SmileDirectClub, Inc.

Greetings. Welcome to the Smile Direct Club third quarter 2021 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Tripp Sullivan, Investor Relations. Thank you. You may begin.

Thank you, operator. Good afternoon. Before we begin, let me remind you that this conference call includes forward-looking statements. For additional information on SmileDirect Club, please refer to the company's SEC filing, 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 Q3 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 Katzmann and Chief Financial Officer Kyle Whale. Let me now turn the call over to David.

Thanks, Tripp. Good afternoon, everyone. Thank you for joining us today. Smile Direct Club was founded seven years ago with the mission to democratize access to a smile each and every person loves and deserves by making it affordable and convenient for everyone. Each decision we've made since then has been to support and expand this mission, which will enable us to achieve our long-term growth potential. That's the same approach taken with every company that I have founded and led. I will get into why that matters in a moment, but I first want to highlight what these decisions at SDC have led to so far. We've had 30 patents issued for innovations that enable 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. The most recent patent was granted for our Smile Bus concept, and there are many more pending and in the pipeline in the US and abroad on various technologies relating to data capture, 3D image capture, treatment planning, intraoral scanning, monitoring, manufacturing, and consumer products. We've enabled treatment for over one and a half million customers with affordable and convenient teeth straightening. We built the only vertically integrated MedTech platform for straightening teeth at scale enabling us to provide an unparalleled customer experience. This includes a state-of-the-art FDA certified and registered facility that is home to one of the largest fleets of 3D printers and one of the largest clear aligner manufacturers in the US. We created a dental partner network and have 735 global practices that are live or pending training. We created oral care products that are now available at over 12,900 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 drugstores, grocery stores, club stores, mass retailers, and through e-commerce. We have entered 14 countries and counting. That's a long list, but here's why those achievements and differential assets matter. The global orthodontics market is large and underserved, and the total addressable market is expanding. Between the U.S. and rest of the world, there are approximately 500 million people for whom clear aligners would be an appropriate means to treat malocclusion and who can afford treatment using our SmilePay program. Within that, there are approximately 15 million worldwide orthodontic case starts annually, and the penetration of clear aligners within that is still less than half. It's a tremendous global opportunity. It's been my direct experience in building businesses like ours that you need these unique assets and innovation to disrupt. You need the agility and flexibility to adjust to the needs of the customer and marketplace. And you need to invest in multiple channels of customer acquisition. You also need to never lose sight of the bigger prize, which is building a sustainable brand that is always top of mind with consumers, as demonstrated through both aided and unaided awareness. to efficiently and profitably capture their attention. We have done all this in the face of consistent adversity over the past six plus years. It's only natural that those who have benefited from traditional teeth straightening with high prices and three-time markups would try to prevent challengers and disruptors such as Smile Direct Club from participating in this market opportunity. For example, we've seen teledentistry intentionally misrepresented as DIY or do it yourself. Dental boards and trade associations have engaged in conduct to try to prevent teledemistry. Other market participants have engaged in marketing practices and have made statements that the FTC and the National Advertising Division of the Better Business Bureau have had to investigate and curtail. We anticipated the pushback, and we've responded. The regulatory and legal wins to allow customer access to the convenience and affordability of teledentistry have been numerous and, in many cases, propelled the rest of the industry forward. We expect more of these wins to come. We've also been able to convert and join many of the leading industry organizations, such as the National Dental Association, the American Telemedicine Association, American Association of Dental Boards, Women in DSO, and many others. Even the American Academy of Clear Aligners has turned from actively campaigning against us to asking us to become a member of the organization, as demonstrated by the recent retraction. As I said earlier, we've been entirely incremental to the orthodontic space with our one and a half million cases and counting. These are customers that historically could not afford the $5,000 to $8,000 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. And this is a customer base we will continue to support and grow with over time. That said, as 2021 has progressed and as we discussed last quarter, our core demographic has been challenged by the current macroeconomic environment. As our Q3 results and revised outlook would indicate, our core demographic continues to be impacted, and we expect this to remain throughout Q4. That said, we still believe this macro impact is transitory and we continue to make changes to minimize the near-term impact. Just one of multiple campaigns we are launching this week is our deferred monthly payments till 2022 with SmilePay. We tested this campaign during holiday time 2019 and will now be rolling it out in November. This campaign and others we plan to launch in Q4 will help ease the burden of record inflation on our customers. Last quarter, we outlined some of the headwinds our core demographic is facing. The data backed us up then and does so now. What third-party economic research has shown is that a combination of factors are likely contributing to the headwinds constraining discretionary spending for our core demographic. As a reminder, our core customer has a median household income of $68,000. The first impact is inflation. The increased cost of non-discretionary goods and services is likely limiting the ability to spend on discretionary goods and services. This inflationary headwind appears to have accelerated since the Q2 earnings release. Inflation averaged 6.1% in Q3 for the $50,000 to $69,000 income demographic versus an increase of 5.8% in Q2. This increase is larger relative to other higher income demographics, such as those served by our largest competitor. Second is preferences. The reopening of the economy has been more focused on goods over services, so when choices are being made, goods are being prioritized in the wallet over services, especially with a $68,000 income customer. In that same vein, our demographic is also finding it difficult to pay household expenses. In Q3, 44% of households surveyed by the Census Bureau reported difficulty, up from an already high 42% in Q2. Third is underemployment. While employment trends have improved since the end of Q2, the recent series high of quits in August could suggest disruption in household finances. We know that when customers are considering straightening their teeth, they typically might do one or all of the following. One, they might search online to understand their options. Two, they might ask a dentist. And three, they might ask a friend or family member which option they would recommend. Based on our research, our product and customer experience is competitive with Avizalign and 60% less expensive, but we have to continue to change perception across these three channels to continue to gain market share. Changing perceptions, habits, and beliefs is critical to the next phase of our growth in these tougher macroeconomic times for our core demographic. That's why our efforts in marketing with our Challenger campaign and building out our partner network are key initiatives to the next wave of our growth. Our marketing will be focused on helping support our core demographic while at the same time continuing to move upstream with our income demographics through the challenger campaign. We launched this campaign early in the third quarter to target Invisalign's end users with our value proposition and ramped up the ad buys throughout the quarter. The early results from the campaign have been encouraging and we expect to continue to do well into 2022. This is not an all or nothing campaign. Given that we have not previously focused on this end user base, which is the majority of the 15 million annual orthodontic case starts, a fractional percentage could be very material to us. We've also only begun to scratch the surface on the opportunity in our partner network. Our network now has approximately 735 signed practices in the United States that are active or pending training. And we have begun an aggressive hiring program to grow our rate of new office signups. We're also having success with referrals into our clinical partners for them to increase and introduce new patients to their practice. They're finding our value proposition very compelling because we can increase practice revenue with minimal share time by using our tele-dentistry platform, so it's highly profitable, and also provide the added benefit of new customer leads into the practice as well. In addition to being a little ahead of the game on the macro impacts, we were also the first in our space to call out the impact of Apple's iOS 14 and privacy changes to digitally native brands such as ours. In the past three months, there have been no fewer than 20 companies noting this change as a substantial headwind in Q2 and Q3. Facebook and Snapchat's earnings last month reinforced just how material this change has been to their business. Similar to all of these companies, the privacy changes required us to pivot quickly to different lead strategies. Historically, the Facebook platforms were a large portion of our sales and marketing spend, and were also highly effective in terms of conversion in our sales funnel. We've not only been shifting marketing spend away from these platforms to more TV, but we've also changed our lead strategy. We are now focused on higher funnel leads to more efficiently and effectively drive long-term growth. By carrying a stronger TV weight, we will drive greater aided and unaided awareness. This is also a longer-term strategy focused on building our base of consumers, including the higher-income customer, rather than paying for each sale we get. When we drive stronger awareness of our brand, we are less focused on optimizing to acquire the smaller percentage of consumers who are already aware of SDC. The last, but likely the most consequential topic I want to cover is where our brand sits in the eyes of our consumer. We recently commissioned a study from a third-party market research firm with significant expertise in oral care on customer satisfaction with SDC, other teledentistry players, and Invisalign. This survey included over 1,200 respondents, and what we found was that SDC and Invisalign are frequently tied statistically in many categories, especially in the important categories such as, quote, has a network of dentists and orthodontists to provide the best possible care to its customers, unquote, or is a brand that I can trust. Overall, it seems that patients are claiming an identical experience between STC and Invisalign, yet we charge 60% less in price and are more convenient. Our NPF score was 55 and Invisalign's was 54 compared to an average of 22.5 for other teledentistry players. For other teledentistry platforms, the study also showed that significantly fewer customers would recommend those brands compared with STC customers. They were also significantly less satisfied with the customer support received from them as compared with the SDC's customer satisfaction. The Q3 results for the U.S. Brand Tracker Consumer Survey of the general population for clear aligners, oral care, and whiteners highlight our continued separation as a brand. Unaided awareness for Smile Direct Club increased significantly from Q2 to Q3. We moved from 8% to 11%, and that's significantly higher than other teledentistry competitors. By comparison, Invisalign's unneeded awareness is 39%. Aided awareness for Smile Direct Club is also improving, 54% in Q3, up from 52% in Q2. This is also significantly higher than teledentistry competitors, while Invisalign's awareness for the quarter is 66%. I would also call out a sizable shift from Q2 to Q3, where consumers perceive SDC and Invisalign would equally deliver on, quote, helps transform individuals through confident smiles they love, unquote. In Q2, Invisalign held an advantage. 69% view SmileDirectClub as a legitimate orthodontic option for straightening teeth, 74% for Invisalign. 66% believe SmileDirectClub is a brand they can trust, closing in on Invisalign at 69%. We've made a lot of progress in a short amount of time, but we have more work to do. I'm a fiercely competitive executive who has fought similar battles in other disruptive industries, and I know how to win. We've assembled the best team I've ever seen who will execute on our initiatives, who remain laser-focused on our mission, and have fully bought into what we need to accomplish success. I'd like to thank our club members for their support as we continue to work to capture this massively underserved market. And now I'll turn the call over to Kyle, who will provide more detail on our Q3 financial results and our outlook. Kyle.