SmileDirectClub, a user of dental 3D printing, files for Chapter 11 bankruptcy, while the founders provide an $80M lifeline extension.


Pioneering teeth-straightening company SmileDirectClub (Nasdaq: SDC) has announced that it is filing for Chapter 11 bankruptcy in Texas due to challenging financial circumstances. The company is implementing a comprehensive recapitalization strategy, as it has exhausted all external financing options. In an effort to keep the business afloat, the founders have injected $80 million into the company, with $20 million allocated to boosting the business over the next two months. However, if a buyer or investor is not found by November 23, 2023, the company will have to sell off its assets.

Despite the financial difficulties, everyone involved is working hard to salvage the business because they believe it still holds value. SmileDirectClub has been recognized for its groundbreaking use of multi jet fusion (MJF) technology in collaboration with HP in 2021. This has positioned the company as a potential leader in 3D printing for orthodontic production. Its SmileHouse, which houses over 60 3D printers, is one of the largest 3D printing hubs in the country.

From 2016 to 2019, SmileDirectClub experienced significant growth, with revenues skyrocketing from $20.6 million to $750 million. However, the Covid-19 pandemic disrupted the company’s trajectory. Store closures, changes in consumer behavior, and a shift from physical SmileShops to direct-to-customer shipments led to a net loss of $278 million by the end of 2020. The financial problems only worsened over time.

A legal dispute with rival company Align Technology, which pioneered the use of 3D printing for its Invisalign aligner system, further strained SmileDirectClub’s finances. The dispute resulted in a $63 million judgment against SmileDirectClub, impacting the company’s liquidity and its ability to negotiate with third parties.

In an attempt to regain its market position, SmileDirectClub introduced two initiatives in 2023: an AI-powered platform and an upscale product line for affluent customers. However, these efforts were overshadowed by mounting debts and a lack of external investments. At the time of its Chapter 11 bankruptcy filing, the company’s accumulated debt stood at a staggering $890.6 million.

To support its bankruptcy filings, SmileDirectClub’s CFO Troy Crawford submitted a detailed declaration outlining the company’s financial history. He highlighted how the company experienced robust growth until the pandemic presented unprecedented challenges. Store closures disrupted supply chains, labor shortages occurred, and changes in consumer spending patterns affected the company’s primary customer segment, particularly those in the lower to middle-income bracket.

During the pandemic, SmileDirectClub shifted its focus from SmileShops to shipping impression kits directly to consumers. As a result, sales dropped significantly. By the end of 2020, the company reported a net loss of $278 million, a trend that persisted. In 2021, SmileDirectClub raised $747.5 million through convertible notes and other financial instruments to fund its international and operational growth. However, with the convertible notes due in 2026, the company struggled to secure financing from existing creditors or third parties to address its capital structure issues.

To mitigate the financial challenges, SmileDirectClub implemented cost-cutting measures such as reducing marketing budgets, discontinuing underperforming global operations, and focusing on core growth plans. However, these efforts did not prevent further liquidity issues. On August 8, 2023, the company announced its second-quarter financial results, which showed a consecutive and year-over-year decrease in revenue. Despite improvements in net losses and adjusted EBITDA, the second-quarter metrics were not enough to avoid the bankruptcy filing.

Despite the positive trends and the company’s path towards profitability, SmileDirectClub’s inability to secure third-party financing, coupled with the convertible notes and the Align judgment, made it impossible for the company to fully realize the potential of its promising initiatives. Hence, the decision to file for Chapter 11 bankruptcy.

Chapter 11 bankruptcy cases can have a significant impact on a company’s future. This is the case for SmileDirectClub, a company that has been dedicated to democratizing high-end oral care. Despite the challenges they are currently facing, the founders remain committed to their mission. Co-Founder David Katzman believes in delivering a premium customer experience and helping millions of customers achieve the smile of their dreams.

To ensure they are well positioned for success, SmileDirect has made the decision to file for Chapter 11 bankruptcy. This strategic move is aimed at restructuring their financial structure to better reflect the talent of their team members and the quality of their business. The company’s future now rests on a crucial hearing scheduled for October 24, 2023.

Unfortunately, the news of SmileDirect’s bankruptcy filing had a negative impact on their stock. It plummeted approximately 61% in after-hours trading on September 29, 2023, reaching an all-time low. By October 3, 2023, the stock had dipped even further, approximately 81.7% from its closing price on September 29, 2023. The company’s resilience and adaptability will be put to the test in the coming months as they navigate the legal proceedings.

While SmileDirect battles to secure its future, Align Technologies, the creator of clear aligners, is making waves in the 3D printing industry. They recently acquired Cubicure as part of their vertical integration strategy. This acquisition will enable Align to develop viscous materials for direct 3D printing of dental aligners. Instead of 3D printing a mold of a patient’s teeth, Align can now print the aligner itself. However, regulatory hurdles and the need for biocompatible materials must be overcome for this process to become a reality.

SmileDirect, on the other hand, has relied on Multi Jet Fusion (MJF) technology for aligner production. This may be seen as a losing strategy in the aligner market, as analysts believe direct 3D printing of devices is the future. MJF, being a powder-based process, is not well suited for direct production of aligners unless clear plastic powder is invented—a highly unlikely scenario. The market’s response to Align’s acquisition of Cubicure suggests a positive outlook for the company’s future direction and adaptability.

Despite the challenges they face, SmileDirect still has a competitive advantage. They have one of the largest install bases of MJF machines, which have the capability for more than just indirect aligner manufacturing. MJF is a highly productive technology with versatile material capabilities. This opens up the opportunity for SmileDirect to explore other applications for MJF beyond dental. Could dental companies like SmileDirect grow beyond dental in the future?

The 3D printing industry is constantly evolving, and staying up-to-date with the latest news is essential. It’s possible that SmileDirect will find new uses for their MJF machines and continue to innovate in the field of oral care. As SmileDirect and Align Technologies navigate their respective challenges and opportunities, it will be fascinating to see how the future unfolds for both companies.

Original source


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