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SmileDirectClub (SDC) Q1 Earnings Lag Estimates, Margins Fall

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·4 min read
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SmileDirectClub, Inc. SDC reported a loss of 19 cents for first-quarter 2022, narrower than the year-ago loss of 25 cents. However, the figure was wider than the Zacks Consensus Estimate of a loss of 17 cents.

Revenues

Revenues in the first quarter totaled $151.6 million, surpassing the Zacks Consensus Estimate by 10.9%. The top line declined 23.9% from the year-ago number. The company shipped roughly 76,254 unique aligner orders, down 15.3% sequentially. The quarter’s average aligner gross sales price (ASP) came in at $1,890, down 0.5% on a sequential basis.

Net revenues (related to retainers, whitening, and other ancillary products) came in at $142.5 million, down 24.5% from the year-ago quarter. Financing revenues (interest associated with SmilePay program) in the reported quarter were $9.1 million, down 14.3% from the year-ago quarter.

Margins

Gross profit in the reported quarter was $108.6 million, down 28.3% from the prior-year quarter. Gross margin of 71.6% contracted 435 basis points (bps).

Meanwhile, marketing and selling expenses contracted 0.4% to $96.7 million. General and administrative expenses were $70.8 million, down 12.7% year over year. The company incurred adjusted operating loss of $58.9 million in the quarter, wider than the year-ago operating loss of $26.7 million.

Financial Updates

SmileDirectClub exited the first quarter of 2022 with cash and cash equivalents of $144.7 million compared with $224.9 million at the end of the fourth quarter of 2021. Total debt (short and long-term) at the end of the first quarter of 2022 was $739.6 million compared with $740.9 million at the end of the fourth quarter of 2021.

SmileDirectClub, Inc. Price, Consensus and EPS Surprise

SmileDirectClub, Inc. Price, Consensus and EPS Surprise
SmileDirectClub, Inc. Price, Consensus and EPS Surprise

SmileDirectClub, Inc. price-consensus-eps-surprise-chart | SmileDirectClub, Inc. Quote

Cumulative net cash flow used in operating activities at the end of the first quarter of 2022 was $61.3 million compared with $28.3 million in the year-ago period.

Guidance

SmileDirectClub has reaffirmed its guidance for 2022.
The company now expects total revenues in the range of $600 million to $650 million. The Zacks Consensus Estimate for the same is pegged at $616.4 million.

Gross margin (as a percentage of total revenues) is expected in the range of 72.5-75.0% for full-year 2022.

Our Take

SmileDirectClub exited the first quarter of 2022 on with lower-than-expected earnings. The company registered a year-over-year decline in revenues in the first quarter due to lower unique aligner shipments. The company also witnessed a drop in both net and financing revenues on a year-over-year basis. The contraction of gross margin does not bode well. Escalating operating costs are building pressure on the bottom line. Throughout the first quarter, the macroeconomic challenges continued to impact SmileDirectClub’s core demographic and business spending.

On a positive note, the company’s first-quarter revenues surpassed the Zacks Consensus Estimate. A series of cutting-edge innovations, strategic distribution and insurance partnerships are added positives. The company’s continued investments to influence consumer decision-making and penetrate new demographics also seem strategic.

Zacks Rank and Other Key Picks

SmileDirectClub currently carries a Zacks Rank #2 (Buy).

A few other top-ranked stocks in the broader medical space that have announced quarterly results are UnitedHealth Group Incorporated UNH, Medpace Holdings, Inc. MEDP and Alkermes plc ALKS.

UnitedHealth, having a Zacks Rank #2, reported first-quarter 2022 earnings per share (EPS) of $5.49, which beat the Zacks Consensus Estimate by 1.7%. Revenues of $80.1 billion outpaced the consensus mark by 14.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

UnitedHealth has an estimated long-term growth rate of 14.8%. UNH’s earnings surpassed estimates in the trailing four quarters, the average surprise being 3.7%.

Medpace reported first-quarter 2022 adjusted EPS of $1.69, which surpassed the Zacks Consensus Estimate by 34.1%. Revenues of $330.9 million outpaced the Zacks Consensus Estimate by 1.1%. It currently has a Zacks Rank #2.

Medpace has a historical growth rate of 27.3%. MEDP’s earnings surpassed estimates in the trailing four quarters, the average surprise being 17.1%.

Alkermes reported first-quarter 2022 adjusted EPS of 12 cents, which surpassed the Zacks Consensus Estimate of a penny. Revenues of $278.6 million outpaced the Zacks Consensus Estimate by 6.2%. It currently sports a Zacks Rank #1.

Alkermes has an estimated long-term growth rate of 25.1%. ALKS’ earnings surpassed estimates in the trailing four quarters, the average surprise being 350.5%.


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