SmileDirectClub (SDCCQ) 8-KSmileDirectClub Reports Second Quarter 2023 Financial Results

“We are pleased to announce our fourth straight quarter of year-over-year adjusted EBITDA improvement and fifth straight quarter of improved year-over-year free cash flow financial results,” said David Katzman, Chief Executive Officer and Chairman of SmileDirectClub. “Despite the continuing macroeconomic challenges, we have maintained cost control discipline to deliver stronger bottom-line results on challenging revenue trends. We remain on track to achieving EBITDA profitability in the third quarter and positive cash flow run rates by the end of the year.”

Katzman added, “I’m also happy to share that in late May, we launched our innovative AI-powered SmileMaker Platform mobile scanning app for 3D treatment planning in the U.S. Additionally, CarePlus, our premium hybrid in-person and remote aligner product, will be available in all of our U.S. SmileShop locations and select Partner Network offices by the end of August. Customers at our SmileShops will have the option to select SmileDirectClub’s original telehealth-powered Care aligners or choose the premium CarePlus option, which includes access to a local dentist or orthodontist for in-person check-ins, a dedicated 24/7 Concierge customer care team, expedited aligner shipping and the enhanced comfort of scalloped-edge aligners and retainers.”

SmileDirectClub’s mission is to democratize access to a smile each and every person loves by making it affordable and convenient for everyone. The aspirational vision of the Company’s organization is to become the “world’s leading oral health brand by helping more people realize the life changing potential of a confident smile.” SmileDirectClub’s vision and mission are much greater than manufacturing and marketing clear aligners. Every decision and investment the Company has made is to support and expand this mission and enable its long-term growth potential. For SmileDirectClub to realize the Company’s vision through its mission, the Company must expand its reach within and beyond the Company’s existing core customer base. Expanding reach comes through continuously bringing transformative innovation to the market across an entire portfolio of both consumer facing and non-consumer facing innovations, including the Company’s SmileMaker Platform mobile scanning app for 3D treatment planning, its hybrid aligner offering CarePlus, the SmileDirectClub Partner Network, aligner product innovations, and oral care solutions, including our industry leading whitening and flosser products. SmileDirectClub possesses the unique assets and innovation to disrupt the incumbents, the agility to adjust to the needs of our customers, and a sustainable brand that is top of mind with consumers.

Both of the Company’s 2023 growth initiatives, SmileMaker Platform and CarePlus, are now available in the U.S. market. After a pilot launch of the application in Australia at the end of November 2022, the Company introduced SMP to the U.S. in late May 2023 and began to scale sales and marketing efforts in July to drive awareness and adoption with U.S. consumers. The SmileMaker Platform (SMP) leverages advanced Artificial Intelligence (AI) technology to show consumers their potential smile transformation within minutes. Consumers download the SmileDirectClub App, and capture a 3D scan of their teeth, bite and alignment using their phone’s camera. This technology is an industry first, upgrading current 2D remote scanning options and introducing real-time AI to capture a 3D view of the teeth. Within minutes of completing a scan, consumers receive their “Custom Smile Plan” showing their potential new smile, and an estimated time frame to achieve results. The SMP app leverages the Company’s treatment planning data from creating more than 2 million smiles and is part of the Company’s growing AI capabilities within its innovation portfolio, helping SmileDirectClub transform the oral care industry by making teeth straightening more accessible, convenient, and affordable.

The second key growth initiative now available in the U.S. market is CarePlus, which is a premium, high-touch, tech-forward option in orthodontic care with greater flexibility and choice through a combination of both in-person and virtual patient management, value added services, and concierge-level care from SmileDirectClub’s network of licensed dentists, orthodontists, hygienists, and dental assistants. The CarePlus go-to-market strategy leverages the growing SmileShop retail footprint to offer consumers the option of choosing SDC’s original remote Care or the premium CarePlus option, with its hybrid remote and in-person care. This provides added synergies by serving as an additional educational and sales channel for the CarePlus solution between SmileShops and the Company’s expanding Partner Network practices which deliver the CarePlus in-person care. CarePlus will be available in all U.S. SmileShop locations by the end of August and in the U.K. in the back half of 2023.

The Company has been issued 50 patents and counting for its innovations in orthodontic treatment planning, aligner manufacturing, smile scanning technologies, its proprietary telehealth platform and a variety of other areas. There are many more patents pending in the pipeline in both the U.S. and abroad on various technologies relating to AI-powered data and 3D image capture, intraoral scanning, monitoring, manufacturing, and consumer products. In addition, the Company has enabled treatment for over 2 million customers, built the only end-to-end vertically integrated platform for the consumer at scale, created a dental Partner Network with over 1,150 global practices that are live or pending training, delivered oral care products available at over 16,300 retail stores worldwide, and remains the strongest teledentistry brand with continued high brand awareness.

In addition to these investments to create the next generation of oral care and influence consumer decision making, the Company will continue to make strategic investments in penetrating new demographics to drive controlled profitable growth, while also executing against its profitability goals. Lastly, favorable industry dynamics continue to increase with broader acceptance of telehealth, and specifically teledentistry, minimal penetration against the total addressable market, and clear aligners gaining share in the overall industry.

As disclosed in the 10-Q filing, SDC has entered into, and its board has approved, a founder funded revolving credit facility in the amount of $10.0 million to provide working capital as the Company continues to work toward restructuring its balance sheet. As reported previously, the goal of any financing transaction the Company would enter into will be focused on improving capital structure by bringing in additional funding while lowering overall debt.

Although they reflect our current, good faith expectations, these forward-looking statements are not a guarantee of future performance, and involve a number of risks, uncertainties, estimates, and assumptions, which are difficult to predict. Some of the factors that may cause actual outcomes and results to differ materially from those expressed in, or implied by, the forward-looking statements include, but are not necessarily limited to: the current noncompliance with the minimum bid requirement pursuant to the Nasdaq Listing Rules; our ability to consummate our convertible note exchange and secure additional financing, the duration and magnitude of the COVID-19 pandemic and related containment measures; our management of growth; the execution of our business strategies, implementation of new initiatives, and improved efficiency; our sales and marketing efforts; our manufacturing capacity, performance, and cost; our ability to obtain future regulatory approvals; our financial estimates and needs for additional financing; consumer acceptance of and competition for our clear aligners; our relationships with retail partners and insurance carriers; our R&D, commercialization, and other activities and expenditures; the methodologies, models, assumptions, and estimates we use to prepare our financial statements, make business decisions, and manage risks; laws and regulations governing remote healthcare and the practice of dentistry; our relationships with vendors; the security of our operating systems and infrastructure; our risk management framework; our cash and capital needs; our intellectual property position; our exposure to claims and legal proceedings; and other factors described in our filings with the Securities and Exchange Commission, including but not limited to our Annual Report on Form 10-K for the year ended December 31, 2022.

SmileDirectClub, Inc. (Nasdaq: SDC) (“SmileDirectClub”) is an oral care company and creator of the first med tech platform for teeth straightening. Through its cutting-edge AI-powered technology and vertically integrated telehealth model, SmileDirectClub is revolutionizing the oral care industry. SmileDirectClub’s mission is to democratize access to a smile each and every person loves by making it affordable and convenient for everyone. SmileDirectClub is headquartered in Nashville, Tennessee, USA. For more information, please visit SmileDirectClub.com.

This earnings release contains certain non-GAAP financial measures, including adjusted EBITDA (“Adjusted EBITDA”) and Free Cash Flow. We provide a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures below and in our Current Report on Form 8-K announcing our quarterly earnings results, which can be found on the SEC’s website at www.sec.gov and our website at investors.smiledirectclub.com. We do not provide a reconciliation of forward-looking Adjusted EBITDA to the most directly comparable GAAP financial measure (net loss), as the reconciliation to the corresponding GAAP measure is not available due to the variability, complexity and limited visibility of the non-cash items that are excluded from forward-looking Adjusted EBITDA.

We define Free Cash Flow as net cash used in operating activities less net cash used in investing activities.

A reconciliation of Free Cash Flow and Adjusted EBITDA to Net Cash used in operating activities and net loss, respectively the most directly comparable GAAP financial measures, is set forth below.