Home Business SmileDirectClub files for Chapter 11 bankruptcy, eyes restructuring

SmileDirectClub files for Chapter 11 bankruptcy, eyes restructuring

by Paul Morgan

SmileDirectClub, the tooth alignment company, has filed for bankruptcy protection under Chapter 11 of the US Bankruptcy Code. This news comes amidst years of losses, weak sales for clear aligners, and nearly $850 million in long-term debt. However, the company plans to continue normal operations with an initial investment of at least $20 million from its founders, Alex Fenkell and Jordan Katzman.

In addition, SmileDirectClub has the potential to secure up to $60 million in additional capital through a marketing process that may lead to the sale of the company’s equity. The company believes that the restructuring process will be short-lived.

SmileDirectClub has appointed Kirkland & Ellis as its legal counsel, FTI Consulting as its financial adviser, and Centerview Partners as its investment banker during this restructuring phase. The company was founded in 2014 by former wearers of metal braces, Alex Fenkell and Jordan Katzman, with investment support from David Katzman, Jordan’s father.

SmileDirectClub went public on September 12, 2019, with an initial public offering (IPO) price of $23 per share. However, the stock opened below its IPO price and closed down by nearly 11%. Since then, the company has been exploring new products such as teeth whitening, overnight retainers, and lip balm to diversify its offerings and compete with rivals like Align Technology, the maker of Invisalign.

Unfortunately, SmileDirectClub has faced numerous challenges, making it difficult to achieve profitability. In February 2020, an investigative story by NBC News raised concerns about the safety of the company’s clear aligners due to consumer complaints of tooth damage. The company has also experienced supply chain inflation and cautious consumer behavior.

Earlier this year, SmileDirectClub outlined a restructuring plan aiming to achieve over $100 million in cost savings. However, Wall Street remains cautious about the company’s future prospects. JPMorgan analyst Robbie Marcus expressed skepticism about the effectiveness of the company’s new strategies, highlighting the need for execution and visibility.

Before filing for bankruptcy, SmileDirectClub’s stock had plummeted by 97%, resulting in a market cap of $163 million. The company’s financial struggles and the uncertainties surrounding its business have kept investors on edge.

While SmileDirectClub is optimistic about its ability to emerge from bankruptcy swiftly, it faces an uphill battle to regain investor confidence and establish a sustainable path to profitability. The company will need to navigate through the challenges in the dental industry, address consumer concerns, and develop a compelling growth strategy to reverse its fortunes.

Overall, SmileDirectClub’s bankruptcy filing represents a disappointing turn of events for investors, highlighting the difficulty of transforming a promising business concept into a profitable reality. Only time will tell if SmileDirectClub can bounce back and fulfill its potential in the tooth alignment market.

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