Shares of SmileDirectClub (SDC) are sliding in morning trading after the oral care company said a cyberattack last month disrupted operations and will hurt sales this quarter. The company also reported better than expected first quarter results, but weaker guidance for the second quarter. Commenting on the news, Stifel analyst Jonathan Block said he sees "good and bad" in the "unexpected" announcement and expects near-term pressure on the stock.
CYBERSECURITY INCIDENT: SmileDirectClub announced that it experienced a systems outage that was caused by a cybersecurity incident on April 14. It added, "The company promptly implemented a series of containment and remediation measures to address the Incident, including temporarily isolating and shutting down affected systems and related manufacturing operations. The company immediately mobilized its internal engineering security team and has engaged leading forensic information technology firms to assist the company's investigation into the Incident. As a result of these efforts, the company was able to successfully block the attack, no ransom was paid, and the company's systems and operations are back online and performing normally. Since the date of the Incident, the company has been, and is, actively managing the Incident and, in consultation with its third-party advisors, investigating and seeking to understand and quantify the impact on the company, its business operations and financial results.
"At this time, the company is not aware of any data loss from, or other loss of assets as a result of, the Incident, including any exposure of customer or team member information. The Incident, however, has caused, and may continue to cause, delays and disruptions to parts of the company's business, including treatment planning, manufacturing operations, and product delivery. While the company maintains insurance coverage for certain expenses and potential liabilities that may be associated with the Incident, and the company plans to pursue coverage for all applicable expenses and liabilities, at this time, the company expects that the Incident may have a material impact on its business operations and financial results in the second quarter."
RESULTS: SmileDirectClub also reported first quarter losses per share of (5c) and revenue of $199.5M, with consensus at (9c) and $196.55M, respectively. The company reported first quarter unique aligner shipments of 106,345 and average aligner gross sales price of $1,860.
For the second quarter, SmileDirectClub sees revenue between $195M-$200M, with consensus at $206.62M. The company said, "While it is too early to assess the full impact of the Incident on the second quarter of 2021, the company now expects second quarter 2021 revenue to be approximately $195 - $200 million, and Adjusted EBITDA to be approximately break-even. These estimates reflect an approximately $10 - $15 million revenue impact in the quarter from the cyber-attack and the associated downtime in treatment planning and manufacturing."
GOOD AND BAD IN 'UNEXPECTED' ANNOUNCEMENT: Calling the announcement "unexpected," Stifel analyst Jonathan Block said he sees the quarterly results and guidance having both "good" and "bad" elements, but expects near-term pressure on the stock. After having briefly caught up with management, Block added that he believes the company's previously guided 5%-7% sequential revenue growth view should be based off the impacted second quarter number, which he said "would essentially lower" second half and 2022 Street estimates. The analyst has a Buy rating and $13 price target on SmileDirectClub shares.
Also commenting on the news, Craig-Hallum analyst Alexander Nowak acknowledged that the cybersecurity attack will slightly hit SmileDirectClub's reputation, though he does not anticipate it leaving a "deep scar" as customer info was not stolen. The focus is more on the company executing on growth while maintaining profitability, something it did again in the first quarter and could have done in the second quarter. His belief is consistent execution delivering solid growth, while also focusing on profits will lead the stock to eventually be rewarded. His long-term call on SmileDirectClub is unchanged, keeping a Buy rating and a $14 price target on the shares.
PRICE ACTION: In morning trading, shares of SmileDirectClub have dropped over 18% to $8.72.
SmileDirectClub
-1.83 (-17.20%)