‘Consumer sentiment is on our side’

Nathan Bomey

USA TODAY

Published 1:01 AM EDT Sep 15, 2019

SmileDirectClub’s initial public offering got a tepid response last week, but the teeth straightening company said its growth prospects remain strong. 

Nashville-based SmileDirectClub provides removable, clear plastic aligners that straighten teeth over five to 10 months and cost $1,895. The business has served more than 750,000 customers since its founding in 2014.

The company scans each patient’s teeth in person at its Smile Shops or sends a do-it-yourself impression kit to customers, who then receive periodic shipments of aligners.

SmileDirectClub said there are about 500 million people worldwide who have mildly crooked teeth and can afford its service.

Investors apparently believed the company’s shares were priced too high when it went public Thursday.  Bankers set the starting price at $23, but the stock fell sharply Thursday and closed the week at $18.68 per share. 

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SmileDirectClub executives said they’re not concerned.

“We’re not focused on day-to-day trading,” SmileDirectClub Chief Financial Officer Kyle Wailes said. The company is focused on serving its customers and “looking forward to creating long-term value for our shareholders.”

SmileDirectClub, which was valued by investors at more than $3 billion by late 2018, had a total market capitalization of more than $12 billion as of Friday’s market close.

The company carved out an aggressive and litigious path to growth. SmileDirectClub won an arbitration dispute with Align Technology, maker of the largest teeth straightening service, Invisalign, and sparred with dental interest groups in state cases.

SmileDirectClub’s model has drawn criticism from the orthodontics industry. The American Association of Orthodontists, or AAO, argued that the company’s do-it-yourself model violates dental-practice statutes. SmileDirectClub said licensed orthodontists or dentists oversee every case remotely. Invisalign has drawn less criticism because it’s administered directly by dentists or orthodontists.

Supporters include NBA star Draymond Green, who invested in the company several years ago after using the product himself.

“I quickly became a believer,” Green told USA TODAY. “Most importantly, there’s a need for it. It’s affordable, which is extremely important. There are so many people who don’t have access to braces or other companies that are not as affordable to correct their teeth.”

SmileDirectClub co-founder Alex Fenkell and Wailes spoke to USA TODAY’s Nathan Bomey after the company’s IPO. This conversation has been edited for length and clarity.

Question: As a publicly traded company in the health industry, you have to balance the needs of your shareholders with the need to make sure that you treat patients well. How do you ensure that profit motives don’t get in the way of good treatment?

Wailes: We’re focused on our customer. That’s always the most important thing to us. Without that, we don’t have a business.

We just launched our nighttime-only product: wearing clear aligners for 10 hours per night while you’re sleeping rather than 22 hours during the day.

Q: Invisalign handles some of the more complex cases, and you handle some of the less complex cases. Are they a competitor for you?

Wailes: They’re focused on a very different market. Align sells their Invisalign product directly to a brick-and-mortar practice, where a dentist or orthodontist would practice. We use the power of teledentistry and sell directly to a consumer. We have state-licensed doctors across all 50 states who use that teledentistry platform to provide care.

There’s 12 million case starts on a global basis in the professional channel. What we’re focused on is the 500 million people globally who have some type of malocclusion but can also afford to pay $85 per month.

Q: Alex, looking back, what was the single biggest moment that propelled SmileDirectClub?

 Fenkell: There were a few different moments since the inception.

If you go to the early days, when (co-founder) Jordan (Katzman) and I were packing impression kits in a basement and I was taking the calls in a call center, we started to pick up on the impact that this product has on people’s lives. Hearing stories about parents who couldn’t afford straight teeth for their kid’s wedding and all of a sudden there’s a viable option. That emotional piece early on really fueled us.

(In) 2017, we opened our first Smile Shop. That was another inflection point. We realized that in-person customer touchpoint was really impactful, and we started to scale that quickly with 300 Smile Shops around the world today. 

Q: What are the limits of growth of this company?

Wailes: We have the capital to continue to support the growth of the business. International growth is going to be an important component to that. Seventy-five percent of our market opportunity is outside the U.S.

We recently hired a president of international to run that part of the business for us, and we’ve got many countries on the roadmap for next year in addition to the U.K., Australia and Canada that we’re already in today.

Q: You recently struck a partnership with CVS. How many Smile Shops do you envision setting up?

Fenkell: Our shops right now cover the majority of (major markets). We’re looking to optimize and get more efficient with them.

Q: Do you envision a day where you may start to employ orthodontists and dentists and start to do this yourself instead of contracting with people?

Fenkell: I don’t see that. We are the teledentistry platform, we provide the marketing services, we help fulfill the actual aligners. But this is a medical device that a state-licensed dentist or orthodontist has to prescribe, manage and oversee.

Wailes: We’re not practicing dentistry. We’re a (dental service organization). We’re contracted with independent professional corporations that are owned by dentists and orthodontists. There’s a network of over 250 around the country today. It’s their patient, it’s not our patient.

We’re providing a range of management, marketing, licensing, manufacturing and other services today. That’s the business we’re in and that’s the business we intend to stay in.

Q: You’ve been pretty aggressive about arguing your points from a legal perspective. But is there any concern that at some point, legal roadblocks could cap the growth?

Wailes: No. Anytime you do something disruptive, the status quo is always going to push back against that. I think that’s exactly what you’re seeing here. Consumer sentiment is on our side here. We’re making it more convenient, we’re making it more affordable.

Sixty percent of counties in the U.S. do not have access to an orthodontist. Only 40% have access today. We serve 100% of those counties through our teledentistry platform. We make it more convenient, more cost-effective.

Q: From a legal perspective, obviously every country is different, but in general, do you face similar opposition overseas?

Wailes: Our intent would be to keep the business model as close as we possibly can to the U.S. But if we have to make small tweaks to bring access to care to the 500 million people around the world, we’ll make the consideration at that time on a country-by-country basis.

Q: You’ve taken some steps to integrate with insurance. But with so much talk about the possibility of overhauling the U.S. health care system in the political environment right now, how would you fit in if we see some sort of public option or Medicare for All?

Wailes: Medicare for All or public options around health insurance are a very different market than what we’re focused on today. Our market, for the most part, is cash-pay today. Insurance is a very, very small part of our business. And dental and ortho coverage is also very independent and separated from traditional health insurance as well.

The partnerships we’re forming now will start to have an impact in 2021, 2022 and beyond as we partner with United and Aetna and others to have large corporations adopt orthodontic care as a covered benefit.

Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.

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