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SmileDirectClub (SDC) Up 1.5% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
·4-min read

A month has gone by since the last earnings report for SmileDirectClub (SDC). Shares have added about 1.5% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is SmileDirectClub due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

SmileDirectClub Q1 Earnings Lag Estimates, Margins Fall

SmileDirectClub 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.

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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.

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.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

At this time, SmileDirectClub has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, SmileDirectClub has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

SmileDirectClub is part of the Zacks Medical - Dental Supplies industry. Over the past month, Align Technology (ALGN), a stock from the same industry, has gained 6%. The company reported its results for the quarter ended March 2022 more than a month ago.

Align Technology reported revenues of $973.22 million in the last reported quarter, representing a year-over-year change of +8.8%. EPS of $2.13 for the same period compares with $2.49 a year ago.

For the current quarter, Align Technology is expected to post earnings of $2.30 per share, indicating a change of -24.3% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for Align Technology. Also, the stock has a VGM Score of B.


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