SmileDirectClub pulls plug on $37 million project in Kyle

SmileDirectClub Inc. has scrapped plans to open a $37 million manufacturing plant in Kyle that was expected to employ 850 people — a project that would have made it the largest private employer in the suburb south of Austin.

The teeth-straightening company blamed the coronavirus pandemic for the reversal, saying it became impractical for workers based in its Nashville, Tenn., headquarters to oversee the development amid virus-induced travel restrictions and health worries.

But Kyle Mayor Travis Mitchell said Tuesday that he had been concerned something was amiss since shortly after the project was announced at a high-profile event in October 2019 — well before the pandemic first triggered widespread shutdowns in March this year — because SmileDirectClub appeared to be making little headway on it.

At the time of the announcement last October, SmileDirectClub executives said they had “a pretty aggressive timeline” to get the new factory up and running, with hiring set to begin within days and the facility expected to become operational by February 2020.

The since-canceled manufacturing plant would have occupied 150,000 square feet in the Hays Logistics Center off Interstate 35, and would have produced dental aligners.

“My antenna started going up shortly after” the announcement, Mitchell said. “I never saw them doing much work to set it up. I don’t want to speculate (on what might have happened), but I had concerns, and it seems those concerns were well founded.”

A spokesperson for SmileDirectClub said delays in rolling out some of the company’s manufacturing automation slowed the initial timetable, but she said the ensuing pandemic resulted in the project being called off.

SmileDirectClub, a 6-year-old startup that held an initial public offering a year ago, sells clear teeth aligners directly to consumers, eliminating in-office visits to traditional orthodontists by using so-called teledentistry, or remote consultations and treatment over the internet.

The Austin Business Journal first reported that the company had called off its plans for the Kyle facility and had cited the coronavirus for doing so.

Shares of SmileDirectClub, trading recently around $7.80, have slumped about 10% this year, and are down about 65% since the company went public in September 2019 at $23 a share.

For Kyle, which is roughly a 20-mile jaunt south on Interstate 35 from Austin, cancellation of the project is a significant letdown from an economic development perspective. Kyle civic leaders have been attempting to change the city’s status as mainly a bedroom community, and the SmileDirectClub plant would have been a major step in that direction.

The facility — heralded initially as “the biggest jobs announcement in the history of Kyle” — was expected to pay average annual salaries of just under $40,000 and offer positions for production workers, engineers, 3D-printing technicians and others.

A total of about $3.3 million in taxpayer-funded incentives from the state, the city of Kyle and Hays County helped lure SmileDirectClub to Kyle — the bulk of which, or $2.2 million, had been earmarked from the Texas Enterprise Fund. But the company canceled the project before receiving any of it.

“We were excited to have them,” Mitchell said. “It’s a hard thing (that SmileDirectClub reversed course), especially because they had already gotten to the point of executing the lease” in the Hays Logistics Center, which is part of a taxpayer-incentivized industrial park that was built on a speculative basis to attract economic development to Kyle.

But “Kyle is going to be just fine,” he said. “There are other prospects that we are actively working with. Kyle is continuing to add jobs, and we are just going to keep going.”

The city, which has about 50,000 residents, has been one of the fastest-growing municipalities in Texas. Jobs-related activity in Kyle this year include an announcement in July that online retailing giant Amazon plans to open a sorting center in the city that will employ more than 200 people.

Although SmileDirectClub’s Kyle manufacturing plant never became operational, the company took a $25 million, non-cash charge during the second quarter “associated with lease abandonment and impairment of long-lived assets” that was attributable mostly to it and to consolidation of some floors in its Nashville headquarters, as well as to closure of some other facilities, Chief Financial Officer Kyle Wailes told analysts on a conference call last month.

Wailes said on the call that the aim of the now-canceled Kyle plant was always “redundancy,” instead of needed additional capacity to support consumer demand.

“I think just given (the coronavirus pandemic), we took a step back and really reassessed all aspects of the business, and Kyle was associated with that,” Wailes said. “We're looking at facilities (for redundancy) that are closer to Tennessee, where we can leverage (the company’s existing workforce) in a much leaner way than what we could have done” in Kyle.