SmileDirectClub eyes controlled growth and profitability in 2020

SmileDirectClub said on Tuesday it is looking at a “controlled growth” in 2020 after the online dental company posted a bigger-than-expected loss as it spent more to market its teeth aligners.

Shares of the company plunged 20% to $9.05 in extended trading.

Chief Financial Officer Kyle Wailes on a conference call with analysts said the company’s focus in 2020 will be profitability and it understands the levers it needs to pull to ensure that.

The company said it had started rightsizing its production teams and is pushing for more demand for its existing SmileShop network to put it on track for profitability by the fourth quarter of 2020.

SmileDirect Chief Executive Officer, David Katzman attributed the shortfall in the quarter to inefficient manufacturing operations and an inefficient back-office process, which led to higher expenses.

SmileDirectClub joined the club of large, money-losing startups in 2019, whose IPOs were received coolly by investors doubtful about their valuations and business models.

Short interest, a measure of how much money is betting on the stock to go lower, in SmileDirectClub stood at 9.8% of the float, as of Jan. 31, according to Refinitiv data.

For 2020, the company sees revenue between $1 billion and $1.10 billion, the mid-point of which is below Street estimates, and expects adjusted loss before interest, tax, depreciation, and amortization between $50 million and $75 million.

To boost growth, the company has partnered with larger healthcare companies including CVS Health Corp and Walgreens Boots Alliance Inc and in January launched a suite of oral care products exclusively available at Walmart U.S. stores and Walmart.com

Katzman said that international expansion was a key growth driver for the company and plans to launch into new regions throughout 2020, alongside focusing on new acquisition channels such as wholesale and retail.

During the fourth quarter, SmileDirectClub shipped 115,042 unique aligners, compared with 76,372 a year ago.

SmileDirectClub sells clear plastic dental aligners prescribed by doctors who review digital images of customers’ teeth online and oversee treatment from afar. The customers can then get custom-made aligners shipped directly to them.

During the quarter, marketing and selling expenses more than doubled to $141.1 million.

Net loss attributable to the company widened to $26.2 million, in the fourth quarter ended Dec. 31, from $26 million, a year earlier.

On a per-share basis, the company reported a loss of 25 cents versus analysts’ expectations of a loss of 9 cents, according to IBES Refinitiv data.