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Smile Direct Club misses expectations in first-quarter earnings report

Smile Direct Club missed expectations in its first-quarter earnings report, with orders down nearly 40 percent throughout April to May. Yahoo Finance's Brian Sozzi had the chance to speak with CFO Kyle Wailes after the earnings miss, he shares what he learned.

Video Transcript

ALEXIS CHRISTOFOROUS: Welcome back to "The First Trade." We are looking at Smile Direct Club today. Investors don't have a lot to smile about there. That stock coming under some pressure today after releasing its financial results for the first quarter.

The company reported a loss of $0.28 a share on revenue of just under $197 million. Analysts were estimating a loss of $0.19 a share on revenue of $215 million. Smile Direct Club also announcing some cost-cutting measures, including suspending its marketing efforts.

Brian Sozzi is all over this one. Brian, I know you spoke with their CFO. We've had Smile Direct Club folks on our show in the past. They have had a challenging time, to say the least-- lots of legal issues as well. What did you have to tell you about current conditions, and what does the future look like for this company?

BRIAN SOZZI: Yeah, it was an interesting quarter for Smile Direct Club. Let's just say that, Alexa. I caught up with CFO Kyle Wailes last night after the earnings hit.

The bottom line here is that orders were down April through May, down 40%. And you've seen the streak come out this morning. The likes of Jefferies, I believe also Wells Fargo tried to defend the stock. But at the end of day, orders were still down for Smile Direct Club. And that's very important.

Now, they tried to say orders were down despite them cutting marketing expenses by 90%. The market just doesn't want to hear that. It's very hard to be operating a discretionary business such as this, pretty much during a very, very, very severe recession.

I will add this. I asked about liquidity position. Smile Direct Club did gain access to new funds, a newly revised credit facility. Wailes telling me they have enough liquidity to make it through this year, assuming current revenue and order trends continue at the current pace. He did add on the earnings call last night, though, they continue to expect to be adjusted operating profit positive in the fourth quarter. I think that that's also another important metric. Market's a little skeptical on them hitting that, but they're hopeful.

ALEXIS CHRISTOFOROUS: Wow, OK. So they're keeping the profit timeline the same for now. I'd have to think they're doing some aggressive cost-cutting in order to meet that timeline. Did he share any other thoughts with you there? I mean, are they looking at layoffs perhaps?

BRIAN SOZZI: They-- Smile Direct Club found religion coming out of the fourth quarter. They burned close to [? $180 ?] million in cash. And coming out of fourth quarter last year, I think they took a really hard look at their business, and they have. They've cut a lot of costs. I believe 55% of their workforce is currently furloughed.

So this is a company trying desperately to drive profits from a business that has been producing losses pretty much since the start.

ALEXIS CHRISTOFOROUS: Yeah, it really has. And Smile Direct Club, by the way, right now down more than--

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