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SmileDirectClub, Inc. (SDC) Q4 2019 Earnings Call Transcript

By Motley Fool Transcribing – Feb 26, 2020 at 7:01AM

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SDC earnings call for the period ending December 31, 2019.

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SmileDirectClub, Inc. (SDC 3.92%)
Q4 2019 Earnings Call
Feb 25, 2020, 4:30 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Greetings. Welcome to the SmileDirectClub fourth-quarter 2019 and the year-end earnings conference call. [Operator instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Alison Sternberg, vice president of investor relations.

Ms. Sternberg, you may begin.

Alison Sternberg -- Vice President of Investor Relations

Thank you, operator. Good afternoon. Before we begin, let me remind you that this conference call includes forward-looking statements. For additional information on SmileDirectClub, please refer to the company's SEC filings, including the risk factors described therein.

You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on assumptions and beliefs as of today. I refer you to Slide 2 of our presentation, which can be obtained on our website, for a description of certain forward-looking statements. We undertake no obligation to update such information, except as required by applicable law.

In this conference call, we will also have a discussion of certain non-GAAP financial measures, including adjusted EBITDA and free cash flow. Information required by Regulation G of the Exchange Act with respect to such non-GAAP financial measures is included in the presentation slides for this call, which can be obtained on our website. We also refer you to this presentation for a reconciliation of certain non-GAAP financial measures to the appropriate GAAP measures. I am joined on the call today by our chairman and chief executive officer, David Katzman and our chief financial officer, Kyle Wailes.

Let me now turn the call over to David.

David Katzman -- Chairman and Chief Executive Officer

Thanks, Alison, and good afternoon, everyone. Thank you for joining us on the call today. 2019 was a major milestone year for SmileDirectClub, and I am extremely proud of the progress our team has made over the course of that time. As I've stated before, we are in the very early innings of a massive untapped opportunity.

And before I go into the details associated with our adjusted EBITDA shortfall in the quarter and our associated thoughts on 2020 and beyond, I'd like to start by walking through some key highlights from the past year. Within 2019, we shipped roughly 453,000 unique aligner orders, up 75% year over year at an ASP of $1,771. We achieved $750.4 million in total revenue, up 77% year over year. We saw a 790-basis-point improvement year over year in gross margin, which came in at 76.2%.

We laid the platform for global expansion and successfully entered five new countries outside North America, including Australia, New Zealand, the United Kingdom, Ireland and Hong Kong, which strategically positions us for expansion across Europe and Asia. We continue to cultivate relationships with major insurance providers, such as Aetna and UnitedHealthcare, for in-network orthodontic coverage; developed strategic partnerships with retailers, such as Walgreens and CVS. We launched a very innovative nighttime-only clear aligners; launched an oral care product line in approximately 3,800 Walmart locations, which adds a new customer acquisition channel and increases the lifetime value of our club members. And lastly, we completed our initial public offering.

In isolation, by any standards, it was another incredible year. Despite these accomplishments, we cannot ignore that we fell short of our adjusted EBITDA goals in the quarter, which came in at a negative $60 million, resulting in a negative $100.2 million for the full year. This shortfall is due to a combination of factors, most notably inefficiencies in our manufacturing operations; an inefficient back-office process, driving higher-than-expected general and administrative expenses. We will elaborate on this later in the call.

That said, I think it's important to keep things in perspective. We grew to a $750 million company with approximately 6,300 team members across sven countries in just a few short years. Revenue in 2016 was only $22 million, and we had six SmileShops. That being said, we own these results.

We understand why we missed our profitability goals in the quarter, and we have plans in place to address it. I'll highlight a few of the areas which contributed to our negative EBITDA, and Kyle will specifically address the Q4 profitability miss: substantial investments in our infrastructure to support our continued growth in international expansion over the next few years; continued elevated legal and lobbying expenses to defend our mission against anti-competitive behavior and to protect our position as a disruptive innovator in the oral care space; inefficiencies in our manufacturing facilities caused by a delay in automation of our manufacturing and treatment planning operations; aggressive hiring plans to support future growth. Inefficient back-office process is driving higher-than-expected general and administrative expenses. Additionally, as noted on our website in the fourth quarter of 2019, we experienced shipping delays which had a broad impact on customer experience.

When shipping delays occur, it not only impacts the time it takes for equipment to receive their aligners but also causes downstream impacts for our customer care team as well. This impacts the overall member experience as we saw in our NPS score in the fourth quarter, which dropped a few points, but it's still above 50. As CEO of this business, I'm faced with numerous decisions every day. And as Kyle will elaborate upon later, one very difficult but important decision that I'm making, given our club member experience and profitability in Q4, is to control our growth in order to provide the best consumer experience and reduce our cost to be adjusted EBITDA profitable by Q4 of 2020.

Our customer experience is the cornerstone of our business, and we cannot sacrifice this in order to maintain our historical growth rates. Now is a critical time for us to do this to ensure we are providing the best experience to every club member while also positioning us to capitalize on our global opportunity. To accomplish this objective and achieve these savings, we are focused on the following: continued advancement in automating and streamlining our manufacturing and treatment planning operations to allow us to stay ahead of consumer demand; rightsizing our production teams, which can flex up and down to conform to our business priorities and long-term growth rates; continued discipline around the deployment of marketing and selling dollars, including a focus on pushing more demand through our existing small-shop network, which has already been scaled in anticipation of future demand; and overall rigorous cost discipline across the business. For the past three years, we have over invested to own the category and dominate the space, and we've accomplished this with over 50% aided awareness in a membership base that positions us as one of the largest providers of clear aligner therapy in North America.

These investments will pay huge dividends as we expand globally in the future. As I stated above, 2020 is a year of controlled growth for SmileDirectClub. And we see this year as our opportunity to fortify the foundation of our business, position us for strong revenue growth and margin expansion over time. We have tremendous unit economics with over 70% gross margins and no pricing pressure as the category leader.

For full-year 2020, we expect the following: revenue between $1 billion to $1.1 billion, representing growth of 40% year over year at the midpoint of the range; the adjusted EBITDA for the fiscal year is expected to be between negative $50 million to negative $75 million, including turning adjusted EBITDA positive by Q4 of 2020. Beyond 2020, we believe the actions we are taking now will position us to achieve the following over the next five years: average revenue growth of 20% to 30% per year for the next five years; adjusted EBITDA margins of 25% to 30% by the end of that time period, driven by achieving positive adjusted EBITDA by the fourth quarter of this year, 2020, and ramping up each year thereafter. Our leadership and value proposition in the market provides us an opportunity to grow faster than this. However, based on the current maturity of our business, we are making the strategic decision to further enhance our continued focus on our customer experience and our infrastructure, which we believe we can do while maintaining the growth rates noted above.

Kyle will walk through these estimates in more detail later in the call. Turning to growth drivers that will enable us to achieve these results. Make no mistake about it. We are a growth company, and we'll continue to be a growth company in the future, be it at a more controlled, profitable pace.

Over the course of 2020, we will continue to execute against the significant opportunity to grow beyond the approximately 850,000-plus members, soon to hit our millionth customer who have gotten smiles. They love using our platform. In particular, we will continue to improve conversion and member experience at every touch point across our acquisition funnel. We remain focused on expanding our club numbers across all age demographics, especially teens, who represent approximately 5% of our business today, at two-thirds of the whole industry case starts.

We are also focused on leveraging our aided awareness by acquiring club members and new acquisition channels, such as our partnership with Walmart and our entrance into wholesale. In both cases, we are expanding the lens of the business to accommodate different on-ramps for both consumers and clinicians, and in the case of Walmart, also increasing the lifetime value of our club members. International expansion is a key growth driver for us, and now is the right time for us to continue to expand quickly. As we've alluded to before, approximately 75% of the market opportunity is outside of the U.S., and we continue to focus on expanding our international footprint.

Since the middle of 2019, we have entered five new countries, added two in 2020 already with Hong Kong and now Germany, and we expect this pace to continue. We have a robust international road map with an extremely strong and effective international team with plans to launch into additional regions throughout this year. We've continued to refine and improve our new market launch strategies and execution. And a strong early uptake in these new geographies further demonstrates our unique value proposition is successfully meeting a significant unmet need across the globe.

2019 was a great year for innovation, and we will remain focused on product development. As mentioned in December, we launched an expanded suite of oral care products, including our patent-pending toothbrush, smile spa, water flosser, bright on premium whitening and sensitive and whitening toothpaste. In late July, we launched our very innovative Nighttime Clear Aligner product, which enables our club members to straighten their teeth only while they sleep, and there's more to come. We continue to deploy resources toward our research and development efforts in support of lengthening our relationship with our members while also enhancing our recurring stream of revenue, and most importantly, continuing to improve our clinical outcomes with our Better is Better approach.

I've spoken about competitive moats around our business model, which are significant individually, but were selectively making incredibly difficult for anyone to replicate what we have built. Calling a few here: our mission-driven brand with a positive customer experience; our omnichannel approach; our exclusive affiliated doctor network; our SmilePay captive financing; a completely vertically integrated medtech platform, delivering a true end-to-end consumer experience with six issued patents and dozens pending in our manufacturing and custom treatment planning operations. These moats are especially important as they allow us to stay nimble and provide many levers for us to grow profitably as our business matures and as we continue to execute against our mission to democratize access to a smile in each and every person's life, making it affordable and convenient for everyone. Before I conclude, I do want to take a moment to address a topic that is very important to me.

As a healthcare business, nothing is more important than the safety and efficacy of our product. And given the misinformation about our product and clinical outcomes, I thought it was important to take a moment to address it. Our SmileDirectClub clear aligner therapy is safe and efficacious with over 850,000 club members, including coworkers, personal friends of mine, my nieces, nephews and countless other relatives, our model is safe and effective, providing great outcomes for our club members and thereby transforming their lives for the better. The data speaks for itself.

We have over 65,000 Google reviews at a 4.9 star rating and approximately 170,000 global reviews on with a 4.6 star rating. Our network of experienced and skilled dentists and orthodontists have treated over 850,000 patients, find the same standard of care that they do in their brick-and-mortar offices. As with any medical procedure, there are sometimes risks that the procedure does not go completely as planned, whether as a result of patient compliance or other individual factors. But as is the case in a traditional brick-and-mortar practice, our doctors do their best to correct any contraindications.

Our mid-course correction refinery rates are in line, if not better. than industry norms, and our satisfaction ratings are better than industry norms. Approximately 5% of our club members ask for some sort of refund. In the vast majority of instances, concerns are not clinical in nature.

Our MPS is among the best healthcare and consumer brands in the world. Looking at all this collectively, it clearly demonstrates that our product is safe and effective. That said, we will continue to fight the misinformation about our products, our platform and the clinical care provided by our affiliated network of dentists and orthodontists while at the same time remain laser focused on improving the experience for club members, for investments in technology, product innovation that address consumer pain points. Our mission to defend access to care relies upon us standing up to those who are threatened by what our company represents and the access to care we provide.

Consumers deserve a safe, affordable, convenient option. If it weren't for SmileDirectClub, many of our club members will not be able to improve their smile and their confidence due to high prices in the marketplace and the fact that over 60% of counties in the U.S. don't even have an orthodontic office. Lastly, I would like to announce that we will be building an independent clinical advisory board made up of some of the best orthodontists and dentists around the globe that will report directly to our board of directors.

We expect this advisory board to help set industry standards for teledentistry quality measures, advise ensuring of quality data and help with strategies for continuous quality improvement, among other things. As entrepreneurs and disruptors, we fight every day against the backdrop of disinformation, industry backlash and continued attempts on the part of big dental to engage in anti-competitive behavior. None of this will be possible without the support of our team members, club members and investors, and we thank you for your support. Now I will turn the call over to Kyle, who will provide a more detailed review of our Q4 results and walk you through our financial outlook.

Kyle Wailes -- Chief Financial Officer

Thank you, David. As David mentioned, while we are pleased with our accomplishments over the course of the past year, our fourth-quarter results have provoked a deliberate set of strategic decisions impacting our plans for the ensuing year and beyond. To ensure long-term global growth, we need to provide the best customer experience, and this can be accomplished in the short term by controlling growth, managing profitability, strategically selecting our international footprint and making very targeted investments. Before I address our outlook for 2020 and beyond, I would like to walk through our results for the quarter and provide some additional context.

Turning to the income statement. Revenue for the quarter was $196.7 million, which represents an increase of 53% over the fourth quarter of 2018. This increase was driven primarily by a 50.6% year-over-year increase in aligner shipments, which came in at 115,042. ASP came in at $1,771, which was down 1.4% year over year.

It's important to highlight that we actually would have come in at the high end of our revenue range had we been able to keep pace with orders in the quarter. But due to certain challenges associated with the pace of fully automating our manufacturing capabilities, we are unable to fulfill the volume of demand. As I will address more fully in a moment, automating our manufacturing and treatment planning facilities is one of our top priorities in 2020 to improve our member experience and reduce our costs. Turning to expenses and margins.

Gross margin for the quarter was 73%, a 200-basis-point improvement versus the prior year. This was driven by 100% insourcing our manufacturing. Sequentially, gross margin was down by 415 basis points, which was largely due to certain manufacturing inefficiencies that David alluded to earlier. This decrease quarter over quarter contributed to half of our miss on adjusted EBITDA in the fourth quarter of 2020.

I want to elaborate on what we mean by manufacturing inefficiencies. Our manufacturing facilities are partially automated today. While components like thermoforming and aligner trimming are automated, there is still a heavy labor component to our operations. Oftentimes, as an arch moves down the production line, there's rework and scrap involved, which causes lower production output for the same labor spend and thereby higher cost per aligner.

This is what you saw in the fourth quarter of 2019. Our IT, quality and operations teams understand how to fix this problem and are actively addressing it. Us achieving positive adjusted EBITDA in the fourth quarter of 2020 is addressing this problem, which we have incorporated into the back half of 2020. Marketing and selling expenses were in line with our expectation at $141 million or 72% of net revenue in the quarter, compared to 54% of net revenue in Q4 of 2018.

Sequentially, marketing and selling as a percentage of revenue improved by 100 basis points. During the quarter, we continue to make significant strategic investments in launching international markets and building on our already strong brand recognition in the face of anti-competitive behavior against our business model. General and administrative expenses were $94.5 million in Q4, compared to $44.2 million in the prior-year period. Excluding stock-based compensation and onetime costs, G&A expenses were up $14 million sequentially.

This increase quarter over quarter drove half of our adjusted EBITDA miss in the quarter and part of the reason for the pivot to rationalize our costs in 2020 and beyond. Our legal and lobbying expenses increased 18% sequentially quarter over quarter. As we've stated before, you can expect the elevated legal spend to continue as we maintain our proactive stance to defend our mission in support of consumer access to care. Looking at G&A overall.

It's important to note that our G&A structure was conceived based on aggressive hiring plans designed to conform to an earlier revenue outlook for 2020. Additionally, we saw higher-than-expected spend across the following categories: legal, technology, consulting, D&O insurance coverage and international expansion. Some of these were onetime in nature, such as D&O IPO insurance, stocks compliance and lease accounting standards, while the other expense items are associated with the need for broader cost controls that we will be implementing in 2020 and beyond. As David mentioned earlier, we have grown to $750 million in revenue with approximately 6,300 team members across seven countries over the course of just a few years.

Such rapid growth also comes with increased challenges as the growth of our business has outpaced the maturity of our infrastructure, as demonstrated by the customer experience issues we had in the fourth quarter. Accordingly, we have given extensive consideration to our current operations, and we have already enacted a plan to rightsize our production team to support our plan for controlled growth in 2020 and beyond. Q4 net loss was $95.7 million, compared to $26 million net loss in Q4 2018. In summary, there were two factors that influenced our adjusted EBITDA shortfall for the quarter: one, inefficiencies in our manufacturing operations; and two, increased non-labor G&A expenses on a quarter-over-quarter basis.

Adjusted EBITDA came in at negative $60 million. Our adjusted EBITDA margin was negative 31%. Moving to the balance sheet. we ended the fourth quarter with $318 million in cash and cash equivalents.

Cash from operations for the fourth quarter was negative $141 million. Cash spent on investment for the fourth quarter was $40 million, mainly associated with leasehold improvements, capitalized software, building our manufacturing automation. Free cash flow for the fourth quarter, defined as cash from operations of cash from investing, was negative $181 million but includes approximately $40 million of onetime payments associated with the IPO. Quickly turning to SmilePay.

In Q4 of 2019, 65% of members elected to purchase using SmilePay, which is down from 66% in Q4 2018. Implicit price concessions as a percentage of total revenue has also trended down with an associated delinquency rate of 9% of gross aligner revenue in Q4 2019, which is down from 10% of gross aligner revenue in Q4 2018. Now turning to 2020 and beyond. As we have stated, 2020 is a year of significant, albeit controlled growth, for SmileDirectClub.

Our No. 1 priority is to improve our club member experience. We will also build on the international infrastructure we have already built and position our business for long-term global growth. Profitability will be a big focus for us in 2020, and we understand the levers we have to pull to achieve profitability.

Our revenue growth will come from the following areas: continued penetration to our core North American market. We intend to expand further into our core demographics while also penetrating new ones, such as teens. Teens represent two-thirds of industry case starts at approximately 5% of our business. We also intend to focus on new acquisition channels, such as wholesale and retail.

Our growth will also come from international markets where we've already made meaningful progress in our existing overseas markets and have architected a strategic road map for continued expansion throughout 2020 and beyond. You'll recall that we see 75% of the total market opportunity outside of North America. On the cost side, as David referenced earlier, we have already enacted initiatives designed to put us on track for profitability in the fourth quarter of 2020, including rightsizing our production teams to conform to our business priorities and long-term growth targets; continued advancement in automating and streamlining our manufacturing and treatment planning operations to allow us to reduce our scrap and keep pace with consumer demand; continued discipline around the deployment of marketing and selling dollars, including a focus on pushing more demand for our existing SmileShop network, which has already been scaled in anticipation of future demand; and an overall rigorous cost discipline across the business. We believe streamlining our cost profile for operational efficiencies will not only improve our margin profile, but more importantly, will improve and provide consistent customer experience that meets our demanding expectations.

With all of this in mind, I'd like to turn to our outlook for 2020 and beyond. For fiscal-year 2020, we expect the following: revenue between $1 billion and $1.1 billion, representing growth of 40% year over year at the midpoint of the range. Limiting factor on this growth is controlling our club member experience and growing the profitability. Adjusted EBITDA for the fiscal year is expected to be between negative $50 million to negative $75 million, mostly associated with losses in the first half of the year as we rightsize our cost profile and attain positive adjusted EBITDA this year in Q4.

I'd like to highlight that, for now, we do not plan to provide quarterly guidance for 2020 given the intra-quarterly dynamics of our business and specifically given our investments in rapidly scaling new markets. We do envision providing one-quarter forward guidance at some point in the future as our operations continue to evolve.Our plans for 2020 are designed to optimize our club member experience while positioning us for long-term global growth. Beyond 2020, we expect 20% to 30% annual top-line growth and long-term EBITDA margins of 25% to 30%. Our long-term revenue targets are derived from 10% to 20% annual top-line growth in North America, which is in line with the clear aligner market; 20% to 30% annual top-line growth from our existing international markets; and approximately $100 million per year from new international markets.

These forecasts do not include material expansion into the wholesale channel. We will update our forecast at the appropriate time as we begin to penetrate that market. While wholesale is still in the early stages of our launch, we are very excited about this opportunity. Let me conclude by saying that we believe we are taking the important and necessary steps to drive the best customer experience, along with disciplined global growth and margin expansion.

This approach, along with product innovation, will best position the company as a global leader in the oral care category. With that, I'll turn the call back over to the operator for Q&A.

Questions & Answers:


[Operator instructions] Our first question is from Robbie Marcus, J.P. Morgan. Please proceed with your question.

Lilia Lozada -- J.P. Morgan -- Analyst

Hi. Thanks for taking the question. This is actually Lilia on for Robbie. So a few questions rolled into one.

Starting with the guidance for 2020, the range came in a little bit below The Street. What do you think the primary driver of that is? Second, how should we be thinking about U.S. versus OUS adoption, particularly in the new markets you're launching in? And one more. Can you comment on any negative trends that you've seen following the New York Times and NBC segments that were published in the last few weeks?

Kyle Wailes -- Chief Financial Officer

Yes. So this is Kyle. I'll take the first part, and then David will take the last part. So if you think about 2020, it's really about controlling our growth, and that's really in an effort to provide the best member -- club member experience, as we talked about on the call.

We believe by doing that in 2020, it's going to ensure our long-term global growth. It's about strategically positioning ourselves around the world to support that growth as well. So if you look at the U.S. today, we've got a great head start.

We've overinvested over the past three years to gain market share, and we believe the investments that we've made in that market are going to pay off and continue to pay off in terms of referrals and aided awareness and overall margin expansion in the future. If you look at the U.S. today, we are the low-cost provider with the brand presence that we have, and we have no pricing pressure. So we think, right now, given all of that, it's the right time to position ourselves with the global footprint.

That, at the same time, is also making strategic investments, as we've talked about in wholesale, in product innovation, investing in new demographics like the teen market as well. And again, all of this to position us for sustainable long-term growth. And last but not least, obviously, on profitability. We talked about being profitable by the fourth quarter of 2020, and that is a big focus for us.

David Katzman -- Chairman and Chief Executive Officer

Yes. So on the third part of your question, Lilia, the negative press, I think you mentioned New York Times and NBC specifically. This has been going on since we started the business. It's been in every disruptive business I've been in for the last 30 years.

It's been in the model. We knew it was coming. I think it's been heightened and highlighted since we put the company public. There's been a lot more attacks on it.

In turn, there's a lot of attention to it. And strategically, we are, as I stated last time on the call, we're going to be shifting from being more reactionary to more proactive, really calling out how effective and safe our teledentistry platform is, working with state dental boards across the country to put model teledentistry legislation in place that really truly protects the patient by ensuring access to care. We're working with some now and hope to have an announcement shortly, and we're in agreement with what it takes to have a true teledentistry platform. Telehealth has been out there for years, and we're just following the same type of model.

What we will be doing, and you'll see in the next few weeks and months to come, is exposing those who are using our platform for anti-competitive behavior because that's what's going on out there right now. What's troubling is the outright lies to protect higher prices and fair competition. That, we will expose, and you'll see that. It's only hurting access to care by millions of people who couldn't otherwise afford the high cost of getting a better smile.

And we look forward to getting to the truth of this, educating the various legislatures, the various trade organizations about our model and how safe and effective it is.

Lilia Lozada -- J.P. Morgan -- Analyst

Great. Thank you. And one more quick one. With the push-out of EBITDA profitability, how confident do you feel that you won't have to raise additional capital in the next few years?

Kyle Wailes -- Chief Financial Officer

Yes. So if you look at our cash position today, we've got about $318 million at year end. We also have a $500 million facility with JPM, and both of those, together, are really supporting the growth that we have. I will say we will look at additional options to better support our international growth, in particular, because the ABS facility that we have today does not fund that international growth overall.

If you look at 2020 as the midpoint of the range, obviously we've guided to about minus $52.5 million of EBITDA. That is a great proxy overall, as you know, for cash. We expect about $100 million in capex, similar to what you saw in 2019. And then working capital as a percentage of change in revenue, trending similar also to what you saw in 2019 as well.

So putting all that together, and we feel good about our cash position.


Our next question is from Jon Block, Stifel. Please proceed with your question.

Jon Block -- Stifel Financial Corp. -- Analyst

Well, maybe some more details on 2020, so just kind of that revenue guidance. Anything that you can break down in terms of U.S. contribution versus international? As you alluded to, you did launch in a bunch of markets. And then also for the 2020 guidance, what are the assumptions from a regulatory standpoint? In other words, is it sort of business as usual? Or is there some buffer in there from an AB 1519 standpoint? And then I've got a follow-up.

David Katzman -- Chairman and Chief Executive Officer

Yes. So on regulatory, it's business as usual. As we've talked about in the past, from AB 1519, we haven't seen an impact on our business, and we're operating as normal in California. If you look at the breakdown, Jon, in international versus the U.S., so we're not providing that level of detail yet.

I think if you look at how we're trending, it will likely be at some point later this year. We will start to break that out as it crosses the 10% barrier. But for now, we're not breaking out that level of detail. If you get into -- overall, what breaks it down and look at 2020, in particular, because we're not giving quarterly guidance, I think it would be helpful just to give a little more details around what that looks like.

In 2019, in particular, we saw about 24% of our revenue in the first quarter. We saw 26% of our revenue in the second quarter. We saw about 26%, again, in the third -- sorry, 24% in the third and 26% in the fourth, so fairly evenly split throughout the quarter. As a result of the international expansion that we had, in particular, approximately 15 countries coming online throughout the course of this year, I would expect Q3 and Q4 will be a little bit higher than those percentages in 2019 in comparison -- in 2020 in comparison to what you saw in 2019.

Jon Block -- Stifel Financial Corp. -- Analyst

OK, very helpful. And the next one might be a little bit long. But any more color on the wholesale initiative? In other words, you mentioned it a couple of times. With all due respect, our field diligence from a couple of weeks ago was a little bit more tepid.

So why are the docs going to brace this? What does the price point need to be? And, David, sort of as a follow-up. You mentioned also on the call a couple of times, ramping up your teen. And how does that improve the customer experience, if, by default, teens are usually more complex cases? Are those the right cases to take on from a teledentistry standpoint? Thanks for your time, guys.

David Katzman -- Chairman and Chief Executive Officer

Yes. Well, on the last part of your question on the teens, we're not going to take on cases that we can't handle. We do teens now. We have not actively gone and marketed to those teens.

It was ironic that when we launched last year the nighttime-only product, we had a lot of inbound requests from parents who said, but for compliance, "I would go for aligners. But if I'm going to spend $5,000, I'm going to make sure they're strapped on nice and tight." And so that compliance issue is one that parents wrestled with, while teens want the clear aligners versus paying for it says I don't want to risk that teeth downstream because of compliance issues. So the nighttime product is perfect. It's still mild to moderate.

There's a lot of teens out there, a big category. So we're going to go after what we can do and do well. And it's both for marketing and moving into more -- almost a complex but mixed dentition. We're working on some of that in our treatment planning down in Costa Rica, so more of that to come.

With wholesale, wholesale was really derived out of a lot of inbound requests. We had a lot of our doctors, dentists, who -- so the patients, because of our strength in brand, 50% needed awareness. And the marketing spend that we have, there are a lot of patients come into these dentists and orthodontists office saying, "Do you have the SmileDirectClub brand?" And so through that inbound request, we developed these programs, the first of which we're testing currently. That's what we call the collaborative model.

It's a very low touch for us as far as IT and capex to convert into that. It's something that is explained on our website, and those are really designed for dentists who currently do not offer a clear aligner product. I think there's about 150,000 that don't. And so we'll ease into that market and then eventually go straight wholesale like other clear aligner wholesale products out there.

That's going to take a little more development time for us, but we do anticipate that will launch in 2020.


Our next question is from Glen Santangelo, Guggenheim. Please proceed with your question.

Glen Santangelo -- Guggenheim Partners -- Analyst

Thanks for taking the questions. David, just to sort of follow up on this controlled growth point you're making to improve the customer experience, you highlighted some operational issues such as shipping delays. But is controlling the growth at all related to the clinical issues raised by your members, particularly as it relates to the regulatory landscape? And kind of as a follow-up to that. How do you go about controlling the growth? Is the plan to ultimately spend less on marketing or slow the international expansion relative to your thought? How are you going to put the brakes on that?

David Katzman -- Chairman and Chief Executive Officer

The controlled growth was really a reflection of what you saw in the fourth quarter and some of the operational difficulties we had in manufacturing. It was not related to the clinical outcomes. Our clinical outcomes are improving all the time. Like I said, my own relatives, I have nieces and nephews, my sister in law, Kyle's wife is in it.

Susan, our chief legal counsel, her daughter is in it. So that has nothing to do with our slowing down our growth to become EBITDA positive in Q4. I forgot the second part of the question. What was the second part?

Glen Santangelo -- Guggenheim Partners -- Analyst

Yes. The question was around how do you slow the growth? I mean, do you expect to spend less on marketing or slow the international expansion? How do you put the brakes on it?

Kyle Wailes -- Chief Financial Officer

Yes. So I can take that one. I would say, overall, as we've always said, especially over a long period of time, there's a good correlation between our sales and marketing spend and how that correlates to revenue. And so we have that lever, in particular, within the U.S.

business as well. But as you look at the international side, for us, plus the limiting factor on that growth, is optimizing the club member experience. Obviously, there's a ceiling there for what we can push through the channel. We believe, given all the dynamics that I talked about earlier in the call around the U.S.

market, that now is the right time to position ourselves globally around the world which will optimize that long-term growth. So it's a combination of controlling that spend within the U.S. that has a high correlation to our sales and marketing spend. We're also positioning ourselves around the world in certain regions and spending appropriately within those regions as well.

Glen Santangelo -- Guggenheim Partners -- Analyst

Kyle, that was maybe going to be my follow-up question to you. I mean, there's -- we get a lot of questions around the correlation between marketing spend and customer volumes. And as your base of members get bigger, are you seeing you being able to leverage those marketing dollars and your customer acquisition cost at all? Or is it still pretty correlated as you're suggesting? And I'll hop off.

Kyle Wailes -- Chief Financial Officer

Yes. So, obviously, we don't break out our acquisition costs from our SmileShop spend, but I'll talk about it in a couple of different ways. We did see about 100-basis-point improvement sequentially quarter over quarter within our sales and marketing spend overall. I think when you look at the marketing side, and some of the things that we're doing this year, if you look at Walmart, if you look at wholesale, for example, have opportunities to both increase the lifetime value of our club members but also new acquisition channels and give us the opportunity to reduce our acquisition costs over time.

If you look at the big ramps that we've had over the past several years in sales and marketing, a big portion of that is associated with building our SmileShop network in advance of future demand. And one of the things that we're looking at in 2020 is putting more demand through the existing network that we've built out. We believe that we've rightsized the operations that we have, and we have an opportunity to push more leverage or push more demand through that and start to get leverage from that footprint in 2020 and beyond. So as part of our turning EBITDA profitable by the fourth quarter of 2020, we are expecting to get more leverage in that SmileShop network.


Our next question is from Alex Nowak, Craig-Hallum Group. Please proceed with your question.

Alex Nowak -- Craig-Hallum Capital Group -- Analyst

Good afternoon, everyone. David, just a follow-up on another question there, just on the teen. What could you do actually from a marketing perspective on teens because this needs to be more parent-focused instead of the actual patient who's going to be using it?

David Katzman -- Chairman and Chief Executive Officer

Yes. So we're working with plans right now that -- working with the marketing teams that will be launching in May, which is sort of the beginning of the teen season. It's going to both the teen and the parents as well. You'll see it on our website.

You'll see it in social media. We actually have TV ads that we're producing that really speak to the product, the compliance with our nighttime product, and teens want our product. They're asking about SmileDirectClub. They see our ads.

They see it on social media, so I don't think it's going to be a difficult task. We just -- it's something that we just haven't focused on in the past, and once again, through demand. And I think it was very high time that we launched our nighttime product, seen all the parents that came out said, "This is what I've been looking for. My teen has wanted clear aligners, and I was hesitant to do it." So we're very excited about it.

Alex Nowak -- Craig-Hallum Capital Group -- Analyst

OK, understood. And then how is the dentist recruitment going for SmileDirect here within the recent months? Because what I mean is there's been a lot of negative commentary going around with the dental boards pulling or potentially pulling licenses from those who are working with SmileDirect. So I'm just curious, are you hearing any concern within your dentist installed base? And is the team finding it hard to recruit dentist because of this?

David Katzman -- Chairman and Chief Executive Officer

Not at all. I mean, when you said that, everyone in the room, their faces kind of dropped. Listen, there's been a lot of inquiries starting when we launch, and we knew it was coming from the orthodontic boards, shifting in some of the dental boards, the state dental boards. We have never lost any case.

We've never had any of our dentist network lose their license or have any kind of negative adverse reaction. We have not lost a single dentist in that network, 250 of them, to all of this publicity and investigation and media attention. So I'm not sure where you heard that, but we're not seeing that at all. As a matter of fact, it makes them stronger.

It makes them want to fight for access to care more. That's what we hear pushback from our dentist. Yes, let's go. Let's fight.

You see more of them come out and be more noticeable in public. We got some of them on talk shows recently, talking about all the care they're providing. So I don't agree with that opinion.

Alex Nowak -- Craig-Hallum Capital Group -- Analyst

OK. No, that's good to hear. And then when did the decision to switch to more controlled growth go? Because, Kyle, you only got to the lower end of the guide here that you gave back in Q3. So I'm curious, did the growth slow in Q4 and that kind of spawned this decision to pivot to a slower growth, more controlled growth in 2020 and focus on profitability?

Kyle Wailes -- Chief Financial Officer

Yes. I do think -- just to point out, as I mentioned on the call, so it's important to remember, we did have the demand that hit the high end of our range. And because of the manufacturing issues that drove some of the poor customer experience issues that we had in the fourth quarter, we weren't able to ship it out. So it definitely evolved over the course of the quarter, where we got more backed up within our shipments, in particular, on MCC and recliner shipments as well, we continue to get back up there.

That's been improved over the course of January and February. We're back within the normal shipping times, and we've seen the sentiment on line change as a result of that. So it's not a demand issue. It's a function of us making commitment to our customers where we believe the right thing to do is to make sure we control our growth so that every single customer, all 850,000 and soon to be 1 million, get the same experience across the board.

And that's why we're doing it.

David Katzman -- Chairman and Chief Executive Officer

Look, it's David. These are all discussions we had internally. If you're in a dog fight, Lyft, Uber, Lowe's, Home Depot, OfficeMax, there's a reason that you got to gain market share. And sometimes investors will give you a break and say, "Look, grab market share and worry about profitability later." For us, it's about customer experience.

We don't have those competitive threats. We own this space. We're the pioneers in it. There are no other medtech direct-to-consumer platforms out there.

So for us, it's all about being ourselves. And as we try to maintain the 70%-plus growth rate as we got larger, we realize we're only hurting ourselves in consumer experience. And we're not -- we just have no tolerance for that. We're very, very consumer focused.

And you can see that -- I think we pivot out of it pretty quickly. A lot of the sentiment out there and the complaints on social media by not getting my aligners on time, we took that to heart and said we don't need to grow this fast but slow it down. And as a result of that and the better customer experience, we get profitability. And so it's a win-win for everybody.

We all feel good about it in the company, and I think it's a testament to this platform that has extreme moats and barriers to entry. It's been five years now. We haven't had any real competitive threat. There is no one in the space with us, and we don't see anybody in the foreseeable future.

So let's grow at a pace that makes sense and that we can provide a good customer experience.


Our next question is from Brandon Couillard, Jefferies. Please proceed with your question.

Brandon Couillard -- Jefferies -- Analyst

Thanks. Good afternoon. Maybe a question for you, Kyle. Just curious if you could just sort of elaborate kind of on what's going on in the U.S.

I mean, by our math, it kind of suggests that the U.S. market was maybe only up single digit sequentially, even coming out of a depressed third quarter. Can you confirm whether that's in fact the case?

Kyle Wailes -- Chief Financial Officer

Yes. So like I said earlier, we don't want to break down international versus domestic versus North America. I think as we get to a point later this year, international becomes a bigger portion of our business, then we'll start to provide more granular details around the individual markets in particular. But I think you can look at Q4, in particular, we were up 53% year over year in the fourth quarter.

Obviously, we're not providing quarterly guidance for this year. What you can see at the midpoint of the range at the 40% that we've put out there, we still see very strong growth across the business.

Brandon Couillard -- Jefferies -- Analyst

OK. Then maybe as far as the '20 outlook is concerned, help us with maybe a couple of numbers as far as the number of planned SmileShop openings. Would also love the capex number -- or excuse me, the opex number, if you can, as well as the stock comp add-back for the year.

Kyle Wailes -- Chief Financial Officer

Yes. So I can start on the stock-based comp side to start. I would estimate about $90 million stock-based comp for 2020. There's still a portion of the IVAs from the IPO that are running through that.

On a normalized basis in outer-years, that are expected to be about half that by approximately $90 million for 2020. On shop openings, I think if you look at what we said, overall, in 2020, our focus is really to push more demand through the existing footprint. And that's part of our strategy to be profitable by the fourth quarter. So we built the network over the past several years to support the future growth in 2020 and beyond.

So as of now, I would not expect material openings in 2020. Now that said, we are working with Buxton to test certain geographies, and those tests are looking at if we can have better locations or optimized locations to improve things like booking rates and the DMA or show rates and ultimately thereby conversion. And if those tests go well, we've started those tests, we expect those to be done by the middle of the year. You could see some ads in the back half of the year if those go well.

But in the numbers we see here for 2020, I would not expect additional material ads in the U.S. On international basis, we've modeled approximately 100 locations across the countries that we're entering into for this year.

Brandon Couillard -- Jefferies -- Analyst

Anything as far as just operating expenses goes, sales and marketing, G&A for the year?

David Katzman -- Chairman and Chief Executive Officer

Yes. So look, we are not giving an exact number within sales and marketing, in particular. But what I would say overall is we are expecting leverage. We ended the fourth quarter at 72% of sales and marketing on revenue.

Given the demand that we're picking up, it is an important component of our strategy overall to achieve that profitability by the fourth quarter. If you look at our cost of goods sold, in particular, I would expect, over the course of the year, as we continue to improve our manufacturing automation, to have about a 200-basis-point improvement in the second half of the year over the first half of the year as we execute on those problems. There is additional upside to that. So we've talked about in the past about moving to a second generation of manufacturing.

We haven't factored those into the numbers that we have here, and that could be additional upside to the 200-basis-point improvement in the second half of the year. And then on the G&A side, obviously, if you look at the numbers for the-full year '19, it's a little bit distorted because of the IPO at 77% of revenue overall. Q4, we ended at 46% of revenue, and we are expecting incremental improvements in 2020 over the course of the year to achieve that profitability in Q4.


Our next question is from John Kreger, William Blair.

John Kreger -- William Blair and Company -- Analyst

Kyle, maybe sticking with that same line of questions. If we think about the $60 million in EBITDA losses this quarter, and it sounds like you guys are firmly committed to being profitable by the fourth quarter of next year, can you just maybe take us -- give us a bit of a bridge how you get there? And did I just hear you say that you think about 200 basis points of gross margin improvement is one of the keys? Or does it need to be higher than that?

Kyle Wailes -- Chief Financial Officer

No. That's right. That's one of the keys that we have to execute over the back half of the year versus the first half of the year. I think if you look at the bridge overall, and we've said this before, over a long period of time, we're confident in the revenue projections.

I think you can look at 2019 as a good example. With our sales and marketing spend, we have fairly good correlation with sales and marketing to revenue overall. Where that correlation breaks down is over a four- to 12-week period. Because if you look at Q4 as an example, even in a period where we have the ability to have the demand, it doesn't necessarily mean that we can fulfill that demand within manufacturing.

So there's a little bit less of equation there over a short-term period. But if you look at the bridge itself, obviously, we have the cost coming out in late Q1 on the headcount side. That's mostly going to have an impact on Q2 through Q4 for the cost. We've got to continue to execute on the automation that we're talking about here, pushing more demand through the SmileShop network, which we expect to happen from Q2 through Q4.

And then it's also implementing the new international markets. As I talked about before on the call, if you look at 2019, that 24% to 26% of revenue on a quarterly basis was fairly evenly dispersed across the year. I would expect this year to be a little more back-end weighted as we continue to ramp up the international markets that have already been gated in here.

John Kreger -- William Blair and Company -- Analyst

Great. Can you talk a little bit more about how the Aetna and United relationships are doing? Did you get any uptake on January 1? And do you expect to add other payers to the list in '20?

David Katzman -- Chairman and Chief Executive Officer

So we do expect to add other payers. We're in discussions and negotiations right now with many payers, and we expect to sign more in the near future, and we will be announcing those when we do. In terms of the uptick, it's a much longer-term growth strategy for us. So we do have a recent win that we'll be talking about here in the near future where we partnered with United and one, a self-insured -- a large self-insured employer, where they're actually now adopting adult ortho coverage, and we'll have that release coming up here in the near future.

But that's the opportunity that we see. It's a much longer-term play to sell adult ortho coverage to self-insured employers, but it's not having a material near-term impact from the numbers you have here for 2020.

John Kreger -- William Blair and Company -- Analyst

Great. And just one last thing. Can you clarify, are your manufacturing issues largely resolved at this point? And have you altered the plans to bring on the second production facility?

David Katzman -- Chairman and Chief Executive Officer

Yes. So on the resolution from the labor side, yes. So we've rightsized the team that we need to be able to fulfill that demand that we've outlined here for 2020. If you look at the overall rework and the scrap and the inefficiencies that we talked about, that's a continual evolution.

We know exactly what we have to do to address those, but that's not a fix that happens overnight. That will happen over several months as we iterate and improve those processes, which is why you see that improvement not come online immediately within Q2, what comes online over the course of the year as we implement that, and you see that within the gross margin.

Kyle Wailes -- Chief Financial Officer

I think the other question was the facility?

David Katzman -- Chairman and Chief Executive Officer


Kyle Wailes -- Chief Financial Officer

Right. So as part of the bridge and the savings, we decided, while we have the building, we have not fully built it out and invested all the capital needed to bring that online. As of now, the plans are to bring that hold off of Q1 possibly. We'll see where it goes as far as -- then to automation, which is in the works, and we -- the prototype should be on the floor here in Nashville in the next month or so.

So that is a potential savings of not bringing that second facility online until 2021.


Our next question is from Erin Wright, Credit Suisse. Please proceed with your question.

Erin Wright -- Credit Suisse -- Analyst

Can you break out how much is embedded in your guidance in terms of legal expense in 2020? Or how much is incremental relative to your experience in 2019 from a legal expense perspective?

Kyle Wailes -- Chief Financial Officer

Yes. So we haven't given an exact number directly for legal and lobbying. Our legal and lobbying expenses, we were up about 18% sequentially in Q4 over Q3. We have also talked about in the third quarter, obviously, our cost doubled in the second quarter as well.

We would expect the trend to continue from where we are today as we, as David talked about earlier, become much more proactive on the regulatory side compared to where we've been historically.

David Katzman -- Chairman and Chief Executive Officer

But those numbers are built into the model.

Kyle Wailes -- Chief Financial Officer

They're built into the model, yes.

Erin Wright -- Credit Suisse -- Analyst

OK, OK. Great. And then can you give us an update on the regulatory dynamics in other countries outside of the U.S. here with recent news out, I guess, today in the U.K.?

David Katzman -- Chairman and Chief Executive Officer

I'm not aware of the news. Are you? OK. We have Susan sitting here, who is our chief legal officer.

Susan Rammelt -- Chief Legal Officer

Hi. So the news that came out in the U.K., as you know, is just guidance. A lot of the concern expressed by the GDC is similar to what we have seen here in the United States, the difference being that we are far more experienced in handling these sorts of questions as to the safety and efficacy of our model. We have already been in communication with the GDC in terms of educating them as to all clinical decisions being made by the dentists and orthodontists in our network and not by SmileDirectClub, and it's really just a question of educating them and making sure that they're aware but not something we're concerned about.


Our next question is from Nathan Rich, Goldman Sachs. Please proceed with your question.

Nathan Rich -- Goldman Sachs -- Analyst

I just wanted to start with the longer-term revenue outlook for 20% to 30%. I think that was a little bit lower than maybe what the initial expectations are. I understand some of the near-term challenges, but I would just be curious to kind of get your view on what's kind of changed on the longer-term outlook relative to what those initial expectations might have been.

David Katzman -- Chairman and Chief Executive Officer

Yes. Look, it goes back to exactly what we had said before. The outlook that we have here is really about controlling our growth to provide the best club member experience. And as we sit here today, we believe we can achieve the growth rates that you've seen here and be able to do that.

If you look at the U.S., in particular, we've outlined 10% to 20% growth. The rationale behind that is really, one, in line with the market; but two, we want to position ourselves strategically around the world so that we optimize our long-term growth. And given the manufacturing issues that we had within the fourth quarter, we felt it was important to control our growth over the next several years so that we provide everyone the best experience possible. The low end of that 10% to 20% assumes no additional penetration of new demographics.

So 5% of our business today is teens, and 50% -- excuse me, 20% is 50 and older, and it assumes the same penetration. The high end of that range, 10% to 20% in the U.S., would assume more penetration into the teen market, in particular. Also factored into that, as I mentioned on the call, we've assumed about 20% to 30% from our current international markets that we're in today, like the U.K. and Australia, they would grow about 20% to 30% on an annual basis and about 100 million per year from new international markets as well.

Nathan Rich -- Goldman Sachs -- Analyst

OK, great. And then, Kyle, a follow-up on the 2020 revenue guidance. The guidance for ASP looks like it's a pretty significant step-down from just where you ended the fourth quarter. So I was wondering if you could just kind of help us think what's the dynamic there.

Thank you.

Kyle Wailes -- Chief Financial Officer

Yes. So it is, and it's lower as we push more international. So what happens is, as we expand international, we typically launch with a lower price point to bring price out of the equation. And then we typically bring that up over a period of about six months or so, and that's our expectation for 2020 as well.

David Katzman -- Chairman and Chief Executive Officer

We have that playbook in Canada. We launched and then we raised prices. We just did it in Australia. We expect U.K.

will do the same thing. There is our -- it's not in the plan. There's an opportunity to raise our price in the United States. We've had five price increases over five years.

We got asked that question in the last call. We have no plans to break the $2,000 barrier. Our research shows that that would not be wise, even though the next competitor is still a long ways away from $2,000, just from the consumer's mindset. But we're at $1,895.

There's a price point possibly somewhere in between, and it's also on the road map of possibility of getting a premium price for a premium product in our nighttime-only product. So we -- that's something that's on the road map as well, not built into the model today, but opportunities for increased pricing.


Our next question is from Michael Ryskin, Bank of America. Please proceed with your question.

Michael Ryskin -- Bank of America Merrill Lynch -- Analyst

Thanks guys. I want to talk about the SmileShops and some of your comments on putting more into the existing network. I saw you have the stat that you see the SmileShops as currently being only 25% utilized. I was wondering if that was for a lot of your more stable shops? Or is that sort of the average, including a lot of the new shops you have international? Just could you give us an update on how that's trended over time? And sort of why isn't that number higher given the massive demand you're seeing in terms of shipments?

David Katzman -- Chairman and Chief Executive Officer

Yes. So that's an average across all shops. We have some that are higher. We have some that are lower, but that's an average across all.

Over time, we've had a strategic plan to add those shops in advance of future demand. And so you've seen utilization in those shops go down as we've done that. If you were to go back to 2017, and as an example, we had significantly fewer shops than what we had today, utilization was as high as 75% or above in some of those shops. We haven't modeled in to get back to those levels in 2020, but we have assumed incremental improvements in utilization as we push more demand through that footprint.

Kyle Wailes -- Chief Financial Officer

We're getting smarter with it. And we did internal modeling, and we've now hired Buxton. They're world-renowned for retail footprint modeling. They work with DSOs, other professional health companies.

And so we're doing it where we get the -- having 75% utilization is not smart either because you're leaving customers on the table who can't get times. You're never going to be 100% utilized if you open from nine to seven p.m. On the fringes, you're not going to fill up. Everyone wants the lunch hour.

Everyone wants Saturdays, so you've got to be up in the right number of hours. And 25%, we believe, is there's too much excess capacity there, and so we're trying to find the optimal level. I think working with Buxton, some of the testing that we're doing over the next two months will really give us some answers there as to exactly how many shops we need, where they should be placed, the hours that they need to be open. I mean, they don't drive demand.

But when someone comes to the site to book, if they don't see available something that's convenient that has the right hours, the booking percentages will go down or the shortest routes out. So it's something that we're really excited about now that we've figured out a more professional approach to it, I think we'll get to the right answers.

Michael Ryskin -- Bank of America Merrill Lynch -- Analyst

All right. Thanks. And the follow-up is just to follow up on some of the prior questions just to reconcile 2019 results, the 2020 outlook you gave and some of the longer-term points. The way I see it, the -- and correct me if I'm wrong The slightly more conservative view on 2020 deals with some of the manufacturing issues you had at some of the customer experience, sort of letting the company rightsized itself as you grow into the footprint you've established, both in G&A, sales and marketing and things like with the SmileShops.

So then if you do correct those issues and you do work through that over the course of the year and you're turning profit by the end of the year, then why is your longer-term growth rate sort of that much more below? Because if you -- if that 10% to 20% in North America, for example, as you said, that's sort of the five-year average. You're guiding to 40% overall in 2020. So that implies in the out-years, you're even well below that average. So just can you help me bridge why, once you get through the 2020-2021 period and you're turning profitable, you're not able to reaccelerate back to an improved growth rate?

David Katzman -- Chairman and Chief Executive Officer

Yes. So obviously, in the near years, we would expect to be at the higher end of that range. And as we continue to mature at the lower end, but an average of that 20% to 30% over that time period. Again, it's all driven by the customer experience.

So as we get to Q4 of 2020 and into 2021, if we have the infrastructure and the capability to grow quicker than this, then we certainly will. It's not a market issue that's causing the limiting growth that we put in here for 2020 and beyond. It truly is what we believe the business can absorb on an annual basis from net new business and still provide the best club member experience.

Kyle Wailes -- Chief Financial Officer

Yes. Maintain our NPS scores, the customer experience, entering -- gaining a foothold in all the new markets we plan to see. We believe this is the right approach. And that could change, but there's no gun there yet.

You don't have to grow faster. Customer experience, number one; profitability, number two; getting the cash flow positive within the time frames that we've laid out. That's going to be the driver of this, not the 50% or 60% growth company. There's no reason for it.

We just don't need to do it. Listen, being a $1 billion company fivevyears in, growing 30%, it's not such a bad thing. And having great unit economics with no competition, I think it's a good investment.

Michael Ryskin -- Bank of America Merrill Lynch -- Analyst

And just to be clear, on that last point, you did say that following some of the work you did with the manufacturing in January and February, you are seeing a customer experience and some of those NPS scores trend back higher to start of the year. Is that correct?

David Katzman -- Chairman and Chief Executive Officer

Absolutely, yes. Then you could see it now. We live in a world of social media. We're a social media company, right? It's -- what happens on social media, 850,000 customers that, overwhelmingly, majority of those have a great experience, doesn't take many to start getting loud in social media.

And that's the power of Instagram and Facebook. And so -- and it was real. It really was real. We got behind.

We were out eight weeks to get people's MCC refinements. My own daughter had an MCC that she wasn't getting on time. And so, listen, we -- that's not who we are. We didn't need to do that, and we're already seeing better social media sentiment out there and from our own customers thanking us for turning things around.

So we're excited about the approach we're taking now.


Our next question is from Kevin Caliendo, UBS. Please proceed with your question.

Kevin Caliendo -- UBS -- Analyst

So I just want to -- Kyle, I just want to go back through the statement around the cash and the cash burn. You made a comment that the working capital is likely to be the same. I think working capital in 2019 was like a negative $200 million. Is there any reason why it would be better? Any chance that DSOs or AR -- or is there any improvements you can make in working cap?

Kyle Wailes -- Chief Financial Officer

Yes. So just to clarify, the comment is that the change in working capital as a percentage of change in revenue, we would expect those percentages to be similar to what you've seen historically. As the business does grow, we've talked about this before. If we're growing quicker this year than the prior two years combined, then there's a burn associated with that because of the small-share programming in and of itself.

But as we continue to control growth in the base of receivables that we have in the prior two years is bigger than the current year, we do see ourselves turning cash flow positive. And as we've said before, we still expect that to occur in 2022.

Kevin Caliendo -- UBS -- Analyst

OK. So -- OK. So I got it. Is the SmilePay as a percent still in the 65% range? Is there any change in the fourth quarter there in terms of your --

David Katzman -- Chairman and Chief Executive Officer

That's right. So 65% of members who purchased, that was down from 66% in the prior year, and plus the price concessions we've seen continue to trend down as well, down to about 9% of gross line of revenue from 10% the prior year. So we've seen good progress there as well.

Kevin Caliendo -- UBS -- Analyst

All right. So I guess what I'm confused about then. The DSOs have come up. They spiked up in the third quarter, and that could have been because of the revenue issue in the quarter.

But even this quarter, the DSOs are up a couple of days sequentially again. Is this the new normal level that we should be thinking about? Or is there an opportunity on the receivable side? Is there anything there that we should be thinking about going forward?

David Katzman -- Chairman and Chief Executive Officer

Yes. And look, we've talked about it in the past. We don't think DSOs, as a metric, is necessarily the right metric to be managing how to model they are. I think you've really got to look at it on a curve basis for the 65% of our members and how that cash comes in over a period of 24 months, which is offset by the implicit price concessions or the 9% of revenue that we've talked about.

So there is continued opportunity for improvement there. We've seen improvements even in the past several months that we've continued to optimize our processes. We've hired the head of credit, who was formerly with Klarna and other consumer financing companies. And so we continue to make progress there, and that's definitely on the road map for 2020 and beyond.


[Operator signoff]

Duration: 70 minutes

Call participants:

Alison Sternberg -- Vice President of Investor Relations

David Katzman -- Chairman and Chief Executive Officer

Kyle Wailes -- Chief Financial Officer

Lilia Lozada -- J.P. Morgan -- Analyst

Jon Block -- Stifel Financial Corp. -- Analyst

Glen Santangelo -- Guggenheim Partners -- Analyst

Alex Nowak -- Craig-Hallum Capital Group -- Analyst

Brandon Couillard -- Jefferies -- Analyst

John Kreger -- William Blair and Company -- Analyst

Erin Wright -- Credit Suisse -- Analyst

Susan Rammelt -- Chief Legal Officer

Nathan Rich -- Goldman Sachs -- Analyst

Michael Ryskin -- Bank of America Merrill Lynch -- Analyst

Kevin Caliendo -- UBS -- Analyst

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Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/26/2022.

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