Writing in The Wall Street Journal last month, Heard on the Street columnist Charley Grant, pretty much summed up Smile Direct Club’s (SDC) fate since going public in September, noting that SDC “has encountered nothing but trouble.”
That trouble includes financial, legal, and regulatory ills.
From the moment trading began in SDC stock, its price tumbled. Barron’s magazine dubbed the stock’s debut as “the biggest flop in decades.” The Journal’s Grant echoed that sentiment in his column, noting that SDC “shareholders have had their teeth kicked in.”
Plaintiffs’ law firms lined up to file class-action lawsuits against Smile Direct Club on behalf of shareholders who purchased SDC common stock in connection with the company’s IPO.
While SDC’s stock opened for trading on September 12th at $21.10 a share, by November 11th, the share price had crashed to $7.70—a decline in value of almost 64% in roughly 60 days.
Hindenburg Research, a short-seller that makes its money by betting on falling stock prices, forecast that within a year, SDC’s stock will drop to $2 a share, according to a story in MarketWatch.
Meanwhile, in October, California Governor Gavin Newsom signed a new law that effectively puts the squeeze on SDC’s operations in the Golden State, requiring “explicit parity in the standard of care, whether a dentist is treating a patient through telehealth or in a dental office,” according to the California Dental Association.
“While this bill does not preclude SmileDirectClub’s continued operations in California, it will create unnecessary hurdles and costs to Californians that need care but struggle to afford it,” SDC said.
At about the same time, SmileDirectClub, Inc. filed a lawsuit against the California Dental Board and individual members accusing them of attempting to intimate SDC staff and customers.
In SmileDirectClub LLC. V. Battle, et al., No. 19-12227, the ongoing case in the U.S. District Court for the Northern District of Georgia, little progress has been made over the past few months. Both the United States Department of Justice (DOJ) and the U.S. Federal Trade Commission (FTC) did file amicus briefs favorable to SDC’s legal position in the Georgia case, as well as a similar complaint that SDC filed against the Alabama Board of Dental Examiners.
“SmileDirectClub is pleased that the DOJ and FTC have together determined that an amicus brief was necessary in both of our lawsuits to stop the efforts by members of state dental boards to thwart competition from disruptive technology and to short-circuit the litigation against them for violations of antitrust laws,” the company wrote in an October news release.
When in November SDC released its first quarterly earnings report since going public, there was mixed news—both bad and good.
The good news is that sales of $180 million in the period were better than securities analysts had been forecasting, with sales growing by 50% from a year earlier. Moreover, according to the Journal’s Grant, the adjusted net loss of 89 cents a share “wasn’t as bad as feared.”
That said, sales, marketing, and administrative expenses topped a whopping $500 million in the quarter and, according to FactSet, Wall Street analysts don’t expect profits until 2021.