SmileDirectClub, Inc.

Greetings and welcome to the Smile Direct Club second quarter 2022 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. As a reminder, this conference is being recorded. I would now like to turn the call over to Jonathan Fleetwood, Director of Investor Relations. Thank you. You may begin.

Thank you, operator. Good morning. 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 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 2022 earnings presentation for 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 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 Troy Crawford. Let me now turn the call over to David.

Thanks, Jonathan, and good morning, everyone. Thank you for joining us today. I want to start off by congratulating Troy Crawford on his official appointment to CFO. Troy has made numerous contributions to STC over the past couple of years, most recently in driving efforts around focused investments and financial discipline. In addition, I want to take this opportunity to welcome both Linda Williams and Alex Dimitrieff to our board of directors. Both Linda and Alex come to us as accomplished executives in their respective fields and will bring an invaluable perspective as we navigate this environment and phase of our business. I'd also like to thank the contact center team for quickly returning our service levels back to their targets by the end of May. As we discussed in our Q1 call, transition challenges in our contact center temporarily impacted our ability to deliver our customers with the level of care that they have come to expect from our brand. And these challenges were reflected in our Q1 NPS reading. While our next NPS reading isn't until Q3, internal metrics continue to point to an improving trend that we expect to be reflected in our next quarterly NPS update. In addition, our internal brand tracker indicators have shown improvement quarter over quarter for the U.S., which further indicates that the work of our contact center team is paying off for our customers. Our ability to quickly resolve those contact center challenges and substantially complete all other initiatives we implemented at the start of Q1 have enabled us to achieve more than $120 million in annualized cost savings. As we've seen in the past few months, the timing of this transition was critical in light of the uncertainty we're all facing today surrounding the state of the consumer and trends in consumer discretionary spending. While we were encouraged coming into the year with our Q1 shipment lift over Q4, challenges on consumer spending accelerated during Q2. And for our business, this acceleration began to materialize in the back half of the quarter. We do not like to comment on monthly order trends, but we believe it is important for our investors to understand that initial evaluation interests remain relatively stable heading into May. However, aligner order trends began to slow in mid-May before dropping further in June. During this time, we saw traffic to our insurance page increase on a year-over-year basis as we expect more customers were actively looking for ways to supplement their purchases. Our takeaway here is that demand for our products remains strong, but strains on consumer spending are continuing to hurt our ability to convert at the levels we need to drive revenue growth. Challenges to consumer spending accelerated faster than anticipated during the quarter, which when combined with reduced stimulus, sustained high inflation, and a shift in discretionary spending towards services resulted in less predictable demand curves. I'm pleased to report that our cost-cutting initiatives from Q1 have paid off during the last quarter, and we were able to improve both adjusted EBITDA and free cash flow by $11 million and $41 million, respectively, despite consumer spending decreases resulting in our top line being down quarter over quarter by $26 million. These efforts can also be seen when you look at our performance year over year. While revenue was down $48 million relative to Q2 of 2021, We were able to sustain adjusted EBITDA during Q2 of 2022 within approximately 700,000 of what we achieved in 21. Troy will go into the details on how we were able to achieve these results during the quarter, but I do want to thank the team again for their tireless efforts during the past two quarters to further optimize our business operations. With leverage in our operating model, these results reflect a much leaner organization that is better positioned to achieve profitability with modest top-line growth. While these right-sizing efforts have allowed us to make meaningful progress on positioning our business towards profitability, we recognize that reengaging top-line growth through innovation is just as important to the long-term success of our business. From the beginning, innovation has been the core to achieving our vision and is critical to the next phase of our growth and ability to deliver shareholder value. Our vision and mission are much greater than manufacturing and marketing clear aligners. The aspirational vision of our organization is to be the world's leading oral health brand by helping more people realize the life-changing potential of a confident smile. From that vision, our mission has always been democratized access to a smile each and every person loves. And for us to realize our vision through our mission, we must expand our reach within and beyond our existing core customer base. This is where our focus on partner network, aligner product innovations, SDC+, oral care and shop expansion fits into what we do. Expanding reach comes through continuously bringing transformative innovation to the market across an entire portfolio of both consumer-facing and non-consumer-facing innovations. As you'll see in our investor presentation, our innovation portfolio includes innovations throughout the journey and at the product level. And over the last eight years, our continuous investments across the portfolio have allowed us to consistently deliver in all categories. Recently, we've continued to make progress on making it easier to get started with the overall experience through our partner network and SDC Plus efforts. We ended the quarter with 690 locations and have seen meaningful increase in submissions per practice, driving total submission growth of more than 75% quarter over quarter and nearly 170% versus Q4 of 21. While partner network is still a relatively small contributor to our top line, This foundation is exactly what we need in place for us to further lean into our SDC Plus offering, which will be exclusively available either in a smile shop within a dental practice or through our partner network locations. The SDC Plus offering was designed to specifically target the higher household income consumer. In our intense qualitative and quantitative research, we learned that higher income consumers will be far more attracted to our brand at a premium price when paired with greater access to a general practitioner throughout treatment. We believe the offering that we've designed, which includes access to a local GP on an in-office basis, greater access to care through our telehealth platform, retainers for retention after treatment, and other SDC products, is perfectly designed with the consumer's needs in mind. With these additional services, which are augmented by our proprietary tech platform, we anticipate being able to price this offering at $3,900, which improves not only the economics to us and our partner offices, but also enables us to provide this enhanced access to care while remaining price competitive with the premium service. The SDC Plus pilot is currently on track to launch in select partner network markets in late Q4 this year or early Q1 of 23. This is the first time since we launched SDC that we will offer a choice for our customers depending on the service level that they desire. We're extremely excited about what this offering means for our customers, our partner network GPs, and our business. We will continue to keep you updated on the progress of the pilot and the results we're seeing as we enter those markets in the quarters ahead. While we make it as easy as we can to get customers started with our kit and scan options, the journey to purchase today is not ideal. It is still too difficult and requires too much from our customers before they get to see their new smile and purchase. While using kits and scans has been a viable starting point to get us in the market, It was always a temporary solution until we were able to develop breakthroughs with AI technology that allow customers to use their smartphones to get started and purchase in a matter of minutes. I think it's important to illustrate the magnitude of the drop-off we experienced with the current kits and scans process when looking at our current website traffic to purchase volume. Today we have four to six million visitors to our site each month with around 0.5% of them converting to an aligner order after falling out over multiple weeks across several touch points in the journey. We have illustrated this point in our investor deck. Based on today's volumes, which is a small improvement of 25 basis points in our site conversion, we would expect more than $200 million in additional line of revenue and up to $160 million in additional adjusted EBITDA on an analyzed basis. And when benchmarking other e-commerce businesses, this conversion rate should be closer to 2% to 3% of web visitors converting to an aligner order, which is four to six times where we are today. The demand here is incredible, and we view closing the gap on our site conversion as one of the most significant near-term opportunities ahead of us today. While we've made continued strides to improve the journey and reduce the fallout between site visit and purchase, the vision all along was to have the AI capabilities to use the power of your smartphone to get an accurate scan and reduce the friction points for customers to buy their new smile. This is why we're currently in the process of finalizing development of our mobile 3D scanning application, or what we call our SmileMaker platform, which is our proprietary patent-pending phone-based scanning app that allows customers to see their draft custom treatment plan of how their teeth will move and how long it will take, and then purchase within minutes of downloading our free app. This technology delivers on the original vision of our founders for making it easy to get started with treatments. and no other clear aligner option out there can do what we're developing. It has taken years of modeling and machine learning with dozens of AI engineers and PhD scientists to finally get to this point. This transformative experience takes the gauntlet between site visit and purchase that exists today out of the equation. We believe the potential lift in conversion here is significant. Our initial smile shop rollout in 2016 to new markets serves as a good reference point for what the opportunity is here. Prior to shops, customers only had impression kits available to start their journey. With the introduction of SmileShops, we gave people an alternative channel with a better experience that provided treatment plans more quickly. And when we initially rolled out our shops, we immediately experienced more than a two-times lift in sales net of the control markets with the same marketing spend. Similar to shops, but on a much greater scale, we believe the opportunity with our SmileMaker platform is going to be a significant growth catalyst for our business. Again, with no change in web traffic or marketing spend, a 25 basis point increase in our site conversion would generate more than $200 million in additional line of revenue and up to $160 million in additional adjusted EBITDA on an annualized basis. Mobile 3D scanning capabilities were always part of the original vision and have been a considerable part of our R&D efforts for more than three years. From the beginning, we knew that it would take years to capture a critical mass of data for the AI to work. And now with more than 1.7 million smiles and more than 3 million treatment plans in our database, our AI team has worked tirelessly to bring this to market. This technology is right around the corner, unmatched by any other clear aligner provider today, and has the power to completely change the trajectory of our business and the experience of our customers. Current project plans target a launch later this year in one of our smaller international countries with a fast follow in the United States by the end of Q4 or early Q1. We are extremely excited about this offering for the world to experience and we'll be keeping you updated on progress in the quarters ahead. As you can see, we've been able to deliver so much in a short period with our amazing team of accomplished executives, fully committed hardworking team members, PhDs, material scientists, and AI engineers. When we combine these elements grounded in innovation with rigorous financial discipline, we believe we have a winning formula for achieving our full potential and maximizing shareholder value. This is the beginning of transforming SDC from a marketing-led company to drive growth to a technology innovation-led company with a steady pipeline of new and innovative products to drive growth. We plan on introducing new iterations and releases to our AI work, as well as new materials for aligners and oral care products, all of which we will be discussing in an upcoming investor day we plan to hold at our manufacturing facility in Nashville at the end of the year or first quarter of 2023. I've said it many times before, but I think it's worth repeating. With an annual TAM of 500 million customers worldwide and only 4% to 5% of them taking advantage of teeth straightening, the opportunity here is massive. Despite the limitations in serving those customers today, we've been able to help more than 1.7 million customers get the smile they love while saving them over $5 billion. I'm 100% committed to seeing this business succeed and look forward to sharing more in our progress with not only our SmileMaker platform, partner network, and SDC Plus, but also across our innovation portfolio in the quarters ahead. And now I'll turn the call over to Troy, who will provide more detail on our Q2 financial results and full year outlook. Troy?