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SmileDirectClub (SDC) Q4 Earnings Beat, Gross Margin Down

SmileDirectClub, Inc. SDC reported a loss of 18 cents in the fourth quarter of 2022, narrower than the year-ago loss of 25 cents. The reported figure was also narrower than the Zacks Consensus Estimate of a loss of 21 cents.

For the full year, the loss per diluted share was 71 cents compared with the year-ago loss of 87 cents. This was narrower than the Zacks Consensus Estimate of a loss of 72 cents per share for 2022.

Revenues

Total revenues in the fourth quarter totaled $86.5 million, down 31.5% year over year. The figure missed the Zacks Consensus Estimate by 2.8%.

Full-year total revenues were $470.7 million, down 26.2% from the year-ago period. The reported figure missed the Zacks Consensus Estimate by 0.1%.

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

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In the fourth quarter, the company shipped 41462 unique aligner orders, down 20.8% sequentially. The quarter’s average aligner gross sales price came in at $1960, up 3% on a sequential basis.

Net revenues (related to retainers, whitening, and other ancillary products) came in at $79.1 million, down 32.1% from the year-ago quarter. Financing revenues (interests associated with the SmilePay program) in the reported quarter were $7.4 million, down 24.3% from the year-ago quarter.

Margins

The gross profit in the reported quarter was $52.8 million, down 35.5% from the prior-year quarter. The gross margin of 60.9% contracted 388 basis points (bps). The decrease was due to the deleveraging of fixed costs on lower sales volumes and high-impression kit volumes, which have lower margins and higher holiday shipping costs.

Meanwhile, marketing and selling expenses decreased 35% to $64 million. General and administrative expenses were $60.1 million, down 18.5% year over year. The company incurred an adjusted operating loss of $71.5 million in the quarter compared with the operating loss of $113.02 million in the year-ago quarter.

Financial Updates

SmileDirectClub exited 2022 with cash and cash equivalents of $93.1 million compared with $224.7 million at the end of 2021. Total debt (short and long-term) at the end of 2022 was $849.4 million compared with $740.9 million at the end of 2021.

The cumulative net cash flow used in operating activities at the end of 2022 was $158.2 million compared with $141.5 million in the year-ago period.

2023 Guidance

SmileDirectClub provided its guidance for 2023, with a focus on strategic actions to reduce costs and meet critical business needs.

SDC expects total revenues from the core business in the range of $400-$450 million, excluding anticipated revenue from the rollout of the SmileMaker Platform in the United States or the launch of the CarePlus program. The Zacks Consensus Estimate for the same is pegged at $423.51 million.

The gross margin (as a percentage of total revenues) is expected in the range of 72-75% for the full year.

Our Take

SmileDirectClub exited the fourth quarter of 2022 with an earnings beat and revenue miss. The year-over-year decline in revenues was due to the continuous macroeconomic headwinds driven by high inflation which impacted the company’s customer base.

The contraction of the gross margin also does not bode well. Through dedicated cost-control measures and programs, SDC remains confident about improving margins, with the top line returning to growth.

On a positive note, a series of innovations including the SmileMaker platform and the U.S. rollout of CarePlus - SDC’s new premium aligner treatment, is expected to continue the growth momentum in 2023. However, persistent challenges to consumer spending and sustained high inflation are likely to impact SDC’s overall expected demand for the year.

Zacks Rank and Other Key Picks

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

Some other top-ranked stocks in the broader medical space that have announced quarterly results are Avanos Medical AVNS, LivaNova LIVN and ShockWave Medical SWAV.

Avanos Medical, currently carrying a Zacks Rank #2, reported a fourth-quarter fiscal 2023 adjusted EPS of 60 cents, beating the Zacks Consensus Estimate by 25%. Revenues of $218 million outpaced the consensus mark by 1.11%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Avanos Medical has an expected earnings growth rate of 19.75% for a year. AVNS’ earnings surpassed estimates in all the trailing four quarters, the average being 11.01%.

LivaNova, with a Zacks Rank #2, reported a fourth-quarter fiscal 2023 adjusted EPS of $0.81, which beat the Zacks Consensus Estimate by 12.5%. Revenues of $275 million outpaced the consensus mark by 4.12%.

LivaNova has an expected earnings growth rate of 17.83% for a year. LIVN’s earnings surpassed estimates in three of the trailing four quarters and missed the same in the last one, the average being 2.62%.

ShockWave Medical reported fourth-quarter fiscal 2023 adjusted earnings of $3.71 per share, beating the Zacks Consensus Estimate by 274.75%. Revenues of $144 million surpassed the Zacks Consensus Estimate by 1.12%. The company currently has a Zacks Rank #2.

ShockWave has an expected earnings growth rate of 17.14% for a year. SWAV’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 118.36%.

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SmileDirectClub, Inc. (SDC) : Free Stock Analysis Report

LivaNova PLC (LIVN) : Free Stock Analysis Report

AVANOS MEDICAL, INC. (AVNS) : Free Stock Analysis Report

ShockWave Medical, Inc. (SWAV) : Free Stock Analysis Report

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