sdc-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023


☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to________

Commission File Number: 001-39037

SMILEDIRECTCLUB, INC.

(Exact name of registrant as specified in its charter)


Delaware						83-4505317
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


414 Union Street		37219
Nashville,	TN	(Zip Code)
(Address of principal executive offices)

(800) 342-0462

(Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, par value $0.0001 per share	SDC	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

The registrant has the following number of shares outstanding of each of the registrant’s classes of common stock as of May 4, 2023:

Class A Common Stock: 132,446,148

Class B Common Stock: 268,623,501


						TABLE OF CONTENTS
						Cautionary Statement Regarding Forward-Looking Statements
PART I						FINANCIAL INFORMATION

Item 1						Condensed Consolidated Balance Sheets at March 31, 2023 (Unaudited) and December 31, 2022
						Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022 (Unaudited)
						Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2023 and 2022 (Unaudited)
						Condensed Consolidated Statements of Changes in Equity (Deficit) for the Three Months Ended March 31, 2023 and 2022 (Unaudited)
						Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 (Unaudited)
						Notes to Condensed Consolidated Financial Statements (Unaudited)
Item 2						Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3						Quantitative and Qualitative Disclosures About Market Risk
Item 4						Controls and Procedures
PART II						OTHER INFORMATION
Item 1						Legal Proceedings
Item 1A						Risk Factors




Item 6						Exhibits
Signatures

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q of SmileDirectClub, Inc. (“SmileDirectClub,” “Company,” “us,” “we,” or “our”) contains forward-looking statements. Any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions, or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipates,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends,” and similar words or phrases. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements are not guarantees of future performance and involve risks and uncertainties which are subject to change based on various important factors, some of which are beyond our control. For more information regarding these risks and uncertainties as well as certain additional risks that we face, refer to “Risk Factors” as well as the factors more fully described in “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” in this report and in our Annual Report on Form 10-K for the year ended December 31, 2022. Among the factors that could cause our financial performance to differ materially from that suggested by the forward-looking statements are:

•our ability to effectively manage our core growth initiatives;

•our ability to effectively execute our business strategies, implement new initiatives, and improve efficiency;

•our sales and marketing efforts;

•our manufacturing capacity and performance and our ability to reduce the per unit production cost of our clear aligners;

•our ability to obtain and maintain regulatory approvals for any new or, enhanced or existing products;

•our estimates regarding revenues, expenses, capital requirements, and needs for additional financing;

•our ability to effectively market and sell, consumer acceptance of, and competition for our clear aligners in new markets;

•our relationships with retail partners and insurance carrier providers;

•our research, development, commercialization, and other activities and projected expenditures;

•changes or errors in the methodologies, models, assumptions, and estimates we use to prepare our financial statements, make business decisions, and manage risks;

•our current business model is dependent, in part, on current laws and regulations governing remote healthcare and the practice of dentistry, and changes in those laws, regulations, or interpretations that are inconsistent with our current business model could have a material adverse effect on our business;

•our relationships with our freight carriers, suppliers, and other vendors;

•our ability to maintain the security of our operating systems and infrastructure (e.g., against cyberattacks);

•the adequacy of our risk management framework;

•our cash needs, including with respect to our debt services requirements, and ability to raise additional capital, if needed;

•our ability to remain in compliance with our debt covenants;

•our intellectual property position;

•our exposure to claims and legal proceedings;

•our ability to manage the COVID-19 pandemic, including the protracted duration of COVID-19 and the potential resurgence of COVID-19 infections, through voluntary and regulatory containment measures and the related impacts on our business;

•our ability to gauge the impact of COVID-19 and related potential disruptions to the operations of our suppliers, freight carriers and retail partners, including social and economic constraints, tariffs and trade barriers, facilities closures, labor instability, and capacity reduction;

•our ability to manage macroeconomic pressures and increasing inflation on our core customer; and

•other factors and assumptions described in this Quarterly Report on Form 10-Q.

If one or more of the factors affecting our forward-looking information and statements proves incorrect, our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements. Therefore, we caution not to place undue reliance on any forward-looking information or statements. The effect of these factors is difficult to predict. Factors other than these also could adversely affect our results, and the reader should not consider these factors to be a complete set of all potential risks or uncertainties. New factors emerge from time to time, and management cannot assess the impact of any such factor on our business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. Any forward-looking statements only speak as of the date of this document, and we undertake no obligation to update any forward-looking information or statements, whether written or oral, to reflect any change, except as required by law. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with the Securities and Exchange Commission (“SEC”) as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance, and events and circumstances may be materially different from what we expect.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

SmileDirectClub, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share and per share amounts)



	March 31,		December 31,
	2023		2022
ASSETS
Cash	$	59,125	$	93,120
Accounts receivable, net	135,708		143,082
Inventories	40,031		44,387
Prepaid and other current assets	16,725		16,830
Total current assets	251,589		297,419
Restricted cash	27,129		25,278
Accounts receivable, net, non-current	47,809		45,168
Property, plant and equipment, net	181,739		190,087
Operating lease right-of-use assets	18,826		21,141
Other assets	18,514		17,970
Total assets	$	545,606	$	597,063
LIABILITIES AND EQUITY (DEFICIT)
Accounts payable	$	34,880	$	30,513
Accrued liabilities	53,815		65,937
Deferred revenue	16,837		13,646

Other current liabilities	6,711		6,704
Total current liabilities	112,243		116,800
Long-term debt, net of current portion	860,197		849,379
Operating lease liabilities, net of current portion	14,618		16,082
Other long-term liabilities	421		—
Total liabilities	987,479		982,261

Equity (Deficit)
Class A common stock, par value $0.0001 and 130,974,872 shares issued and outstanding at March 31, 2023 and 124,785,562 shares issued and outstanding at December 31, 2022	13		12
Class B common stock, par value $0.0001 and 268,623,501 shares issued and outstanding at March 31, 2023 and 268,823,501 shares issued and outstanding at December 31, 2022	27		27
Additional paid-in-capital	483,511		475,034
Accumulated other comprehensive income	529		430
Accumulated deficit	(403,144)		(381,725)
Noncontrolling interest	(540,429)		(496,596)
Warrants	17,620		17,620
Total equity (deficit)	(441,873)		(385,198)
Total liabilities and equity (deficit)	$	545,606	$	597,063

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

SmileDirectClub, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except share and per share amounts)


	Three Months Ended March 31,
		2023		2022
Revenue, net		$	112,835	$	142,512
Financing revenue		6,942		9,134
Total revenues		119,777		151,646
Cost of revenues		32,892		43,066


Gross profit		86,885		108,580
Marketing and selling expenses		72,201		96,711
General and administrative expenses		65,164		70,793
Lease abandonment and impairment of long-lived assets		947		1,232
Restructuring and other related costs		7,754		11,532
Loss from operations		(59,181)		(71,688)
Interest expense		7,709		1,556


Other expense (income)		(1,484)		1,423
Net loss before provision for income tax expense (benefit)		(65,406)		(74,667)
Provision for income tax expense (benefit)		321		(1,463)
Net loss		(65,727)		(73,204)
Net loss attributable to noncontrolling interest		(44,308)		(50,623)
Net loss attributable to SmileDirectClub, Inc.		$	(21,419)	$	(22,581)

Earnings (loss) per share of Class A common stock:
Basic		$	(0.17)	$	(0.19)
Diluted		$	(0.16)	$	(0.19)

Weighted average shares outstanding:
Basic		129,769,504		120,191,790
Diluted		398,588,561		389,297,928

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

SmileDirectClub, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)


	Three Months Ended March 31,
		2023		2022
Net loss		$	(65,727)	$	(73,204)
Other comprehensive income:
Foreign currency translation adjustment		304		516
Comprehensive loss		(65,423)		(72,688)
Comprehensive loss attributable to noncontrolling interests		(44,103)		(50,267)
Comprehensive loss attributable to SmileDirectClub, Inc.		$	(21,320)	$	(22,421)

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

SmileDirectClub, Inc.

Condensed Consolidated Statements of Changes in Equity (Deficit)

(in thousands, except share amounts)


	SmileDirectClub, Inc. Stockholders’ Equity (Deficit)
	Class A Shares	Class B Shares	Class A Amount		Class B Amount		Additional Paid-in Capital		Warrants		Accumulated Deficit		Noncontrolling Interest		Accumulated Other Comprehensive Income	Total
Balance at December 31, 2021	119,280,781	269,243,501	$	12	$	27	$	448,867	$	17,620	$	(295,321)	$	(305,852)	$

SEC Form 10-Q filed by SmileDirectClub Inc.