SmileDirectClub Tumbles on Cyberattack News

SmileDirectClub says last month's cyberattack could cost it as much as $15 million in revenues.
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SmileDirectClub  (SDC) - Get Report tumbled Tuesday after the oral care company said a cyberattack last month could cost it as much as $15 million in revenues.

Shares of the Nashville company were down 14.3% to $9.11 at last check.

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The company said in a regulatory filing that it had experienced a systems outage caused by a "cybersecurity incident" on April 14. 

SmileDirectClub said it was able "to successfully block the attack, no ransom was paid, and the Company’s systems and operations are back online and performing normally."

But the company said the incident "may have a material impact on its business operations and financial results in the second quarter."

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SmileDirectClub said it expects its second-quarter revenue to range from $195 million to $200 million and adjusted EBITDA to be about breakeven, reflecting a revenue loss of $10 million to $15 million "from the cyberattack and the associated downtime in treatment planning and manufacturing."

Stifel analyst said Jonathan Block, who has a Buy rating and $13 price target on the shares, said he saw good and bad in the "unexpected" announcement, according to the Fly, but expects near-term pressure on the stock. 

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After having briefly caught up with management, Block said he believes the company's previously guided 5% to 7% sequential revenue growth view should be based off the impacted second-quarter number, which he said "would essentially lower" second half and 2022 Wall Street estimates. 

William Blair analyst John Kreger said that the production interruption will lower the second-quarter sales and earnings outlook, though preliminary first-quarter results were otherwise healthy, according to Bloomberg.

Kreger said he expects SmileDirectClub to spend more heavily on marketing to help offset any negative customer experiences driven by the systems outage and delays from it.

Jefferies analyst Brandon Couillard said that a temporary outage for SmileDirectClub will likely weigh more on sentiment than near-term numbers.

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"It remains to be seen whether SDC might recoup some of the lost 2Q revenues, or to what extent there could be some residual impact to the brand & customer experience,” Couillard said. "Nonetheless, while largely outside of its control, the latest news is at least a temporary setback to [management's] efforts to build greater confidence in the longer-term equity story."

SmileDirectClub is scheduled to report first-quarter earnings on May 10 and while the company's pre-announced revenue came in ahead of Wall Street's consensus, Couillard noted overall aligner shipments missed expectations and declined 13% year-over-year.

"This is somewhat disappointing, given traditionally stronger 1Q seasonality, an ongoing 'Zoom effect' dynamic driving higher in-office adult aesthetic demand, and an [additional] round of stimulus checks," the analyst said.