sdc-20220331

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, 2022


☐						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, 2022:

Class A Common Stock: 120,698,751

Class B Common Stock: 268,823,501


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

Item 1						Condensed Consolidated Balance Sheets at March 31, 2022 (Unaudited) and December 31, 2021
						Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021 (Unaudited)
						Condensed Consolidated Statements of Other Comprehensive Loss for the Three Months Ended March 31, 2022 and 2021 (Unaudited)
						Condensed Consolidated Statements of Changes in Equity (Deficit) for the Three Months Ended March 31, 2022 and 2021 (Unaudited)
						Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 (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, 2021. 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 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, 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,
	2022		2021
ASSETS
Cash	$	144,747	$	224,860
Accounts receivable, net	181,651		184,558
Inventories	39,018		40,803
Prepaid and other current assets	24,802		17,519
Total current assets	390,218		467,740
Accounts receivable, net, non-current	58,876		59,210
Property, plant and equipment, net	221,883		227,201
Operating lease right-of-use asset	23,848		24,927
Other assets	15,425		15,480
Total assets	$	710,250	$	794,558
LIABILITIES AND EQUITY (DEFICIT)
Accounts payable	$	18,286	$	19,922
Accrued liabilities	111,740		122,066
Deferred revenue	19,833		20,258
Current portion of long-term debt	8,593		10,997
Other current liabilities	4,896		4,997
Total current liabilities	163,348		178,240
Long-term debt, net of current portion	730,992		729,973
Operating lease liabilities, net of current portion	19,097		20,352
Other long-term liabilities	350		347
Total liabilities	913,787		928,912

Equity (Deficit)
Class A common stock, par value $0.0001 and 120,433,220 shares issued and outstanding at March 31, 2022 and 119,280,781 shares issued and outstanding at December 31, 2021	12		12
Class B common stock, par value $0.0001 and 268,993,501 shares issued and outstanding at March 31, 2022 and 269,243,501 shares issued and outstanding at December 31, 2021	27		27
Additional paid-in-capital	452,153		448,867
Accumulated other comprehensive income	453		293
Accumulated deficit	(317,902)		(295,321)
Noncontrolling interest	(355,900)		(305,852)
Warrants	17,620		17,620
Total equity (deficit)	(203,537)		(134,354)
Total liabilities and equity (deficit)	$	710,250	$	794,558

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 per share amounts)


	Three Months Ended March 31,
		2022		2021
Revenue, net		$	142,512	$	188,802
Financing revenue		9,134		10,659
Total revenues		151,646		199,461
Cost of revenues		43,066		47,961


Gross profit		108,580		151,500
Marketing and selling expenses		96,711		97,123
General and administrative expenses		70,793		81,078
Lease abandonment and impairment of long-lived assets		1,232		—
Restructuring and other related costs		11,532		1,128
Loss from operations		(71,688)		(27,829)
Interest expense		1,556		17,566

Loss on extinguishment of debt		—		47,631
Other expense		1,423		912
Net loss before provision for income tax expense (benefit)		(74,667)		(93,938)
Provision for income tax expense (benefit)		(1,463)		1,707
Net loss		(73,204)		(95,645)
Net loss attributable to noncontrolling interest		(50,623)		(66,736)
Net loss attributable to SmileDirectClub, Inc.		$

SEC Form 10-Q filed by SmileDirectClub Inc.