sdc-20210331

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, 2021


☐						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) 848-7566

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)


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 3, 2021:

Class A Common Stock: 118,252,146

Class B Common Stock: 269,272,682


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

Item 1						Condensed Consolidated Balance Sheets at March 31, 2021 (Unaudited) and December 31, 2020
						Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020 (Unaudited)
						Condensed Consolidated Statements of Other Comprehensive Loss for the Three Months Ended March 31, 2021 and 2020 (Unaudited)
						Condensed Consolidated Statements of Changes in Equity (Deficit) for the Three Months Ended March 31, 2021 and 2020 (Unaudited)
						Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 (U naudited)
						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, 2020. 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 growth, including international expansion;

•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 regulatory approvals for any new or enhanced 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 carriers;

•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 and ability to raise additional capital, if needed;

•our intellectual property position;

•our exposure to claims and legal proceedings;

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

•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; 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,
	2021		2020
ASSETS
Cash	$	434,545	$	316,724
Accounts receivable	225,392		221,973
Inventories	28,598		29,247
Prepaid and other current assets	10,361		12,832
Total current assets	698,896		580,776
Accounts receivable, non-current	74,611		71,355
Property, plant and equipment, net	195,875		189,995
Operating lease right-of-use asset	30,222		31,176
Other assets	12,775		11,487
Total assets	$	1,012,379	$	884,789
LIABILITIES AND EQUITY
Accounts payable	$	20,624	$	36,848
Accrued liabilities	109,477		100,589
Deferred revenue	23,066		26,619
Current portion of long-term debt	10,918		15,664
Other current liabilities	6,813		6,821
Total current liabilities	170,898		186,541
Long-term debt, net of current portion	734,737		392,939
Operating lease liabilities, net of current portion	26,536		27,771
Other long-term liabilities	—		43,400
Total liabilities	932,171		650,651
Commitment and contingencies
Equity
Class A common stock, par value $0.0001 and 117,893,041 shares issued and outstanding at March 31, 2021 and 115,429,319 shares issued and outstanding at December 31, 2020	12		11
Class B common stock, par value $0.0001 and 269,272,682 shares issued and outstanding at March 31, 2021 and 270,908,566 shares issued and outstanding at December 31, 2020	27		27
Additional paid-in-capital	424,563		483,393
Accumulated other comprehensive loss	(51)		(102)
Accumulated deficit	(221,788)		(192,879)
Noncontrolling interest	(140,175)		(73,932)
Warrants	17,620		17,620
Total equity	80,208		234,138
Total liabilities and equity	$	1,012,379	$	884,789

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

SmileDirectClub, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share amounts)


	Three Months Ended March 31,
		2021		2020
Revenue, net		$	188,802	$	183,928
Financing revenue		10,659		12,722
Total revenues		199,461		196,650
Cost of revenues		47,961		59,777


Gross profit		151,500		136,873
Marketing and selling expenses		97,123		142,324
General and administrative expenses		81,078		91,029

Other store closure and related costs		1,128		—
Loss from operations		(27,829)		(96,480)
Interest expense		17,566		4,022

Loss on extinguishment of debt		47,631		—
Other expense		912		4,924
Net loss before provision for income tax expense		(93,938)		(105,426)
Provision for income tax expense		1,707		1,974
Net loss		(95,645)		(107,400)
Net loss attributable to noncontrolling interest		(66,736)		(78,150)
Net loss attributable to SmileDirectClub, Inc.		$	(28,909)	$	(29,250)

SEC Form 10-Q filed by SmileDirectClub, Inc.