What happened

Shares of SmileDirectClub (SDC -31.25%) were sliding today as the maker of dental aligners released a disappointing third-quarter earnings report.

As of 11:45 a.m. EST, the stock was down 8.7%.

So what

SmileDirectClub said revenue continued to decline in Q3 as interest in its teledentistry model for selling aligners is fading. High inflation, fears of recession, and the end of pandemic stimulus checks all seem to have torched the once-promising growth stock.

Revenue fell 22.5% from the year-ago quarter to $106.8 million, which actually beat estimates at $98.5 million but still showed the business continuing to spiral. 

Shipments of aligners fell 16.5% from 62,705 in the second quarter to 52,367, and it posted an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of $30 million, which compared to a loss of $54 million in the quarter a year ago.

On a generally accepted accounting principles (GAAP) basis, its loss per share improved from $0.23 to $0.18, which was ahead of the consensus at a per-share loss of $0.21.

CEO David Katzman said,

Our team delivered both revenue and bottom-line results that are on track with our updated outlook provided on our second quarter call. We are raising our full year 2022 midpoint guidance for revenue and adjusted EBITDA based on better traction with customers driven by improving marketing efficiencies. Our disciplined cost management enabled us to produce improved year-over-year bottom line results despite top line headwinds. 

Now what

The guidance increase was one positive sign, but it needs context. SmileDirectClub now expects an adjusted EBITDA loss of $135 million to $155 million, compared to the prior range of a loss of $140 million to $180 million, so the company is still expecting a wide loss.

While that shows the company is moving in the right direction, the business is going to have to return to growth in order to become profitable, and that seems unlikely to happen in a recession.

SmileDirectClub stock has sunk into penny stock range, now trading for less than $1 per share. Without a return to growth, the stock is unlikely to bounce back.