08/14/2021
Smile Direct Club (SDC)
I am a Dentist and I will share my perspective on Smile Direct Club. I practice dentistry in Los Angeles, California. I have not received any compensation to write this report by anyone. Opinions expressed are solely my own and not an investment advice or recommendation.
I will point out reasons for why I chose to accept Smile Direct Club in my dental office as a member of their "partner network". I will lay out facts and respond to myths and claims surrounding Smile direct club.
Smile Direct Club is a teledentistry company founded in 2014. They produce Direct-to-consumer clear aligners designed for minor to moderate teeth correction.
Smile Direct Club's direct competitor is Invisalign (ALGN) - Founded 1997
Smile Direct Club - Company Valuation - 2.0 Billion USD
Invisalign- Company Valuation - 56.0 Billion USD
Expected financial result and Guidance for Year 2021.
Smile Direct Club
Revenue: 800.0 Million USD
Total Aligners expected to be Shipped in 2021: 450,000 Aligners
Invisalign
Revenue: 3.5 Billion USD
Total Aligners expected to be Shipped in 2021: 2,200,000 Aligners
Smile direct club offers 3 options for patients to get started with teeth straightening.
⦁ Impression kit - Impression material are sent directly to the patient with easy-to-follow instructions on how to capture clear impressions for creating aligners
⦁ Smile Shop and Smile buses - Patients can visit one of more than 200 smileshops located in the USA and international. During the visit, an assistant will take 3D images of patients teeth and prepare them for clear aligners.
⦁ Dentist in "partner network" - As of 2020 patients can see a dentist that has partnered with Smile Direct club and get started with clear aligner therapy right in the dental office.
What is Smile Direct Club "Partner Network" ?
In 2020 Invisalign lost it's Patent to exclusively work with dentists in dental offices. Since then Smile direct club has partnered with major DSO's, Private practices in USA and International. Patients can now go to one of the 1,800+ dentists and orthodontists in SmileDirectClub’s Partner Network. These doctors partner with Smile Direct Club to help provide clear aligner therapy to patients. Patients are either referred from Smile direct club or belong to the office as patients of record.
Dentists will get patients started right in their Dental office by examining and clearing them for aligner therapy.
And then Smile Direct Club takes it from there, coming up with an individualized treatment plan by their state-licenced dentists. Patients will be under Smile Direct Club’s care for aligner treatment, with no liability to the Dentist (Per contract). Aligners are sent directly to the patient.
For the time and effort of taking an impression or scanning, Smile direct club will offer $300-$400 compensation to the dentist. Many of these patient may need dental care which the Dentist can treat before clearing them for aligners. The partner network model is a great solution for all parties involved, the Patient, Dentist and Smile Direct club.
Invisalign
In October of 2017 Invisalign lost its exclusivity on 40 patents that kept it as the leading brand of clear aligners.
To hedge against the upcoming loss of market share, Invisalign purchased a stake in Smile Direct Club in 2016. At the time, it was a 17% equity interest in the company. A year later, Invisalign purchased an additional 2%.
The two companies also entered a supply agreement in 2016. Invisalign became Smile Direct Club's exclusive third-party provider of aligners. To be clear, Smile Direct Club manufactured the majority of its aligners itself, but it did purchase aligners from Invisalign totaling almost $28 million in 2018. Additionally, SmileDirect Club uses Invisaligns software technology (Itero) to make oral images used for aligner manufacturing.
Part of the supply agreement included a non-compete clause. This clause had provisions that stipulated Smile Direct Club cannot solicit Invisalign employees specifically in Costa Rica, where Smile direct club has its main call center. Smile Direct club also agreed not to solicit any Invisalign employees worldwide.
This all changed in Feb. 2018, when Smile Direct Club alleged that Invisalign broke the agreement. The problem was that Invisalign began opening stores in 2017 as part of a pilot program. In 2018, it expanded the program to 12 stores in major cities in an attempt to grow a direct-to-consumer segment of the business. But it was also done to better compete with Smile Direct Club. The concept was identical to Smile direct club's "SmileShops".
The two companies sought legal arbitration over the issue. Invisalign announced that it had lost the case to Smile Direct Club. Invisalign was required to close all 12 of its Invisalign stores and had to relinquish its equity stake in Smile direct Club.
Health care access
Access to care and lack of oral health professionals in most countries means that access to primary oral health services is often low and expensive. Even rural communities in the USA lack access to oral health providers due to geographic isolation and workforce shortages. Some patients are hours away from a General dentist. Access to an Orthodontist is even further away.
Smile direct Club solves this problem, by offering affordable and convenient orthodontic care throughout the United States and many other countries.
Important facts about Smile Direct Club
Cost of Clear aligners
Smile Direct Clubs prices stand out in comparison to Invisalign and Braces. With "SmilePay", patients can make a down payment of $250 and convenient monthly payments of $89 a month for 24 months. No credit checks. No forms to fill out. However, if you pay in one single payment, you can get your new smile for just $1950.
Insurance coverage
SmileDirectClub is in network with UnitedHealthCare, Aetna, Anthem Blue Cross, Anthem Blue Cross and Blue Shield, and Empire BlueCross BlueShield. They can also check for eligibility at Cigna, Delta Dental, Humana, Met Life, and many more.
3D printing system
Smile Direct Club teamed up with HP to harness the power of 3D printing to make its aligners and retainers at its state-of-the-art manufacturing facility. Its fleet of 60+ 3D printers make the Company’s SmileHouse one of the largest 3D printing facilities in the world. 3D printing can be used for new innovation and other emerging technology.
Innovations
Smile Direct club is currently spending millions of dollars on innovation, Artificial intelligence and emerging technology. David Katzman the CEO of Smile Direct club said that some interesting products may be released in the upcoming quarters.
Oral Care products
Smile Direct Club has also moved into other oral care products. In January, the company announced a partnership with Walmart to sell products including electric toothbrushes, teeth-whitening systems, toothpaste, water flossers, and ultrasonic cleaners for dental care products under the Smile Direct Club brand. All products have outstanding reviews on Amazon. The Whitening gel is the #1 selling whitening product.
Reviews
SmileDirectClub reviews are generally positive. According to Best Company, SmileDirectClub has received over 1,600 reviews as of November 2020, rating the company with 4.2 stars out of five on average. Reviews on BBB and Google are 4 stars and 4.8 stars out of 5.
International expansion
Smile Direct club continues its successful International expansion. Seeking to serve an untapped market of consumers without access to affordable, convenient oral Care. Smile Direct club is currently in the USA, UK, Ireland, Scotland, France, Netherlands, Spain, Germany, Singapore, Hongkong, Australia, Mexico and with aim to be in many more countries in the near future.
Hiring
With 6300 total team members and counting, SmileDirectClub is continuing its fast growth forward.
They are currently looking to hire an additional 400-500 team members which is a positive sign that the company is growing.
Smile Direct Club was again named an Achievers 50 Most Engaged Workplace in 2021.
Myths/Claims about Smile Direct club
Myth/Claim 1
"Smile Direct club faces a lot of lawsuits and going bankrupt"
In September 2019, a group of customers filed a class-action lawsuit against the company claiming Smile Direct Club engaged in false advertising and violating FDA regulations. Due to a clause in Smile Direct Club's consent forms that required disputes to be resolved by arbitration, all but two plaintiffs in the lawsuit withdrew.
Note: Smile direct Club just like the majority of other businesses has an arbitration clause language in their contract that requires people to use private arbitration rather than courts to resolve legal disputes.
Myth/Claim 2
"Smile Direct club was on NBC Media coverage and they are harming patients"
In Feb 2020 NBC News did a report on Smile Direct club.
SmileDirectClub filed a $2.8 billion lawsuit against NBC News, accusing it of broadcasting a story with more than 40 false and misleading statements.
Smile Direct Club argues that NBCUniversal Media and reporter Vicky Nguyen “knowingly and intentionally” made “factually inaccurate, misleading and defamatory claims” about SmileDirectClub and its treatment.
“NBC must be held accountable for its abuse of power and betrayal of trust,” the lawsuit read. “Viewers and readers across the country turn to the media for the information they need to make decisions about their health and well-being.”
Note: NBC Universal owns CNBC, which is an American business channel, covering the stock market and has shows such as "MAD MONEY" with Jim Cramer. CNBC and Jim Cramer have had very negative views on Smile direct club since IPO and very positive views on Invisalign. It's very possible in my opinion that they cater to investors holding short positions in Smile Direct club or long positions in Invisalign. The NBC media coverage shed Billions of Smile Direct club's market Cap following the report.
Myth/Claim 3
"Many states have been successful in suing and banning Smile direct club from conducting business”
When an entire new disruptive model comes into any marketplace, it will always be met with resistance. In this case Smile direct club was challenged by state dental boards. However, no Dental boards have been successful in their claims and suits against Smile Direct club. Matter of fact, Smile direct has counter sued many Dental boards with antitrust claims and been successful. Most recently in Georgia, Alabama and New Jersey. On June 11, 2021, the Appellate Division of the Superior Court of New Jersey affirmed a lower court decision favoring Smile Direct Club. The Superior Court determined that, under the CPOD statute, SDC was not engaged in the practice of dentistry and its marketing materials did not imply that it was. Therefore, the Superior Court determined that Smile Direct Club was not in violation of CPOD restrictions in New Jersey.
Myth/Claim 4
"American Dental association (ADA) and lawmakers are stopping smile Direct club"
ADA and Nine members of Congress — five of them dentists — asked the Food and Drug Administration and the Federal Trade Commission to investigate Smile Direct Club “to ensure that it is not misleading consumers or causing patient harm.”
FDA responded “We appreciate the information ADA provided. "
The letter further explains that the FDA does not initiate enforcement actions on behalf of petitioners.
SmileDirectClub calls the effort in Congress “the latest in a series of anti-competitive publicity tactics.”
Conclusion
History has taught us that any business looking to disrupt an industry will initially face friction and headwinds. Uber and AirBnb are rarely out of the news but as time has passed we have learned to accept them. We may all agree that they have made our life easier and for the most part better.
SmileDirectClub is disrupting the orthodontics industry by providing clear aligners directly to consumers.
Many dentists and orthodontists have been opposed to Smile Direct club. Trade groups and state dental boards have tried to block the company from using teledentistry but Smile direct club has won in every case so far.
One of the amazing things about SmileDirectClub is how large its market opportunity is. There are 124 million potential customers in the U.S. and half a billion worldwide. At the prices SmileDirectClub charges, that's a total addressable market (TAM) of $234 billion in the U.S. and more than $700 billion in the rest of the world.
I decided as a Dentist to accept and not fight Smile direct Club's disruptive model. I joined the "Partner network" to make dental care more accessible and the experience better for consumers. If more of my dental colleagues would accept Smile Direct club in their practices we could offer better care to our patients. Smile Direct Club is not meant for all types of orthodontic cases. I choose Smile direct club for mild/moderate cases and Invisalign and braces for Moderate/Severe. With this method I am able to provide orthodontic care to more patients and in all economic classes.
Thank you for your attention,
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