SmileDirectClub, Inc.
Q1 2020 Earnings Call Transcript

Published: 14 May 2020

[Operator:]

Greetings, welcome to the SmileDirectClub First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instruction]. Please note, this conference is being recorded.It is now my pleasure to introduce your host for today's call, Alison Sternberg, Vice President Investor Relations, SmileDirectClub. Thank you, you may begin.

[Alison Sternberg:]

Thank you, operator. Good afternoon. Before we begin, let me remind you that this conference call includes forward-looking statements. For additional information on SmileDirectClub, please refer to the Company's SEC filings, including the risk factors described there in.You should not rely on our forward-looking statements as predictions of future events, 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, for 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.I am joined on the call today by Chairman and Chief Executive Officer, David Katzman; and Chief Financial Officer, Kyle Wailes.Let me now turn the call over to David.

[David Katzman:]

Thanks, Allison, and good afternoon everyone. I hope that you and your families are well. Thank you for joining us on the call today. I know I speak for the entire SDC team and expanding our thoughts and well wishes to those communities and individuals especially healthcare workers and first responders more deeply impacted by the COVID-19 crisis.Despite a difficult time for the world and a very unique and complex operating environment, the SmileDirectClub team rose to the challenge and achieved strong performance in the first quarter. Our performance in this quarter more importantly since then elevates the strength, durability and flexibility of our business model.For today's call, I'd like to first call our some of the notable highlights in the quarter all by an overview of the trends we're seeing in our business and how we're positioning ourselves to continue to execute against our long-term revenue growth and margin targets.Although difficult, I will also try to quantify the impact that COVID had on our business during the first quarter. I'll then turn it over to Kyle to walk through our financial results and outlook in more detail.As a reminder, on March 21st as a result of COVID, we closed our SmileShops except for the ones we have in Hong Kong and pivoted to an impression kit only business serving new club members in addition to existing member already in treatment. We temporarily closed our manufacturing facilities on March 20th and reopened them on a more limited basis on April 6th, make personal protective equipment mainly face shields on our fleet of 60 3D printers and to service our line of customers.Our kit business saw and continues to see robust performance both in the U.S. and abroad despite an approximately 90% reduction of marketing spend. Now turning to highlights within the quarter.In Q1 we shipped approximately 123,000 unique line orders up 12% year-over-year at an ASP of $1770. Adjusted for COVID shut down, we estimate we would have shipped over a 141,000 unique line orders up 29% year-over-year. We achieved a $197 million in net revenue up a 11% year-over-year. Adjusted for COVID we estimate net revenue would have been over $235 million up 33% year-over-year.Our SmilePay collections continues to perform very well and is inline if not better than it has been historically. Adjusted EBITDA was negative $67 million for the quarter by only negative $5 million in February. We expected similar performance in March without the impact of COVID.As demonstrated in the numbers outlined above prior to the impact of COVID, we were tracking to our full-year revenue and adjusted EBITDA guidance as provided on our fourth quarter call. Since Q1, we have had many great developments specifically we announced the issuance of the U.S. patent protecting our SmileShop IP and treatment process from any competitor for 18 years.We announced our partnership with Anthem and its network of Blue Cross Blue Shield insurance programs across the U.S. during Aetna and UnitedHealthcare providing orthodontic coverage at an in-network basis. We formalized our independent clinical advisory board made up of some of the best orthodontist and dentist around the globe or report directly to our board of directors.The same members of board will focus on enabling us to continue setting industry standards for clear aligner therapy is teledentistry model. Advice on the sharing and best uses of our clinical data and help our strategies for continuous quality improvement among other things.We have the first meeting on May 7th and we're excited to work with this esteemed group. We launched our enhanced teledentistry platform with advanced features including the new updated video chat to improve the clinical experience from members.And lastly, I am pleased to share that we have successfully entered into a few five year $500 million debt facility with HPS Investment Partners. Given our uncertain times and the possibility of a COVID return in the fall, we felt it was prudent to strengthen our cash position while also minimizing shareholder dilution.This deal accomplishes both of those objectives. The deal provides significant cash, removes the near-term repayment liability with the previous ABS facility. Funds on the 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 and factoring facilities for our SmilePay per ramp execute against that strategy. All of the competitive modes that we often speak of are complete and vertical integration, our omnichannel approach, cap to financing program and our strong brand equity with consumers were truly put to the test with the onslaught of COVID.And their collective strength a lot as to achieve performance above our expectations inspite of a very fluid and rapidly evolving situation. With few fixed cost in our business, we were able to take a size of the action over the course of the quarter including the temporary closure of all of our SmileShops other than those in Hong Kong.A vast majority of our shops around the world are month-to-month leases. Our 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 burns since the middle of March.Equally notable, we were able to do this while engaging in multiple initiatives to aid in the fight against COVID-19 including manufacturing and selling at cost more than 50,000 face shield for various organizations and hospitals, turning partners such as HP and WestRock in these efforts.Donating medical supplies including latex gloves and masks to our partners at more than a 120 CVS location. Opening our telehealth platforms all dentist and orthodontists in the United States and Canada to allow them to communicate with patients remotely and maintain their care.We have had 1000s of providers express interest in this offering. We donated free PPE to dentists and orthodontists so they can continue to provide case as needed. Actively seeking organizations that have been deemed essential and need PPE to continue to serve the public.We have provided supplies to organizations from the Tennessee Department of Health to the hospital for sick children in Toronto and a variety or others. As I said before, we are fortunate to be able to help those in need of this time 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 as important to provide a brief snapshot of our performance since the end of Q1. Let me start with SmilePay. SmilePay has been an incredible program for SmileDirectClub over the past five years. It expands access to care, makes straightening your teeth affordable to almost everyone.The SmilePay members pay $250 of fund which more than covers our cost to consult and then $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 there is a low monthly payment, we expect SmilePay to continue to perform well during a downturn in the economy.Our success rates on credit card attempts which is a proxy for monthly payments has seen no degradation since COVID has started. Further since the onset of COVID, we've seen only a 1.7% of customers requesting a payment deferral far below the 4% of 5% deferral request that you would see other lenders facing today.Our reference earlier the robust performance of our impression kit business despite a significant reduction in marketing spend. This demonstrates that our investments in brand building and marketing efficiency have begun to pay dividends. Specifically from March to April, we saw our cost per sale decline by 60% and has cover leverage on later normalized for the impact of COVID at Q1.We saw sales and marketing as a percentage of revenue drop 600 basis point sequentially quarter-over-quarter. Additionally over the past 30 days, even our marketing spend is down approximately 90%. Our kit and scan volume is only down approximately 40%. We shipped 10,500 unique line orders in April and are expecting to ship 11,000 to 15,000 in May.It is too early to know but if our impression kit orders over the past 30 days mature out the normal conversion. We would expect that to be closer to 22,000 shipments. We are pleased with this level of demand 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 partnershop with Walmart. This represents a productive acquisition channel for us, will also increase in 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 in economics. This is consistent with what we articulated in the past as one of the major levers to drive margin expansion over time. And we are pleased with our traction to date.As we contemplate the timing of reopening our shops, we remain focused in driving more demands for our existing network and monetizing that demands for a variety of ancillary products in addition to our aligner therapy.With the strength of our impression kit business and little marketing spend, the strength of our balance sheet and the flexibility of our month-to-month leases at most of our locations were in a unique position to ensure demand is there for our SmileShops before reopening.Another important lever we have discussed is advancement in automating and streamline in our manufacturing and treatment planning operations. We continue to see progress here and we are currently on tract with the rollout of second generation automation machines by Q4 of this year.As referenced in our prior earnings call, this puts us on track for the 200 basis point improvement on cost to consult in the back half of this year and equally is important, ensures a more seamless customer experience which is the cornerstone of our business.Now, turning to the regulatory environment. There is no doubt a positive starlight has been cast in the merits of telehealth during this environment. This is a welcome dialogue for us. We've always first and foremost been a telehealth business and we're excited to see the growing level of understanding and acceptance of the importance of telehealth especially for dentistry.We believe there will only be increased consumer in clinical adoptions with telehealth models from here and we continue to invest in our proprietary platform and features and innovate against on that consumer needs and paying points.As I noted earlier, we now have a new MO robust video check capability to allow a great connectivity between the club member and the treating doctor in clinical team. We feel well-positioned in our continued efforts to protect the access to cure the consumers want to deserve and we are very pleased to see progress being made in support of these efforts.Specifically the American Association of Dental Boards recently delivered guidelines to state dental boards that embraced teledentistry and the access to care it provides. Additionally, we have started to see state legislatures causing legislation that specifically permits all dentistry in their respective state and rejecting proposed legislation that has sought to conclude this much needed form of remote care.As you can see, we are starting to reap the benefits of our continued investment and proactive legal and log in efforts which combined with the climate of ever increasing lease activity and the adoption of telehealth represent very positive momentum toward continued validation of our model and the care provided by our affiliated network of dentists in North Dallas.We also continued to partner with the broader dental community as teledentistry is becoming a more important new practices and have already launched several initiatives including producing PPE for the dental community for use in any in-office procedures and no cost providing the use of our teledentistry app to all licensed dentists and orthodontists 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 are continuing to expand our office direct program with our wholesale model to be fully rolled out overtime and there's more to come.We look forward to continuing to find new ways to work together with a broader range of clinical partners. Notwithstanding what has been a very disruptive and unusual period for our business, we are overall quite pleased with the performance in the quarter and more importantly since the quarter.We believe this affirms the flexibility and durability of our business model. Although the timelines reopen the country is still unknown as previously stated. The demand for our products and services is strong. We continue to operate in a cash neutral position, give a strong balance sheet to other unforeseen circumstances as SmilePay continues to perform well.The fundamentals of our business in our teledentistry platform position us uniquely to continue gaining market share while also driving toward our long-term growth in margin target. In closing, we remain laser focused on our mission. To do marketized access to a smile each and every person loves while making an affordable and convenient for everyone.Now, more than ever extending the value proposition that triangulates between convenient access and cost one that has delivered to a dynamic proprietary and hi-fetched telehealth platform. And as a lowest cost provider in the category puts us low in the path to capture this massively underserved market.Before I turn over the call, I want to personally thank all of our SmileDirectClub team members who quickly rose to the occasion across all areas of the company to help out with this terrible pandemic, might be one of the first companies to redeploy our facilities to make personal protective equipment to help out our customers while in the middle of treatment and continue to perform every day to bring access to care that everyone deserves the smile they love.I have never worked with a more dedicated and passionate group of people. And now, I'll turn the call over to Kyle who will provide a detailed overview of our Q1 results and our financial outlook. Kyle?

[Kyle Wailes:]

Thank you, David. As David mentioned, we are pleased with our competence over the course of the quarter. And since the quarter ended, now withstanding the challenging environment in which we operate. The tenacity of our business models put to the test, as we bound continuing to serve our club members performing the appropriate levers to manage through the COVID crisis.Even more notably, we believe we are well positioned to emerge in this crisis while capitalize. And uniquely positioned to achieve the long-term growth in revenue targets we've previously outlined.Turning to our results for the quarter. Revenue for the quarter was a $197 million, this represents an increase of an 11% over the first quarter of 2019. This year-over-year increase was driven primarily by 12% year-over-year increase in the line of shipment which came in at a 122,751. ASP came in at $1770, which was relatively flat year-over-year.It is important to highlight that exiting February, we are on-track to exceed our revenue targets for the quarter. Targets in the temporary closure over SmileShops and manufacturing facilities as a result of the COVID-19 crisis.As David noted, without the impact of COVID, we estimate revenue would have been approximately $235 million for the first quarter up 33% year-over-year.Turning to expenses and margins. Gross margin for the quarter was 70%, a 288 basis point decline versus the prior year. Sequentially, gross margin was down by 326 basis points. These declines were largely driven by cost incurred to the end of March even though we closed our facilities on March 20th.For example, we paid our team members to the payroll on April 10th. The great proxy to normalize this is February as it came in with a gross margin of 74%. We would have expected similar gross margins in March had it not been for the COVID crisis. Additionally, we continue to focus on streamlining our manufacturing facilities and as David alluded earlier, we are currently on-track for the rollout of second generation automation machines by Q4 of this year.Including this rollout as the key component are becoming adjusted EBITDA positive. Marketing and selling expenses came in at a $142 million or 72% of net revenue in the quarter compared to 54% of net revenue in Q1 of 2019. Sequentially, marketing and selling of percentage of revenue is flat.Adjusting for the impact of COVID, marketing and selling expenses of the percentage of revenue would have been approximately 66% of net revenue for the quarter, representing a 600 basis point sequential improvement. It was 56% of net revenue in February, reporting a 66% estimate for the quarter.Over the course of Q1, we saw and have continued to see drastic declines in sales and marketing in percentage acquired confirming our belief in the cycle which is the nature of our business model employing to increase sufficiency's in sales and marketing.General and administrative expenses were $91 million in Q1 compared to $49 million in the prior year period. G&A expenses were down $3.5 million sequentially. To give more insight to the savings we discussed on our last call, G&A expenses in January were down 2% in December at $32 million down 4% in February for $31 million and down another 9% in March to $28 million.Approximately $7 million of that $28 million of noncash expenses such as stock based compensation and depreciation and amortization. We plan to continue to stay vigilant with cost control throughout remainder of the year and beyond. And you can expect to see continued leverage from this line item.Other expenses include interest of $4 million, taxes of $2 million and other expenses of $5 million which is mostly noncash currency gains and losses associated with our foreign entities. All of the above produces Q1 net loss at a $107 million compared to a $20 million net loss in Q1 of 2019.Moving to the balance sheet, we ended the fourth quarter with $224 million in cash and cash equivalent. Pro forma for the new debt facility, we have approximately $420 million of cash on the balance sheet after refinancing our prior ABS facility. Cash from operations for the quarter was negative $70 million, this represents a 50% improvements in our cash burn rate quarter-over-quarter.Cash spends on investing for the first quarter was $28 million, nearly associated with lease hold improvement, capitalized software and building our manufacturing automation. Cash spends on investing decreased $12 million quarter-over-quarter. Free cash flow for the first quarter to find cash from operations of cash and investing is negative $99 million.This represents a 46% improvement in our cash burn at quarter-over-quarter.Now, turning to SmilePay. In Q1 2020, 66% of our members elected to purchase these in SmilePay 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 in SmilePay as percentage of total purchases to-date.In Q1, we took a conservative approach to implicit prior concessions and increased our reserves by approximately $12 million given the uncertainty of our 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 in with this low monthly payment, we expect SmilePay to continue to perform well. Our success rates on credit card attempts, which is a proxy for monthly payments has seen no degradations since COVID started. Further, this at same time have seen only 1.7% of customers requesting a payment deferral which is far below the 4% to 5% deferral request we see other lenders facing today.In closing as David mentioned, the in precedent events of the past few months have provided a number of learnings about our business. These learnings will allow us to emerge in 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 and probably better understands human behavior in the months ahead. We are proud of the accomplishments we have achieved and believe we're well-positioned to capture market share in the future.In particular, on a COVID 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 at manufacturing automation and achieving our goals on the fourth quarter of 2020.As we have stated before, we believe streamlining our cost profiles through operational efficiencies to not only improve our margin profile but more importantly to provide a consistently superior customer experience that meets our demanding expectations. We had approximately $420 million of cash in our balance sheet giving up ample liquidity to manage the continuing crisis or alternatively some faster and a higher look bought.And lastly, we've been pleasantly surprised by the level of demand we've seen given minimum marketing spend over the past 60 days especially with all of our SmileShops other than those in Hong Kong being closed. We'll recall that our SmileShop functioned primarily as fulfilment centers not as sources of demand generation.Accordingly during the quarter, we're able to very quickly pivot to an impression kit only business to continue to serve new and existing club members with minimal disruption. This reinforces the importance of a differentiated omnichannel approach with kits in SmileShops and positions us well for a future with virtual healthcare will be ever more important and prevalent.Additionally, let's illustrate the strength of our brand in the marketplace and the resilience of our product offerings and provides us the opportunity to test into our linear SmileShop footprint which we believe we can achieve with little or no impact to revenue so by enhancing the margin profile of our business.I would also like to reemphasize that our long-term objective have not changed. We remain laser focused on providing the best club member experience supportive by strategically positioning our sales here on our board.As we have cited before, we have a great head start in U.S. but we overinvested to gain market share in a few short years and believe that investment will continue to pay off in referrals, even in awareness and margin expansion in the future.We have already seen this materialized through our performance since COVID with little marketing spend. We have a low-cost provider with brand presence and no pricing pressure and an increasingly favorable climate for telehealth.We will continue to make strategic investments in the professional channel, international growth, manufacturing innovation and in penetrating new demographics to drive controlled growth but also executing against the profitability goals.We look forward to continuing to update you on progress and base in lease accounts. Thank you to everyone for joining today. With that, I'll turn the call back over to the operator for Q&A.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Robbie Marcus with JP Morgan. Please proceed with your question.

[Robbie Marcus:]

Great. And thanks for taking the question. Maybe I'll start with second quarter and your thoughts on the recovery pathway. David, if I did a math on the number of aligners you laid out for second quarter, I'm coming out to a down 60% year-over-year. Is that the way we should be thinking about it maybe down a little bit versus the past 60 days.And how are you thinking as you said your base plans for the company with unemployment where it is, where shops closed about the reopening process and how you're thinking about the balance at 2020 realizing you haven’t given formal guidance.

[David Katzman:]

Yes. So, as far as being down a 60% of our last year or quarter-over-quarter, I mean we're in new waters here Robbie. So, we're looking at as the bottom of build, as things open up, we were actually testing two markets right now. Our first two shop markets be amazing in the U.S.So, that's really up to the governments and the municipalities. So, this pandemic highlighted advantages and convenience of telehealth which is really important to us. So, anyway you'd have to say there aren’t too many people over the last 60 days that haven’t heard of or been exposed now to telehealth.This will help with more consumers who'll entertain our platform versus traditional brick-and-mortar evacuated offices that would have in the past. So, it's going to provide a better regulatory environment but the states is we continue to push our model. The teledentistry legislation in all 50 states going forward and we'll make a big push for that and take advantage of the situation.There our kit business has been really invigorated with less than 10% of our total business, the shops dominated with over 400 shops. What we've looking at as we do this bottom of build now and we build the company, we're looking for that kit business for people wanting to stay at home, be safe and stay at home, that's going to be our stronger percentage of the overall business.Which means we may not have to have quite the shop footprints that we used to have that we're going to be able to leverage the shops more with higher utilization which ultimately decreases expenses in the P&L. So, from a profitability standpoint and that's the number monitor here at SmileDirectClub is controlled growth of profitability.We're going to build this from the bottom up. Whatever the marketplace will give us in demand, we'll take, we'll continue to open up the shops and pass them. So, we remain very confident that we can grow this the level that the marketplace will accept and a profitable base.

[Robbie Marcus:]

Okay. And then, one just 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 of SmilePay revenue coming through each month even though sales are going to be down.How should we think about the balance sheet, the cash flow dynamics and just if you could throw on your thoughts on your liquidity hereafter the new deal announced. Thanks.

[Kyle Wailes:]

We're happy to. So, to answer your first question. So, if you look at April as an example as we talked about, we shipped about 10,500 unique aligner orders in April and obviously we are closed through the first week.So, we are closed from March 20th through the end of the first week in April. We started to ramp back up and we had to put new health and safety measures in place to ensure the health and safety of our team members and so it took us a couple of week to ramp back up to get some more of the normal state as well.If you look at what we're expecting for May as we called out it's in the range of an 11,000 to a 15,000. But if you look at actual demand and again our marketing spend is down about 90% from where it was before, our demand overall being only down about 40%.And so, about half of that on a normalized basis with normal conversion and it's too early to know or incidentally how the kits convert help to. But that'll be closer to about 22,000 shipments on a monthly basis. And so, that's how we think about run rate right now with normal conversion and again that's with marketing spend being very little.And I think what that highlights as David said is really the omnichannel presence and the strength of our teledentistry platform. Yes, if you look -- over at that the 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 a $120 million of cash on the balance sheets.So, it gives us more than enough liquidity to both manage on any downsides of COVID. It 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. As you know with SmilePay, the quicker we grow, there's a cash burn associated with that.We feel that for '20 gives us sufficient liquidity to manage really both side to that and believe that we're in a great position or role. Yes, as we thought about that cash facility or the debt facility in the refinancing overall, as I mentioned, those were two of the parities associated with that.But it does a variety of other things for us as well, Robbie. So, the current facility that we have and the prior facility was coming due later this year, this new deal is a five year term that we could finance after one year. At 70% to 85% advance rate, which is much higher than where we were before which was closer to a 50% advance rate that we were actually getting on notes receivable.Now this fund's both our domestic and our international growth or receivables where the prior facility only funded the domestic receivables. And obviously enhances the overall liquidity. But the number on parity that we had was to minimize our equity dilution, we're big believers in the long-term equity of this company and the conviction we have around that.And so we really want to focus around minimizing that dilution and we believe this facility accomplishes all those goals. So, lots of cash in the balance sheet, we're in a good position especially given that our current cash burn is effectively neutral.

[Robbie Marcus:]

Great. Thanks, a lot.

[Operator:]

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

[Jon Block:]

Hey guys, good afternoon. Kyle especially in your last comments, it seems like you're going to run close to cash flow neutral in the near term but how is your marketing spend plans changed longer-term, call it due to the learnings on asset and yield if you would during the COVID shut down.And it seems like you might not reopen I think in this slide to that 418 shops as at the end of the first quarter. Is it fair to think that you don’t reopen them all as the lights come back on as you think about optimizing the footprint? And then I just got a follow-up.

[Kyle Wailes:]

Yes. So, I think what this has proven Jon is really the variability and flexibility of our mode. That said, as we talked about demand has been strong with very little marketing spend, effectively all of our shops are closed outside of Hong Kong and are all on month-to-month leases or almost all of them.So, we can be very flexible there and as we see demand come back, we can ramp those shops up again. But it goes back to what we have said before and we've always said you know the shops themselves don’t drive demand. We've got an omnichannel presence, we're driving demands through aided awareness through referrals to our marketing spend.And people are going to the website and choosing if they want to order and impression kit or if they want to book expand at one of our SmileShops. And I think what this has really proven is that the power of the teledentistry platform that we have, it can be much more effective with the kit business and with the reduced shop counts than we have historically.It's always been part of our plan as we've talked about the leverage that shop count really be more profitable by driving the utilization up in the shops that we've built. And I think what we've learnt as a result of this as well on the marketing side, we can be much more efficient than we've been historically.You can see that in the numbers, February was 56% of revenue as I mentioned on the call. It you look at it on a COVID adjusted basis, we are 66% in the quarter or down about 600 basis points quarter-over-quarter. So, it's really all of those together, Joh as we think about the future. But again, it goes back to we think we have the opportunity based on these learnings be much more efficient.

[Jon Block:]

Okay. So, maybe on as to follow-up to that one and then just tag on the second question. I guess the follow-up is if the kit business is doing well and you might not need all 418 longer-term. What does that say of anything about the partnerships with CVS and Walgreens, are those altered in any way longer-term.And then the follow-up, or the second question sorry Kyle, just the ASPs came in better than we thought. I think your initial guidance for 2020 sort of had and implied ASP 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, ASP is into that trend continue call it throughout the balance in 2020. Thanks guys.

[Kyle Wailes:]

Yes. So, ASP was 17/25 as what we've put out in the last call. Obviously, been in better than that for the quarter. We have put a big focus around reducing discounts and price increases. I think if you look at the market overall, yes as we've talked about in the past we're the low cost provider in this space 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 CVS and the Walgreens relationships, it's still an important part of the model overall. As we've talked about all along, if you look at the SmileShop footprint, it is a point of destination, the shops are not driving demand.And so, we want to be in the right locations within so these that are convenient for people to get to once they book an appointment. And the retail partners play an important role in that.

[Jon Block:]

Thank you, guys.

[Operator:]

Our next question comes from Steve Beuchaw with Wolfe Research. Please proceed with your question?

[Steve Beuchaw:]

Hi. And thanks for the time here. I wonder if you could speak a little bit to given the operational steps that you're taking to drive demand and in environment where the stores are not open. You've given the duration of the company and your ecommerce platform and your historical ad spend.Sort of presizeable database potential customers. Can you talk about how you're leveraging that database to try to mine the well if you will as you have a pretty good sense for new potential customers are? And then I do have a follow-up.

[David Katzman:]

Excuse me, it's David. I'll take that one. So, that's basically after we turned out the marketing, the roughly 90% Facebook, Snapchat, TV, was completely turned off. Only deal is we started after several weeks of getting stabilized and reopening our main event for reaching out to our customer base.We have millions and millions of leads and emails and so what we find was that customers who normally would not have transacted by way of that impression kit, it was the perfect solution for stay-at-home environment. And so, that kit business like Kyle said really all we have is a two shops in Hong Kong.So, the vast majority of our business chance and the kit. And that is only down about 40%. So, we're still maintaining 60% of that business. We've always talked about its long lead cycle. People have several reasons to jump off and join the -- and become a member of SmileDirectClub.And so, what we saw was even during this crisis, people are sitting home, they're very interested. We now and one of the things we had to do, we had to build up our kit and take business and we were doing far less than we're doing today. And we didn’t have that labor, we didn’t have the models to bring that kit business through the government.And so we built that up over the last four weeks. We're now starting to ramp-up marketing for the first time, we're working back on Facebook, and we're actually going to be launched in TV on Friday with a kit type business. So, we'll see where it goes but as lot of other ecommerce companies have seen during this crisis, the models have flourished for the stay-at-home customer.And we think the same. We think that we can get that at least in this in this environment now that people start to come out of their homes and start to get that back into the community, the shops will serve your purpose. But what we feel what we've seen is that the footprint doesn’t have to be as large that we can get more utilization of these shops.Kit business that was less than 10%, we haven’t modelled out to be almost 30% or higher going forward. So, that becomes a more profitable business for us; less cost even the shops. So, store and omnichannel of approach but I think there or be the beneficiary of this stay-at-home be safe environment that we're in.

[Steve Beuchaw:]

Much appreciated. And the second think I wanted to ask about is somewhat related and it has to do with the lead up to entering treatment with SmileDirect. So, and it varies a little bit from place-to-place but there are requirements for folks to get imaging and requirements for folks to get checkups.Normally, really not that big a challenge but with practices closed down, I wondered is this something you want to try to enable, is this something you might need to enable via the store to give people easy access to checkups or imaging to make sure that they need all the protocols in an environment where so many dental practices or have they closed for a while and it's little unclear how they'll go about opening?

[David Katzman:]

Yes. Listen, our whole business is built on the fact that we do this through a telehealth platform. So we have requirements that our customers upload photos 60 days, 90 days photo check in. They don't have to go to a shop. As a matter of fact, I'd say, another surprise was the fact that people who want to do a mid-course correction or refinement at the end of treatment we offer those free of charge.If they're are not satisfied, they want a little tweak. It's not uncommon in the clear aligner business to do that. We thought that they would possibly wait for a shop to open. People had started to journey other shop once they found out that the shop was close.But what we found was that people had no problem having to send them an impression kit at home to get their new scan and get their MCC refinement. So that was another pleasant surprise. So it's pulling on necessary and what we have done is we doubled down on our platform.As we said on the call, we just launched a really robust video chat capability that really just -- we always had the teledentistry tools to service our customers at home, but this new video chat, some of the features that it has, it allows the dentist or the dental team to take control of the customer's phone and they can then zoom in into the mouth and work all the different tools of the phone putting on the flashlight.They can annotate right on the screen. They can record the call in the session and go over with the customer after the fact. So really powerful I call it a gold standard for robust telehealth platform. And so that something that we just recently launched. I think it's really going to help a lot of these customers who don't want to go back into a small shop. They want to continue to have treatment from the comfort of their home.

[Steve Beuchaw:]

Very cool. Thank you for the time here.

[Operator:]

Our next question comes from John Kreger with William Blair. Please proceed with your question.

[John Kreger:]

Hi. Thanks very much. David, can you just talk a little bit more about the vision of the operating model once we're beyond the crisis. It sounds like your thinking about fewer SmileShops that also seems like you're talking more about kind of a stronger exclusive relationship with providers.How do you envision that versus let's say where the company was a year ago? 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.

[David Katzman:]

Yes. So as far as 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 and so that ability to get into the team market.And then continued innovation and R&D and spend there which gets really cool things coming out. So nothing has change there. International is continuing on. It's really a factor of the COVID situation, which was to be launching at Singapore. In June we got Austria in the works, Germany which we just launched, we had to shut down is going to reopening in the next couple weeks.So we got four, five countries that will be opening up over the next couple of months as soon as the stay at home orders are lifted. So we're excited about that. As far as partnerships go, 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 from that standpoint it doesn't change. I think what's changed coming out of this is telehealth is a household work. And so people want to -- I think lot of people have experienced it for the first time. They used it both in teledentistry and telehealth.So the wins are backed here, which we were facing a lot of headwinds both regulatory and from the dental communities or teledentistry platforms. So I think that has really helped open up and a lot of people are looking at this platform otherwise wouldn't use this.So that along with that the kit business which allows us to control some expenses on the sales and marketing side, being the sales side which is primarily the shops. We can leverage more of these slots to get better utilization. That expense comes right out of the P&L.I can tell you they were hyper-focused on profitability. We got great unit economics. We absolutely should be profitable and we're building the models. And the good thing is that we can grow into it. As demand is there and we can take demand in the marketplace as states open up.We can build from there. So it give us the ability, I mean, we always even before COVID we had set our sights on being profitable by the end of the year that we told you guys on the last call. We feel even more confident about it now over cash neutral position.The only burn that really should happen going forward is if the business grows even faster than we have planned, because the burn comes from the SmilePay. If we're EBITDA positive which we plan on being this year than there is no cash burn for that. This CapEx which is about 100 million a year.And then there's the SmilePay. So growing the business largely with positive at a more rapid rate and burning more cash it's not a bad thing, because there's financing, lots of financing out there to support that SmilePay. Do you want to add anything Kyle?

[Kyle Wailes:]

Yes. I think you done it well. I think in the near term as David said, our marketing expenses very low. We've got almost no SmileShop expense and about 55% of our team is furlough. And so we're in a very good spot to manage our cash flow and because the model is so flexible we can ramp up slowly, test different cities and then spend into that.If certain geographies performed well and we're growing and converting well, then we'll spend more in grow into that. But we not going to have a risk of opening everything up way too soon and having a large cash burn associated with that.As David said, as we get back to the growth volume like we talked about before, and we thought would be in Q4 than the longer-term target that we put out there being 20% to 30% plus per year there the cash burn associated with SmilePay but from an EBITDA less CapEx perspective, profitable in the near future and the burn associate with SmilePay by 2022 would go away we get EBITDA to high enough point that were cash flow positive even associated with that.So yes, I think the main takeaway and COVID really prove this out. The models are incredibly flexible. We'll be able to be in a cash neutral state with a good level demand that almost no marketing spend. And we'll ramp that up slowly to make sure that we're preserving overall liquidity that we have as business and show that demand is there before we continue to spend into that.

[John Kreger:]

That's helpful. Thank you.

[Operator:]

Our next question comes from Nathan Rich with Goldman Sachs. Please proceed with your question.

[Nathan Rich:]

Hi. Good afternoon and thanks for the question. David, can you maybe talk about what the conversion rate and kind of time to purchases look like for the kids business historically relative to the SmileShop. Have you seen any change in that conversion in the past 50 days without the market spend?

[David Katzman:]

Yes. Good question. So we don't give specific conversion numbers, but I can tell you that as we look at some of the key metrics that we look at are kit return rates. That's number one. We ship out the kits. There's certain percentage of people that don't even return them. What we're seeing is that is over the six months.So the kit return rate is higher. I think you can rationalize that by saying people are at home. They got a lot of time on their hands. I think we sort of expected that. What happens when someone orders a kit, we actually ship it out overnight, because they're hot, they want to get this thing done.And there's always a reason when they come home from work, I can't do it tonight, I can't do it. It takes about 20, 30 minutes. And so when we start calling them to get these kits back there's always these excuses. They like to say I haven't had the time.So, kits return rates are up. We got bottleneck. But pretty much from someone returned the kit in the past gives us pretty study state business, less than 10% of our volume. We can turn this kits around with in a few days, get a treatment plan to the customer and get the kit -- and get the aligners ordered within a matter of couple of weeks.We backed up over a month right now, because of the onslaught that we had and we had to hire up, we had to train the special software that required. It goes through a lot of steps to get person the treatment plan. We're not finally getting through the WIP. There's a huge amount of WIP down in Costa Rica. Our plant in Antioch, Tennessee is ready. It's fired up and the orders literally in the last three, four days really start to accelerate.So from a -- kit return rate, it's up. Acceptance rates are about the same. There's an acceptance rate metric that we go through. There's a certain number of people who just can't get the kit right, and we sent them out a retake kit. We're still doing that.And then the conversion off of that once. They pass through that gauntlet, they're accepted. They have a good impression. That metric is about the same. It's almost identical to where it was in the past. Same amount of SmilePay, same amount of full pay, all that. People don't go through this whole process not to buy. So once they come through, the conversions are pretty high. They get through acceptance rate so once they come through the conversions are pretty high, they get through the subsequent rates.

[Nathan Rich:]

Okay. Great. And then did I hear you say that you still expect to be EBITDA positive by the end of the year? And if so could you maybe just talk through the different factors obviously a lot of uncertainty but just 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?

[David Katzman:]

Yes. It’s Kyle CFO takes that question on but yes we feel confident before COVID, coming out of this. We feel more so because we are leveraging our shops better. We are definitely going to get more utilization of these shops because we get more [market] business and our marketing as we start to get better leverage on that even in Q1 before COVID we feel that coming out of this, we can target 45% type number between sales and marketing which really is the big factor in getting EBITDA positive. You know economics of selling, our gross margins are terrific. A really good ASP. There is no pricing pressure. And you have got, you start out with really high gross margin there controlling some of the rest of P&L. I will let Kyle address some of that.

[Kyle Wailes:]

Yes. So yeah, I mentioned this before as well, so we shipped like I said 10,500 in April somewhere between 11,000 and 15,000 in May and if you look at normalized conversion we would expect the current run rate to be around 22,000 shipments in a 30 day period. That 22,000 is somewhere around $40 million -- $41 million in revenue. We can certainly be profitable at that level 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 out the profitability and if we look at the near future and we end up in an environment where COVID could go on for a very extended period of time and because of that it would put a potential ceiling on what the growth could be, we could be profitable off the levels of revenue that you're seeing today.What we're planning for as the business ramps back up we think the right level of sort of balancing that growth versus profitability is about $65 million in monthly revenue. When that happens I think is 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's sooner than where we have been historically. You can look at what we did in revenue last year not being profitable and that's all a result of the changes we've made in the business from Q4 until now starting with cost of goods sold but also the economies of scale we're getting out of G&A and the efficiencies we're seeing in sales and marketing as well.But again it's about balancing sort of that control growth of profitability. We think the right metric is around 65 but if that's at a point that's too far out in the future because of COVID we can easily pivot as demonstrated and be profitable sooner than that.

[Nathan Rich:]

Thanks for the questions.

[Operator:]

Our next question comes from Erin Wright with Credit Suisse. Please proceed with your question.

[Erin Wright:]

Great. Thanks. You mentioned limited change in the delinquency rate since COVID or more recently how confident are you that that is sustainable in this sort of environment?

[Kyle Wailes:]

Yes. That's right, Erin. So that if you look at SmilePay overall we feel very good about the performance that we've seen both in Q1 but also since COVID started in call of middle of March, as mentioned on the call about 6% of our members overall purchased using SmilePay that's down from about 68% in the prior year period in Q1. It's pretty flat as well to where we were in the fourth quarter of last year and it's been flat in April and it was flat in May. We haven't seen a lot of changes with that. Yes, we talked about this on the call as well because we keep a card on file and there's a low monthly payments, we do expect it to continue to perform well.We haven't seen changes in write offs or delinquency rate over the past couple months either and I think the best leading indicator that we have 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 the card every month. We've seen no change in the performance of that. If anything it's actually slightly better and we've posted 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 have.So given that and it's been almost 2 months now and we haven't seen a change in the [offering] performance and we continue to feel good about that performance overall. I think another good indicator is the overall deferral request. So we've had about 1.7% of customers where they can actually call in and ask to extend their payment for 30 days. For us that's been about 1.7%, we think that the industry norms that other lenders have seen have been closer to 4% to 5% overall as well. So we're performing well there but obviously the best leading indicator is going to be that credit card authorizations and that continues to be on par with where it's been historically.

[Erin Wright:]

Okay. Got it. That's helpful. And then on the retail strategy with Walmart, I guess what sort of traction are you seeing with that relationships? How material is that for you at the moment from a financial perspective? Thanks.

[David Katzman:]

I'll take that one Kyle. So overall the new product portfolio is driving incremental growth for us. It's clearly in the revenue line. It's not material compared to what our liner businesses at 750 million. Although it's growing and at some point in time it will be. All the products are strong but the fact it's really out performing expectations and it's the number one growth contributor total whitening sales in the U.S. is our whitening product.It exceeded our expectations. I think exceeded Walmart's expectation. Walmart's been a great partner. It was the right choice to launch our products. We are going to and we recently just added the drug channel with our partnership with CBS. They added 3,000 doors and took on our product lines and we're talking to other retailers as well that we're negotiations with for the back half of this year and then into the rest in Q1.But the main -- what we wanted these retail products for was one brand building another channel for brand building. We all know that the volumes 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 led into an aligner sale. We have metrics on that and what we've done with all these products if you buy one of Walmart and now CBS inside the box we have a little coupon in every single product that introduces you to the SmileDirect Club and invites you to come buy a kit or book a scan, will give you a little discount on the aligner sale.And so we're now starting to track that. They're out in the wild for the last couple of months and we're seeing good conversion on that. So we believe that over time they will still drive a certain amount of aligner revenue to us besides being good revenue and profitable. The actual retail sales are profitable. They bring down our overall margins. Our aligner margins sales of -- overall in the mid to upper 70s but that's dragged down by some of that retail margin but it's still profitable to us.

[Erin Wright:]

Okay. Thank you.

[Operator:]

Our next question comes from Kevin Caliendo with UBS. Please proceed with your question.

[Kevin Caliendo:]

Thanks. Thanks for taking my call. Can we talk a little bit more about the HST facility, the interest rates on it, any covenants or default triggers that are on it and will it be formally filed what we get to see that like we did with the previous incline?

[David Katzman:]

Yes, Kevin I can take that. So it will be filed. It was filed with the 10-Q by Friday of this week. The rate on the facility itself so as we said our main focus as we looked at this facility was to make sure that we minimize equity dilution overall with 420 of cash on the balance sheet as I said before it gives us protection to manage the downside risk with COVID or in more of a growth mode as well. So we wanted to make sure we were maximizing flexibility associated with that. So it's a five-year deal. We can refinance after one year. There's an 85% advance rate on the receivables both domestic and international as well. Rates are L plus 750 in cash 325 in pick and then there's 1% [indiscernible] associated with the deal as well.

[Kevin Caliendo:]

Okay. That's great. That's helpful. You talked 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 and sort of what countries you are focused on beside Hong Kong and England?

[Kyle Wailes:]

Sure. Yes. Look, I think overall similar to the U.S. it's very much in sort of flux right now. Every country around the world has sort of different rules and even within those countries cities have different rules for what the reopening timeline looks like. We are still pushing forward with countries later this year. We've got six to eight that are on the roadmap. We haven't disclosed publicly what those countries are and what the timing of those are. I would say just given COVID it's about half of where it was initially overall and that's a function of just what operationally what we can roll out in the back half of the year with the routine of today. So still a very important component to the growth strategy and as you think about sort of shops versus kits it's a very same similar strategy to what we have here in the U.S. as well and in North America between kits and scan.

[David Katzman:]

Yes. It's David. I'll just add that the same reception that the really strong reception to our kit business we've seen in every single country Australia, 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 pay about because they're opening up in four weeks and there's some back in Q4 that we're not there to mention right now but we're getting ready to launch those as well. So Singapore will be opening in June. We've got Spain is opening in end of June, beginning of July. We got Australia, not Australia, Austria opening up it's an adjunct or we call it the spoke of Germany. Germany being the hub and then Germany is going to be, Germany which is a huge market clearer than the UK, we had one shop open and then we have to shut down very quickly. It was right before COVID. So that's going to reopen shortly. So you mentioned in the question was a 100 shops. I don't know if it was 100 shops. I think we're kind of targeting 100 million of revenue coming out of those international markets not like shops, probably be down a little bit but the kit business is still strong in those markets there's still a large percentage of the population that want to transact this way the units and the pricing that we have and the convenience factor, I think it applies wherever we go.

[Kevin Caliendo:]

Thanks so much.

[David Katzman:]

Yes.

[Operator:]

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

[Laura Champine:]

Thanks for taking it. So you commented that you're back on Facebook. You've got TV coming. How quickly would you ramp back your marketing spend and what fine posts would you be looking for to make those decisions?

[David Katzman:]

Yes. So we're all excited about it. We've been, we're a marketing company and marketing driven company and we've been off the air and off digital for almost two months now. So we weren't going to go out to spend money until we got that funnel, that gauntlet that I call they talked about on the kit side. We're there. We have little ready for the good customer experience. We've reduced the timeline. So we're going to spend slowly and we're going to have a very disciplined CAC that we're targeting and we're not going to go above that CAC.Now right now we are, I mean. as we started ramping up this weekend in Facebook and Instagram we are so far below that. So we have a lot of runway and keep in mind we have this base of business we're doing 60% of what we were doing. 60% of the kit and scans we were doing with no shops and no market. So we feel really good in this environment that we can be a lot like these other e-commerce companies that took advantage of this opportunity for stay-at-home. Now that we're ready to ramp up that kit business we'll see I mean we're starting a fraction of what we were on TV, starts on Friday but we're very optimistic that there's a lot of runway that we can get this business up and running without having to leave your home, without having a shop open.

[Laura Champine:]

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 as those stimulus checks came through?

[David Katzman:]

A lot of people ask us that and definitely wasn't the stimulus checked because the minute we started CRM running, sending out our emails and our text our existing millions of customers in database these customers were buying well before the stimulus checks were actually out there. So we haven't seen anything, any real, we haven't any drop-off at all for that. So I don't think it was a stimulus check driven environment which I know some other companies had seen that spike and then go down. So there could be some factor of that in there but I don't think it's a majority of what our kit sales have been.

[Laura Champine:]

Got it. Thank you.

[Operator:]

Our next question comes from Glen Santangelo with Guggenheim Partners. Please proceed with your question.

[Glen Santangelo:]

Yes. Hey David. Thanks for taking the question. I hate to make you repeat this but I just want to follow up on some of the April/May commentary. It kind of sounds like the business was trending about 40,000 units per quarter and now it seems like in April you're at 10,000 in May. It seems like you're somewhere about low double digit range. So maybe down 60% to 75% but just sort of reconciling that you said the kitting business has been about 10% of your overall business and now that's down about 40%. Could you just sort of plug the hole because I'm operating under the assumption that all the 418 SmileShops with the exception of Hong Kong are closed and so where is the extra demand coming from and what do you think is driving that?

[David Katzman:]

I will answer little bit of that but I will let Kyle, he is a numbers guy to share but yes I think we're mixing apples and oranges. So the numbers you're talking about 11,000 to 15,000 those are aligner shift, okay. And 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. We're down 40, so kits scan is how we are going to market. The customer can choose to either buy a kit or book a scan in order to purchase aligners. 90% of those customers would choose to go to a shop. It's convenient. It was free. We had one around the corner. 10% of those would start out by buying a kit. Now there are no shops other than two in Hong Kong so for the most part they're all shut down. The only way to transact with us is to buy a kit. It's $49 for the kit we are shipping -- we ship it to the home and what we've seen is with no marketing spend that if the total was a thousand and 900 of them customers started out in the shop and 100 kits we’re now doing 600, we're doing 60% of what we were doing with no marketing spend. Virtually no market spendAnd that's all coming. To answer your question where's that coming from as we've talked about in the past this is very long week cycle we've got millions, we got five 5 million-6 million people coming to our website every month and it's down a little bit, down quite significantly because we're now 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 in now. They're sitting at home and they're buying our kit. So there's all this kit business that went out. I mean huge numbers. They have gone out, they're coming back in and we got backed up in processing them in taking them.You've got a trim them, you got to sculpt them, you got to bite set them. It's a very complicated process and so we got backed up in tune of almost four weeks and we have got people trained those are now starting to flush through literally this week and a little bit last week and this week and that's why we decided to turn on the marketing because there’s a [indiscernible] caught off but those will turn into aligner sales coming up in the future.Listen I mean there's a scenario in this environment if COVID was extended through the rest of the year someone just mentioned before this call and if it's true or not that California may be shut down for long [indiscernible] but in this environment the kit business stays robust, we can start to get back to some of those numbers. We're down 40% in the kit business but profitability wise we're up because we're not spending any of that marketing dollars bringing it in without the added dollars. Kyle you want to add anything to that?

[Kyle Wailes:]

Yes. I think you said it well David. So if you look at Q1 overall it's $197 million adjusted for COVID which we effectively shift for 87% of the month and so if you adjust for that 87% and take the impact of the reserves because we were pretty conservative with how we thought about our price concession reserves just given the unknown of COVID, the two of those together you take [indiscernible] which is up about 33% year-over-year. The 10,500 that's shipping in April and again we didn't open till the end of the first week, it takes a couple weeks to get back to normal within that as well. If you look at sort of where we are currently over the past week that would imply 11,000 to 15,000 shipments for the month and if you look at actual demand based on orders it implies about 22,000 shipments overall. That 22 if you look at the 235 that I had outlined effectively half of where we were before approximately.

[David Katzman:]

Does that make sense? Does that answers your question Glen?

[Glen Santangelo:]

Very much. One just quick follow-up you have a number of announcements this quarter on the insurance side. Can you just maybe flash that out a little bit and what these agreements maybe look like and I am kind of curious when we get the question all the time, can SmileDirect guys apply for any type of insurance reimbursement? Is there any studies as maybe what percentage of your club members are getting some relief on the insurance side and on average how much that might be of the ASP price?

[David Katzman:]

Yes. I can take that one Kyle. So it's still a small percentage of the orders overall both for in-network or out of work. If you look at the partnerships that we've announced with the first United and then Aetna and now Anthem as well as we talked about in the past that's a much longer term strategy where the goal there is to partner with those payers and really drive adoption through self-insured employers which we think long-term will not only help growth it'll help with overall efficiency of acquisition cost as well because now you've got obviously people with insurance that can get the product at a much reduced price. And so that's the intent of those relationships. We will continue to roll out more in the future. We're always talking with other [indiscernible]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.

[Glen Santangelo:]

Okay. Thank you.

[Operator:]

This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.

[David Katzman:]

Thank you everyone.