Q2 2021 SmileDirectClub Inc Earnings Call
[music].
Greetings and welcome to the Smile direct club 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. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn on.
The conference over to your host Tripp Sullivan of SCR partners.
Yes.
Thank you operator good afternoon.
Before we begin let me remind you that this conference call includes forward looking statements for additional information on Smile direct club. Please refer to the Companys SEC filings, including the risk factors described therein.
You should not rely on our forward looking statements as predictions of future events. All forward looking statements that we make on this call are based on assumptions and beliefs as of today.
For you to our Q2.2021 earnings presentation for a 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 of 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 the appropriate GAAP measures.
Im joined on the call today, but chief Executive Officer, and Chairman, David Katzman, and Chief Financial Officer, Kyle Wailes, Let me now I'll turn the call over to David.
Thanks, Tripp and good afternoon, everyone. Thank you for joining us today.
Before we begin I want to acknowledge the tragic event that occurred in our manufacturing facility last Tuesday.
Unfortunately, these incidence of workplace violence are all too common in our country.
Our thoughts and prayers are with our impacted team members security personnel on their families as they begin to recover we.
We are grateful for the Swift actions taken by our team members are on site security personnel and Metro Nashville police in responding to and quickly containing a situation that could have been much worse.
Now to the events at hand.
I hope you've had a chance to review our earnings release and supplemental deck.
We're not going to spend time with commentary on those documents as they speak for themselves.
So we can focus our time today on some highlights of the quarter and provide some color on recent announcements.
I want to also make sure that we leave this call today with a proper context and understanding of how we view the business presently the investments we are making to drive our growth over the next several years.
And our continued opportunity to leverage our telehealth platform to execute against our mission to democratize access to a smile, each and every person loves and deserves.
It affordable and convenient for everyone.
On today's call I will highlight our newly launched Challenger campaign that is targeted directly at Invisalign as customer base as we work to move upstream with our customer demographics.
On other aspects of the business I will touch on will be some recent regulatory wins and what those mean for us as well as some of the unique aspects we have developed with our vertically integrated platform.
That are incredibly difficult to replicate.
I will also provide a brief update on the cyber attack. How we've responded since then and its impact on Q2.
I'd like to start by first walking through what happened in the second quarter and the reasons why we fell short on both our stated revenue targets and adjusted EBITDA goals for the quarter.
This was the first quarter that we have missed our expectations. Since Q4, 2019, where we have consistently beaten expectations over the last 5 quarters through Q1.2021.
While we are clearly not happy with the results here on the short term the long term growth and profitability potential of this company is intact.
We are well positioned to continue to execute against our multiyear targets that we've previously outlined.
The Miss in Q2 is primarily due to 3 main factors I will cover each 1 briefly and then Carl will provide more details on a few minutes.
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New international markets are taking longer to scale than anticipated, particularly some of our larger markets like Germany, and Spain, which have felt the lingering effects of COVID-19.
Second.
Top of funnel weakness has been associated with the lessening the effects of Covid on our target demographics in the U S. As well as all time high cost per lead metrics on social platform, such as Facebook, which we believe is driven by some changes associated with Apple's new iOS update.
We've conducted a significant amount of internal and third party economic research on the effect of Covid on our core demographic.
Some of which we've highlighted in our supplemental deck and what it shows.
Is the following.
Our core demographic, which has a median household income of $68000 likely experience outside outsized pressures and their capacity to spend on discretionary items, given the significant inflationary headwinds facing the non discretionary categories like transportation utilities on food.
Additionally, as the economy emerges from a pandemic induced economic shutdown.
Our total consumer appears to be favoring products over services, given the pent up demand for apparel automobile home related goods and child centric spending like sporting goods.
Further contributing to the unfavorable condition of constrained capacity on spend on discretionary items and a general consumer preference for products over services <unk>.
<unk> remains pervasive in 4 of our larger States, California, New York, Texas and Florida.
Through July 10, 2021, these 4 states represent 40% of the nation's continuing jobless claims.
In addition, we believe reduced levels of supplemental federal unemployment insurance benefits could be contributing to additional capacity headwinds.
Third broad conversion rate pressure across our customer acquisition funnel through a combination of macro factors noted a moment ago and the residual impacts of the cyber attack in mid April.
I would note that the backlog associated with the cyber attack was 100% caught up during the second quarter, but it still had a material impact on conversion as we expected it would.
Over the past 6 quarters, we have continued to invest in our infrastructure to execute against our controlled growth strategy.
Which positions us to generate average revenue growth of 28% to 30% per year for the next 5 years and adjusted EBIT margins of 25% to 30% by the end of that period.
Especially with the macro influences I mentioned, a moment ago now is a critical time for us to have a singular focus on maximizing the global opportunity and achieving our longer term growth targets without the short term focus on 1 quarter's results.
As a result, we have decided not to provide quarterly earnings guidance.
We'll continue to have our quarterly conference calls with commentary on Q&A, but our guidance will center around annual performance and expectations.
We are a relatively new company with only 20 million on revenue of short 5 years ago. When we launched our first small shop.
We are learning we are agile and we can pivot quickly to take advantage of the opportunities in front of us without the pressures of quarterly expectations.
Let's talk about where the STC brand sits in the eyes of the consumer and how well we are positioned.
Customer experience, our persistent focus is paying off and we have seen continued strength in aided awareness, which remains at approximately 50%.
We are also seeing our Google review ratings registered at 96% positive, which remains on all time high.
Our analysis of the trends and consumer sentiment across multiple channels, including reviews news coverage blogs, Twitter and other online forums continue to show significant positive trends.
In online consumer sentiment remains at an all time high.
For full rates also remained healthy at roughly 21%.
All of these efforts are positively impacting consumer perception around credibility 1 of the core pillars of our brand alongside cost comfort certainty and convenience.
In our most recent independent U S brand tracker consumer survey of the general population.
68% of consumers believe our network of dentists and Orthodontists provides the best possible care of the customers up from 62% in Q1, 2021 and up 26% since year end 2019.
Additionally, 67% of responding on survey noted that they view <unk> as a trusted brand.
Up 5% from Q1, 2021 and up over 30% from Q2 of 2020.
This is an incredible improvement in a short period of time and demonstrates our transition from disruptor. The orthodontic challenger as we make significant gains in this area closing the gap to only a few percentage points versus invisalign.
This vast improvement in such a short period of time is largely attributable to our heightened focus on our club members and our industry first Doctor directed telehealth platform.
While we are always in pursuit of continuous improvement we are pleased with our progress on this front over the past few quarters.
Progress on brand sentiment incredibly against some of his line is directly correlated to our club member experience, but it is also closely associated with our recently launched Challenger campaign that began a few weeks ago on July.
If you haven't seen the ads I would encourage you to check them out.
The challenge for campaign is outperforming our testimonials and functional spots on cost per sale, although having all units from rotation is helping to raise awareness.
We have the data that shows these spots are driving a higher percentage of new users to our website compared to our non challenger campaigns.
This campaign marks a shift for our brand from Disruptors to challenger as we take on Invisalign on the battle will become the teeth straightening brand of choice.
And ask the question why would consumers choose to pay the 3 time markup of Invisalign when Smile direct club offers a smarter more affordable clinics.
Clinically safe and effective option that is guaranteed for life and can be achieved remotely with our doctors via our telehealth platform.
<unk> on that for a minute.
This is the question that everyone should be asking why would someone can pay up to $3000 more when they can get a clinically safe and effective option.
That is true at over 1.5 million people for up to 60% less.
And the treatment plan results on guaranteed for life.
That is the messaging that we will continue to reinforce as we scale up the demographic ladder to higher income groups in both adult and teen categories.
Turning to the regulatory environment as we've noted in prior earnings calls, we are well positioned and our continued efforts to protect the access to care that consumers want and deserve.
The 11th Circuit Court of Appeals recently ruled on our lawsuit pending against the Georgia Dental board the dental boards do not have the right to file appeals until the conclusion of the litigation.
As a result, the 11th Circuit Court of Appeals has also denied the appeal filed by the Alabama Dell Board in connection with our lawsuit against that board.
We are pleased that we will now be able to proceed with discovery and both of these lawsuits and believe these rulings Senate important message to other dental boards, we have been engaging in or are considering engaging an anti competitive conduct to preclude our growth.
We continue to see more states pass from Tele dentistry friendly laws and refusing to pass laws and put up artificial and clinically unsupportive barriers to access to care.
The trend from a legislative standpoint is very much in our favor.
When it comes to legislative victories that helped total dentistry, we have 1 in 28 states since 2020 session and.
And have successfully defended existing laws and 7 other states.
In addition, we continue to see growth in adoption and use of tele dentistry by the dental and orthodontic industries.
This is on us toward even further by the expansion of our professional partnerships and well established and respected national Dsos.
Which is further testament to the adoption of telehealth on the dental community.
Today, there are more than 800 dental practices participating in our partner network with many more both in the U S and in foreign countries seeking to join in the near future.
We remain confident in our long term growth numbers because of the power and inherent value of the platform that we've built with its unique assets.
Just a few short years, we achieved over 1 and a half million club members across 13 countries and built the only vertically integrated med tech platform for teeth straightening.
No..1 has the combination of aided awareness omni channel presence tele dentistry platform smile pay financing custom treatment planning and manufacturing capabilities at scale that we have today.
These core strengths uniquely position us to capture a large share of this incredible market opportunity over the long term as.
As the market shifts away from analog races to digital clear liners as the preferred choice for T Street.
Net leadership is also built on innovation on which we haven't talked much about publicly at this point.
On an annual basis, we invest tens of millions into our innovation pipeline we.
We have dedicated teams working on AI and machine learnings materials science and 3 D printing.
We have made investments in enabling the treatment of more complex cases automated manufacturing new types of a liners.
Smile scanning technologies.
Bioterror telehealth platform oral care products in a variety of other areas to continue our disruption.
This investment has resulted in us securing 25 patents and dozens of patents pending in the U S and abroad on various technologies related data capture treatment planning monitoring manufacturing and consumer products.
This is a very exciting part of our business and we will update you more in future quarters as those projects come to life and are introduced into the marketplace.
Of course, 1 of our strongest assets is the strong balance sheet debt. We ended the quarter with $377 million of cash on the books, which will enable us to execute against our mission for many years to come.
This cash ensures that we have the dry powder to focus on the long term success for our business and we remain more confident than ever in attaining that success.
Before I close I'd like to update you on the 3 growth initiatives. We have previously discussed as a reminder, they are expanding our customer acquisition channels.
Our presence in the teen demographic.
And continuing our international expansion on.
First initiatives expansion of our acquisition channels, we continue to make good progress here, we have always been and remain agnostic as to how customers start their journey to purchase a liners.
We started with doctor prescribed impression kits than small shops, and not through our professional channel partnerships corporate and insurance partnerships mass retail locations on pop of Vince we've expanded our reach to new segments of consumers and have strengthened our relationship with the dental community.
On our corporate and insurance partnerships, we recently launched a new way for members to instantly checked their insurance coverage on our website.
It is now available for 6 of the 10 largest U S dental insurers.
We anticipate running advertising to this insurance flow and believe it could be a highly efficient lead strategy.
Along with being a great member experience.
You can test it out by clicking on the insurance tab on SDC Dot com.
On the retail side, our oral care products are now available in over 12000 retail stores nationwide and serve as a highly efficient lead source on brand building opportunity.
Our ancillary product portfolio is available through every retail channel.
<unk> drug stores grocery stores clubs stores mass retailers and through E Commerce.
On the professional channel, we continued to extend our partner network and anticipate a strong cadence of additions over the ensuing weeks and months.
We continue to schedule pop up events to drive club members to our clinical partners and our network is now extended across more than 800 practices in the United States.
1 critical data point is the success that we're having with referrals into our clinical partners for them to increase and introduced new patients to their practice.
For 1 partner alone we have already scheduled over 1000 SDC patients into their practice for a free exam.
Which is a foundational part of our partnership.
As we've highlighted before this acquisition channel is complementary to our current offering and represents a new on ramp for consumers who want to start their journey on a dentist's chair.
On the international front, the same problem that exists in North America around access convenience and cost also exists globally.
We launched into our first country outside of North America in the second quarter of 2019, and the rest of world countries already represents 16% of our revenue Q2, which is flat to Q1 represents only a fraction of the total opportunity we're targeting.
Reflective of early stages on penetration.
We are now on 13 markets globally with plans to launch into additional locations in Europe, Latin America, and Asia Pacific throughout this year on next.
To provide some additional context on this opportunity I would like to highlight that we are seeing higher brand awareness much earlier on in our market maturity and many of our international markets, which is evidenced debt investment in marketing is paying off.
To be more specific it took us 5 years in the U S to reach the brand awareness that we are seeing in some international markets. After only 2 years in the market.
We will continue to invest heavily into brand building across these important regions to maximize our long term share gains.
And you'll continue to see this reflected in our sales and marketing line item in the future.
None of this would be possible without the support of our team members Colombo Mers and investors and we thank all of you for your support as we work to capture this massively underserved market.
We remain laser focused on our mission to democratize access to a smile, each and every person loves and deserves by making it affordable and convenient for everyone.
And now I'll turn the call over to Kyle who will provide a detailed overview of our Q2 financial results call.
Thank you David.
I would also like to offer my heartfelt sympathy to our team members affected by last week's events and my thanks to our security team key members from the first responders for their quick decisive actions.
Now, let me jump right to our results for the quarter.
Please be sure to review, our supplemental materials posted to our Investor website.
Which provides additional details on everything I will cover.
Additionally, as a result of several conversations we've had with investors. We have attempted to include additional information on the supplemental materials.
Including a detailed breakdown of U S and Canada versus rest of world.
Revenue for the quarter was $174 million.
Which is a decline of 13% sequentially and up 53% on a year over year basis.
This was driven primarily by 90000 initial aligner shipments.
On an ASP of 1885.
Which is up 1.3% sequentially and up 3.7% year over year.
The Q2 results are primarily due to 3 main factors that David mentioned earlier.
I will walk through a bridge from our initial growth target in Q2 to our actual revenue in that line how much each of these areas impacted our results.
As a starting point, let's use 6% sequential growth off of Q1, which was the midpoint of our 5% to 7% sequential target.
Our $211 million pre cyber attack.
First.
The new international markets are taking longer to scale than anticipated.
Particularly some of our larger markets like Germany, and Spain, which have felt the lingering effects of COVID-19.
These markets combined contributed to a miss of approximately $2.5 million in revenue on the second quarter.
We will be re launching in these 2 countries on overinvest in the second half of the year to drive more penetration.
Cash results from other markets such as the UK and Australia are good examples of scaling and penetration and we expect to see on these 2 markets as we relaunch them.
Given that over the next 36 months.
We would expect them to get to similar levels of a line of penetration as a percentage of the addressable population.
Second.
The macro factors David outlined.
On which we have highlighted with supporting economic data and our earning supplemental deck.
Contributed to approximately $25 million of the Miss.
This includes a combination of top of funnel weakness in middle of final conversion.
Recall that top of funnel means everything prior to requesting a <unk> scan.
In middle of funnel means from requesting a kit or scan to returning to kit are showing up from scan.
I won't restate all of the data behind those factors.
But I do want to highlight that we experienced all time high cost per lead metrics on social platforms, such as Facebook.
Which we believe is driven by the changes associated with Apple's iOS update.
To put this into perspective.
Our cost per lead metrics were up over 100% on a quarter over quarter basis.
And we've seen it continue to rise into Q3.
Lastly, we.
We saw broad conversion rate pressure once a member returned their kit were completed their skin.
All of which we believe is associated with the original impacts on the cyber attack in mid April.
And the delays it costs and delivery of our treatment plants.
This attributed to approximately $9 million on the mis.
On our first quarter earnings call, we estimate that the initial impact could be 7 to 10000 initial shipments in the quarter.
The final was approximately 6100 shipments slightly ahead of the initial forecast from me.
It is important to note that the backlog of the cyberattack was fully caught up in the month of June.
And we don't expect ongoing issues related to the attack.
Providing some details on the other revenue items.
Implicit price concessions were 7% of gross aligner revenue consistent with the first quarter.
Similar to the first quarter, although our total reserves related to revenue were consistent with prior trends.
We maintain separate reserve for ITC on cancellations.
We analyze and rebalanced those reserves on a regular basis.
The net effect in the current quarter was a lower ITC reserve on.
Offset by higher cancellation reserve.
Reserves and other adjustments, which includes impression kit revenue refunds and sales tax.
Came in at 10% of gross line of revenue.
Financing revenue, which is interest associated with our smile pay program came in on an approximately $12 million, which was flat to Q1.
Other revenue on adjustments, which includes net revenue related to retainers whitening and other ancillary products came in at $20 million.
Driven by another good quarter from our oral care products.
Now turning to smile pay.
In Q2, 2021 smile pay purchases came in at 61% of initial aligner purchases.
This is flat to Q1.
And slightly below historical levels.
However.
Overall smile pay has continued to perform well and our delinquency rates in Q2 and to date in Q3 were flat to prior quarters.
Because we keep a credit card on file and have a low monthly payment.
We expect smile pay to continue to perform well.
Credit card authorizations continue to perform well.
We remain focused on improving operations and collection strategies.
Turning to results on the cost side of the business.
Gross margin for the quarter was 74%.
Representing a 200 basis points sequential decline and it almost 2000 basis point improvement versus Q2.2020.
The sequential performance is entirely attributed to the revenue decline.
On a more positive note.
Our continued focus on streamlining our manufacturing facilities is paying off.
Our second generation automation machines are now producing approximately 85% of our liners.
Up from 70% at the end of Q1.2021.
We expect that percentage to grow to approximately 90% by the end of the third quarter.
While still early we are seeing the investment in streamlining our manufacturing generate very positive trends in our turnaround time.
Our productivity per team member reduction.
The reduction in scrap and most importantly, a more consistent and superior product for our club members.
Marketing and selling came in at $96 million or.
55% of net revenue in the quarter.
Compared to 49% of net revenue in Q1.2021.
The sequential increase as a percentage of revenue was attributed to the decline in revenue.
Youll recall that in Q1.2020.
Sales and marketing was 72% of net revenue.
So we have made great progress over the past 5 quarters.
On small shops recall that they function, primarily as fulfillment centers instead of sources for demand generation.
We had 135 permanent locations as of quarter end and held 153 pop up events over the course of the quarter from.
For a total of 288 location sites.
That total is up from 282 at the end of Q1 and 218 at the end of Q4.
These type of events are a critical component of supporting our demand function on the same capacity as a permanent smile shop and enable us to fully leverage our small shop resources to fulfill demand that is coming through aided awareness referrals and marketing.
We also have approximately 500 partner network locations that are active or pending training.
And an active pipeline of approximately 1000 locations.
While still early we're seeing positive trends and I've outlined a case study in our supplemental materials to demonstrate the impact that we're having on our partner locations.
As referenced earlier, our marketing and selling expenses in the quarter reflects significant investment in brand building to support our long term growth in international markets and this quarter's results bear out that emphasis.
Sales and marketing as a percentage of revenue was 67% and rest of world markets compared to 53% in the U S and Canada.
We believe this is the right time to invest overseas, where we see 75% on the total market opportunity.
The competitive landscape is highly fragmented.
That said our.
Our long term sales and marketing targets of 40% to 45% of revenue remain intact.
General and administrative expenses were $85 million in Q2 compared to $81 million in Q1.2021.
The sequential increase was primarily driven by a onetime reclassify selling labor to G&A labor of $1.4 million.
And the additional $1.4 million associated with the re class. So it was not in the comparable period.
Adjusting for this G&A expenses were up $1.2 million driven by a onetime increase in medical benefits expense during the quarter and increased investments in key teams.
We plan to continue to stay vigilant with cost control throughout the remainder of the year on beyond.
And you should expect to see continued leverage from this line item.
Other expenses include.
Interest expense of $1.9 million.
Of which $1 million was deferred loan costs associated with the convert we issued earlier in the year.
500, K was associated with long term lease accounting and.
400, <unk> was associated with capital leases.
Additionally.
Other expense of 700, K, primarily related to 1 time store closure costs of our Texas facility and retail locations.
All of the above produced adjusted EBITDA of negative 22 million in the quarter with an all in net loss of $55 million.
Breaking it out regionally.
Adjusted EBITDA came in at negative <unk> 9 million from the U S and Canada and negative $13 million for rest of World, where we will continue to overinvest in sales and marketing.
Moving to the balance sheet.
We ended the second quarter with $377 million in cash and cash equivalents.
Cash from operations for the fourth quarter was negative $31 million.
Cash spent on investing for the fourth quarter was $22 million, mainly associated with leasehold improvements capitalized labor and software and building on manufacturing automation.
Free cash flow for the second quarter defined as cash from operations on our cash from investing was negative $53 million.
Before closing I would like to highlight a few key points on how we are allocating our dollars on revenue growth.
As consumers are considering straightening their teeth. They do 3 things as part of their research on which provider they should choose.
1 they search online too.
2 they asked their dentist and 3 asked a friend or family member.
We continue to make significant investments across these 3 areas to organically become the leader in teeth straightening.
Online, we're making significant investments in brand credibility driven by the Challenger campaign.
Which drives home, our compelling value proposition and evidenced by our consumer sentiment and brand credibility is working.
With GPS the partner network is off to a good start.
And we will be making significant investments in the channel in the coming quarters.
And lastly on friends and family are customer experience continues to improve and we expect that to pay off in higher referrals in the coming quarters.
Additionally, it is important to remind you at 75% of our opportunity is in international markets.
In order to capture this opportunity and drive long term revenue growth, we will continue our overinvestment in these regions.
Particularly with the relaunch in the second half of this year in Germany and Spain.
Lastly on liquidity we.
We are well positioned with approximately $377 million of cash on our balance sheet.
This gives us ample liquidity to support all of the growth initiatives, while also investing in R&D and innovation.
Echoing David's earlier comment, we're clearly not happy with the results here on the short term.
However, the long term growth and profitability potential of this company is intact.
And we are well positioned to continue to execute against the multiyear targets that we have previously outlined.
We remain laser focused on providing the best club member experience and our mantra remains to drive controls on profitable growth.
The changes we have made and are continuing to make on customer service are working.
This is evidenced by the strengthening of our brand perception and credibility, which is now within a few percentage points first invisalign.
We look forward to continuing to update you on progress on the days and weeks to come.
Thank you to everyone for joining today.
With that ill turn the call back over to the operator for Q&A.
And at this time, we will be conducting a question and answer section.
Like to ask a question. Please press star 1 on your telephone keypad.
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You May press Star 2 if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys. We also ask everyone to please limit themselves to only 1 question and 1 follow up question due to the high volume attendance on the call today.
Yeah.
And our first question is from John.
Jon Block with Stifel. Please proceed with your question.
Thanks, guys ill try to keep it tied to 1 on 1 follow up I guess the first 1.
Karl just a miss relative to I think it was on May 10 guidance. When you had maybe almost 4 weeks of visibility seems rather stark. So can you just discuss.
That in more detail I would've thought you had better visibility call. It into early June or around that time frame and then I'll go ahead and ask a follow up.
Yes, Thanks John.
Look I think looking back on it and if you kind of look at Q2 overall and even prior to that starting with March March was 1 of the best month that we've ever had right.
So we're looking back that did coincide with stimulus payments and also other factors as well from.
And execution perspective, but given the performance that we saw within March as we entered into April in Q2, we certainly werent thinking about a macro headwind across the business. There and then as we talked about on the last earnings call April and May were obviously impacted by the cyber attack and the associated backlog associated with that so we weren't really sure of the magnitude on that and.
All we can really catch up the backlog and that really didn't happen until we got into until we got into June.
I think the other thing that sort of happened as well within late April was the iOS change and the adoption of that really ramped up over a few months. So if you look at how that ramped up really talk towards the end of the end of June and even at the EBIT to July for that to continue to ramp up and so it took time to understand the impact associated with that on our leads and also the call.
Costs associated with that change as well so I think just kind of looking back on it given the strength that we saw within March we certainly weren't thinking about a macro factor on Q2 and as we've talked a lot about in the past from a month to month to month perspective, the business can be lumpy just given the complexity of the acquisition funnel, which is why you sort of have to look at it more on.
Rolling quarterly basis to understand trends there. So I think it was just the magnitude of those.
Changes that happened over a short period of time, it Didnt give us great insight.
Looking back on it at the time in May.
Okay. That's helpful and I'll apologize in advance for sort of the bluntness of the next question, but on the talk track with no real DTC competitor or is that just a bit misleading do you guys really believe your results are indicative of the DTC market and I ask because it seems like your U S results and you guys gave a lot of detail. So U S and Canada Aligner results were down <unk> <unk>.
16% sequentially. There is a competitor where you can do enough rough math that seems like they were up 15% sequentially Theyre. All U S. Based so can you talk about the competitive landscape and why are they not seeing some of the same macro headwinds that you guys called out specific to the most recent quarter.
Yes, I can take that on John.
First of all I don't think any any.
Of our Miss is attributable to these other DTC competitors and I think specifically, you're probably talking about bite as part of densify now.
I've heard a lot of rumblings of noise about this I went through the transcript earnings call myself.
There was no published numbers.
About bite there was a lot of inference and speculation about what the number was I could tell you that without all the infrastructure that we've built over the last 6 years from custom treatment planning automated manufacturing.
We do brand studies, all the time every quarter, they're aided awareness is low single.
Single digits.
Without the 50% they don't spend much on multichannel marketing like we do.
There is no TV they don't have small shops, they don't have 100%.
<unk> financing like we do I, just think there's a lot of numbers being thrown around there and I think it's all speculation. So we don't see it we don't hear it we don't see it in our brand trackers, both candida and bite, which are the 2 that are.
You mentioned quite a bit.
They don't have the entire platform vertical integration customer treatment planning automated manufacturing at scale that we feel like we do.
So we don't really see them as a real threat there not international Theyre not.
All the things that we're doing and all the innovation that we're doing as well. So for now I think we have a real head start and we spent hundreds of millions of dollars and these initiatives.
That I, just mentioned and so until they do that improve themselves and we start to hear real numbers out there.
They are not a huge concern of ours right now we're focused on invisalign moving upstream on our demographics.
As I mentioned, we think there's a real opportunity I don't think it would have been there 2 or 3 years for us 2 or 3 years ago for us we werent ready we're ready now.
Our smart sculpt comfort sense treatment planning all proprietary that we're constantly iterating on we're moving into more complex cases.
We feel that the mild to moderate adult T screening and teens teeth straightening, we could start capturing share from Invisalign, that's what we're going after.
Okay. Thanks for the details.
Sure.
And also just to add on in addition.
Do you ask the question and 1 follow we do invite you to rejoin the queue by pressing star 1 just so we can get as many people as possible today for questions.
Our next question is from Robbie Marcus with JP Morgan. Please proceed with your question.
Hi, This is actually Lili on for Robbie Thanks for taking the question.
So can you talk a bit about why the step up in fourth quarter over third quarter and a prudent assumption right now just given the headwinds that you called out how much confidence do you have an on ramp over the course of the year at this point.
Okay.
Yes, Thanks Ali I Couldnt I can take that 1 so I think if you look historically if you look at Q4 from a seasonality perspective, it's been better than Q3 historically.
And so if you look at the guidance that we've outlined $750 million to $800 million and we put a lot of details on our supplemental deck as well around this but on the $750 million effectively what we're assuming there is that we do see a little bit of a pickup from that seasonality as I mentioned a minute ago in the fourth quarter.
And then really just a small ramp in Germany, and Spain, as well, Germany, We're relaunching right now staying where sort of relaunching. This fall as well, but we are assuming in that $7.50, a continuation of the macro headwinds that we saw within the.
The latter part of Q2 and also into Q3 as well when you look at the 800 million.
And I don't think it's all of these that really need to occur, but it's some combination thereof.
Certainly the macro environment going back towards more normal state would be a tailwind for us within our demographics.
Or some combination of success within our challenger campaign, which we've talked a lot about.
Really just launched within TV in July as well, we're pushing a lot more on the TV versus Facebook given the iOS impact there.
Germany, and Spain, continuing to ramp we've got a very material spend.
Occurred in the second half of this year and both of those markets and we're also have a lot of investments that we're making into the partner network as well in the GP channels. So I think when you look at all of that and sort of outlines what gets us to the 750 versus the 800 here on the back half of the year.
Okay, great. Thank you just a quick follow up.
With the delays to the international ramp how does that.
<unk> your strategy.
Now focusing on international growth over the U S. Just considering it sounded like that was going to be.
Hi, Barry.
The near to midterm.
Yes.
Yes, I don't think it changes.
The strategy necessarily there I mean, those were more sort of isolated incidents incidents in both of those markets. As a result from sort of stopped certain stops associated with Covid and so.
So over the course of the past year, we'd start to launch both of those markets and we'd have shutdowns regionally depending on where we were so we never had a real opportunity to start to get those markets off the ground.
And as we looked at starting to make some investment here in the second quarter and start to get more locations open and really just got pushed out here.
In Q3 in the case of Germany, and more closer to Q4 in the case of Spain. So it doesn't change anything from a long term perspective, if you look at our opportunity because 75% of the global market is outside of the U S. We still think it is a massive opportunity that we're going after and we still believe it's the right time for us to build our footprint there to really help drive and support.
The long term growth that we've outlined.
If there are no more questions from Rockies line. Our next question is from Kevin.
<unk> with UBS.
Please proceed with your question.
Thanks.
Okay.
The same question on international but you know what do you think the model is now in terms of ramping the profitability has it changed in any way I mean, you've been in the U K, maybe the longest can we use that as a proxy.
To think about what the proper investment is as a country by country.
Oh, yes.
We're all just sort of struggling about how to think about.
You hitting some of your longer term margin targets.
Yes, I think I can talk a little bit of that.
Alright, David and then I'll jump in.
Just talk about the over investments that we've made in Australia, and UK and Canada. When we first launched and that's what we talked about here today about more of an over investment on the marketing side to get the awareness levels up in.
And that requires multi.
Multi channel marketing spend along with TV.
No.
Look at I mean.
Very quickly as we started on.
Ramp up or start to open up our international markets in February of 'twenty Covid hit.
When we started Germany, and some other countries Netherlands, Austria.
So we have to pull back.
We weren't going to make those kinds of investments not understanding really how the market was going to respond.
But coming back out of it we have a playbook that we get these shops launched we had our clinical lease partners and partner networks launched we've got on <unk>.
Marketing set first 60 days or so and then we start to spend and that's what we're doing now on Germany.
<unk> launched in Germany in August here.
The same is going to happen with Spain, and so for roughly 6 months to 9 months, we overspend.
Excuse me, we see how the market goes.
It takes about 2 years for a country to mature we are seen as Carl mentioned, we are seeing these markets.
Such as the UK and Australia.
Get to aided awareness higher aided awareness faster than we saw on the U S. So that's encouraging but about a 2 year overspend and then and then we see.
And so on profitability color you want to add anything to that.
Yes, the only thing I would add is I think a good way to look at it is if you can look at the U K in particular if.
If you look at it from a liner orders as a percentage of.
On the population within that country. After about 24 months to 36 months.
And we've done that both in the UK and in Australia, we get the similar levels of penetration that we see within the U S from a liners as a percentage of the population. So that's always been our model thats been the ramp plan. That's still the goal as we enter into these new markets as well as start with the population means tested for affordability and then create a plan to ramp to a line of orders is a percentage.
Image of that population over a course of 24 to 36 months and as David said, we Overinvest significantly you can see that in sales and marketing as a percentage of revenue were in newer markets. We could spend 80 or 100 percentage of revenue for 9 months to 12 months as we as we ramp up those markets to support that longer term growth, but the plan is still on all of those markets to be profitable.
About 24 months.
And a quick follow up.
This is a tougher 1 maybe to answer directly but the stock is at or below where management had bought on the open market. Previously is there is there any reason.
Structurally fundamentally.
Strategically why management wouldn't be willing to step in again at this price here now or in the near future.
Well.
Kevin the stock on any given day can fluctuate.
10% to 20% it is highly volatile.
Relatively large short position.
I haven't I haven't looked at it I haven't looked at it today I don't look at it on on a daily or weekly basis.
We know where we go on the Companys sound growth.
Well have to look at.
Yeah.
Where the stock is at any given point in time, if we want to make further investments, but we look on the 3 largest holders 2 founders on myself on them.
More on 70% of the company. So we're all in we're all invested where all.
Working our butts off to make this thing happen and so you have our commitment whether we buy another $10 million to $20 million $30 million, where the stock is not going to make a difference as to how we're going to work or how much. We believe in this company.
Fair enough. Thank you.
Our next question is from Dylan Carden with William Blair. Please proceed with your question.
Hey, Thank you very much just a true.
Back I think the revenue guidance question was more if I kind of take the midpoint of your guidance here and give you. The average the seasonal weighting on the fourth quarter I'm kind of getting to 9% to 11% sequential growth between the third quarter and fourth quarter.
And that's obviously above your longer term targets I guess is that a function of higher marketing spend.
Is there enough conservatism I guess in kind of the outlook as it stands now.
And then I just have 1 follow up thanks.
Yes, I mean, we're certainly if you look at the demand that.
We're staffed for today from a manufacturing perspective in treatment planning perspective, we're certainly.
We have built a base to be able to support.
Growth metrics in and around that range or potentially even higher as you look at Q4 and so.
From a from a demand perspective, that's always something that we've been a little hesitant to do just given the historical impacts that we've had around your customer care, but I think if you look at the business today. If you look at manufacturing the changes that we've made on brand credibility and consumer sentiment online we feel very good about that from where we stand at this point in time and look at the back half of the year.
Year I think if you look at sort of what would make that happen thats everything I had talked about before and again, it's not all of this that would need to happen, but certainly if theres a change in the macro environment for our core demographic in particular, because that could be a tailwind as you look at the back half of the year here.
Certainly the challenge for campaign as I talked about we're investing significantly into that and really just launched it on TV in July.
Thank you you are pushing a lot more on the TV versus Facebook again, Germany, and Spain, I mean, there's there's 80 million people.
In Germany alone, it's a massive market, Spain in Iberia broadly is the third largest market for clear liners globally. So these are big markets that we're ramping into here in the back half of the year and then certainly partner network adoption. If you look at the brand credibility statistics that we've published within the Bakken I think we're making good traction there with GPS and.
And that's another area that we're going to continue to invest heavily here in the back half of the year. So all of those are really core levers that can help us get to the growth members or even beyond that that you've you've outlined there.
Awesome and you set up my next question perfectly there on the 800 partners I think you mentioned sort of 500 or active or about to be trained can you kind of disaggregate the about to be trained component and when does this what does this channel really started kicking in as far as sort of when you get all those partners up and running and start seeing that may be contributing more to them on.
No.
Yeah.
Yes, so the <unk> thousand 800 would include.
So for example, if we have a large DSO that we signed in let's say, it's got 500 practices.
But 250 of those have committed.
On a 250 would be included within the 500.
The 250 that have not committed are part of that 1800.
And so we have 1800 as part of a broader network of Dsos and <unk> and other partners, where the companies have agreed to be part of the network. We've got 500 locations that have already agreed to sign on and start submitting cases. So the majority of those are live today, we have a few week pipeline of training that we have where we have to go in and training the Pratt.
And so some of those are still in that training phase and then we've also got a very robust pipeline as well as we mentioned we've got we've got about 1000 locations today that are in the pipeline at some phase or another on the sales process and that's both domestically and internationally as well we've got robust pipelines. If you look at our.
In international markets as well.
And would you expect of the 1800 balance Oh, sorry on that.
1200 balance 13 on our balance.
That's the low hanging fruit as far as sort of getting adoption across other partners or is it more just timing on larger dsos and kind of taking some percentage of those businesses.
Yes, it's all it's all the above so certainly as we are in.
As we are in a large DSO and some of those practices are live.
We obviously have great data and we've actually put some of that data in the supplemental deck as well as show the impact that we're having on these practices. So.
You Smile brands as an example that we've outlined on the deck we've already <unk>.
Referred about 1000 patients into their practices for pre exams. The lifetime value of that is approximately $3 million to $5 million and so we're in a pretty short period of time, where having a material impact here.
There's other practices see that that are within the network that certainly makes the sale process easier.
To launch into launch into those practices, but thats not the exclusive focus it's also continuing to bring on new practices. Both from a DSO perspective, but also just independent G piece as well.
Excellent. Thank you very much.
Okay.
And our next question is from Chris Cooley with Stephens incorporated. Please proceed with your question.
Good afternoon I appreciate you taking the questions on I, just wanted to shift a little bit, but just kind of talked about the quarterly progression here a little bit but maybe.
Maybe just a little bit more.
Changed and maybe sentiment and.
In the sense that I think in prior commentary on the company has really not true.
His line is a.
True primary competitor.
We've kind of talked about this as a much larger clearer line our opportunity in different segmentation.
When we think about the marketplace and just.
It's still a little bit curious here about the impetus behind the shift to the counter program and that incremental expenditure.
And the headwinds that youre seeing as a result of.
Net debt orientation of competition and in line now that is a much greater bearing on the Companys operations. Thank you.
Yes, I can take that 1 so when we first started this business. We really went after the underserved market and it was really incremental these are people, who absolutely cannot afford $5000 from races or clear liners.
R R.
Heavy demographic here today is at 68000 per year household income and we do we do it we skew up on down the income range, but that is clearly the majority of our customer base I think when we started we didn't have we didn't have the manufacturing we didn't have some of the technology that we have today like I've mentioned on our smart sculpt.
Comfort such technology.
We've got a proprietary way that we make are liners that we think the invisalign customers can enjoy with no buttons or attachments for IPR.
We have the manufacturing the laser cutting that we're doing and then the scale our treatment planning.
Custom treatment planning software team is doing a tremendous job on getting more complex cases, we're doing more stages more hurts expansion. So.
Timing is right and by the way this isn't something we've just started because of the macro effects that are 68000 or your customers facing we started talking about this as the company progress you've got more mature and we have more capabilities.
It just it happens to coincide with our launch in July it was always going to be that to go ask go from disrupted a challenger and go after that debt higher income customer because really when you look at it I mean.
This line is a terrific engineered product door manufacturer wholesaler selling to the Doctor that's it.
It's not a closed on system like we have where our doctors are part of our network, we're not they're not marking up the product so really.
Invisalign is selling to the GP or ortho at the same roughly the same price a little bit less.
We're selling to the direct to consumer that's what it does seem to me. This intermediary. He does it takes out cost in the equation. We didn't have the product we didn't have the service we didn't have.
Our R 24, 7 contact center that now has a robust dental team to answer your question. So we actually think it's a superior platform for the consumer it's more convenient they don't have to go to in person visits on a monthly basis.
Regular basis to get their new aligner is they have access to dental professionals 24.7.
So we're super excited we think we're going to educate the consumer let them know.
There's clear plastic aligner straightening teeth Theres 2 ways to go you can go to your Doctor you can pay the markup on 3 time markup.
Or you can go you can go direct is our campaign C and encourage you to go watch some of the commercials. Those are just the tip of what we're doing to educate customers on this opportunity. So I hope that answers your question about the timing of it.
Just happens coincidentally as our customer right now is facing more challenges. During this this macro impact we're primed and ready to go.
With this launch.
Thank you.
Yes.
And our next question is from Alex Nowak with Craig Hallum Capital Group.
With your question.
Great. Good afternoon, everyone can you expand on the playbook on how you go from Martin Inc. For brand awareness marketing to close the sale in the U S. You have a really good brand awareness, but it seems the company is still searching for that optimized ways to market to close that sale. So maybe expand on the different marketing tactics, you're taking and how does this apply also to the international.
I too.
Yeah, so even though we have 50% aided awareness, we still we used to go on our unaided awareness unaided awareness is always tough we want to be in the consideration set whenever a person. Thanks, a lot to strength, whether the CRA adds or not.
Television has a better high funnel branding play.
So we're shifting a lot of what we're doing with Facebook into T.
<unk> TV also within Facebook.
Rather than using it as a conversion tool we aren't we are because of the iOS issues. We are shifting more of that until we call a reach.
And visitor play getting more people are introduced to the brand, especially at the higher income levels. That's 1 of the thing that we're doing.
And so we have a really robust CRM platform.
If you've ever come into the into the.
STC community and given your email address or your mobile phone, you'll see us on messes in E. Mails on communications, we do IV, our outbound reach all kinds of things and that's that's really the closer. So we do a lot of lead Gen..2 our smile assessment to our insurance land or which I encourage everyone on the call to go take a look at it we're really excited.
About it instant instant eligibility.
<unk> ability as far as we know we're the only ones on the world that have that we spent well over a year of putting that together with our technology team to be able to soon as you enter your information you will know what's your coverages how much your out of pocket is going to be if you want to use smile pay what it's going to cost you.
Those are all lead Gen for us.
We then use our contact center and our CRM platforms to convert.
That's the that's the difference between more of a branding that we're doing in more of a conversion tool.
True CRM.
Alright, I appreciate that and then could you briefly go over the legal announcements in the quarter and then just what's the current state of play across California, Georgia and Alabama.
Yeah.
Yeah, Yeah yeah.
Right.
Yes, I was going to say just from a regulatory perspective, and you've seen from some big wins there Chris I think we're in or it's Alex but we're in a very good position.
From where we've been historically so there is recent news both on Alabama and Georgia.
About some risk.
Wins, there in moving into discovery.
You know I think when you when you take a step back and look at it all across all the cases that were in the trend from a legislative perspective, it's very much in our favor so when it comes to legislative victories.
It helped tenant tele dentistry broadly we won in 2008 states since in 2020 session.
We have successfully defended laws on 7 other states as well so I think thats sort of the core takeaway. There are very good spots are better than we've ever been in from a regulatory perspective.
Similar on the litigation side as well.
Alright I appreciate it thank you.
Yes.
And our next question is from Michael.
Risking with Bank of America. Please proceed with your question.
Hey, Thanks for taking the question guys.
I got a bit of a long 1 so I'll use a I'll use both of my questions.
Just the 1.
I appreciate all the clarity you provided in the in some of the appendix of the slide deck regarding on the macro issues on how that how you think that that impact on <unk> and some of the Diablo going forward, but I'm, just hoping will go into more detail.
From my perspective Covid on the.
Moving on on pressures, it's been around for some time, we saw it in 4 Q3 Q4 last year. It was around on <unk>. So I'm just curious what is it specifically that's changed now and why you think that won't that will have.
Some carryover going forward, but not as much as it is it really tied to the stimulus that the government package you talked about is there anything else that youre seeing that changed from sort of <unk> from <unk> and then sort of my follow on immediately.
Do you see some risk in your mind into making <unk> of those factors persist, particularly if we got delta volume coming back.
It hasn't really gone away so.
We see some downside on the 750 million number.
Yeah, I think if you look at whats changed and as you pointed out Michael I think we tried to outline some of this in the deck as well, but it really goes back to our core demographic. So our core.
Core demographic is at $68000 household income at the median.
And if you look at things Thats happened to them on Q2 in particular inflation is a good example, so the increased cost of non discretionary goods and services as we think limiting their ability to spend on discretionary goods and services and if you look at that income demographic in particular David.
Variances in the quarter of 5.8% increase in the weighted average cost of their non discretionary basket that was actually higher than where it was last year and higher than relative to all income demographics within the quarter as well. So if you think about the impact of that and just use an example.
Cost of gas within the quarter was up more than 50% in the second quarter of 2021.
Within that target demographic of income that's about 4% of their spending on gas, whereas if youre, making over 200000, it's only 2%. So there is an outsized impact that we've seen on our sort of core customer and a lot of that was isolated to events. That's been happening within Q2, similar on spending preferences as well as.
As consumers were.
Within that sort of demographic replenishing goods they were doing some more on the good side less on the services side, so on things like apparel or sporting goods or use sports or cars or home related goods. As examples I think joblessness is another 1 and if you look if you look across our 4 big States. Our top 4 states of Texas, California, Florida, and New York Day accounted for about.
40% of the nation's unemployment claims through through.
Through July 10th that's actually up to 42%. If you look at the most recent survey so that trend has continued there and then certainly the iOS update as well.
Which as we've talked about from the changes there limited AD tracking and if you look at the ramp in adoption associated with that it took time it was over the course of the quarter for adoption there to fully to fully occur. So I think it's all of those together from a macro perspective, Michael that were isolated within the quarter in comparison to other.
Other time periods.
And then look I think as you look at.
Is there is there risk associated with the 750 to 800, certainly look we've assumed.
Within the 750, obviously like we talked about before that Q4 is higher than Q3, driven by seasonality, but we've also assumed that the macro environment that we're in today remains remains the same and so if the macro environment gets worse from a consumer spending perspective on all of our demographic and none of the other levers that we've talked about like.
The challenge, our campaign, or Germany, or Spain, or the partner network adoption start to kick in.
There could potentially.
The risk in that but certainly that's obviously difficult for us to predict say, whether or not the macro environment is going to get worse or not and generally what we saw last year certainly is as.
The Covid, we're sort of at its peak.
From a dollars perspective, there was no government support and stimulus packages that supported that so we actually did better in that environment when COVID-19 was peaking.
Then obviously, we did here in Q2.
Okay.
Thanks, so much.
Yes.
And our next question is from Nathan Rich with Goldman Sachs. Please proceed with your question.
Great. Thanks, good afternoon.
Kyle I.
I guess I'm trying to put the commentary together from today and.
It seems like you're shifting away a bit from the controlled growth strategy that you have had the past couple of quarters, and maybe investing more to drive future growth how would you maybe characterize the strategy.
From here and kind of what went into the decision to reaffirm the long term guidance.
In light of both the macro environment as well as some of the investments you're making in the business.
Yeah Yeah.
On a controlled growth perspective, nothing has really changed there I mean, the 20th 30% focus that's still our focus.
5% to 7% sequential targets we're always.
Sort of our methodology or approach to get to that 20, or 30%, but the 20 or 30% was always the ultimate goal there.
Compound annual growth rate over a 5 year period, and I think when you look at the long term opportunity for this business starting with just the sheer market opportunity.
Brand awareness in position being the number 2 player we think within this market. We think we're very well positioned to achieve those targets that we've outlined and I think when you look at sort of what's happened here on the short term. There is nothing that we see that is systemic right on what we see around the Miss in Q2 is associated with the macro environment that we've talked about we don't believe that that macro environment.
It is permanent.
It's associated with international markets, taking longer to ramp none of those are permanent and it's associated with the cyber attack, which again is on permanent so I don't think theres anything that happened within the quarter that changes our view on net of long term prospects of where this business can go.
Okay. It makes sense and then could you maybe just talk about your expectations around free cash flow for the rest of the year on the new kind of revenue and EBITDA.
<unk> been talking about thank you.
Yes, so we've got.
About $375 million in cash as of quarter end.
I think that gives us all the liquidity, we need to both manage certainly any downside in the event of.
Tougher COVID-19 environment or in more of a growth mode as well.
If you look at our AR as well, we've got $200 million, a day or on the balance sheet and we've got nothing against that so we certainly have the opportunity to continue to factor in securitized debt at some point in the future as well.
If you look at what we've guided to historically, it's been about $10 million to $15 million per month.
Quarterly burn so on the high end and monthly burn sorry, so on the high end that would be about $45 million over the course of the quarter. We came in just higher than that in Q2 in the low fifties and I still think the high end of that range is a good place to be as we look at the back half of the year here, so $45 million to $50 million on burn as we think about the back half of the year on if you look at that against on.
Our cash balance it puts us in a good position there from liquidity perspective.
To continue to execute against the longer term targets that we've outlined.
If there are questions with that it appears and our final question comes from Laura Champagne with loop capital markets. Please proceed with your question.
Thanks for taking my question I think it'll be a fairly quick 1 so the way I read the guide for G&A is just that it increases sequentially. So not a ton of granularity. There can you be more specific on what we should expect for international G&A increases as you launch those.
Countries more or at least a couple of them more in earnest.
Yes, that's right.
I think if you look at the G&A overall, we've tried to be very vigilant over the past several quarters and we're.
Continuing to do that as we look at the back half of the year here as you look at the growth targets that we've outlined we're expecting small increases just as a result of the revenue drivers are the revenue being at a higher amount so things like the contact center as an example on being able to support that demand or payment fees. As an example, so as revenue grows we have more payment fees.
That will hit the G&A I think both of those are fairly small in the context of our of our total G&A, but certainly a little bit of increases there on a quarter over quarter basis, as we hit those growth targets.
And then certainly as we launch into.
International markets as well, there's a lead time and a ramp that's associated with that I think you can see that in G&A as a percentage of revenue being about 65% of total revenue here in Q2 for rest of world about 55% on a year to date basis and so that.
That trend will continue as we launch into new markets here in the back half of the year.
The markets that we're already in today to 13 countries that we're in globally, we're not expecting additional G&A that we're gonna be pushing into those markets, it's really going to be about more new markets that we're expanding into and then also as I said before supporting the growth within the business.
Got it thank you.
And we have reached the end of the question and answer session I will now turn the call over to David Katherine for closing remarks.
Yes, I just want to thank everyone for joining us on a really good.
Group of.
Questions and we look forward to speaking with you over the next months and quarters to come. Thank you very much.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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