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SmileDirectClub reports miss on Q1 earnings

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While telemedicine has been a popular field in light of COVID-19, teledentistry company Smile Direct Club was not immune from fielding losses due to the pandemic. The company reported a miss on their first quarter earnings, with sales hitting $196.65 million versus an estimate of $219.52 million. The Final Round panel discusses the numbers.

Video Transcript

- More earnings coming out right now, with Smile Direct. Myles.

MYLES UDLAND: Yeah. A recent IPO name here under some pressure in the after hours session. Stock off about 7%. Adjusted loss per share larger than expected, $0.28 against the $0.20 per share loss the Street was looking for. Revenues also a bit light for Smile Direct, $197 million in its first quarter. The Street was looking for revenues to come in right around $209 million.

And some interesting commentary here on how the company, as a startup, with a lot of marketing spend, has changed its approach here. The company saying that it's enacted a significant reduction in marketing spend. And you know, they're trying to say that after reducing that spend by 90% over the last 60 days, kit and scan volume-- so the number of kits they sent out and the number of molds they got back-- that was down 40% over that period.

But in this ad-pocalypse period, we've tried to figure out which companies are going to pull their marketing budgets. We saw some of the big CPG companies yesterday trying to exert pressure over broadcasters with their commitments. I think this is a big story as we move really into next year. Forget about 2020. But what happens to ad budgets in 2021?

Obviously, Smile Direct, startup, trying to grow very quickly, has done a ton of marketing. And cutting that spending by 90% in the last 60 days, just a dramatic retrenching, I guess you could say, in this environment. The company has a new debt facility, $420 million in cash on its balance sheet.

But you know, emphasizing a cash neutral position during this crisis. Not exactly the way Smile Direct, I don't think, wanted to be communicating with the market in the months after their IPO.

- I mean, those marketing numbers are just staggering there. We talked about this being possibly-- is this, could it be a stay at home trade, as traditional dentistry and orthodontics take a hit?

On the cash position, I think it's interesting, aside from what they're saying about advertising spend, is that they have very few fixed costs. The vast majority of their Smile Shops around the world operate on month-to-month leases. So they have been able to take decisive action here. I think it's an interesting little snapshot inside of a company that you might-- you've heard the ads for, but did you know exactly how they ran it. Who knew that they had month-to-month leases there as well? Of course, this a big mover often in the momentum names after being a big IPO play for 2019.