SmileDirectClub shares tumble 28% in public debut
Dental company priced IPO above the range, yet stock slumped below
SmileDirectClub made a frown-inducing debut as a public company on Thursday, having priced shares for its initial public offering above the range of expectations only to see them slide 28 per cent.
The dentistry company priced its shares at $23 each, implying a market capitalisation of $8.9bn, but they closed at $16.67, valuing the company at less than $6.5bn.
That is still twice the $3.2bn SmileDirectClub achieved in private markets, but it raised new questions over public investors’ appetite for lossmaking start-ups.
The Nashville-based company, which sells clear teeth aligners directly to consumers for less than traditional orthodontists, reported a loss of $75m last year, even as revenues almost tripled to $423m. Its business has faced pushback from the American Association of Orthodontists, which has claimed in complaints with state attorneys-general and dental boards that the service is “illegal and creates medical risks”. The company denies those suggestions.
The percentage slide in its shares was the third-worst among all IPOs of more than $100m since 1990, according to Jay Ritter, a business professor at the University of Florida. The one-day dollar loss of $370.5m was the second worst, exceeded only by the $617m loss for Uber Technologies on its debut earlier this year.
SmileDirectClub listed 58.5m shares worth $1.3bn in an offering on the Nasdaq stock exchange. The company had previously targeted a range of $19 to $22 a share, before upping the price late on Wednesday.
Kyle Wailes, chief financial officer, said he was not concerned with the company’s early trading. “For our investors, it’s really the long-term growth we’re focused on,” he said.
SmileDirectClub is the latest lossmaking start-up to test public markets this year and one of the largest since governance and business model concerns threw WeWork’s $4bn listing into doubt.
The IPO was due to mint three new billionaires on paper: co-founders Jordan Katzman and Alex Fenkell and Mr Katzman’s father David, who serves as the company’s chief executive and runs its private equity backer Camelot Venture Group.
One person familiar with SmileDirectClub’s roadshow said the company faced questions about David Katzman’s dual role and his day-to-day involvement at Camelot. Mr Wailes said Mr Katzman was “100 per cent focused” on SmileDirectClub and was not actively managing any other Camelot-backed companies.
“He owns a very large percentage of the company overall, and he’s very committed to the long-term success of the company,” Mr Wailes said.
The company is using a so-called up-C structure, providing tax advantages to company insiders that critics contend are not fully shared with other investors. David Katzman will retain control of the company through supervoting shares that carry 10 times the weight of class A common stock sold in the offering.
JPMorgan and Citigroup are serving as the lead underwriters for SmileDirectClub’s listing.