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SmileDirectClub (SDC) Q3 Earnings Lag Estimates, Margin Grows

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SmileDirectClub, Inc. (SDC - Free Report) reported a loss of 23 cents for third-quarter 2021, wider than the year-ago loss of 11 cents. The figure was also wider than the Zacks Consensus Estimate of a loss of 15 cents.

Revenues

Revenues in the third quarter totaled $137.7 million, lagging the Zacks Consensus Estimate by 24.2%. The top line declined 18.3% from the year-ago number. The company shipped roughly 69906 unique aligner orders, down 22.3% sequentially. The quarter’s ASP came in at $1,900, up 5.9% on a sequential basis.

Net revenues (related to retainers, whitening, and other ancillary products) came in at $19 million, flat compared to the last reported quarter. Financing revenues (interest associated with SmilePay program) in the reported quarter were $10.9 million, down 9.6% from the last reported quarter.

Margins

Gross profit in the reported quarter was $98.3 million, down 17.2% from the prior-year quarter. Gross margin of 71.4% expanded 91 basis points (bps).

Meanwhile, marketing and selling expenses rose 44.1% to $96.2 million. General and administrative expenses were $85.7 million, up 15.6% year over year. The company incurred adjusted operating loss of $83.6 million in the quarter, wider than the year-ago operating loss of $22.1 million.

Financial Updates

SmileDirectClub exited the third quarter of 2021 with cash and cash equivalents of $307.6 million compared with $376.6 million at the end of the second quarter of 2021. Total debt (short and long-term) at the end of the third quarter was $742.9 million compared with $744.1 million at the end of second-quarter 2021.

SmileDirectClub, Inc. Price, Consensus and EPS Surprise

Cumulative net cash flow used in operating activities at the end of the third quarter was $98.1 million compared with $68.7 million a year ago.

Guidance

SmileDirectClub has narrowed its guidance for 2021.

The company now expects total revenues in the range of $630 million to $650 million (down from the previous $750-$800 million). The Zacks Consensus Estimate for the same is pegged at $755.8 million.

The company has also provided guidance for the fourth quarter of 2021.

For the fourth quarter of 2021, the company expects total revenues in the range of $120-$140 million. The Zacks Consensus Estimate for the same is pegged at $200.5 million.

Gross margin (as a percentage of total revenues) is expected to be nearly 70% for the fourth quarter of 2021.

Our Take

SmileDirectClub exited the third quarter of 2021 with lower-than-expected earnings and revenues. The company’s third-quarter adjusted loss was wider than the Zacks Consensus Estimate. The company registered a year-over-year decline in revenues in the third quarter due to lower unique aligner shipment. Financing revenues also declined sequentially. 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. On a positive note, 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.

Zacks Rank and Key Picks

SmileDirectClub currently carries a Zacks Rank #4 (Sell).

A few better-ranked stocks in the broader medical space that have announced quarterly results are Medpace Holdings, Inc. (MEDP - Free Report) , Thermo Fisher Scientific Inc. (TMO - Free Report) and West Pharmaceutical Services, Inc. (WST - Free Report) .

Medpace, currently carrying a Zacks Rank #1 (Strong Buy), reported third-quarter 2021 adjusted earnings per share (EPS) of $1.29, surpassing the Zacks Consensus Estimate by 20.6%. Revenues of $295.57 million beat the Zacks Consensus Estimate by 1.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Thermo Fisher Scientific reported third-quarter 2021 adjusted EPS of $5.76, which surpassed the Zacks Consensus Estimate by 23.3%. Revenues of $9.33 billion outpaced the Zacks Consensus Estimate by 12%. It currently carries a Zacks Rank #2 (Buy).

West Pharmaceutical Services, carrying a Zacks Rank #2, reported third-quarter 2021 adjusted EPS of $2.06, which beat the Zacks Consensus Estimate by 13.2%. Revenues of $706.5 million outpaced the consensus mark by 3.2%.