SmileDirectClub Executives Put Their Money Where Their Mouths Are Amid Covid-19 – IPO Edge
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SmileDirectClub Executives Put Their Money Where Their Mouths Are Amid Covid-19
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SmileDirectClub Executives Put Their Money Where Their Mouths Are Amid Covid-19

SmileDirectClub Inc. Executives Recently Bought $15 Million Worth of Shares in the Company

By Jarrett Banks and John Jannarone

The Covid-19 pandemic has been accelerating change across a broad swath of industries, including orthodontics, and teledentistry has proven the safest and most convenient way to improve smiles. The increasing adoption of the technology has been a big reason for optimism in Nashville-based SmileDirectClub Inc. (NASDAQ: SDC), which sells teeth-straightening products for a fraction of the price of traditional orthodontics.

So much so that on Aug. 31, Chief Executive Officer David B. Katzman bought $10.3 million of shares, according to a filing with the U.S. Securities & Exchange Commission. The purchase, in addition to those of other senior executives, totaled about $15 million, bringing management’s stake to a roughly ¾ economic interest in the business. Investors should consider following their lead as several key events in recent months are providing major tailwinds.

Last month, SmileDirectClub partnered with Smile Brands Inc. and its 450 affiliated dental practices across 18 states to offer an additional way for consumers to begin their invisible aligner treatment. That presence will attract customers who are more comfortable in the presence of a dentist when they make the decision to use SmileDirectClub.

SmileDirectClub, which went public in a 2019 IPO, makes 3D-printed aligners that are custom fit to patients based on impressions made in shops or at home with a kit. It says that more than 1 million people have used its teeth-straightening products since the company was founded in 2014.

The company also recently launched SmileDirectClub Teen, a product just for teenagers that includes a Bluetooth tracker enabling them to locate their cases with smartphones. Teens account for 75 percent of all orthodontic treatment but are only a small fraction of SmileDirectClub’s current sales. That suggests an enormous growth opportunity the company has only begun to explore.

What’s more, the company beat expectations in the second quarter and raised its guidance for the fourth quarter. Case volumes, revenue and adjusted Ebitda topped consensus estimates and management reiterated a goal reaching profitability in the fourth quarter.

In addition, SmileDirectClub’s brand awareness is resonating, boding well for the longer-term trend of growth for the clear aligner market. Looking at Google Trends, which measures popularity of searches, interest in SmileDirectClub rose to a score of 63 in mid-May, passing rival Invisalign’s 49 level (Invisilgin is owned by Align Technology, Inc. (NASDAQ: ALGN).

Investors loved the news of the executive share purchases when it broke earlier this week. The shares are up about 20% since the announcement – quite an achievement amid a virtual market meltdown in the last couple of days.

Even so, there is plenty of room to run. SmileDirectClub appears to have prevailed after suffering from a concerted attack by The American Dental Association as well as various state dental organizations who wanted to protect their turf. The company has taken shots from several parties, some of whom had a history of making self-serving – even misleading – statements.

Most notable of those was the ADA, which last year lodged complaints with both the Food and Drug Administration and the Federal Trade Commission. While the ADA went as far as to purchase ads in The New York Times celebrating its “active petition,” nothing has ever come of either gripe.

Objective parties have also backed SmileDirectClub. For instance, the BBB National Programs Inc.’s advertising division recently expressed support for the vast majority of statements from SmileDirectClub after Align Technology filed a confidential complaint in an apparent effort to hurt its competitor.

SmileDirectClub trades at an enterprise value of 4.1 times sales, according to Sentieo, an AI-enabled research platform. That is exactly half the multiple of Align Technology, which trades at 8.2 times. Investors who follow the lead of SmileDirectClub’s senior management may soon be ginning ear to ear.

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