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NASHVILLE, Tenn., U.S.: SmileDirectClub (SDC) is a leading provider of remote clear aligner therapy, but the company has missed out on the economic immunity to COVID-19 that seems to have been afforded to some other clear aligner manufacturers. The company’s results slumped in the third quarter and, according to its CEO, the difficulties can be attributed to the financial effects of the pandemic on its target demographic.
Since its founding in 2014, SDC has steadfastly positioned itself as a disruptor within orthodontics and treated around 1.5 million consumers for malocclusion using its virtual teledentistry platform and flagship stores. The company prides itself on offering “clinically safe and effective treatment but without the three-times markup,” and therein also lies the root of SDC’s present troubles.
Speaking to analysts in November, David Katzman, CEO and chairman of SDC, described the company’s patients as those who “historically could not afford the $5,000 to $8,000 [€4,400 to €7,000] price tag for clear aligners. From day one, these customers have been a massive tailwind to our business in the Americas and rest of the world.”
Katzman explained, however, that the company’s core demographic—which has a median household income of $68,000—has struggled financially during the pandemic and was tending not to spend money on tooth straightening. He said that a combination of factors was constraining the demographic’s spending, including rising inflation, underemployment and a struggle to pay household expenses.
“[Our] demographic is also finding it difficult to pay household expenses”
– David Katzman, SmileDirectClub
“The increased cost of nondiscretionary goods and services is likely limiting the ability to spend on discretionary goods and services,” Katzman said, noting that inflation had accelerated during the second quarter of this year and was having a higher relative impact on those with lower incomes. He said that, when it came to purchasing choices, the company’s key demographic was prioritizing goods over services. “In that same vein, our demographic is also finding it difficult to pay household expenses,” he continued, adding that, during the third quarter, 44% of U.S. households surveyed by the Census Bureau had reported difficulty in covering household costs.
For the third quarter, SDC posted revenues of $138 million, which represented a year-over-year decline of 18.3% and a sequential decline of 20.6%—or $36 million—compared with the prior quarter. Unique clear aligner shipments during the period totaled 69,906, compared with 90,006 in the second quarter.
SmileDirectClub to challenge Invisalign maker Align Technology
“We are disappointed with our third-quarter results driven by the macroeconomic headwinds that are influencing the spending of our core demographic,” Katzman said in a statement. He said that the company had responded quickly to support its core demographic, but that it was also moving “upstream” to attract customers from higher income brackets through its challenger campaign.
“[It’s] a natural kind of progression, going from a disruptor to a challenger,” Katzman said, referring to the fact that SDC was now actively competing against Align Technology, which has consistently beaten its own revenue and unit shipment records during the pandemic.
Katzman explained to analysts that SDC launched the challenger campaign in the third quarter “to target Invisalign’s end user users with our value proposition.” He said that “the early results from the campaign have been encouraging and we expect to continue to do well into 2022.”