SmileDirectClub, Inc. (SDC) Q2 2021 Earnings Call Transcript

SmileDirectClub, Inc. (SDC -31.25%)
Q2 2021 Earnings Call
Aug 09, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings. Welcome to the SmileDirectClub second-quarter 2021 earnings call. [Operator instructions] I will now turn the conference over to your host, Tripp Sullivan of SCR Partners. You may begin.

Tripp Sullivan -- Investor Relations

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 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. I refer 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. I'm joined on the call today by Chief Executive Officer and Chairman David Katzman and Chief Financial Officer Kyle Wailes.

Let me now turn the call over to Dave.

David Katzman -- Chief Executive Officer and Chairman

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 incidents of workplace violence are all too common in our country.

Our thoughts and prayers are with our impacted team members, security personnel and their families as they begin to recover. We are grateful for the swift actions taken by our team members, our 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 and 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 by making it affordable and convenient for everyone.

On today's call, I will highlight our newly launched challenger campaign that is targeted directly at Invisalign's customer base as we work to move upstream with our customer demographics. 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 cyberattack, 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 in 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 five quarters through Q1 2021. While we are clearly not happy with the results here in the short term, 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. The miss in Q2 is primarily due to three main factors. I will cover each one briefly and then Kyle will provide more details in a few minutes.

First, 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. Second, top of funnel weakness has been associated with the lasting effects of COVID on our target demographics in the U.S. as well as all-time high cost per lead metrics on social platforms 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 $68,000 likely experienced outsized pressures in their capacity to spend on discretionary items given the significant inflationary headwinds facing the nondiscretionary categories like transportation, utilities and food.

Additionally, as the economy emerges from a pandemic induced economic shutdown, our target consumer appears to be favoring products over services given the pent-up demand for apparel, automobiles, 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, joblessness remains pervasive in four of our larger states, California, New York, Texas and Florida. Through July 10, 2021, these four 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 the macro factors noted a moment ago and the residual impact 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 six 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 20% to 30% per year for the next five years and adjusted EBITDA 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 one quarter's results.

As a result, we have decided not to provide quarterly earnings guidance. We will continue to have our quarterly conference calls with commentary and Q&A but our guidance will center around annual performance and expectations. We are a relatively new company with only $20 million in revenue a short five years ago when we launched our first SmileShop. 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 SDC brand sits in the eyes of the consumer and how well we are positioned. In 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 register a 96% positive, which remains an all-time high. Our analysis of the trends in consumer sentiment across multiple channels, including reviews, news coverage, blogs, Twitter and other online forums continue to show significant positive trends.

And online consumer settlement remains at an all-time high. Referral rates also remained healthy at roughly 21%. All these efforts are positively impacting consumer perception around credibility, one 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 to customers. up from 62% in Q1 2021 and up 26% since year-end 2019. Additionally, 67% of respondent survey noted that they view SDC 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 to 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 in brand sentiment and credibility against Invisalign is directly correlated to our club member experience, but is also closely associated with our recently launched challenger campaign that began a few weeks ago in July. If you haven't seen the ads, I would encourage you to check them out.

The challenger campaign is outperforming our testimonials and functional spots and cost per sale, although having all units in 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 and the battle will become the teeth straightening brand of choice. It asked the question, why would consumers choose to pay the three times markup of Invisalign when SmileDirectClub offers a smarter or affordable, clinically safe and effective option that is guaranteed for life and can be achieved remotely with our doctors via our telehealth platform.

Reflect on that for a minute. This is the question that everyone should be asking, why would someone pay up to $3,000 more when they can get a clinically safe and effective option that has treated over 1.5 million people for up to 60% less and their treatment plan results are 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 in our continued efforts to protect the access to care that consumers want and deserve.

The 11th Circuit Court of Appeals recently ruled in our lawsuit pending against the Georgia Dental board that 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 dental board in connection with our lawsuit against that board. We are pleased that we will now be able to proceed with discovery in both of these lawsuits and believe these rulings send an important message to other dental boards who have been engaging in or are considering engaging an anticompetitive conduct to preclude our growth. We continue to see more states passing teledentistry-friendly laws and refusing to pass laws that put up artificial and clinically unsupported 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 teledentistry, we have one in 28 states since the 2020 session and have successfully defended existing laws in seven other states. In addition, we continue to see growth in the adoption and use of teledentistry by the dental and orthodontic industries. This is underscored 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 by the dental community.

Today, there are more than 1,800 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 have built with its unique assets. In just a few short years, we have treated over 1.5 million club members across 13 countries and built the only vertically integrated MedTech platform for teeth straightening.

No one has the combination of aided awareness, omnichannel presence, teledentistry platform, SmilePay 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 the market shifts away from analog braces to digital clear aligners as the preferred choice for teeth straightening. That leadership is also built on innovation, which we haven't talked much about publicly to this point. On an annual basis, we invest tens of millions into our innovation pipeline.

We have dedicated teams working on AI, machine learnings, material science and 3D printing. We have made investments in enabling the treatment of more complex cases, automated manufacturing, new types of aligners, smile scanning technologies, our proprietary telehealth platform, oral care products and a variety of other areas to continue our disruption. This investment has resulted in us securing 25 patents and dozens of patent pending in the U.S. and abroad on various technologies relating to 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, one of our strongest assets is the strong balance sheet that we have. 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 three growth initiatives we have previously discussed. As a reminder, they are expanding our customer acquisition channels, expanding our presence in the team demographic and continuing our international expansion. On the first initiative, expansion of our acquisition channels, we continue to make good progress here. We have always been and remain agnostic as how customers start their journey to purchase aligners.

We started with doctor-prescribed impression kits, then SmileShops and now through our professional channel partnerships, corporate and insurance partnerships, mass retail locations and pop-up events, we have 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 check their insurance coverage on our website. This is now available for some 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.com. On the retail side, our oral care products are now available at over 12,000 retail stores nationwide and serve as a highly efficient lead source and brand building opportunity. Our ancillary product portfolio is available through every retail channel, including drug stores, grocery stores, club stores, mass retailers and through e-commerce.

On the professional channel, we continue 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 numbers to our clinical partners and our network is now extended across more than 1,800 practices in the United States. One critical data point is the success that we are having with referrals to our clinical partners for them to increase and introduce new patients to their practice. For one partner alone, we have already scheduled over 1,000 SDC patients into their practice for a free exam, which is a foundational part of our partnership.

As we have 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 in a dentist chair. On the international front, the same problem that exists in North America around access, convenience and costs 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 represent 16% of our revenue in Q2, which is flat to Q1. It represents only a fraction of the total opportunity we're targeting and reflective of early stages of penetration.

We are now in 13 markets globally with plans to launch into additional locations in Europe, Latin America and Asia Pacific throughout this year and 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 in many of our international markets, which is evidence that the investment in marketing is paying off. To be more specific, it took us five years in the U.S. to reach the brand awareness that we are seeing in some international markets after only two 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 will continue to see this reflected in our sales and marketing line item in the future. None of this will be possible without the support of our team members, club members 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. Kyle?

Kyle Wailes -- Chief Financial Officer

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, team members and 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 have had with investors, we have attempted to include additional information in 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 63% on a year-over-year basis. This was driven primarily by 90,000 initial aligner shipments at an ASP of 1,885 which is up 1.3% sequentially and up 3.7% year over year.

The Q2 results are primarily due to three main factors that David mentioned earlier. I will walk through a bridge from our initial growth target in Q2 to our actual revenue and outline how much each of these areas impacted our results. As a starting point, let's use 6% sequential growth of Q1, which was the midpoint of our 5% to 7% sequential target or $211 million pre-cyberattack. 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.

These markets combined contributed to a miss of approximately $2.5 million in revenue in the second quarter. We will be relaunching in these two countries with an overinvestment in the second half of the year to drive more penetration. Past results from other markets such as the U.K. and Australia are good examples of scaling and penetration that we expect to see in these two markets as we relaunch them.

Given that, over the next 36 months, we would expect them to get to similar levels of aligner penetration as a percentage of the addressable population. Second, the macro factors David outlined in which we have highlighted with supporting economic data in our earnings supplemental deck, contributed to approximately $25 million of the miss. This includes a combination of top of funnel weakness and middle of funnel conversion. Recall that top of funnel means everything prior to requesting a kit or scan and middle of funnel means from requesting a kit or scan to returning the kit or showing up for the scan.

I won't restate all 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 have seen it continue to rise into Q3. Lastly, we saw broad conversion rate pressure once a member returned their kit or completed their scan, all of which we believe is associated with the reginal impacts the cyberattack in mid-April and the delays it caused in the delivery of our treatment plans.

This attributed to approximately $9 million of the miss. On our first-quarter earnings call, we estimate that the initial impact could be 7,000 to 10,000 initial shipments in the quarter. The final was approximately 6,100 shipments, slightly ahead of the initial forecast from May. It's 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 maintained separate reserves for IPC and cancellations. We analyze and rebalance those reserves on a regular basis.

The net effect in the current quarter was a lower ITC reserve offset by higher cancellation reserve. Reserves and other adjustments, which includes impression kit revenue, refunds and sales tax, came in at 10% of gross aligner revenue. Financing revenue, which is interest associated with our SmilePay program, came in at approximately $12 million, which is flat to Q1. Other revenue and 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 SmilePay. In Q2 2021, SmilePay purchases came in at 61% of initial aligner purchases. This is flat to Q1 and slightly below historical levels. However, overall, SmilePay 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 SmilePay to continue to perform well. Credit card authorizations continue to perform well and 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-point sequential decline and an almost 2,000-basis-point improvement versus Q2 2020.

The sequential performance is entirely attributed to the revenue decline. On a more positive note, the continued focus on streamlining our manufacturing facilities is paying off. Our second-generation automation machines are now producing approximately 85% of aligners, 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, higher productivity per team member, 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. You'll recall that in Q1 2020, sales and marketing was 72% of net revenue.

So we have made great progress over the past five quarters. On SmileShops, 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 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 pop-up events are a critical component to supporting our demand, functioning the same capacity as a permanent SmileShop and enable us to fully leverage our SmileShop 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 1,000 locations. While still early, we are seeing positive trends and have outlined a case study in our supplemental materials to demonstrate the impact that we are having on our partner locations. As referenced earlier, our marketing and selling expenses in the quarter reflect 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% in 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% of the total market opportunity and where the competitive landscape is highly fragmented. That said, 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 reclass from selling labor to G&A labor of $1.4 million and the additional $1.4 million associated with the reclass that 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 and 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. $500,000 was associated with long-term lease accounting and $400,000 was associated with capital leases. Additionally, other expense of $700,000, primarily related to onetime store closure costs of our Texas facility and retail locations.

All of the above produces 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 $9 million for 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 our manufacturing automation.

Free cash flow for the second quarter, defined as cash from operations of 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 three things as part of their research on which provider they should choose. One, they search online; two, they ask their dentists; and three, they ask a friend or family member.

We continue to make significant investments across these three 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, our 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 that 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 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 are clearly not happy with the results here in 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 controlled and 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 versus Invisalign. We look forward to continuing to update you on progress in the days and weeks to come. Thank you to everyone for joining today.

With that, I'll turn the call back over to the operator for Q&A.

Questions & Answers:

Operator

[Operator instructions] And our first question is from Jon Block with Stifel. Please proceed with your question.

Jon Block -- Stifel Financial Corp. -- Analyst

Thanks, guys. I'll try to keep it tied to one and one follow-up. I guess the first one, Kyle, just a miss relative to, I think, it was the May 10 guidance when you had maybe almost four weeks of visibility seems rather stark. So can you just discuss that in more detail? I would have 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.

Kyle Wailes -- Chief Financial Officer

Yeah. Thanks, Jon. 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 one of the best months that we've ever had, right? And sort of looking back, that did coincide with stimulus payments and also other factors as well from an execution perspective. But given the performance that we saw within March, as we entered into April and Q2, we certainly weren't 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 of that until we could really catch up the backlog and that really didn't happen 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 took toward the end of June, even 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 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 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 at a rolling quarterly basis to understand trends there. So I think it was just the magnitude of those changes that are happening over a short period of time.

It didn't give us great insight looking back on it at the time in May.

Jon Block -- Stifel Financial Corp. -- Analyst

OK. That's helpful. And I apologize in advance for sort of the bluntness of the next question. But the talk track with no real DTC competitor, 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 details. So U.S. and Canada, aligner results were down 16% sequentially. There's a competitor where you can do enough rough math that seems like they were up 15% sequentially.

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

David Katzman -- Chief Executive Officer and Chairman

Yeah, I can take that one, Jon. First of all, I don't think any of our miss is attributable to these other DTC competitors. And I think specifically you're probably talking about BiTE who's part of Dentsply now. I heard a lot of rumblings and 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 can tell you that without all the infrastructure that we've built over the last six years in custom treatment planning, automated manufacturing, we do brand studies all the time, every quarter.

They're aided awareness as low as single digits. They're out to 50%. They don't spend much on multichannel marketing like we do. There's no TV.

They don't have SmileShops. They don't have a 100% proved 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 two that are mentioned quite a bit. They're just -- they don't have the entire platform, vertical integration, custom treatment planning, automated manufacturing at scale like we do. So we don't really see them as a real threat.

They're not international. They're 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've spent hundreds of millions of dollars in these initiatives that I just mentioned. And so until they do that, improve themselves and we start to hear real numbers out there, I -- they are not a huge concern of ours right now.

We're focused on Invisalign, moving upstream in our demographics. As I mentioned, we think there's a real opportunity. I don't think it would have been there two, three years for us -- two or three years ago for us. We weren't ready.

We're ready now. Our smart scalp, comfort sense, treatment planning, all proprietary that we're constantly iterating on. We're moving into more complex cases. We feel the mild to moderate adult teeth straightening and teen teeth straightening, we could start capturing share from this Invisalign.

that's what we're going after.

Jon Block -- Stifel Financial Corp. -- Analyst

Thanks for the details.

Operator

[Operator instructions] Our next question is from Robbie Marcus with J.P. Morgan. Please proceed with your question.

Unknown speaker

Hi. This is actually Lilly on for Robbie. Thanks for taking the question. So can you talk a bit about why a step-up in fourth quarter over the third quarter is a prudent assumption right now just given the headwinds that you called out? How much confidence you have in a ramp over the course of the year at this point? Thanks.

Kyle Wailes -- Chief Financial Officer

Yeah. Thanks, Lilly. I can take that one. So yeah, 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, we put a lot of detail in 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 that 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.

Spain, we're sort of relaunching this fall as well. But we are assuming in that $750 million, a continuation of the macro headwinds that we saw within 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 to a 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 and really just launched within TV in July as well.

We're pushing a lot more into TV versus Facebook given the iOS impact there. Germany and Spain, continuing to ramp. We've got a very material spend occurring in the second half of this year in both of those markets. And we also have a lot of investments that we're making into the partner network as well in the GP channel.

So I think when you look at all of that and sort of outlines what gets us to the $750 million versus the $800 million here in the back half of the year.

Unknown speaker

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

Thanks.

Kyle Wailes -- Chief Financial Officer

Yeah. I don't think it changes the strategy necessarily there. I mean those were more sort of isolated incidents in both of those markets as a result of sort of certain stops associated with COVID. And so over the course of the past year, we'd start to launch both of those markets and we 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, it 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, 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.

Operator

Is there no more question from Robbie's line? Our next question is from Kevin Caliendo with UBS. Please proceed with your question.

Kevin Caliendo -- UBS -- Analyst

Thanks. Just kind of the same question on international. But what do you think the model is now in terms of ramping to 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? Is it country by country? We're all just sort of struggling about how to think about you hitting some of your longer-term margin targets.

David Katzman -- Chief Executive Officer and Chairman

Yes, I think...

Kyle Wailes -- Chief Financial Officer

Yes, I can take a little bit of that. Yes, go ahead, David. Then I'll jump in.

David Katzman -- Chief Executive Officer and Chairman

No. I was going to just talk about the over investments that we made in Australia 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. And that requires a multichannel marketing spend along with TV.

So look, I mean, very quickly, as we started ramp up our -- or start to open up our international markets in February of '20, COVID hit. That's when we started Germany and some other countries, Netherlands, Austria. So we had 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 that, we have a playbook that we get these shops launched. We had our clinical lease partners and partner networks launched. We got our marketing set for the first 60 days or so and then we start to spend. And that's what we're doing now in Germany.

TV has launched in Germany in August here and the same is going to happen with Spain. And so for roughly six months to nine months, we overspend, we see how the market goes. It takes about two years for a country to mature. We are seeing, as Kyle mentioned, we are seeing these markets, such as the U.K.

and Australia, get to aided awareness, higher aided awareness faster than we saw in the U.S. So that's encouraging. But about a two year overspend and then we see into profitability. Kyle, you want to add anything to that?

Kyle Wailes -- Chief Financial Officer

Yes. The only thing I would add is that I think a good way to look at it is and you can look at the U.K. in particular, if you look at it from a liner orders as a percentage of the population within that country, after about 24 months to 36 months, we have -- and we've done that both in the U.K. and in Australia, we get to similar levels of penetration that we see within the U.S.

from aligners as a percentage of the population. So that's always been our model. That's been the ramp plan. That's still the goal as we enter into these new markets as well and start with the population means tested for affordability and then create a plan to ramp to aligner orders as a percentage of that population over the 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, where in newer markets, we could spend 80% or 100% of revenue for nine to 12 months as we ramp up those markets to support that longer-term growth. But the plan is still in all of those markets to be profitable after about 24 months.

Kevin Caliendo -- UBS -- Analyst

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

David Katzman -- Chief Executive Officer and Chairman

Well, Kevin, the stock on any given day can fluctuate 10% to 20%. It's highly volatile. There's a relatively large short position. I haven't looked at it.

I haven't looked at it today. I don't look at it on a daily or weekly basis. We know where we're going. The company is sound.

We'll have to look at where the stock is at any given point in time if we want to make further investments. But we look at -- the three largest holders, the two founders and myself own more than 70% of the company. So we're all in. We're all invested.

We're all working our butts off to make this thing happen. And so you have our commitment. Whether we buy another $10 million, $20 million, $30 million worth of stock, it's not going to make a difference as to however we're going to work or how much we believe in this company.

Kevin Caliendo -- UBS -- Analyst

Fair enough. Thank you.

Operator

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

Dylan Carden -- William Blair & Company -- Analyst

Hey, thank you very much. Just to circle back. I think the revenue guidance question was more if I kind of take the midpoint of your guidance here and give you the -- 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 target.

So I guess is that a function of higher marketing spend? Just is there enough conservatism, I guess and kind of the outlook as it stands now? And then I just have one follow-up. Thanks.

Kyle Wailes -- Chief Financial Officer

Yeah. I mean we're certainly -- if you look at the demand that we're staffed for today from a manufacturing perspective and a treatment planning perspective, we're certainly 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 demand perspective, that's always something that we've been a little hesitant to do just given the historical impact that we've had around customer care. But I think if you look at the business today, if you look at manufacturing, the changes that we've made in 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.

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

I think pushing a lot more into TV versus Facebook again. Germany and Spain. I mean there's 80 million people in Germany alone. It's a massive market.

Spain and Iberia broadly is the third largest market for clear aligners 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 published within the deck, I think we're making good traction there with GPs.

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 could help us get to the growth numbers or even beyond that, that you've outlined there.

Dylan Carden -- William Blair & Company -- Analyst

Awesome. And you set up my next question perfectly there. On the 1,800 partners, I think you mentioned sort of 500 are active or about to be trained. Can you kind of just disaggregate the about to be trained component? And when does this channel really start kicking in as far as sort of when you get all those partners up and running and start seeing them maybe contribute more to the model?

Kyle Wailes -- Chief Financial Officer

Yeah. So the 1,800 would include -- so for example, if we have a large DSO that we've signed and let's say, it's got 500 practices, but 250 of those have committed, the 250 would be included within the 500. The 250 that have not committed are part of that 1,800. And so we have 1,800 as part of the broader network of DSOs and GPOs and other partners where their 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 train the practice. 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 about 1,000 locations today that are in the pipeline at some phase or another in the sales process. And that's both domestically and internationally as well. We've got robust pipelines if you look at our international markets as well.

Dylan Carden -- William Blair & Company -- Analyst

And would you expect on the 1,800 balance -- or sorry, the 1,200 one, 1,300 balance, that's low-hanging fruit as far as sort of getting adoption across other partners or is it more just signing on larger DSOs and kind of taking some percentage of those businesses?

Kyle Wailes -- Chief Financial Officer

Yeah, it's all the above. So certainly, as we're 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 to show the impact that we're having on these practices. So use Smile Brands as an example that we've outlined in the deck.

We've already referred about 1,000 patients into their practices for exams. The lifetime value of that is approximately $3 million to $5 million. And so we're -- in a pretty short period of time, we're having a material impact here. And I think as other practices see that better within the network, that certainly makes the sales process easier to launch into those practices.

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

Dylan Carden -- William Blair & Company -- Analyst

Excellent. Thank you very much.

Operator

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

Chris Cooley -- Stephens Inc. -- Analyst

Good afternoon. I appreciate you taking the question. I just wanted to shift a little bit back. You've kind of talked about the quarterly progression here a little bit, but maybe just a little bit more, a change in maybe sentiment in the sense that I think in prior commentary, the company has really not viewed Invisalign as a true primary competitor.

It's been -- we've kind of talked about this as a much larger clear aligner opportunity in different segmentation when we think about the marketplace. And just, I guess, still a little bit curious here about the impetus behind the shift to the challenger program, that incremental expenditure and the headwinds that you're seeing as a result of that orientation of competition and why now that is a much greater bearing on the company's operations.

David Katzman -- Chief Executive Officer and Chairman

Yeah, I can take that one. So when we first started this business, we really went after the underserved market and it was really incremental. These are people who absolutely could not afford $5,000 for braces or clear aligners. Our heavy demographic here today is at $68,000 per year household income.

Now we do get -- we skew up and down the income range, but that is clearly the majority of our customer base. I think when we started, we didn't have the manufacturing. We didn't have some of the technology that we have today, like I mentioned our Smart Sculpt and comfort sense technology. We've got a proprietary way that we make our aligners that we think the Invisalign customers are going to enjoy with no buttons or attachments or IPR.

We have the manufacturing, the laser cutting that we're doing. And the scale. Our treatment planning -- custom treatment planning software team is doing a tremendous job getting more complex cases. We're doing more staging, more surgery expansion.

So the timing is right. And by the way, we -- this isn't something we just started because of the macro effects that our $68,000 customers facing. We started talking about this as the company progressed, it 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 from Disruptor to challenger and go after that higher income customer. Because really, when you look at it, I mean, this line is a terrific engineered product. They're a manufacturer wholesaler selling to the doctor. That's it.

it's not a closed-end system like we have, where our doctors are part of our network. 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. And we're selling to the direct-to-consumer.

That's what this intermediary does. It takes out cost in the equation. We didn't have the product. We didn't have the service.

We didn't have in our 24/7 contact center that now has a robust dental team to answer your questions. So we actually think it's a superior platform for the consumer. It's more convenient. They don't have to put an in-person visits on a monthly basis or a regular basis to get their new aligners.

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. There's two ways to go.

You can go to your doctor, you can pay the markup, a 3x markup. Or you can go direct, as our campaign is saying. I 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 hope that answers your question about the timing of it and it just happens to be coincidentally as our customer right now is facing more challenges during this macro impact, we're primed and ready to go at this launch.

Chris Cooley -- Stephens Inc. -- Analyst

Thank you.

Operator

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

Alex Nowak -- Craig-Hallum Capital Group -- Analyst

Great. Good afternoon. One, can you expand on the playbook of how do you go from marketing for brand awareness to marketing to close the sale? Because in the U.S., you have a really good brand awareness, but it seems the company is still searching for that optimized way 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 side too?

David Katzman -- Chief Executive Officer and Chairman

Yeah. So even though we have 50% aided awareness, we still have ways to go on our unaided awareness. Unaided awareness is always tough. We want to be in the consideration set whenever a person thinks about teeth straightening, whether they see our ads or not.

TV has a better high funnel branding play. So we're shifting a lot of what we're doing with Facebook into TV. Also within Facebook, rather than using it as a conversion tool, we are, because of the iOS issues, we are shifting more of that into what we call a reach and visitor play. Getting more people introduced to the brand, especially at the higher income levels, that's another thing that we're doing.

And so we have a really robust CRM platform. If you ever come into the SDC community and give them your email address or your mobile phone, you'll see SMSs and emails and communications. We do IVR outbound reach, all kinds of things. And that's really the closer.

So we do a lot of lead gen through our Smile assessment, through our insurance lender, which I encourage everyone on the call to go take a look at. We're really excited about it. Instant eligibility. As far as we know, we're the only ones in the world that have that.

We spent well over a year putting that together with our technology team to be able to -- as soon as you enter your information, you will know what your coverage is, how much your out-of-pocket is going to be. If you want to use SmilePay, what it's going to cost you. So those are all lead gens for us that we then use our contact center and our CRM platforms to convert. So that's a difference between more of a branding that we're doing and more of a conversion tool through CRM.

Alex Nowak -- Craig-Hallum Capital Group -- Analyst

All right. 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?

David Katzman -- Chief Executive Officer and Chairman

Yeah. So -- yeah, Kyle, go ahead. Go ahead.

Kyle Wailes -- Chief Financial Officer

Yeah, I was going to say, just from a regulatory perspective and you've seen some big wins there, Chris, I think we're in -- or Alex. We're in a very good position from where we've been historically. So there is really both in Alabama and Georgia about some recent wins there and moving into discovery. I think when you take a step back and look at it all across all the cases that we're in, the trend from a legislative perspective is very much in our favor.

So when it comes to legislative victories that help teledentistry industry broadly, we've won in 28 states since the 2020 session and we've successfully defended laws in seven other states as well. So I think that's sort of the core takeaway there. A very good spot or better than we've ever been in from a regulatory perspective and similar on the litigation side as well.

Alex Nowak -- Craig-Hallum Capital Group -- Analyst

All right. Appreciate it. Thank you.

Operator

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

Michael Ryskin -- Bank of America Merrill Lynch -- Analyst

Hey, thanks for taking question guys. I got a bit of a long one, so I'll use both of my questions to ask just the one. I appreciate all the clarity you provided in the -- in some of the appendix of the slide deck regarding the macro issues and how that -- how you think that impacted 2Q and some of the outlook going forward. But I'm just hoping to go into a little more detail.

I mean, from my perspective, COVID and some of the macroeconomic pressures, it's been around for some time. We saw it in four -- 3Q, 4Q last year, it was around in 1Q. 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? Is it really tied to the stimulus, the government package you talked about? Is there anything else that you're seeing that changed from sort of 1Q to 2Q or from 4Q to 1Q, 2Q? And then sort of my follow-on immediately is do you see some risk in your mind in 3Q, 4Q if those factors persist, particularly if we got Delta varying in coming back, COVID really gone away? So you see some downside to the $750 million number?

Kyle Wailes -- Chief Financial Officer

Yeah, I think if you look at what's 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 demographic is a $68,000 household income at the median. And if you look at things that's happened to them on Q2, in particular, inflation is a good example.

So the increased cost of non-discretionary goods and services is, we think, limiting their ability to spend on discretionary goods and services. And if you look at that income demographic in particular, they experienced in the quarter, a 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, the 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 you're making over 200,000, it's only 2%. So there's an outsized impact that we've seen on our sort of core customer. And a lot of that was isolated to events that started to happen within Q2. Similar on spending preferences as well, right, 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 one. If you look across our four big states, our top four states of Texas, California, Florida and New York, they accounted for about 40% of the nation's unemployment claims through July 10, 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, the changes there, limited ad tracking. And if you look at the ramp and adoption associated with that, it took time, it was over the course of the quarter for adoption there 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 time periods. And then, look, I think as you look at is there risk associated with the $750 million to $800 million? Certainly, look, we've assumed within the $750 million, 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 the same. And so if the macro environment gets worse from a consumer spending perspective of our demographic and none of the other levers that we've talked about like the challenger campaign or Germany or Spain or the partner network adoption start to kick in, then there could potentially be risk in that. But certainly, that's obviously difficult for us to predict to say whether or not the macro environment is going to get worse or not. And generally, what we saw when last year, certainly, as COVID was sort of at its peak, from a dollars perspective, there was government support and stimulus packages that supported that.

So we actually did better in that environment when COVID was peaking than obviously we did here in Q2.

Michael Ryskin -- Bank of America Merrill Lynch -- Analyst

Thanks so much.

Operator

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

Nathan Rich -- Goldman Sachs -- Analyst

Great. Thanks. Good afternoon. Kyle, I guess I'm trying to put the commentary together from today.

And I guess it seems like you're shifting away a bit from the controlled growth strategy that you've 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?

Kyle Wailes -- Chief Financial Officer

Yeah. I don't -- from a controlled growth perspective, nothing has really changed there. I mean the 20% to 30% focus is still our focus. The 5% to 7% sequential targets were always sort of a methodology and approach to get to that 20% to 30%.

But the 20% to 30% was always the ultimate goal there. That's a compound annual growth rate over a five year period. And I think when you look at the long-term opportunity for this business, starting with just the sheer market opportunity, the brand awareness and position being the No. 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 in the short term, there's nothing that we see that is systemic, right? And 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 is permanent. It's associated with international markets taking longer to ramp. None of those are permanent and it's associated with the cyberattack, which again isn't permanent.

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

Nathan Rich -- Goldman Sachs -- Analyst

OK. Make 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 guidance that you've been talking about? Thank you.

Kyle Wailes -- Chief Financial Officer

Yeah. 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 downsides in the event of a tougher COVID environment or in more of a growth mode as well. If you look at our AR as well, we've got $200 million of AR on the balance sheet and we've got nothing against that.

So we certainly have the opportunity to continue to factor and securitize that 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 in quarterly burn. So on the high end -- in 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 50s. 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 in burn as we think about the back half of the year. And if you look at that against our cash balance, it puts us in a good position there from a liquidity perspective to continue to execute against the longer-term targets that we've outlined.

Operator

If there are no more questions, well that -- it appears that our final question comes from Laura Champine with Loop Capital Markets.

Unknown speaker

Thanks for taking my question. I think it will be a fairly quick one. 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?

Kyle Wailes -- Chief Financial Officer

Yeah. So 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, the revenue being at a higher amount. So things like the contact center, as an example, of being able to support that demand or payment fees, as an example. So as revenue grows, we have more payment fees that would hit the G&A. I think both of those are fairly small in the context 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 trend will continue as we launch into new markets here in the back half of the year. For the markets that we're already in today, the 13 countries that we're in globally, we're not expecting additional G&A that we're going to 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.

Unknown speaker

Got it. Thank you.

Operator

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

David Katzman -- Chief Executive Officer and Chairman

Yes, I just want to thank everyone for joining us. 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.

Operator

[Operator signoff]

Duration: 69 minutes

Call participants:

Tripp Sullivan -- Investor Relations

David Katzman -- Chief Executive Officer and Chairman

Kyle Wailes -- Chief Financial Officer

Jon Block -- Stifel Financial Corp. -- Analyst

Unknown speaker

Kevin Caliendo -- UBS -- Analyst

Dylan Carden -- William Blair & Company -- Analyst

Chris Cooley -- Stephens Inc. -- Analyst

Alex Nowak -- Craig-Hallum Capital Group -- Analyst

Michael Ryskin -- Bank of America Merrill Lynch -- Analyst

Nathan Rich -- Goldman Sachs -- Analyst

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