uLab Systems® continues impressive growth and reaches new milestones!
Dear Investor,
Thank you for your investment in uLab Systems, Inc. (Company) and your continued confidence in our strategy. We remain committed to advancing the orthodontic market with valued innovations and delivering consistent commercial performance. We are happy to report continued progress on both fronts with this update.
BUSINESS DEVELOPMENT HIGHLIGHTS
During the first six months of the year, uLab was involved in a number of business development activities, as the Company refined its long-term strategy. These activities were subject to nondisclosure provisions, which limited our ability to discuss them. In June, we announced the signing of a License Agreement with Angel Aligner, Inc. (Angel). Under the terms of this agreement, Angel licensed the rights to the Company’s uDesign software for chairside treatment planning in countries outside the United States and will pay the Company a royalty on all chairside business. This license agreement provides the Company with a new income stream and allows us to sharpen our focus on the United States – the largest clear aligner market in the world. There are no changes to our US business. We continue to provide a full array of options to our US customers, including uDesign, uSmile, uAssist, custom packaging, and expedited shipping options.
COMMERCIAL HIGHLIGHTS
We’ve continued our strong growth trajectory, with volume in Q2 up 37% over the corresponding prior year period. We are reaching scale and are now on track to sell one million uSmile™ aligners and retainers in 2024. Our uSmile revenues in Q1 and Q22024 grew 45% and 39%, respectively, over the corresponding prior year periods. This follows growth in the calendar year 2023 of 65% over 2022.
Our customer base continues to grow. Since the Company’s launch, over 2,000 US orthodontists have used our software for their treatment planning, representing over 20% of US orthodontists. Of this group, about 80% have purchased uSmile aligners or retainers from us.
As discussed in our last update, we celebrated two significant milestones in February:
- We announced that our products received the most votes in two categories of the 2023 Townie Choice Awards (OrthoTown Magazine); The uSmile aligner system won the Clear Aligner Systems Category and the uAssist™ service won for the New Professional Services category. We are extremely excited and proud of this recognition and thank you for your votes.
- We celebrated our one-millionth patient being treated with our uDesign® treatment planning software! Since starting in 2018 as a software-only company, we are now a full-service clear aligner company, committed to supporting the orthodontic industry with unique and flexible options that bring innovation and efficiency to the practice of orthodontics.
As a reminder, uLab is unique with a pricing model that allows clinicians to choose their purchasing preference AFTER they have finished their treatment plan allows them to make the best choice for the patient, and they can order in sprints to minimize waste if refinements are needed further in treatment. We offer case-pricing (“bundles”) as well as “a la carte” pricing. Bundles were launched in July 2023 and now represent about 33% of our orders, driving 60% of our uSmile revenue. 50% of all orders utilize our uAssist® treatment planning assistant service; a concierge service that uses the Orthodontist’s clinical preferences returning cases for review in 3 business days.
In April, we communicated an annual modest price increase on all products and some services; however, we remain very competitively priced. In May we launched an industry first, finishing bundle option that has been widely accepted as a great solution for hybrid cases and limited re-treatments.
We are very excited to be fully launching our transition to Reva™ after a very successful and positive alpha and beta market evaluation. Reva is our proprietary material for aligners, retainers and templates which is thinner than the competition while providing sustained force overtime with a clear and smooth finish.
OPERATIONAL HIGHLIGHTS
Our volume in the first six months of 2024 increased 41% over the comparable 2023 period. The increasing volume is driving economies of scale and margin improvement. Our manufacturing cost per aligner in Q2 2024 was 11% lower than in Q2 2023, and we expect continuing improvements to our cost profile.
Over the last several years, we have invested in and expanded our state-of-the-art manufacturing facility in Memphis, TN. As a reminder, uLab is the only company in our industry to offer custom-branded boxes, aligner bags and aligner cases for our customers. We have also invested in world-class trimming machines, enabling maximum manufacturing precision, unique sorting capabilities which enable faster production and shipping, and increasing levels of automation and robotics.
A major driver of our uSmile revenue growth is our uAssist service, which launched in Q3 2022. uAssist is a concierge service for digital treatment planning assistance. Customers can receive recommended treatment plans from orthodontists and dental professionals who are both clinically trained and experts on our uDesign software. Adoption has been swift, growing from ~20% of cases at the end of 2022 to over 50% today. We provide turnaround in approximately three days and have a very high degree of cases accepted by orthodontists with zero modifications. This high acceptance rate is due to the diligence done upfront to learn customers’ preferences and an emphasis on proper biomechanics and staging in the recommended plans. The swift service speed and high treatment quality has resulted in incredibly positive customer feedback and is additionally validated with the Townie award for “best new service” mentioned earlier.
PRODUCT PIPELINE
As part of this commitment, we have continued to release updates of our uDesign treatment planning software—enabling flexibility in self-planning or concierge services, printing in-house or ordering uSmile, ordering in sprints to minimize waste, self-branded packaging, and even options to easily add key frames for additional aligners at the end of treatment. Our treatment planning software is the most flexible in the industry with options unavailable on any other platform as noted above, has now been used to plan over one million cases!
In May, we released uDesign 9.0, which includes a number of new features and enhancements, and 65% of users have now upgraded to the latest version. By end of August, we will be releasing uDesign 9.1, which will include improvements based on customer feedback, including adjustments to the refinement process. Later this year, we expect to release our first cloud-based treatment planning software for uAssist, which will provide even greater flexibility for our customers.
In addition to these exciting milestones, very soon we expect to make additional items available for purchase online, such as custom-branded aligner storage cases and Reva discs, making this exciting new material available for chairside fabricators.
REGULATORY HIGHLIGHTS
As mentioned previously, we are transitioning all uSmile orders to our new Reva™ material. The Reva material has full equivalency to the material that the Company has historically used, and has a better cost profile, which will improve the margins from our uSmile franchise. In addition to utilizing Reva for manufacturing aligners, we also plan to make Reva discs available to our STL customers in the near future.
STRATEGY UPDATE
Over the last few months, company has pivoted to have tighter fiscal discipline and is currently laser-focused on becoming cash flow positive as soon as possible. The Company is also aggressively moving its uDesign treatment planning software to AI and the Cloud – we are committed to continued innovation and to providing software that is fast, easy to use. and accessible from any type of hardware or platform, providing easier and better control by doctors. We also feel very positive about our Reva material, which maintains better force over a longer period while being thinner and more comfortable. We thank you again for the confidence that you have demonstrated through your investment in uLab, and we are committed to continue earning your trust.
NOTE: This update is for general informational purposes only and it is not intended as any offer to solicit or sell securities. The information discussed should be kept confidential by you, except to your advisors who are bound by confidentiality obligations. The information discussed may contain forward-looking statements, which may include statements about uLab’s plans, objectives, or expectations. These forward-looking statements involve risks and uncertainties and actual results may differ significantly from those projected or suggested in any forward-looking statements