SmileDirectClub (SDC) Q2 Loss Wider Than Expected, Margin Up

·4 min read

SmileDirectClub, Inc. SDC reported a loss of 14 cents for second-quarter 2021, narrower than the year-ago loss of 25 cents. The figure was however wider than the Zacks Consensus Estimate of a loss of 10 cents.

Revenues

Revenues in the second quarter totaled $174.2 million, lagging the Zacks Consensus Estimate by 12%. However, the top line improved 62.7% from the year-ago number. The company shipped roughly 90,006 unique aligner orders, down 15.9% sequentially. The quarter’s ASP came in at $1,885, up 1.3% on a sequential basis.

Net revenues (related to retainers, whitening, and other ancillary products) came in at $20 million, primarily driven by the continued expansion of oral care products. Financing revenues (interest associated with SmilePay program) in the reported quarter were $12 million, flat compared to the last-reported quarter.

Margins

Gross profit in the reported quarter was $128.3 million, up 120% from the prior-year quarter. Gross margin of 73.7% expanded 1923 basis points (bps).

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

Meanwhile, marketing and selling expenses rose 177.9% to $95.9 million. General and administrative expenses were $85 million, up 23.8% year over year. The company incurred adjusted operating loss of $52.7 million in the quarter. However, this was narrower than the year-ago operating loss of $44.9 million.

Financial Updates

SmileDirectClub exited the second quarter of 2021 with cash and cash equivalents of $376.6 million compared with $295.3 million at the end of the first quarter of 2021. Total debt (short and long-term) at the end of the second quarter was $744.1 million compared with $655.4 million at the end of first-quarter 2021.

Cumulative net cash flow used in operating activities at the end of the second quarter was $59.4 million compared with $85.8 million a year ago.

Guidance

SmileDirectClub has provided guidance for the year 2021.

For 2021, the company expects total revenues in the range of $750-$800 million. The Zacks Consensus Estimate for the same is pegged at $828.5 million.

Gross margin (as a percentage of total revenues) is expected in the mid-70% range through the second half of 2021.

Our Take

In the second quarter of 2021, SmileDirectClub achieved 62.7% year-over-year growth in total revenues. The company is currently expanding its teledentistry platform to dental and orthodontic offices through a collaborative model. A series of cutting-edge innovations, strategic distribution and insurance partnerships are added positives. Expansion of gross margin is encouraging. On the flip side, the company’s second-quarter adjusted loss was wider than the Zacks Consensus Estimate. Financing revenues were flat. The company incurred operating loss in the quarter. Escalating expenses are building pressure on the bottom line. A highly leveraged balance sheet is an added woe.

Zacks Rank and Key Picks

The company currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader medical space that have announced their quarterly results are Encompass Health Corporation EHC, West Pharmaceutical Services, Inc. WST and Henry Schein, Inc. HSIC.

Encompass Health, carrying a Zacks Rank #1 (Strong Buy), reported second-quarter 2021 adjusted earnings per share (EPS) of $1.17, which beat the Zacks Consensus Estimate by 15.8%. Revenues of $1.3 billion outpaced the consensus mark by 1.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.

West Pharmaceutical, carrying a Zacks Rank #2 (Buy), reported second-quarter 2021 adjusted EPS of $2.46, which surpassed the Zacks Consensus Estimate by 41.4%. Revenues of $723.6 million outpaced the Zacks Consensus Estimate by 8.7%.

Henry Schein, carrying a Zacks Rank #2, reported second-quarter 2021 adjusted EPS of $1.11, surpassing the Zacks Consensus Estimate by 16.8%. Revenues of $2.97 billion surpassed the Zacks Consensus Estimate by 2.7%.


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