits and scans were down 40% over the last 60 days, but did you see any spike or any choppiness is this stimulus checks came through.
Oh, Yeah, we a lot of people ask us that and I definitely wasn't the stimulus checks because it's the minute we started CRM things.
You know sitting out our emails in our tax to our existing millions of customers and database they.
These customers were by well before the stimulus checks were were actually out there. So we haven't seen anything any real weakness any drop off at all for that so I don't I don't think it was a stimulus check driven.
Environment, which I know some other companies have seen that spike and then go down.
So.
You know there could be some factor of that in there, but I don't think its oh.
A majority of what our Ah kit sales have been.
Got it thank you.
Our next question comes from Glenn San Angelo with Guggenheim Partners. Please proceed with your question.
Yeah, Hey, David Thanks for taking my question I hate to make you repeat this but I just wanted to follow up on some of the April may commentary, he kind of sounds like either the business was trending about 40000.
Units per quarter and now it seems like an April you're a 10000 inmates seems like you're somewhere in a low double digit read so maybe down 60% to 75%, but just sort of reconciling that you said the kitting business. You know has been about 10% of your overall business and now that down about 40% could you just sort of plug the.
Hold because I'm operating under the assumption that all the 418 small shops with the exception of Hong Kong or closed in so where's the extra demand coming from and what do you think driving that.
Yeah, I'll answer a little bit of that but I'll, let kinds of numbers guy.
And a share, but I think we're mixing apples and oranges. So the numbers you're talking like 11000 to 15000 those are aligner shipments.
Okay and those those were delayed we shut the plant down for a couple of weeks, we got reopened as an essential service. So we started ramping that back up.
Were down 40, so kits. The scans is how we go to market the customer can choose either by a kit.
For book of scan in order to purchase liners, 90% of those customers would would choose to go to a shop.
It was convenient it was free we had we had one around the corner.
10% of those would start out by buying a kit now.
Regarding our shops other than to in Hong Kong. So for the most part or all shut down the only way to transact with US is to buy a kit yeah, it's $49 for the kit, we ship to ship it to the home.
And what we've seen is with no marketing spend.
If the total was a thousand 990 900 them customers started out in the shops and 100 kits for now doing 600.
It was 60% of what we're doing with no marketing.
Fortunately no marketing.
And that's all coming you should ask question Where's that coming from as we've talked about in the past. This is a very long lead cycle. We've got millions, we got five 6 million people coming to our websites.
Every month that that's down a little bit.
Sounds quite significantly because we're not out there.
Drumming up new business marketing, we're going back to the database, but these customers are coming from six months ago, a year ago, four months ago, and they're coming back and now they're sitting at home and they're they're buying our kids.
So there's all this kit business that went out I mean huge numbers have gone out there they're coming back in and we got fact up in processing them in taking them.
You've got a true you got a scope them you've got a bite set them. It's it's a very complicated process and so we got backed up into sort of almost four weeks and so we've got people trained those are now starting to flush through.
Literally this week.
And a little bit last week in this week yours, and that's why we decided to turn on the marketing because there's what if you have a subtle were caught off.
So those will turn into a liner sales coming up in the future listen I mean, there's a scenario. This environment of coated was extended through the rest of the year. So much as mentioned before this call and if it's true or not the California, maybe shutdown until August.
Yes.
But in this environment. This kit business stays robust we can we can start to get back to the some of those those numbers you know were down 40% of kit business, but profitability wise were up because we're not spending in that marketing dollars, bringing it in.
Without without the added dollars, how you want to add anything today.
Yes, I think you you said it well David So if you look at at a Q1 <unk> all 197 million adjusted for co bid, which we effectively shipped for 87% of them up and so if you if you adjust for that 87%.
And take the impact of the reserves, because we were pretty conservative with how we thought about our our price concession reserves just given the unknown of co bid or the two of those together you take you could see 35, which is up about 33% year over year.
The 10500, that's shipments in April and again, we that we didn't open till the end of the first week. It takes a couple of weeks to get back to normal within that as well or if you look at sort of where we are currently over the past week that would imply 11 to 15000 shipments for the month and if you look at actual demand based.
On orders a it implies about 22.
Thousand shipments overall, you know that 22, if you look at the to the 235 that I had outlined that's effectively half of or where we were before approximately.
That does that make sense answer it's your question Wes.
Very much one just quick follow up you had a number of the announcements this quarter on the insurance side could you just maybe flesh that out a little bit what these agreements maybe look like in any kind of curious when we get the question. All the time you know can smile direct goes you know apply for any type of insurance reimbursement the duty studies as to maybe you know.
What percentage of your club members are getting some relief on the insurance side and on average how much that might be of of the ASP rice.
Yes, I can take that one's Kyle so it's it's still a small percentage of the orders overall, both for in network or out of work. If you look at the the partnerships that we've announced with your first United in Manhattan, and now anthem as well.
As we've talked about in the past that's a much longer term strategy, where the goal there's the partner.
With those payers and really drive adoption through self insured employers, which we think long term.
Well not only help growth it'll help with overall efficiency of acquisition cost as well because now you've got obviously people with insurance second can get the product at a much reduced price.
And so that's the intent of those relationships will continue to roll out more in the future we're always talking with other pay.
And the goal is to continue to announce those so I would not expect that to have a near term.
Big impact it does have a small impact, but it's much more about a longer term growth strategy in years to come there.
Okay. Thank you.
This concludes todays conference you may disconnect your lines at this time and we thank you for your participation.
Thank you. Thank you everyone.
The conference call has ended please disconnect your lines at this time. Thank you.