SmileDirectClub (SDC -31.25%) has put some smiles on shareholders' faces over the past five months. The stock has more than doubled since early April after a huge plunge in the wake of the coronavirus-fueled market meltdown.
But those smiles might not be as big now. SmileDirectClub reported its second-quarter results after the market closed on Wednesday. Here are the highlights from the company's Q2 update.
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By the numbers
SmileDirectClub reported revenue of $107 million in the second quarter, down 45% year over year. Despite the decline, though, the result still handily beat the average analysts' estimate of $84.2 million.
The company announced an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of $20 million. In the same period of 2019, it generated positive EBITDA of $6.19 million.
SmileDirectClub recorded a Q2 net loss of $95 million, or $0.25 per diluted share, based on generally accepted accounting principles (GAAP). This reflected significant deterioration from the net loss of $32.4 million posted in the prior-year period. It also came in below the consensus analysts' estimate of a net loss of $0.14 per share in the second quarter.
Behind the numbers
It's not surprising that SmileDirectClub's top and bottom lines fell compared to the prior-year period. The COVID-19 pandemic continued to negatively impact the company in the second quarter, but sales didn't take as big of a hit as Wall Street expected.
SmileDirectClub's unique aligner shipments tell the story. In the first quarter of this year, the company shipped 122,751 unique aligners. In Q2, that total plunged to only 57,136.
But there were some bright spots in the second quarter. The average aligner gross sales price (ASP) rose to $1,817 in Q2 from $1,761 in the prior-year period and $1,770 in the first quarter of 2020. SmileDirectClub's marketing and selling expenses also declined by 55% from the previous quarter to $35 million. In addition, around 60% of Club members who bought clear aligners in Q2 weren't leads in the past -- consistent with historical levels.
The company's bottom line was also affected by several one-time charges. SmileDirectClub reported charges totaling around $43 million in Q2 related to lease abandonment, impairment of long-lived assets, other related charges, and a loss on the extinguishment of debt. Without these one-time charges, the company's Q2 net loss would have been $52 million, or $0.13 per diluted share.
Looking ahead
SmileDirectClub's future prospects will likely be dampened as long as the COVID-19 pandemic continues. CEO David Katzman acknowledged that the company currently faces "challenging times and a unique and complex operating environment." It has taken several steps to weather the COVID-19 storm, including temporarily closing all SmileShops except in Hong Kong and suspending most of its marketing spend.
However, CFO Kyle Wailes stated that SmileDirectClub is still on track to achieve its target of generating positive adjusted EBITDA in the fourth quarter of 2020.
Over the longer term, the outlook for the healthcare stock should be much better. The opportunities for telehealth should be expanded as a result of the coronavirus outbreak. The market for clear aligners remains underserved. SmileDirectClub has demonstrated its flexible business model during the pandemic and could emerge from it in a stronger position.
