Cover
Cover - shares | 9 Months Ended | |
Sep. 30, 2020 | Nov. 11, 2020 | |
Entity Information [Line Items] | ||
Document Type | 10-Q | |
Document Quarterly Report | true | |
Document Period End Date | Sep. 30, 2020 | |
Document Transition Report | false | |
Entity File Number | 001-39037 | |
Entity Registrant Name | SMILEDIRECTCLUB, INC. | |
Entity Incorporation, State or Country Code | DE | |
Entity Tax Identification Number | 83-4505317 | |
Entity Address, Address Line One | 414 Union Street | |
Entity Address, City or Town | Nashville, | |
Entity Address, State or Province | TN | |
Entity Address, Postal Zip Code | 37219 | |
City Area Code | 800 | |
Local Phone Number | 848-7566 | |
Title of 12(b) Security | Class A common stock, par value $0.0001 per share | |
Trading Symbol | SDC | |
Security Exchange Name | NASDAQ | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | false | |
Entity Emerging Growth Company | true | |
Entity Ex Transition Period | false | |
Entity Shell Company | false | |
Entity Central Index Key | 0001775625 | |
Current Fiscal Year End Date | --12-31 | |
Document Fiscal Year Focus | 2020 | |
Document Fiscal Period Focus | Q3 | |
Amendment Flag | false | |
Common Class A | ||
Entity Information [Line Items] | ||
Entity Common Stock, Shares Outstanding (in shares) | 113,546,706 | |
Common Class B | ||
Entity Information [Line Items] | ||
Entity Common Stock, Shares Outstanding (in shares) | 272,512,403 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands | Sep. 30, 2020 | Dec. 31, 2019 |
ASSETS | ||
Cash and cash equivalents | $ 373,045 | $ 318,458 |
Accounts receivable | 230,244 | 239,413 |
Inventories | 26,101 | 18,431 |
Prepaid and other current assets | 15,337 | 14,186 |
Total current assets | 644,727 | 590,488 |
Accounts receivable, non-current | 71,729 | 106,315 |
Property, plant and equipment, net | 183,430 | 177,543 |
Operating lease right-of-use asset | 30,564 | 0 |
Other assets | 11,461 | 11,299 |
Total assets | 941,911 | 885,645 |
LIABILITIES AND PERMANENT EQUITY | ||
Accounts payable | 35,863 | 52,706 |
Accrued liabilities | 93,308 | 93,339 |
Deferred revenue | 51,851 | 25,435 |
Current portion of long-term debt | 24,398 | 35,376 |
Other current liabilities | 6,452 | 0 |
Total current liabilities | 211,872 | 206,856 |
Long-term debt, net of current portion | 391,283 | 173,150 |
Operating lease liabilities, net of current portion | 32,038 | 0 |
Other long-term liabilities | 43,400 | 47,354 |
Total liabilities | 678,593 | 427,360 |
Commitment and contingencies | ||
Permanent Equity | ||
Additional paid-in-capital | 479,419 | 447,866 |
Accumulated other comprehensive income (loss) | 59 | (272) |
Accumulated deficit | (183,152) | (114,513) |
Noncontrolling interest | (50,666) | 125,166 |
Warrants | 17,620 | 0 |
Total permanent equity | 263,318 | 458,285 |
Total liabilities and permanent equity | 941,911 | 885,645 |
Common Class A | ||
Permanent Equity | ||
Common stock | 11 | 10 |
Common Class B | ||
Permanent Equity | ||
Common stock | $ 27 | $ 28 |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares | Sep. 30, 2020 | Dec. 31, 2019 |
Common Class A | ||
Common stock, par value (USD per share) | $ 0.0001 | $ 0.0001 |
Common stock, shares issued (in shares) | 113,105,780 | 103,303,674 |
Common stock, shares outstanding (in shares) | 113,105,780 | 103,303,674 |
Common Class B | ||
Common stock, par value (USD per share) | $ 0.0001 | $ 0.0001 |
Common stock, shares issued (in shares) | 272,787,403 | 279,474,505 |
Common stock, shares outstanding (in shares) | 272,787,403 | 279,474,505 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Total revenues | $ 168,501 | $ 180,185 | $ 472,224 | $ 553,714 |
Cost of revenues | 49,760 | 39,125 | 158,313 | 111,363 |
Cost of revenues—related parties | 0 | 2,310 | 0 | 13,652 |
Total cost of revenues | 49,760 | 41,435 | 158,313 | 125,015 |
Gross profit | 118,741 | 138,750 | 313,911 | 428,699 |
Marketing and selling expenses | 66,722 | 131,263 | 243,564 | 340,409 |
General and administrative expenses | 74,110 | 389,828 | 233,828 | 486,319 |
Lease abandonment and impairment of long-lived assets | 3,960 | 0 | 28,593 | 0 |
Other store closure and related costs | 1,714 | 0 | 6,190 | 0 |
Loss from operations | (27,765) | (382,341) | (198,264) | (398,029) |
Interest expense | 15,555 | 4,291 | 29,627 | 11,607 |
Interest expense—related parties | 0 | 0 | 0 | 75 |
Loss on extinguishment of debt | 0 | 32 | 13,781 | 29,672 |
Other (income) expense | (1,028) | 421 | 2,131 | 500 |
Net loss before income tax expense | (42,292) | (387,085) | (243,803) | (439,883) |
Income tax expense | 1,190 | 479 | 1,745 | 596 |
Net loss | (43,482) | (387,564) | (245,548) | (440,479) |
Net loss attributable to noncontrolling interest | (30,892) | (299,268) | (176,909) | (352,183) |
Net loss attributable to SmileDirectClub, Inc. | $ (12,590) | $ (88,296) | $ (68,639) | $ (88,296) |
Earnings per share of Class A common stock: | ||||
Earnings per share of Class A common stock, basic (in USD per share) | $ (0.11) | $ (0.89) | $ (0.63) | $ (0.89) |
Earnings per share of Class A common stock, diluted (in USD per share) | $ (0.11) | $ (0.89) | $ (0.64) | $ (0.89) |
Weighted average shares outstanding: | ||||
Weighted average shares outstanding, basic (in shares) | 111,703,080 | 99,533,877 | 108,459,488 | 99,533,877 |
Weighted average shares outstanding, diluted (in shares) | 385,672,677 | 379,008,382 | 384,888,849 | 379,008,382 |
Common Class A | ||||
Earnings per share of Class A common stock: | ||||
Earnings per share of Class A common stock, basic (in USD per share) | $ (0.11) | $ (0.89) | $ (0.63) | $ (0.89) |
Earnings per share of Class A common stock, diluted (in USD per share) | $ (0.11) | $ (0.89) | $ (0.64) | $ (0.89) |
Excluding Financing Revenue | ||||
Total revenues | $ 156,459 | $ 168,663 | $ 434,796 | $ 522,529 |
Financing Revenue | ||||
Total revenues | $ 12,042 | $ 11,522 | $ 37,428 | $ 31,185 |
Condensed Consolidated Statem_2
Condensed Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Statement of Other Comprehensive Income [Abstract] | ||||
Net loss | $ (43,482) | $ (387,564) | $ (245,548) | $ (440,479) |
Other comprehensive loss: | ||||
Foreign currency translation adjustment | 62 | 0 | 1,211 | 0 |
Comprehensive loss | (43,420) | (387,564) | (244,337) | (440,479) |
Comprehensive loss attributable to noncontrolling interests | (30,847) | 0 | (176,029) | 0 |
Comprehensive loss attributable to SmileDirectClub, Inc. | $ (12,573) | $ (387,564) | $ (68,308) | $ (440,479) |
Condensed Consolidated Statem_3
Condensed Consolidated Statements of Changes in Equity (Deficit) (Unaudited) - USD ($) $ in Thousands | Total | Common StockCommon Class A | Common StockCommon Class B | Additional Paid in Capital | Warrants | Accumulated Deficit | Noncontrolling Interest | Accumulated Other Comprehensive Income (Loss) | SDC Financial, LLC | SDC Financial, LLCAdditional Paid in Capital | SDC Financial, LLCWarrants | SDC Financial, LLCAccumulated Deficit |
Members' units, beginning balance (in shares) at Dec. 31, 2018 | 108,878 | 369 | ||||||||||
Members' equity, beginning balance at Dec. 31, 2018 | $ (90,437) | $ 57,677 | $ 315 | $ (148,429) | ||||||||
Increase (Decrease) in Members' Equity [Roll Forward] | ||||||||||||
Net income prior to Reorganization Transactions, Net (loss) subsequent to Reorganization Transactions | $ (440,479) | (104,245) | (104,245) | |||||||||
Preferred Unit redemption accretion | (58,507) | $ (58,507) | ||||||||||
Redemptions prior to Reorganization Transactions (in shares) | (20,710) | |||||||||||
Redemptions prior to Reorganization Transactions | (54,154) | $ (54,154) | ||||||||||
Share-based compensation prior to Reorganization Transactions | 8,561 | 8,561 | ||||||||||
Distributions payable | (43,400) | $ (43,400) | ||||||||||
Effect of Reorganization Transactions (in shares) | (88,168) | (369) | ||||||||||
Effect of Reorganization Transactions | 342,182 | $ 89,823 | $ (315) | 252,674 | ||||||||
Members' units, ending balance (in shares) at Sep. 30, 2019 | 0 | 0 | ||||||||||
Members' equity, ending balance at Sep. 30, 2019 | 0 | $ 0 | $ 0 | 0 | ||||||||
Beginning balance, temporary equity at Dec. 31, 2018 | 388,634 | |||||||||||
Increase (Decrease) in Temporary Equity [Roll Forward] | ||||||||||||
Preferred Unit redemption accretion | 58,507 | |||||||||||
Effect of Reorganization Transactions | (447,141) | |||||||||||
Ending balance, temporary equity at Sep. 30, 2019 | 0 | |||||||||||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||||||||
Foreign currency translation adjustment | 0 | |||||||||||
Ending balance (in shares) at Sep. 30, 2019 | 102,807,291 | 279,474,505 | ||||||||||
Ending balance at Sep. 30, 2019 | 550,610 | $ 10 | $ 28 | $ 441,855 | $ 0 | $ (88,296) | $ 197,013 | $ 0 | ||||
Members' units, beginning balance (in shares) at Jun. 30, 2019 | 88,168 | 369 | ||||||||||
Members' equity, beginning balance at Jun. 30, 2019 | (226,005) | $ (24,976) | $ 315 | (201,344) | ||||||||
Increase (Decrease) in Members' Equity [Roll Forward] | ||||||||||||
Net income prior to Reorganization Transactions, Net (loss) subsequent to Reorganization Transactions | (387,564) | (51,330) | (51,330) | |||||||||
Preferred Unit redemption accretion (in shares) | (20,710) | |||||||||||
Preferred Unit redemption accretion | (21,746) | $ (21,746) | ||||||||||
Share-based compensation prior to Reorganization Transactions | 299 | 299 | ||||||||||
Distributions payable | (43,400) | $ (43,400) | ||||||||||
Effect of Reorganization Transactions (in shares) | (88,168) | (369) | ||||||||||
Effect of Reorganization Transactions | 342,182 | $ 89,823 | $ (315) | 252,674 | ||||||||
Members' units, ending balance (in shares) at Sep. 30, 2019 | 0 | 0 | ||||||||||
Members' equity, ending balance at Sep. 30, 2019 | 0 | $ 0 | $ 0 | 0 | ||||||||
Beginning balance, temporary equity at Jun. 30, 2019 | 425,395 | |||||||||||
Increase (Decrease) in Temporary Equity [Roll Forward] | ||||||||||||
Preferred Unit redemption accretion | 21,746 | |||||||||||
Effect of Reorganization Transactions | (447,141) | |||||||||||
Ending balance, temporary equity at Sep. 30, 2019 | 0 | |||||||||||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||||||||
Foreign currency translation adjustment | 0 | |||||||||||
Ending balance (in shares) at Sep. 30, 2019 | 102,807,291 | 279,474,505 | ||||||||||
Ending balance at Sep. 30, 2019 | 550,610 | $ 10 | $ 28 | 441,855 | 0 | (88,296) | 197,013 | 0 | ||||
Increase (Decrease) in Members' Equity [Roll Forward] | ||||||||||||
Net income prior to Reorganization Transactions, Net (loss) subsequent to Reorganization Transactions | (336,234) | (88,296) | (247,938) | |||||||||
Members' units, ending balance (in shares) at Sep. 30, 2019 | 0 | 0 | ||||||||||
Members' equity, ending balance at Sep. 30, 2019 | 0 | $ 0 | $ 0 | $ 0 | ||||||||
Ending balance, temporary equity at Sep. 30, 2019 | $ 0 | |||||||||||
Beginning balance (in shares) at Sep. 16, 2019 | 0 | 0 | ||||||||||
Beginning balance at Sep. 16, 2019 | 0 | $ 0 | $ 0 | 0 | 0 | 0 | 0 | 0 | ||||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||||||||
Effect of Reorganization Transactions (in shares) | 70,238,188 | 279,474,505 | ||||||||||
Effect of Reorganization Transactions | 104,959 | $ 7 | $ 28 | 104,609 | 315 | |||||||
Issuance of Class A common stock in IPO, net of costs (in shares) | 58,537,000 | |||||||||||
Issuance of Class A common stock in IPO, net of costs | 1,278,853 | $ 5 | 1,278,848 | |||||||||
Repurchases of Class A shares and LLC Units from Pre-IPO investors (in shares) | (31,621,975) | |||||||||||
Repurchases of Class A shares and LLC Units from Pre-IPO investors | (696,489) | $ (3) | (696,486) | |||||||||
Issuance of Class A shares in connection with IBA vesting (in shares) | 5,654,078 | |||||||||||
Issuance of Class A shares in connection with IBA vesting | 0 | $ 1 | (1) | |||||||||
Initial effect of the Reorganization Transactions and IPO on noncontrolling interests | 0 | (444,636) | 444,636 | |||||||||
Equity-based compensation | 283,124 | 283,124 | ||||||||||
Equity-based payments | (83,603) | (83,603) | ||||||||||
Ending balance (in shares) at Sep. 30, 2019 | 102,807,291 | 279,474,505 | ||||||||||
Ending balance at Sep. 30, 2019 | 550,610 | $ 10 | $ 28 | 441,855 | 0 | (88,296) | 197,013 | 0 | ||||
Increase (Decrease) in Members' Equity [Roll Forward] | ||||||||||||
Net income prior to Reorganization Transactions, Net (loss) subsequent to Reorganization Transactions | (245,548) | (68,639) | (176,909) | |||||||||
Beginning balance (in shares) at Dec. 31, 2019 | 103,303,674 | 279,474,505 | ||||||||||
Beginning balance at Dec. 31, 2019 | 458,285 | $ 10 | $ 28 | 447,866 | 0 | (114,513) | 125,166 | (272) | ||||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||||||||
Issuance of Class A shares in connection with RSU vesting (in shares) | 1,655,618 | |||||||||||
Issuance of Class A shares in connection with RSU vesting | 0 | |||||||||||
Issuance of Class B shares in connection with warrant exercise (in shares) | 1,459,386 | |||||||||||
Issuance of Class B shares in connection with warrant exercise | 922 | (15) | 937 | |||||||||
Exchange of Class B common stock for Class A common stock (in shares) | 8,146,488 | (8,146,488) | ||||||||||
Exchange of Class B common stock for Class A common stock | 0 | $ 1 | $ (1) | 740 | (740) | |||||||
HPS Warrant issuance | 17,620 | 17,620 | ||||||||||
Equity-based compensation | 38,189 | 38,189 | ||||||||||
Equity-based payments | (6,976) | (6,976) | ||||||||||
Foreign currency translation adjustment | 1,211 | 880 | 331 | |||||||||
Other | (385) | (385) | ||||||||||
Ending balance (in shares) at Sep. 30, 2020 | 113,105,780 | 272,787,403 | ||||||||||
Ending balance at Sep. 30, 2020 | 263,318 | $ 11 | $ 27 | 479,419 | 17,620 | (183,152) | (50,666) | 59 | ||||
Increase (Decrease) in Members' Equity [Roll Forward] | ||||||||||||
Net income prior to Reorganization Transactions, Net (loss) subsequent to Reorganization Transactions | (43,482) | (12,590) | (30,892) | |||||||||
Beginning balance (in shares) at Jun. 30, 2020 | 110,123,999 | 275,376,789 | ||||||||||
Beginning balance at Jun. 30, 2020 | 297,924 | $ 11 | $ 27 | 470,838 | 17,620 | (170,562) | (20,052) | 42 | ||||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||||||||
Issuance of Class A shares in connection with RSU vesting (in shares) | 392,395 | |||||||||||
Issuance of Class A shares in connection with RSU vesting | 0 | |||||||||||
Exchange of Class B common stock for Class A common stock (in shares) | 2,589,386 | (2,589,386) | ||||||||||
Exchange of Class B common stock for Class A common stock | 0 | $ 0 | $ 0 | (233) | 233 | |||||||
Equity-based compensation | 10,972 | 10,972 | ||||||||||
Equity-based payments | (2,447) | (2,447) | ||||||||||
Foreign currency translation adjustment | 62 | 45 | 17 | |||||||||
Other | 289 | 289 | ||||||||||
Ending balance (in shares) at Sep. 30, 2020 | 113,105,780 | 272,787,403 | ||||||||||
Ending balance at Sep. 30, 2020 | $ 263,318 | $ 11 | $ 27 | $ 479,419 | $ 17,620 | $ (183,152) | $ (50,666) | $ 59 |
Condensed Consolidated Statem_4
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2020 | Sep. 30, 2019 | |
Operating Activities | ||
Net loss | $ (245,548) | $ (440,479) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation and amortization | 39,399 | 16,237 |
Deferred loan cost amortization | 3,021 | 1,496 |
Equity-based compensation | 38,189 | 332,759 |
Loss on extinguishment of debt | 13,594 | 17,693 |
Paid in kind interest expense | 5,118 | 0 |
Lease abandonment and impairment of long-lived assets | 30,903 | 0 |
Changes in ROU asset | 5,797 | 0 |
Other non-cash operating activities | 0 | 1,783 |
Changes in operating assets and liabilities: | ||
Accounts receivable | 43,755 | (137,509) |
Inventories | (8,456) | (5,852) |
Prepaid and other current assets | (2,844) | (6,205) |
Accounts payable | (9,441) | (4,475) |
Accrued liabilities | (8,559) | 45,880 |
Due to related parties | 0 | (19,177) |
Deferred revenue | 26,416 | 5,834 |
Net cash used in operating activities | (68,656) | (192,015) |
Investing Activities | ||
Purchases of property, equipment, and intangible assets | (68,768) | (66,355) |
Net cash used in investing activities | (68,768) | (66,355) |
Financing Activities | ||
Payment of IPO related costs | (1,155) | |
Proceeds from IPO | 1,285,759 | |
Proceeds from warrant exercise | 922 | 0 |
Repurchase of Class A shares and related fees | 0 | (696,489) |
Repurchase of Class A shares to cover employee tax withholdings | (6,976) | (81,603) |
Settlement of canceled awards | 0 | (2,000) |
Issuance of Class A common stock | 0 | 6 |
Proceeds from HPS Credit Facility and Warrants, net | 388,000 | 0 |
Borrowings on long-term debt | 16,807 | 176,000 |
Payments of loan costs | (11,784) | (6,127) |
Principal payments on long-term debt | (187,579) | (159,047) |
Principal payments on related party debt | 0 | (24,581) |
Payments on finance leases | (7,543) | 0 |
Other | 1,319 | 86 |
Net cash provided by financing activities | 192,011 | 492,004 |
Increase in cash and cash equivalents | 54,587 | 233,634 |
Cash and cash equivalents at beginning of period | 318,458 | 313,929 |
Cash and cash equivalents at end of period | $ 373,045 | $ 547,563 |
Organization and Basis of Prese
Organization and Basis of Presentation | 9 Months Ended |
Sep. 30, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization and Basis of Presentation | Organization and Basis of Presentation Organization SmileDirectClub, Inc. was formed on April 11, 2019 with no operating assets or operations as a Delaware corporation for the purpose of facilitating an initial public offering and other related transactions in order to carry on the business of SDC Financial LLC and its subsidiaries. Unless otherwise indicated or the context otherwise requires, references to “we,” “us,” “our,” the “Company,” “SmileDirectClub,” and similar references refer to SmileDirectClub, Inc. and its consolidated subsidiaries, including SDC Financial LLC and its subsidiaries. “SDC Financial” refers to SDC Financial LLC and “SDC Inc.” refers to SmileDirectClub, Inc. The Company is engaged by its network of doctors to provide a suite of non-clinical administrative support services, including access to and use of its SmileCheck platform, as a dental support organization (“DSO”). For purposes of these notes to interim condensed consolidated financial statements (unaudited), the Company’s affiliated network of dentists and orthodontists is included in the definition of “we,” “us,” “our,” and the “Company” as it relates to any clinical aspect of the member’s treatment. All of the Company’s manufacturing operations are directly or indirectly conducted by Access Dental Lab, LLC (“Access Dental”), one of its operating subsidiaries. SmileDirectClub is an oral care company and creator of the first MedTech platform for teeth straightening. Through the Company’s cutting-edge teledentistry technology and vertically integrated model, it is revolutionizing the oral care industry, from clear aligner therapy to its affordable, premium oral care product line. SmileDirectClub’s mission is to democratize access to a smile each and every person loves by making it affordable and convenient for everyone. SmileDirectClub is headquartered in Nashville, Tennessee and operates in the U.S., Costa Rica, Puerto Rico, Canada, Australia, New Zealand, United Kingdom, Ireland, Germany, Austria, Hong Kong, Singapore and Spain. SDC Inc. is a holding company. Its sole material asset is its equity interest in SDC Financial which, through its direct and indirect subsidiaries, conducts all of the Company’s operations. SDC Financial is a Delaware limited liability company and wholly owns SmileDirectClub, LLC (“SDC LLC”) (a Tennessee limited liability company) and Access Dental (a Tennessee limited liability company). Because SDC Inc. is the managing member of SDC Financial, SDC Inc. indirectly operates and controls all of the business and affairs of SDC Financial and its subsidiaries. Initial Public Offering On September 16, 2019, SDC Inc. completed an initial public offering (“IPO”) of 58,537,000 shares of its Class A common stock at a public offering price of $23.00 per share. SDC Inc. received $1,286 million in proceeds, net of underwriting discounts and commissions. SDC Inc. used substantially all of the net proceeds after expenses to purchase newly-issued membership interest units from SDC Financial. Reorganization Transactions In connection with the IPO, the Company completed the following transactions (the “Reorganization Transactions”): • the formation of SDC Inc. as a Delaware corporation to function as the ultimate parent of SmileDirectClub and a publicly traded entity; • SDC Inc.’s acquisition of the pre-IPO membership interest units in SDC Financial (“Pre-IPO Units”) held by certain pre-IPO investors that are taxable as corporations for U.S. federal income tax purposes (“Blockers”), pursuant to a series of mergers (the “Blocker Mergers”) of the Blockers with wholly owned subsidiaries of SDC Inc., and the issuance by SDC Inc. to the equityholders of the Blockers shares of Class A common stock as consideration in the Blocker Mergers; • the amendment and restatement of the SDC Financial’s limited liability company operating agreement (the “SDC Financial LLC Agreement”) to, among other things, modify the capital structure of SDC Financial by replacing the different classes of Pre-IPO Units (including restricted Pre-IPO Units held by certain employees) with a single new class of membership interests of SDC Financial (“LLC Units”); • the issuance to each of the pre-IPO investors previously holding Pre-IPO Units (including restricted Pre-IPO Units) of a number of shares of SDC Inc. Class B common stock equal to the number of LLC Units held by it; • the issuance to certain employees of cash and shares of Class A common stock pursuant to their Incentive Bonus Agreements (“IBAs”); and • the equitable adjustment, pursuant to their terms, of outstanding warrants to purchase Pre-IPO Units held by two service providers into warrants to acquire LLC Units (together with an equal number of shares of SDC Inc.’s Class B common stock). Following the completion of the Reorganization Transactions and the IPO, SDC Inc. owned 26.9% of SDC Financial. Holders (other than SDC Inc.) of LLC Units following the consummation of the Reorganization Transactions and the IPO (“Continuing LLC Members”) owned the remaining 73.1% of SDC Financial. SDC Inc. is the sole managing member of SDC Financial and, although SDC Inc. has a minority economic interest in SDC Financial, it has the sole voting power in, and controls the management of, SDC Financial. Accordingly, SDC Inc. consolidates the financial results of SDC Financial and reports a noncontrolling interest in its condensed consolidated financial statements. As the Reorganization Transactions are considered transactions between entities under common control, the financial statements for periods prior to the IPO and Reorganization Transactions have been adjusted to combine the previously separate entities for presentation purposes. In connection with the Reorganization Transactions and the IPO, the Company entered into a Tax Receivable Agreement (the “Tax Receivable Agreement”) with the Continuing LLC Members, pursuant to which SDC Inc. agreed to pay the Continuing LLC Members 85% of the amount of cash tax savings, if any, in U.S. federal, state, and local income tax or franchise tax that SDC Inc. actually realizes as a result of (a) the increases in tax basis attributable to exchanges of LLC Units by Continuing LLC Members and (b) tax benefits related to imputed interest deemed to be paid by SDC Inc. as a result of the Tax Receivable Agreement. Basis of Presentation and Consolidation The accompanying unaudited condensed financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01of Regulation S-X of the SEC and, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of results for the unaudited interim periods presented. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. The results of operations for the interim period are not necessarily indicative of the results to be obtained for the full fiscal year. All intercompany accounts and transactions have been eliminated in the unaudited condensed financial statements. The interim condensed consolidated financial statements include the accounts of SDC Inc., which consolidates SDC Financial and its wholly-owned subsidiaries, as well as accounts of contractually affiliated professional corporations (“PCs”) managed by the Company. The interim condensed consolidated financial statements include the accounts of variable interest entities in which the Company is the primary beneficiary under the provisions of Accounting Standards Codification (‘‘ASC”) Topic 810, ‘ ‘ Consolidation. ” At September 30, 2020, the variable interest entities include 52 dentist owned PCs and at December 31, 2019 the variable interest entities included 44 dentist owned PCs. The Company is a dental service organization and does not engage in the practice of dentistry. All clinical services are provided by dentists and orthodontists who are engaged as independent contractors or otherwise engaged by the dentist-owned PCs. The Company contracts with the PCs and dentists and orthodontists through a suite of agreements, including but not limited to, management services agreements, supply agreements, and licensing agreements, pursuant to which the Company provides the administrative, non-clinical management services to the PCs and independent contractors. The Company has the contractual right to manage the activities that most significantly impact the variable interest entities’ economic performance through these agreements without engaging in the corporate practice of dentistry. Additionally, the Company would absorb substantially all of the expected losses of these entities should they occur. The accompanying consolidated statements of operations reflect the revenue earned and the expenses incurred by the PCs. All significant intercompany balances and transactions are eliminated in consolidation. In January 2020, the Company adopted lease accounting guidance as discussed in Note 2 and Note 7 to the Unaudited Condensed Consolidated Financial Statements. Adoption of the new lease accounting guidance had a material impact to the Company’s unaudited condensed consolidated balance sheets and related disclosures, and resulted in the recording of additional right-of-use assets and lease liabilities as of the date of adoption. This guidance was applied using the optional transition method which allowed the Company to not recast comparative financial information but rather recognize a cumulative-effect adjustment to retained earnings as of the effective date in the period of adoption. No material adjustments to retained earnings were made as a result of the adoption of this guidance. Consistent with the optional transition method, the financial information in the condensed consolidated balance sheets prior to the adoption of this new lease accounting guidance has not been adjusted and is therefore not comparable to the current period presented. The standard did not materially impact the Company’s condensed consolidated statements of operations, comprehensive loss, changes in equity (deficit), or cash flows. For additional information, including the required disclosures, related to the impact of adopting this standard, see Note 2 and Note 7 to the Unaudited Condensed Consolidated Financial Statements. COVID-19 Pandemic The Company continues to navigate the uncertain and unprecedented economic and operating conditions resulting from COVID-19 and its protracted duration. In response to COVID-19 and the related containment measures, the Company made the following operational changes to ensure the health and safety of its employees and its members: transitioned its team members, where possible, to a remote working environment; closed a portion of its SmileShops based on the Company’s real estate repositioning program as well as local public health guidelines and evolving customer behaviors and expectations; reconfigured its SmileShops to reduce customer overlap in the waiting area and require touchless temperature screening upon arrival; heightened the personal protective equipment protocol (“PPE”) requirements for Smile Guides; reconfigured its production lines to observe social distancing; and implemented enhanced cleaning and sanitizing routines, thermal temperature screening, mandatory PPE protocols and other health and safety measures at its manufacturing facilities. The Company also enacted a resilience policy that provides its team members paid leave for COVID-19 testing and up to two weeks of paid leave for any required self-quarantine due to the team member testing positive for COVID-19. Additionally, the Company took the following actions in an effort to fortify the financial position of the business: reduced its marketing spend as a percentage of revenue; reduced its headquarters and retail workforce; secured the HPS Credit Facility; and initiated a real estate repositioning program. Beginning in the second quarter, the Company performed a review of its real estate needs and initiated restructuring actions related to a real estate repositioning program that remains ongoing. As a result of these changes, the Company incurred one-time charges of $5,674 and $34,783 during the three and nine months ended September 30, 2020, respectively, primarily associated with: the closure of its manufacturing facility in Kyle, Texas; the consolidation of several floors at its headquarters in Nashville, Tennessee; the closure and consolidation of a portion of its SmileShops; and the impairment of right of use assets and leasehold improvements at the closed SmileShops. Given the uncertain operating environment and the shift to work-from-home, the Company made the strategic decisions to align its rent costs with the current needs of the business, while also ensuring that it has sufficient capacity to support future growth. The Company continues to evaluate its SmileShops and other properties to determine if it will further rationalize its footprint to better align with marketplace demand, including the direct and indirect effects of the COVID-19 pandemic. For a complete discussion of our restructuring actions, see “Note 5—Lease Abandonment, Impairment of Long-lived Assets and Store Closure and Other Related Charges” in the Notes to the Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q. |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2020 | |
Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Management Use of Estimates The preparation of the interim condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that impact the reported amounts. On an ongoing basis, the Company evaluates its estimates, including those related to the fair values of financial instruments, useful lives of property, plant and equipment, revenue recognition, equity-based compensation, long-lived assets, and contingent liabilities, among others. In connection with its credit facility with HPS Investment Partners, the Company issued warrants to certain affiliates of HPS Investment Partners. The warrants were recorded at fair value within equity on the condensed consolidated balance sheets using the Black-Scholes option pricing model (see Note 10). Each of these estimates varies in regard to the level of judgment involved and its potential impact on the Company’s financial results. Estimates are considered critical either when a different estimate could have reasonably been used, or where changes in the estimate are reasonably likely to occur from period to period, and such use or change would materially impact the Company’s financial condition, results of operations, or cash flows. Actual results could differ from those estimates. Revenue Recognition The Company’s revenues are derived primarily from sales of aligners, impression kits, whitening gel, and retainers, and interest earned through its SmilePay financing program. Revenue is recorded for all customers based on the amount that is expected to be collected, which considers implicit price concessions, discounts and returns. The Company identifies a performance obligation as distinct if both of the following criteria are met: the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. Determining the standalone selling price (“SSP”) and allocation of consideration from a contract to the individual performance obligations, and the appropriate timing of revenue recognition, is the result of significant qualitative and quantitative judgments. Management considers a variety of factors such as historical sales, usage rates (the number of times a customer is expected to order additional aligners), costs, and expected margin, which may vary over time depending upon the unique facts and circumstances related to each performance obligation, in making these estimates. Further, the Company’s process for estimating usage rates requires significant judgment and evaluation of inputs, including historical data and forecasted usages. Changes in the allocation of the SSP between performance obligations will not affect the amount of total revenues recognized for a particular contract. The Company uses the expected cost plus a margin approach to determine the SSP for performance obligations, and discounts are allocated to each performance obligation based on the relative standalone selling price. However, any material changes in the allocation of the SSP could impact the timing of revenue recognition, which may have a material effect on the Company’s financial position and result of operations as the contract consideration is allocated to each performance obligation, delivered or undelivered, at the inception of the contract based on the SSP of each distinct performance obligation. The Company estimates the amount expected to be collected based upon management’s assessment of historical write-offs and expected net collections, business and economic conditions, and other collection indicators. Management relies on the results of detailed reviews of historical write-offs and collections as a primary source of information in estimating the amount of contract consideration expected to be collected and implicit price concessions. Uncollectible receivables are written-off in the period management believes it has exhausted its ability to collect payment from the customer. The Company believes its analysis provides reasonable estimates of its revenues and valuations of its accounts receivable. A description of the revenue recognition for each product sold by the Company is detailed below. Aligners and Impression Kits: The Company enters into contracts with customers for aligner sales that involve multiple future performance obligations. The Company determined that aligner sales comprise the following distinct performance obligations: initial aligners, modified aligners, refinement aligners, and retainers for international sales only which can occur at any time throughout the treatment plan (which is typically between five to ten months) upon the direction of and prescription from the treating dentist or orthodontist. The Company allocates revenues for each performance obligation based on its SSP and recognizes the revenues as control of the performance obligation is transferred upon shipment of the aligners. The Company recognizes aligner revenue on amounts expected to be collected during the course of the treatment plan. The Company bills its customers either upfront for the full cost of aligners or monthly through its SmilePay financing program, which involves a down payment and a fixed amount per month for up to 24 months. The Company’s accounts receivable related to the SmilePay financing program are reported at the amount expected to be collected on the consolidated balance sheets, which considers implicit price concessions. Financing revenue from its accounts receivable is recognized based on the contractual market interest rate with the customer, net of implicit price concessions. There are no fees or origination costs included in accounts receivable. The Company sells doctor prescribed impression kits to its customers as an alternative to an in-person visit at one of its SmileShops or Partner Network locations, comprised of affiliated dentist and orthodontist offices, where the customer receives a free oral digital imaging of their teeth. The Company combines the sales of its impression kits with aligner sales and recognizes the revenues as control of the performance obligation is transferred upon shipment of the aligners. The Company estimates the amount of impression kit sales that do not result in an aligner therapy treatment plan and recognizes such revenue when aligner conversion becomes remote. Retainers and Other Products: The Company sells retainers and other products (such as whitening gel and tooth brushes) to customers, which can be purchased on the Company’s website or certain retail outlets. The sales of these products are independent and separate from the customer’s decision to purchase aligner therapy for domestic sales. The Company determined that the transfer of control for these performance obligations occurs as the title of such products passes to the customer. The following table summarizes revenue recognized for each product sold by the Company: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Aligner revenue, net of implicit price concessions $ 139,279 $ 162,174 $ 388,111 $ 508,898 Financing revenue, net of implicit price concessions 12,042 11,522 37,428 31,185 Retainers and other products revenue 17,180 6,489 46,685 13,631 Total revenue $ 168,501 $ 180,185 $ 472,224 $ 553,714 Implicit price concessions included in total revenue $ 15,362 $ 17,299 $ 50,051 $ 56,394 Deferred Revenue: Deferred revenue represents the Company’s contract liability for performance obligations associated with sales of aligners. Of the Company’s revenues during the three and nine months ended September 30, 2020 and 2019, $2,684, $1,882, $19,547, and $16,386 was previously included in deferred revenue on the consolidated balance sheets as of December 31, 2019 and 2018, respectively. Shipping and Handling Costs Shipping and handling charges are recorded in cost of revenues in the consolidated statements of operations upon shipment. The Company incurred approximately $5,891, $4,481, $18,516 and $12,082 in outsourced shipping expenses for the three and nine months ended September 30, 2020 and 2019, respectively. Cost of Revenues Cost of revenues includes the total cost of products produced and sold. Such costs include direct materials, direct labor, overhead costs (occupancy costs, indirect labor, and depreciation), fees retained by doctors, freight and duty expenses associated with moving materials from vendors to the Company’s facilities and from its facilities to the customers, and adjustments for shrinkage (physical inventory losses), lower of cost or net realizable value, slow moving product and excess inventory quantities. Marketing and Selling Expenses Marketing and selling expenses include direct online and offline marketing and advertising costs, costs associated with intraoral imaging services, selling labor, and occupancy costs of SmileShop locations. All marketing and selling expenses are expensed as incurred. For the three and nine months ended September 30, 2020 and 2019, the Company incurred marketing and selling costs of $66,722, $131,263, $243,564 and $340,409, respectively. General and Administrative Expenses General and administrative expenses include payroll and benefit costs for corporate team members, equity-based compensation expenses, occupancy costs of corporate facilities, bank charges and costs associated with credit and debit card interchange fees, outside service fees, and other administrative costs, such as computer maintenance, supplies, travel, and lodging. Depreciation and Amortization Depreciation includes expenses related to the Company’s property, plant and equipment, including finance leases. Amortization includes expenses related to definite-lived intangible assets and capitalized software. Depreciation and amortization are calculated using the straight-line method over the useful lives of the related assets, ranging from three Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Cost of revenues $ 5,945 $ 2,518 $ 17,385 $ 6,932 Marketing and selling expenses 1,635 1,257 4,906 3,318 General and administrative expenses 6,462 2,739 17,108 5,987 Total $ 14,042 $ 6,514 $ 39,399 $ 16,237 Fair Value of Financial Instruments The Company measures the fair value of financial instruments as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement: Level 1 — Quoted (unadjusted) prices in active markets for identical assets or liabilities. Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. Level 3 — Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability. The Company’s financial instruments consist of cash, receivables, accounts payable, debt instruments, warrants, and derivative financial instruments. Due to their short-term nature, the carrying values of cash, current receivables, and trade payables, approximate current fair value at each balance sheet date. The warrants are recorded at their initial fair value. The Company had $404,569 and $150,448 in borrowings under its debt facilities (as discussed in Note 10) as of September 30, 2020 and December 31, 2019, respectively. Based on market interest rates (Level 2 inputs), the carrying value of the borrowings under its debt facilities approximates fair value for each period reported. Derivative Financial Instruments The Company accounts for derivative financial instruments in accordance with applicable accounting standards for such instruments and hedging activities, which require that all derivatives are recorded on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting, and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company had no outstanding derivatives at September 30, 2020 or December 31, 2019; however, the Company may enter into derivative contracts that are intended to economically hedge a certain portion of its risk, even though hedge accounting does not apply or the Company elects not to apply the hedge accounting standards. Certain Risks and Uncertainties The Company’s operating results depend to a significant extent on the ability to market and develop its products. The life cycles of the Company’s products are difficult to estimate due, in part, to the effect of future product enhancements and competition. The inability to successfully develop and market the Company’s products as a result of competition or other factors would have a material adverse effect on its business, financial condition, and results of operations. The Company provides credit to customers in the normal course of business. The Company maintains reserves for potential credit losses and such losses have been within management’s expectations. No individual customer accounted for 1% or more of the Company’s accounts receivable at September 30, 2020 or December 31, 2019, or net revenue for the three or nine months ended September 30, 2020 and 2019. Some of the Company’s products are considered medical devices and are subject to extensive regulation in the U.S. and internationally. The regulations to which the Company is subject are complex. Regulatory changes could result in restrictions on the Company’s ability to carry on or expand its operations, higher than anticipated costs or lower than anticipated sales. The failure to comply with applicable regulatory requirements may have a material adverse impact on the Company. The Company’s reliance on international operations exposes it to related risks and uncertainties, including difficulties in staffing and managing international operations, such as hiring and retaining qualified personnel; political, social and economic instability; interruptions and limitations in telecommunication services; product and material transportation delays or disruption; trade restrictions and changes in tariffs; import and export license requirements and restrictions; fluctuations in foreign currency exchange rates; and potential adverse tax consequences. If any of these risks materialize, operating results may be harmed. The Company purchases certain inventory from sole suppliers, and the inability of any supplier or manufacturer to fulfill the supply requirements could materially and adversely impact its future operating results. Cash and Cash Equivalents Cash and cash equivalents consists of all highly-liquid investments with original maturities of less than three months. Cash is held in various financial institutions in the U.S. and internationally, including certain reserve accounts in accordance with the Company’s credit facility with HPS Investment Partners (see Note 10). Inventories Inventories are stated at the lower of cost or net realizable value using the first-in, first-out method of inventory accounting. Inventory consists of raw materials for producing impression kits and aligners and finished goods. Inventory is net of shrinkage and obsolescence. Property, Plant and Equipment, net Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Routine maintenance and repairs are charged to expense as incurred. At the time property, plant and equipment are retired from service, the cost and accumulated depreciation or amortization are removed from the respective accounts and the related gains or losses are reflected in the consolidated statements of operations. Leases On January 1, 2020, the Company adopted the new leases standard using the modified retrospective transition method, which requires that it recognizes leases differently pre- and post-adoption. See “Recently Adopted Accounting Pronouncements—ASU No. 2016-02” below for more information. The Company categorizes leases at their inception as either operating or finance leases. Lease agreements cover certain retail locations, office space, warehouse, manufacturing and distribution space and equipment. Operating leases are included in operating lease right-of-use assets, other current liabilities, and long-term right-of-use operating lease obligations in the condensed consolidated balance sheet. Finance leases are included in property, plant and equipment, net, current portion of long-term debt, and long-term debt. Leased assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses a secured incremental borrowing rate as the discount rate for determining the present value of lease payments when the rate implicit in the contract is not readily determinable. Leases that have a term of twelve months or less upon commencement date are considered short-term in nature. Accordingly, short-term leases are not included on the condensed consolidated balance sheets and are expensed on a straight-line basis over the lease term, which commences on the date we have the right to control the property. Internally Developed Software Costs The Company generally provides services to its customers using software developed for internal use. The costs that are incurred to develop such software are expensed as incurred during the preliminary project stage. Once certain criteria have been met, direct costs incurred in developing or obtaining computer software are capitalized. Training and maintenance costs are expensed as incurred. Capitalized software costs are included in property, plant and equipment in the consolidated balance sheets and are amortized over a three-year period. During the three and nine months ended September 30, 2020 and 2019, the Company capitalized $3,556, $2,143, $10,938, and $7,029, respectively, of internally developed software costs. Amortization expense for internally developed software was $2,091, $810, $5,373, and $1,547 for the three and nine months ended September 30, 2020, and 2019, respectively. Impairment The Company evaluates long-lived assets (including finite-lived intangible assets) for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. An asset or asset group is considered impaired if its carrying amount exceeds the future undiscounted net cash flows that the asset or asset group is expected to generate. Factors the Company considers important which could trigger an impairment review include significant negative industry or economic trends, significant loss of customers and changes in the competitive environment. If an asset or asset group is considered to be impaired, the impairment to be recognized is calculated as the amount by which the carrying amount of the asset or asset group exceeds its fair market value. The Company’s estimates of future cash flows attributable to long-lived assets require significant judgment based on its historical and anticipated results and are subject to many assumptions. The estimation of fair value utilizing a discounted cash flow approach includes numerous uncertainties which require significant judgment when making assumptions of expected growth rates and the selection of discount rates, as well as assumptions regarding general economic and business conditions, and the structure that would yield the highest economic value, among other factors. Debt Issuance Costs The Company records debt issuance costs related to its term debt as direct deductions from the carrying amount of the debt. The costs are amortized to interest expense over the life of the debt using the effective interest method. Income Taxes SDC Inc. is the managing member of SDC Financial and, as a result, consolidates the financial results of SDC Financial in the unaudited condensed consolidated financial statements. SDC Financial and its subsidiaries are limited liability companies and have elected to be taxed as partnerships for income tax purposes except for a subsidiary, SDC Holding, LLC (‘‘SDC Holding”) and its domestic and foreign subsidiaries, which are taxed as corporations. As such, SDC Financial does not pay any federal income taxes, as any income or loss is included in the tax returns of the individual members. SDC Financial does pay state income tax in certain jurisdictions, and the Company’s income tax provision in the consolidated financial statements reflects the income taxes for those states. Additionally, certain wholly-owned entities taxed as corporations are subject to federal, state, and foreign income taxes, in the jurisdictions in which they operate, and accruals for such taxes are included in the consolidated financial statements. The Company further evaluates deferred tax assets in each jurisdiction and recognizes associated benefits when positive evidence of realization exceeds negative evidence, and otherwise records valuation allowances as necessary. Tax Receivable Agreement In connection with the Reorganization Transactions and the IPO, the Company entered into a Tax Receivable Agreement (the “Tax Receivable Agreement”) with the Continuing LLC Members, pursuant to which SDC Inc. agreed to pay the Continuing LLC Members 85% of the amount of cash tax savings, if any, in U.S. federal, state, and local income tax or franchise tax that SDC Inc. actually realizes as a result of (a) the increases in tax basis attributable to exchanges by Continuing LLC Members and (b) tax benefits related to imputed interest deemed to be paid by SDC Inc. as a result of the Tax Receivable Agreement. The Company recognizes this contingent liability in its consolidated financial statements when amounts become probable as to incurrence and estimable in amount. Recent Accounting Pronouncements In January 2020, the Company adopted FASB ASU 2018-07, “Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures. In fiscal year 2020, the Company adopted FASB ASU 2018-15, “ Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ” This update clarifies the accounting treatment for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. The adoption of ASU 2018-15 did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures. |
Inventories
Inventories | 9 Months Ended |
Sep. 30, 2020 | |
Inventory Disclosure [Abstract] | |
Inventories | Inventories Inventories are comprised of the following: September 30, 2020 December 31, 2019 Raw materials $ 6,067 $ 5,950 Finished goods 20,034 12,481 Total inventories $ 26,101 $ 18,431 |
Prepaid and other assets
Prepaid and other assets | 9 Months Ended |
Sep. 30, 2020 | |
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |
Prepaid and other assets | Prepaid and other assets Prepaid and other assets are comprised of the following: September 30, 2020 December 31, 2019 Prepaid expenses $ 9,195 $ 10,503 Deposits to vendors 2,199 3,132 Other 3,943 551 Total prepaid and other current assets $ 15,337 $ 14,186 Prepaid expenses, non-current $ 2,721 $ 1,308 Deposits to vendors, non-current 1,672 3,346 Indefinite-lived intangible assets 6,833 6,217 Other intangible assets, net 235 428 Total other assets $ 11,461 $ 11,299 |
Lease Abandonment, Impairment o
Lease Abandonment, Impairment of Long-Lived Assets and Store Closure and Other Related Charges | 9 Months Ended |
Sep. 30, 2020 | |
Restructuring and Related Activities [Abstract] | |
Lease Abandonment, Impairment of Long-Lived Assets and Store Closure and Other Related Charges | Lease Abandonment, Impairment of Long-lived Assets and Store Closure and Other Related Charges Beginning in the second quarter of 2020, the Company performed a review of its real estate needs and initiated restructuring actions related to a real estate repositioning program. As a result of these changes, the Company incurred one-time charges of $5,674 and $34,783 for the three and nine months ended September 30, 2020. These charges were primarily associated with the closure of the manufacturing facility in Kyle, Texas; the consolidation of several floors at the Company headquarters in Nashville, Tennessee; the closure and consolidation of a portion of SmileShops, which is an on-going evaluation; and the impairment of right of use assets and leasehold improvements at the closed manufacturing facility and SmileShops. Given the uncertain operating environment and the shift to work-from-home, the Company made the strategic decision to align its rent costs with the current needs of the business, while also ensuring that the Company has sufficient capacity to support future growth. The Company continues to evaluate its SmileShops and other properties to determine if it will further rationalize its footprint to better align with marketplace demand, including the direct and indirect effects of the COVID-19 pandemic. Additional future restructuring charges may result from the Company’s real estate repositioning and optimization initiatives. The following table summarizes charges for the three and nine months ended September 30, 2020. There were no similar charges for the three and nine months ended September 30, 2019. Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Lease abandonment and impairment of long-lived assets and inventory: Impairment of property, plant and equipment $ 3,131 $ — $ 19,878 $ — Impairment of right of use asset 829 — 8,715 — $ 3,960 $ — $ 28,593 $ — Store closure and other related charges: Impairment of inventory $ 786 $ — $ 786 $ — Short-term lease termination fees 864 — 4,687 — Other expenses 64 — 717 — $ 1,714 $ — $ 6,190 $ — |
Property, plant and equipment,
Property, plant and equipment, net | 9 Months Ended |
Sep. 30, 2020 | |
Property, Plant and Equipment [Abstract] | |
Property, plant and equipment, net | Property, plant and equipment, net Property, plant and equipment were comprised of the following: September 30, 2020 December 31, 2019 Lab and SmileShop equipment $ 92,252 $ 79,103 Computer equipment and software 74,346 48,401 Leasehold improvements 24,447 13,275 Furniture and fixtures 13,491 13,152 Vehicles 6,154 2,660 Construction in progress 49,978 60,317 Property, plant and equipment, gross 260,668 216,908 Less: accumulated depreciation (77,238) (39,365) Property, plant and equipment, net $ 183,430 $ 177,543 The carrying values of assets under finance leases were $22,981 and $26,501 as of September 30, 2020 and December 31, 2019, respectively, net of accumulated depreciation of $12,947 and $4,670, respectively. |
Leases
Leases | 9 Months Ended |
Sep. 30, 2020 | |
Leases [Abstract] | |
Leases | Leases The Company leases property and equipment under finance and operating leases. For leases with terms greater than 12 months, the Company records the related right-of-use assets and right-of-use obligations at the present value of lease payments over the term. Certain of the Company’s leases include rental escalation clauses and renewal options that are factored into the determination of lease payments when appropriate. Certain of the Company’s leased store locations have variable payments based upon scan volume as well as other variable property related costs. The Company does not separate lease and non-lease components of contracts. Generally, the Company uses its estimated incremental borrowing rate to discount the lease payments based on information available at lease commencement, as most of its leases do not provide a readily determinable implicit interest rate. The Company estimates its collateralized incremental borrowing rate based upon a synthetic credit rating and yield curve analysis at commencement or modification date in determining the present value of lease payments. The following table presents lease-related assets and liabilities at September 30, 2020: Leases Assets and Liabilities Balance Sheet Classification September 30, 2020 Assets: Operating leases Operating lease right-of-use asset $ 30,564 Finance leases Property, plant, and equipment, net 22,981 $ 53,545 Liabilities: Operating leases Other current liabilities $ 6,452 Finance leases Current portion of long-term debt 10,631 Operating leases Operating lease liabilities, net of current portion 32,038 Finance leases Long-term debt, net of current portion 14,015 $ 63,136 Weighted average remaining term: Operating leases 5.9 years Finance leases 1.9 years Weighted average discount rate: Operating leases 5.70 % Finance leases 7.50 % (1) Finance lease assets are recorded net of accumulated amortization of $12,947 as of September 30, 2020. (2) Upon adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2020. The following table presents certain information related to lease expense for finance and operating leases: Expense Category Statement of Operations Classification Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020 Finance lease expense: Amortization of leased assets Cost of revenues $ 2,497 $ 7,491 Interest of lease liabilities Interest expense 493 1,619 Operating leases (3) 2,296 7,333 Short-term lease expense (3) 3,255 12,898 Variable lease expense (3) 351 2,855 Total lease expense $ 8,892 $ 32,196 (3) Expenses are included in “Cost of revenues”, “Marketing and selling expenses”, or “General and administrative expenses” in our condensed consolidated statements of operations, depending on the purpose of the related asset. Other Information The following table represents supplemental cash flow information: Nine Months Ended September 30, 2020 Cash paid for amounts used in the measurement of lease liabilities: Cash used in operating activities $ 6,799 Cash used in investing activities $ — Cash used in financing activities $ 7,543 Maturities of Lease Liabilities The following table reconciles the undiscounted cash flows to the finance lease liabilities and operating lease liabilities recorded on the condensed consolidated balance sheet at September 30, 2020: Finance Leases Operating Leases 2020 (remaining) $ 3,038 $ 2,046 2021 11,209 8,298 2022 6,859 7,558 2023 — 6,904 2024 — 6,136 2025 and thereafter — 15,404 Total minimum lease payments 21,106 46,346 Residual value 5,661 — Amount representing interest (2,121) (7,856) Present value of future minimum lease payments 24,646 38,490 Less: current portion (10,631) (6,452) Long-term lease liabilities $ 14,015 $ 32,038 |
Leases | Leases The Company leases property and equipment under finance and operating leases. For leases with terms greater than 12 months, the Company records the related right-of-use assets and right-of-use obligations at the present value of lease payments over the term. Certain of the Company’s leases include rental escalation clauses and renewal options that are factored into the determination of lease payments when appropriate. Certain of the Company’s leased store locations have variable payments based upon scan volume as well as other variable property related costs. The Company does not separate lease and non-lease components of contracts. Generally, the Company uses its estimated incremental borrowing rate to discount the lease payments based on information available at lease commencement, as most of its leases do not provide a readily determinable implicit interest rate. The Company estimates its collateralized incremental borrowing rate based upon a synthetic credit rating and yield curve analysis at commencement or modification date in determining the present value of lease payments. The following table presents lease-related assets and liabilities at September 30, 2020: Leases Assets and Liabilities Balance Sheet Classification September 30, 2020 Assets: Operating leases Operating lease right-of-use asset $ 30,564 Finance leases Property, plant, and equipment, net 22,981 $ 53,545 Liabilities: Operating leases Other current liabilities $ 6,452 Finance leases Current portion of long-term debt 10,631 Operating leases Operating lease liabilities, net of current portion 32,038 Finance leases Long-term debt, net of current portion 14,015 $ 63,136 Weighted average remaining term: Operating leases 5.9 years Finance leases 1.9 years Weighted average discount rate: Operating leases 5.70 % Finance leases 7.50 % (1) Finance lease assets are recorded net of accumulated amortization of $12,947 as of September 30, 2020. (2) Upon adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2020. The following table presents certain information related to lease expense for finance and operating leases: Expense Category Statement of Operations Classification Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020 Finance lease expense: Amortization of leased assets Cost of revenues $ 2,497 $ 7,491 Interest of lease liabilities Interest expense 493 1,619 Operating leases (3) 2,296 7,333 Short-term lease expense (3) 3,255 12,898 Variable lease expense (3) 351 2,855 Total lease expense $ 8,892 $ 32,196 (3) Expenses are included in “Cost of revenues”, “Marketing and selling expenses”, or “General and administrative expenses” in our condensed consolidated statements of operations, depending on the purpose of the related asset. Other Information The following table represents supplemental cash flow information: Nine Months Ended September 30, 2020 Cash paid for amounts used in the measurement of lease liabilities: Cash used in operating activities $ 6,799 Cash used in investing activities $ — Cash used in financing activities $ 7,543 Maturities of Lease Liabilities The following table reconciles the undiscounted cash flows to the finance lease liabilities and operating lease liabilities recorded on the condensed consolidated balance sheet at September 30, 2020: Finance Leases Operating Leases 2020 (remaining) $ 3,038 $ 2,046 2021 11,209 8,298 2022 6,859 7,558 2023 — 6,904 2024 — 6,136 2025 and thereafter — 15,404 Total minimum lease payments 21,106 46,346 Residual value 5,661 — Amount representing interest (2,121) (7,856) Present value of future minimum lease payments 24,646 38,490 Less: current portion (10,631) (6,452) Long-term lease liabilities $ 14,015 $ 32,038 |
Accrued liabilities
Accrued liabilities | 9 Months Ended |
Sep. 30, 2020 | |
Payables and Accruals [Abstract] | |
Accrued liabilities | Accrued liabilities Accrued liabilities were comprised of the following: September 30, December 31, Accrued marketing and selling costs $ 21,202 $ 31,804 Accrued payroll and payroll related expenses 29,609 25,019 Accrued sales and other taxes 13,249 8,367 Other 29,248 28,149 Total accrued liabilities $ 93,308 $ 93,339 |
Income taxes
Income taxes | 9 Months Ended |
Sep. 30, 2020 | |
Income Tax Disclosure [Abstract] | |
Income taxes | Income taxes SDC Inc. is the managing member of SDC Financial and, as a result, consolidates the financial results of SDC Financial. SDC Financial and its subsidiaries are limited liability companies and have elected to be taxed as partnerships for income tax purposes except for a subsidiary, SDC Holding and certain of its domestic and foreign subsidiaries, which are taxed as corporations. As such, SDC Financial does not pay any federal income taxes, as any income or loss is included in the tax returns of the individual members. SDC Financial does pay state income tax in certain jurisdictions, and the Company’s income tax provision in the consolidated financial statements reflects the income taxes for those states. Additionally, certain wholly-owned entities taxed as corporations are subject to federal, state, and foreign income taxes in the jurisdictions in which they operate, and accruals for such taxes are included in the consolidated financial statements. The Company further evaluates deferred tax assets in each jurisdiction and recognizes associated benefits when positive evidence of realization exceeds negative evidence, and otherwise records valuation allowances as necessary. The Company’s U.S. federal and state income tax returns for the tax years 2015 and beyond remain subject to examination by the Internal Revenue Service. The Company also has operations in Costa Rica, Puerto Rico, Canada, Australia, New Zealand, the U.K., Ireland, Germany, Austria, Spain, Hong Kong, and Singapore with tax filings in each foreign jurisdiction. With respect to state and local jurisdictions, the Company and its subsidiaries are typically subject to examination for several years after the income tax returns have been filed. The Internal Revenue Service has commenced an examination of the U.S. income tax return of SDC, LLC, a subsidiary of SDC Financial, for 2017. We anticipate this audit will conclude within the next twelve months. Although the outcome of tax audits is always uncertain, the Company believes that adequate amounts of tax, interest and penalties have been provided for in the accompanying consolidated financial statements for any adjustments that may be incurred due to state or local audits and uncertain tax positions. The Company is also subject to withholding taxes in foreign jurisdictions. The Company’s income tax expense may vary from the expense that would be expected based on statutory rates due principally to its organizational structure and recognition of valuation allowances against deferred tax assets. The income tax provision was as follows: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Current: Federal $ 186 $ — $ 186 $ — State 160 63 318 165 Foreign 525 — 865 — Current income tax provision $ 871 $ 63 $ 1,369 $ 165 Deferred: Federal $ — $ — $ — $ — State 319 416 376 431 Foreign — — — — Deferred income tax provision $ 319 416 $ 376 $ 431 Total income tax provision $ 1,190 $ 479 $ 1,745 $ 596 At September 30, 2020 the Company had unused federal net operating loss carryforwards (tax effected) for federal income tax purposes of approximately $31,785, which can be carried forward indefinitely and may be used to offset future taxable income. In addition, the Company had unused net operating loss carryforwards (tax effected) for state income tax purposes of approximately $16,913, which expire from 2029 through 2034. The Company also had unused net operating loss carryforwards (tax effected) for foreign income tax purposes of approximately $1,320. Additionally, the Company has certain other deferred tax assets related to potential future tax benefits. All deferred tax assets are evaluated using positive and negative evidence as to their future realization. The Company considers recent historic losses to be significant negative evidence, and as such, records a valuation allowance against substantially all of its deferred tax assets. As of September 30, 2020, the Company maintained a valuation allowance of approximately $218,681 against its deferred tax assets. If there is a change in the Company’s assessment of the amount of deferred income tax assets that is realizable, adjustments to the valuation allowance will be made in future periods. Tax Receivable Agreement The Company expects to obtain an increase in its share of the tax basis in the net assets of SDC Financial when LLC Units are redeemed from or exchanged by Continuing LLC Members. The Company intends to treat any redemptions and exchanges of LLC Units as direct purchases of LLC Units for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that it would otherwise pay in the future to various tax authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets. In connection with the Reorganization Transactions and the IPO, the Company entered into the Tax Receivable Agreement with the Continuing LLC Members. The Tax Receivable Agreement provides for the payment by SDC Inc. of 85% of the amount of any tax benefits that SDC Inc. actually realizes, or in some cases is deemed to realize, as a result of (i) increases in SDC Inc.’s share of the tax basis in the net assets of SDC Financial resulting from any redemptions or exchanges of LLC Units, (ii) tax basis increases attributable to payments made under the Tax Receivable Agreement, and (iii) deductions attributable to imputed interest pursuant to the Tax Receivable Agreement (the ‘‘TRA Payments”). The Company expects to benefit from the remaining 15% of any of cash savings, if any, that it realizes. During the year ended December 31, 2019, the Company acquired an aggregate of $635,690 in LLC Units in connection with the redemption of certain Continuing LLC Members, which resulted in an increase in the tax basis of the assets of SDC Financial subject to the provisions of the Tax Receivable Agreement. The Company has not recognized any additional liability under the Tax Receivable Agreement after concluding it was not probable that such TRA Payments would be paid based on its estimates of future taxable income. No payments were made to the Continuing LLC Members pursuant to the Tax Receivable Agreement during the nine month period ended September 30, 2020. The amounts payable under the Tax Receivable Agreement will vary depending upon a number of factors, including the amount, character, and timing of the taxable income of SDC Inc. in the future. If the valuation allowance recorded against the deferred tax assets applicable to the tax attributes referenced above is released in a future period, the Tax Receivable Agreement liability may be considered probable at that time and recorded within earnings. |
Long-Term Debt
Long-Term Debt | 9 Months Ended |
Sep. 30, 2020 | |
Debt Disclosure [Abstract] | |
Long-Term Debt | Long-Term Debt The Company’s debt and capital lease obligations are comprised of the following: September 30, December 31, HPS Credit Facility, net of unamortized financing costs of $10,942 $ 377,267 $ — JPM Credit Facility, net of unamortized financing costs of $2,513 — 147,935 Align redemption promissory note 13,767 34,090 Capital lease obligations (Note 7) 24,646 26,501 Total debt 415,680 208,526 Less current portion (24,398) (35,376) Total long-term debt $ 391,282 $ 173,150 HPS Credit Facility In May 2020, SDC U.S. SmilePay SPV (“SPV”), a wholly-owned special purpose subsidiary of the Company, entered into a Loan Agreement among SPV, as borrower, SmileDirectClub, LLC, as the seller and servicer, certain lenders, and HPS Investment Partners, LLC, as administrative agent and collateral agent, providing a five year secured term loan facility to SPV in an initial aggregate maximum principal amount of $400,000, net of original issue discount of $12,000, with the ability to request incremental term loans of up to an additional aggregate principal amount of $100,000 with the consent of the lenders participating in such increase (the “HPS Credit Facility”). The proceeds of the HPS Credit Facility were used to repay all outstanding amounts under the previous JPM Credit Facility and for working capital and other corporate purposes. In connection with the repayment, the Company paid $187 in fees and wrote-off the remaining unamortized loan costs of $1,594, both of which are included in loss from extinguishment of debt in the accompanying condensed consolidated statements of operations. The Company recorded $11,784 related to deferred financing costs of the HPS Credit Facility. During the nine months ended September 30, 2020, the Company amortized under the effective interest rate method $842 of deferred financing costs. The original issue discount is included in loss from extinguishment of debt in the accompanying condensed consolidated statements of operations. Outstanding loans under the HPS Credit Facility bear interest at a variable rate equal to three-month LIBOR (subject to a 1.75% per annum floor), plus 7.50% per annum payable in cash, plus 3.25% per annum payable in kind or, at the Company’s election, wholly or partially in cash. Subject to certain exceptions, the HPS Credit Facility is secured by first-priority security interests in SPV’s assets, which consist of certain receivables, cash governed by a control agreement with HPS, intellectual property and related assets. SPV’s obligations under the Loan Agreement are guaranteed on a limited basis by SmileDirectClub, LLC and SDC Financial LLC. As of September 30, 2020, the Company had $345,996 of its receivables collateralized as part of the HPS Credit Facility. The HPS Credit Facility contains various restrictions, covenants, ratios and events of default, including: • SPV has limitations on consolidations, creation of liens, incurring additional indebtedness, dispositions of assets, investments and paying dividends or other distributions. • SDC Financial LLC, its consolidated subsidiaries and certain originator entities must maintain minimum monthly liquidity of $100,000 and are subject to additional leverage ratios upon the occurrence of additional debt. • SDC Financial LLC is subject to a consolidated leverage ratio measured as of the end of each fiscal quarter beginning March 31, 2022, to be calculated based on annualized EBITDA for the first three quarters of 2022, and thereafter, to be calculated based on EBITDA during the trailing four fiscal quarters for the relevant period. The HPS Credit Facility can be refinanced during the first year, provided that SPV would be required to pay the amount of interest that would have accrued during the remainder of the first year, plus 4% of the principal amount prepaid; and after the first year, for a fee of 4% of the principal amount prepaid, with the prepayment fee decreasing each year to 3% in the third year, 2% in the fourth year and 1% in the fifth year. As of September 30, 2020, the Company had $404,569 outstanding and was in compliance with all covenants in the HPS Credit Facility. HPS Warrants I n connection with the HPS Credit Facility, the Company issued warrants (“HPS Warrants”) to affiliates of HPS Investment Partners, LLC exercisable at any time into an aggregate of 3,889,575 shares of the Company’s Class A common stock, which amounted to 1% of the Company’s total outstanding Class A and Class B common stock, including the HPS Warrants, as of the closing date of the HPS Credit Facility, at an exercise price of $7.11 per share, payable in cash or pursuant to a cashless exercise. The HPS Warrants were recorded at their initial fair value of $17,620 and are being accreted through interest expense to the outstanding loan balance of the HPS Credit Facility. JPM Credit Facilit y In June 2019, the Company entered into a loan and security agreement with JPMorgan Chase Bank, N.A., as the administrative agent, the collateral agent and a lender (the “JPM Credit Facility”), providing a secured revolving credit facility in an initial aggregate maximum principal amount of $500 million with the potential to increase the aggregate principal amount that may be borrowed up to an additional $250 million with the consent of the lenders participating in such increase. The proceeds of the HPS Credit Facility were used to pay all outstanding amounts under the JPM Credit Facility. The Company recorded $6,188 related to deferred financing costs of the JPM Credit Facility. During the nine months ended September 30, 2020, the Company amortized under the effective interest rate method $919 of deferred financing costs. Align Redemption Promissory Note In connection with the required redemption of Align’s 20,710 Pre-IPO Units described in Note 16, the Company entered into a promissory note with Align Technology, Inc. (“Align”). Under the terms of the promissory note, the Company will make monthly payments of $2,311 to Align through March 2021. The promissory note bears annual interest of 2.52% which is included in the consolidated statement of operations. As of September 30, 2020, the Company has $13,767 outstanding under this promissory note. Future Maturities Annual future maturities of long-term debt, excluding finance lease obligations, unamortized financing costs and unamortized HPS Warrant value, are as follows: HPS Credit Facility Align Redemption Promissory Note Total 2020 (remaining) $ — $ 6,861 $ 6,861 2021 — 6,906 6,906 2022 — — — 2023 — — — 2024 — — — 2025 404,569 — 404,569 Total $ 404,569 $ 13,767 $ 418,336 |
Noncontrolling Interests
Noncontrolling Interests | 9 Months Ended |
Sep. 30, 2020 | |
Noncontrolling Interest [Abstract] | |
Noncontrolling Interests | Noncontrolling InterestsSDC Inc. is the sole managing member of SDC Financial and consolidates the financial results of SDC Financial. Therefore, SDC Inc. reports a noncontrolling interest based on the common units of SDC Financial held by the Continuing LLC Members. Changes in SDC Inc.’s ownership interest in SDC Financial, while SDC Inc. retains its controlling interest in SDC Financial, are accounted for as equity transactions. As such, future redemptions or direct exchanges of LLC Units by the Continuing LLC Members will result in a change in ownership and reduce or increase the amount recorded as noncontrolling interest and increase or decrease additional paid-in capital when SDC Financial has positive or negative net assets, respectively. As of September 30, 2020, SDC Inc. had 113,105,780 shares of Class A common stock outstanding, which resulted in an equivalent amount of ownership of LLC Units by SDC Inc. As of September 30, 2020, SDC Inc. had a 29.3% economic ownership interest in SDC Financial. |
Variable Interest Entities
Variable Interest Entities | 9 Months Ended |
Sep. 30, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Variable Interest Entities | Variable Interest Entities Upon completion of the IPO, SDC Inc. became the managing member of SDC Financial with 100% of the management and voting power in SDC Financial. In its capacity as managing member, SDC Inc. has the sole authority to make decisions on behalf of SDC Financial and bind SDC Financial to signed agreements. Further, SDC Financial maintains separate capital accounts for its investors as a mechanism for tracking earnings and subsequent distribution rights. Accordingly, management concluded that SDC Financial is determined to be a limited partnership or similar legal entity as contemplated in ASC 810. Furthermore, management concluded that SDC Inc. is SDC Financials’ primary beneficiary. As the primary beneficiary, SDC Inc. consolidates the results of SDC Financial for financial reporting purposes under the variable interest consolidation model guidance in ASC 810. SDC Inc.’s relationship with SDC Financial results in no recourse to the general credit of SDC Inc. SDC Financial and its consolidated subsidiaries represents SDC Inc.’s sole investment. SDC Inc. shares in the income and losses of SDC Financial in direct proportion to SDC Inc.’s ownership percentage. Further, SDC Inc. has no contractual requirement to provide financial support to SDC Financial. SDC Inc.’s financial position, performance and cash flows effectively represent those of SDC Financial as of and for the period ended September 30, 2020. Prior to the IPO and Reorganization Transactions, SDC Inc. was not impacted by SDC Financial. |
Incentive Compensation Plans
Incentive Compensation Plans | 9 Months Ended |
Sep. 30, 2020 | |
Share-based Payment Arrangement [Abstract] | |
Incentive Compensation Plans | Incentive Compensation PlansIn connection with the IPO, the Company adopted the 2019 Omnibus Incentive Compensation Plan (the “2019 Plan”) in August 2019. The Company’s board of directors or the compensation committee of the board of directors, acting as plan administrator, administers the 2019 Plan and the awards granted under it. The Company reserved a total of 38,486,295 shares of Class A common stock for issuance pursuant to the 2019 Plan. The Company currently has two types of share-based compensation awards outstanding under the 2019 Plan: Class A common stock options (“Options”) and Class A restricted stock units (“RSUs”), including those issued pursuant to IBAs. Class A Common Stock Options Options activity was as follows during the nine months ended September 30, 2020: Weighted Weighted Number of Average Average Remaining Aggregate Options Exercise Price Contractual Term Intrinsic Value Outstanding at December 31, 2019 1,744,556 $ 23.00 9.7 $ — Granted — — — — Exercised — — — — Expired — — — — Forfeited 65,217 23.00 — — Outstanding at September 30, 2020 1,679,339 $ 23.00 9.0 $ — Exercisable at September 30, 2020 298,908 $ 23.00 9.0 $ — The Company estimates fair value of the Options using the Black-Scholes option pricing model. Inputs to the Black-Scholes option pricing model include an expected dividend yield of 0%, expected volatility of 45%, risk-free interest rate of 1.7% and an expected term of 6.0 years or 6.5 years, pursuant to vesting terms, resulting in a weighted average fair value of $10.29 or $10.68 per Option pursuant to vesting terms. As of September 30, 2020, unrecognized compensation expense related to the Options was $11,398. This expense is expected to be recognized over a weighted average period of 2.0 years. Expected dividend yield - An increase in the expected dividend yield would decrease compensation expense. Expected volatility - This is a measure of the amount by which the price of the equity instrument has fluctuated or is expected to fluctuate. The expected volatility was based on the historical volatility of a group of guideline companies. An increase in expected volatility would increase compensation expense. Risk-free interest rate - This is the U.S. Treasury rate as of the measurement date having a term approximating the expected life of the award. An increase in the risk-free interest rate would increase compensation expense. Expected term - The period of time over which the awards are expected to remain outstanding. The Company estimates the expected term as the mid-point between actual or expected vesting date and the contractual term. An increase in the expected term would increase compensation expense. Restricted Stock Units Incentive Bonus Awards The Company has IBA agreements with several key employees to provide a bonus payment in the event of a liquidation event as defined in each agreement. The bonus amounts are calculated based on the value of the Company at the time of the liquidation event, less an amount determined upon the employee entering into the agreement. The right to the payment generally vests annually over a five-year period, with certain liquidation events resulting in an acceleration of the vesting period. As the vesting of these awards was contingent on a liquidation event, no amounts were required to be recorded prior to a liquidation event. The IBA agreements were modified in August 2019 to accelerate certain vesting conditions upon a liquidation event and to modify the settlement terms, whereby the Company settled the vested portion of each IBA in 50% shares of Class A common stock and/or vested RSUs and 50% cash, of which approximately 80% of the cash (40% of the total vested portion of the award) that the IBA holders would have otherwise received was withheld by the Company to fulfill tax withholding obligations and the remainder was paid out to IBA holders upon the occurrence of a liquidation event. As a result of the modification and the occurrence of a liquidation event through the IPO, the Company recorded equity-based compensation expense of $316,959, equivalent to the amount of IBAs vested at the time of the IPO, in the form of cash, 5,654,078 shares of Class A common stock and 2,199,453 vested RSUs to be released over a period of six subject to the holders’ continued employment, over a period generally ranging from 2 years to 4 years. Non-IBA Restricted Stock Units The Company granted RSUs to certain team members that generally vest annually over two A summary of activity related to these RSUs is as follows: IBA RSUs Non-IBA RSUs Total RSUs Weighted Average Grant Date Fair Value RSUs outstanding, December 31, 2019 4,794,394 1,089,796 5,884,190 $ 21.88 Granted — 1,852,696 1,852,696 $ 8.61 Vested (2,218,257) (142,375) (2,360,632) $ 22.98 Forfeited (143,556) (347,118) (490,674) $ 14.26 RSUs outstanding, September 30, 2020 2,432,581 2,452,999 4,885,580 $ 17.10 As of September 30, 2020, unrecognized compensation expense related to unvested IBA and non-IBA RSUs was $47,933. This expense is expected to be recognized over a weighted average period of 1.7 years. Incentive Bonus Units SDC Financial issued Incentive Bonus Units (“IBUs”) to employees and non-employees. For employee IBUs, the fair value is based on SDC Financial’s unit value on the date of grant. For non-employee IBUs the fair value is determined at the time of vesting. Two employee IBU agreements were modified in July 2019 to accelerate certain vesting conditions upon a change of control. As a result of the acceleration of vesting conditions resulting from the Reorganization Transactions and the IPO, the Company recognized incremental compensation expense of $436 during the year ended December 31, 2019. As of September 30, 2020, unrecognized compensation expense related to unvested IBUs was $424. Employee Stock Purchase Plan The SmileDirectClub, Inc. team member Stock Purchase Plan (“SPP”) was initiated in November 2019. Under the SPP, the Company is authorized to issue up to 5,772,944 shares of its Class A common stock to qualifying employees. Eligible team members may direct the Company, during each six months option period, to withhold up to 30% of their base salary and commissions, the proceeds from which are used to purchase shares of Class A common stock at a price equal to the lesser of 85% of the closing market price on the exercise date or the grant date. For accounting purposes, the SPP is considered a compensatory plan such that the Company recognizes equity-based compensation expense based on the fair value of the options held by the employees to purchase the Company’s shares. Summary of Equity-Based Compensation Expense The Company recognized compensation expense of $10,972, $324,497, $38,189, and $332,759 for the three and nine months ended September 30, 2020 and 2019, respectively. Amounts are included in general and administrative expense on the consolidated statements of operations. |
Earnings per Share
Earnings per Share | 9 Months Ended |
Sep. 30, 2020 | |
Earnings Per Share [Abstract] | |
Earnings Per Share | Earnings per Share Basic earnings per share of Class A common stock is computed by dividing net income attributable to SDC Inc. by the weighted-average number of shares of Class A common stock outstanding during the period. Diluted earnings per share of Class A common stock is computed by dividing net income attributable to SDC Inc., adjusted for the assumed exchange of all potentially dilutive LLC Units for Class A common stock, by the weighted-average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive elements. Prior to the IPO, the SDC Financial membership structure included Pre-IPO Units, some of which were profits interests. The Company analyzed the calculation of earnings per unit for periods prior to the IPO and determined that it resulted in values that would not be meaningful to the users of these unaudited consolidated financial statements. Therefore, earnings per share information presented for the three and nine months ended September 30, 2019. The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings per share of Class A common stock: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Numerator: Net loss $ (43,482) $ (387,564) $ (245,548) $ (440,479) Less: Net income attributable to SDC Financial prior to the Reorganization Transactions — (51,330) — (104,245) Less: Net loss attributable to noncontrolling interests subsequent to the Reorganization Transactions (30,892) (247,938) (176,909) (247,938) Net loss attributable to SDC Inc. - basic (12,590) (88,296) (68,639) (88,296) Add: Reallocation of net loss attributable to noncontrolling interests after the Reorganization Transactions from the assumed exchange of LLC Units for Class A common stock (30,892) (247,938) (176,909) (247,938) Net loss attributable to SDC Inc. - diluted $ (43,482) $ (336,234) $ (245,548) $ (336,234) Denominator: Weighted average shares of Class A common stock outstanding - basic 111,703,080 99,533,877 108,459,488 99,533,877 Add: Dilutive effects as shown separately below LLC Units that are exchangeable for Class A common stock 273,969,597 279,474,505 276,429,361 279,474,505 Weighted average shares of Class A common stock outstanding - diluted 385,672,677 379,008,382 384,888,849 379,008,382 Earnings per share of Class A common stock outstanding - basic $ (0.11) $ (0.89) $ (0.63) $ (0.89) Earnings per share of Class A common stock outstanding - diluted $ (0.11) $ (0.89) $ (0.64) $ (0.89) Shares of the Company’s Class B common stock do not participate in the earnings or losses of the Company and are therefore not participating securities. As such, separate presentation of basic and diluted earnings per share of Class B common stock under the two-class method has not been presented. Due to their anti-dilutive effect, the following securities have been excluded from diluted net loss per share in the periods presented: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Options 1,679,339 1,760,860 1,679,339 1,760,860 Restricted Stock Units 4,885,580 6,062,955 4,885,580 6,062,955 Warrants 3,889,575 1,471,735 3,889,575 1,471,735 Underwriters option to purchase additional shares — 8,780,550 — 8,780,550 In connection with the IPO, the Company issued to the representative of the underwriters in the IPO an option to purchase additional shares of Class A common stock. The option expired prior to exercise. |
Employee Benefit Plans
Employee Benefit Plans | 9 Months Ended |
Sep. 30, 2020 | |
Retirement Benefits [Abstract] | |
Employee Benefit Plans | Employee Benefit PlansThe Company has a defined contribution retirement plan under Section 401(k) of the Internal Revenue Code of 1986, as amended, that covers substantially all U.S. employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. For the nine months ended September 30, 2020 and 2019, the Company matched 100% of employees’ salary deferral contributions up to 3% and 50% of employees’ salary deferral contributions from 3% to 5% of employees’ eligible compensation. The Company contributed $890, $711, $2,551 and $1,742 to the 401(k) plan for the three and nine months ended September 30, 2020 and 2019, respectively. |
Related Party Transactions
Related Party Transactions | 9 Months Ended |
Sep. 30, 2020 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | Related Party Transactions Products and Services The Company is affiliated through common ownership by the Company’s Chairman and Chief Executive Officer, with several other entities (‘‘Affiliates”). Certain Affiliates incur (or previously incurred) costs related to the Company, including travel costs, certain senior management personnel costs, freight, and rent, the most significant of which is freight. The Company reimbursed $0, $2,646, $0 and $7,433 of freight incurred through an Affiliate during the three and nine months ended September 30, 2020 and 2019, respectively, which is included in cost of revenues—related parties. These costs incurred by Affiliates related to the Company are billed at actual cost to the Company by the Affiliates. In addition, the Company paid one of the Affiliates $0, $355, $0 and $1,255 in management fees for the three and nine months ended September 30, 2020 and 2019, respectively, which is included in general and administrative expenses. These fees include charges relating to several individuals who provide senior leadership to the Company as well as certain other services. Certain of these individuals have been granted IBUs, which have resulted in equity-based compensation expense (see Note 12). The Company purchased legal services from a law firm where a partner is an immediate family member of a director of the Company. Fees paid for services totaled $1,761, $311,000, $4,305 and $656,000 for the three and nine months ended September 30, 2020 and 2019, respectively. The Company was party to a Strategic Supply Agreement with Align, a former equityholder of the Company, in which the Company had the option to purchase aligners from Align at a price that varies with the level of product purchased. While the majority of the Company’s aligners were manufactured in-house, the Company did purchase aligners under this agreement during the first quarter of 2019. Additionally, the Company purchases oral digital imaging equipment from Align. For the three and nine months ended September 30, 2020 and 2019, purchases from Align of equipment were $0, $0, $0 and $6,025, respectively, and purchases of aligners included in cost of revenues—related parties were $0, $0, $0 and $7,659, respectively. In February 2019, the Company entered into an agreement with the David Katzman Revocable Trust (the ‘‘Trust”) to purchase all of the issued and outstanding membership units of a limited liability corporation (‘‘SDC Plane”) owned by the Trust for a purchase price of approximately $1,100, which was the Trust’s acquisition cost. SDC Plane owns an interest in an aircraft, which is available for use by its executives. In February 2020, the Company completed the purchase of a private aircraft from Camelot SI Leasing, LLC, for $3,400, the appraised value of the aircraft. Distribution Payable In August 2019, SDC Financial declared a distribution of $43,400 less any amount determined to be due and payable to Align in connection with the current Align arbitration proceedings to the pre-IPO investors. Such distribution will be paid upon final determination of the outcome and amount payable, if any, in connection with such current arbitration proceedings. This amount is presented within other long-term liabilities on the accompanying condensed consolidated balance sheets. |
Commitments and Contingencies
Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Commitments and Contingencies Legal Matters In the ordinary course of conducting its business, the Company is involved, from time to time, in various contractual, product liability, intellectual property, and other claims and disputes incidental to its business. Litigation is subject to many uncertainties, the outcome of individual litigated matters is not predictable with assurance, and it is reasonably possible that some of these matters may be decided unfavorably to the Company. In addition, the Company periodically receives communications from state and federal regulatory and similar agencies inquiring about the nature of its business activities, licensing of professionals providing services, and similar matters. Such matters are routinely concluded with no financial or operational impact on the Company. From September to December 2019, a number of purported stockholder class action complaints were filed in the U.S. District Court for the Middle District of Tennessee and in state courts in Tennessee, Michigan and New York against the Company, members of the Company’s board of directors, certain of its current officers, and the underwriters of its IPO. The following complaints have been filed to date: Mancour v. SmileDirectClub, Inc., 19-1169-IV (TN Chancery Court filed 9/27/19), Vang v. SmileDirectClub, Inc., 19c2316 (TN Circuit Court filed 9/30/19), Fernandez v. SmileDirectClub, Inc., 19c2371 (TN Circuit Court filed 10/4/19), Wei Wei v. SmileDirectClub, Inc., 19-1254-III (TN Chancery Court filed 10/18/19), Andre v. SmileDirectClub, Inc., 19-cv-12883 (E.D. Mich. filed 10/2/19), Ginsberg v. SmileDirectClub, Inc., 19-cv-09794 (S.D.N.Y. filed 10/23/19), Franchi v. SmileDirectClub, Inc., 19- cv-962 (M.D. Tenn. filed 10/29/19), Nurlybayev v. SmileDirectClub, Inc., 19-177527-CB (Oakland County, MI Circuit Court filed 10/30/19), Sasso v. Katzman, et al., No. 657557/2019 (NY Supreme Court filed 12/18/19), Nurlybayev v. SmileDirectClub, Inc., No. 652603/2020 (Supreme Ct. N.Y. Cty. filed June 19, 2020). The complaints all allege, among other things, that the registration statement filed with the SEC on August 16, 2019, and accompanying amendments, and the Prospectus filed with the SEC on September 13, 2019, in connection with the Company’s initial public offering were inaccurate and misleading, contained untrue statements of material facts, omitted to state other facts necessary to make the statements made not misleading, and omitted to state material facts required to be stated therein. The complaints seek unspecified money damages, other equitable relief, and attorneys’ fees and costs. All of the actions are in the preliminary stages. The Company denies any alleged wrongdoing and intends to vigorously defend against these actions. In December 2019, the Fernandez, Vang, Mancour and Wei Wei actions were consolidated and re-captioned In re SmileDirectClub, Inc. Securities Litigation, 19-1169-IV (Davidson County, TN Chancery Court). Plaintiffs filed a consolidated amended complaint on December 20, 2019, and Defendants moved to stay or dismiss the action on February 10, 2020. On June 4, 2020, the court denied that motion. Defendants subsequently moved for permission to seek an interlocutory appeal of that decision. On June 22, 2020, the court granted that motion. On August 3, 2020, Defendants filed an application for interlocutory appeal with the court of appeals, which was denied. On September 21, 2020, Defendants filed an application for interlocutory appeal with the Tennessee Supreme Court, which is fully briefed and remains pending. The Andre and Ginsberg actions were transferred to the U.S. District Court for the Middle District of Tennessee, where they were consolidated with the Franchi action. Plaintiffs filed a consolidated amended complaint on February 21, 2020, and Defendants moved to dismiss the action on March 23, 2020. That motion remains pending. In the Nurlybayev action, on January 10, 2020, the Defendants moved to dismiss or stay the entire action in favor of the related actions pending in Tennessee, which motion was granted and the case was dismissed on February 26, 2020. On June 19, 2020, Plaintiff Nurlybayev filed a substantially similar action in New York state court. On August 21, 2020, Defendants filed a motion to dismiss that action, which is fully briefed and remains pending. In the Sasso action, Plaintiff agreed to stay the action pending resolution of any motions to dismiss in any of the related actions. The Court so-ordered the parties’ stipulation to that effect on January 22, 2020 In November and December 2019 and March 2020, three stockholder derivative actions were filed against the members of the Company’s board of directors, certain of the Company’s current officers and related entities: Doris Shenwick Trust v. Katzman et al., C.A. No. 2019-0940-MTZ (filed Nov. 22, 2019); Harts v. Katzman et al., C.A No. 2019-1027-MTZ (filed Dec. 23, 2019); and Sammons v. Katzman et al., C.A No. 2020-0169-MTZ (Mar. 5, 2020). The three derivative actions were consolidated into In Re SmileDirectClub, Inc. Derivative Litigation, C.A. No. 2019-0940-MTZ (Delaware Chancery Court) and Plaintiffs filed a consolidated amended complaint on April 8, 2020. The Company denies any alleged wrongdoing and has moved to dismiss the action. Briefing on the motion to dismiss was completed on November 6, 2020. A hearing on the motion to dismiss is scheduled for February 17, 2021. Some state dentistry boards have established new rules or interpreted existing rules in a manner that limits or restricts the Company’s ability to conduct its business as currently conducted in other states or have engaged in conduct so as to otherwise interfere with the Company’s ability to conduct its business. We have filed actions in federal court in Alabama, Georgia, and California against the state dental boards in those states, alleging violations by the dental boards of various laws, including the Sherman Act and the Commerce Clause. While a national orthodontic association has filed Amicus Briefs in support of the dental boards in both the Georgia and Alabama litigations and has filed a motion to do the same in California (which motion was denied), the FTC and DOJ have filed joint Amicus Briefs in support of the Company in both the Alabama and Georgia matters. The California matter was amended and an order of dismissal was entered on July 7, 2020. The Company filed notice of appeal on July 17, 2020 and expects oral argument in or around the first quarter of 2021. Both the Alabama and Georgia matters were then sent to the 11th Circuit Court of Appeals as a result of the dental boards in both states appealing the lower court’s decisions. Oral argument before the 11th Circuit Court of Appeals occurred in the Georgia matter on May 20, 2020 and in the Alabama matter on July 8, 2020. The FTC and DOJ participated in oral arguments in support of the Company. The DOJ’s antitrust chief presented in the Alabama matter. On August 11, 2020, the 11th Circuit Court of Appeals affirmed the Georgia district court’s denial of the board members’ motion to dismiss. In September 2019, a putative class action on behalf of a consumer and three orthodontists was brought against the Company in the U.S. District Court for the Middle District of Tennessee, Ciccio, et al. v. SmileDirectClub, LLC, et al., Case No. 3:19-cv-00845 (M.D. Tenn.). The Plaintiffs assert claims for breach of warranty, false advertising under the Lanham Act, common law fraud, and various state consumer protection statutes relating to the Company’s advertising. Following a proactive voluntary dismissal by the majority of consumer plaintiffs, one consumer has since sought to rejoin the Middle District of Tennessee litigation or, in the alternative, to intervene, which the Court granted. That ruling has been appealed, and a motion to stay the consumer claims is pending before the Court. Litigation is in the pleading stage and discovery as to the purported provider class has commenced. A preliminary Case Management Order has been entered setting trial for some time in March 2022. The Company denies any alleged wrongdoing and intends to defend against this action vigorously. In March 2019, a final arbitration award was issued in an arbitration proceeding brought by the Company alleging that one of its former members, Align Technology, Inc., had violated certain restrictive covenants set forth in its operating agreement. The arbitrator ruled that Align had breached both the non-competition and confidentiality provisions of its operating agreement and that, as a result, Align was required to close its Invisalign Stores, return all of the Company’s confidential information, and sell its membership units to the Company or certain of the Company’s pre-IPO unitholders for an amount equal to the balance of Align’s capital account as of November 2017. The arbitrator also extended the non-competition period to which Align is subject through August of 2022 and prohibited Align from using the Company’s confidential information in any manner going forward. The Company is paying Align $54,000, pursuant to a promissory note payable over 24 months through March 2021, in full redemption of Align’s membership units pursuant to this ruling. The ruling has been confirmed in its entirety in the circuit court of Cook County, Chicago, Illinois, but Align continues to object to the purchase price and repurchase documentation despite the arbitration ruling and its confirmation, and has since filed a subsequent arbitration proceeding disputing the $54,000 redemption amount and seeking an additional $43,400. The parties have completed the discovery phase. The arbitration is set to commence on December 14, 2020. Tax Receivable Agreement As described in Note 8, the Company is a party to the Tax Receivable Agreement pursuant to which SDC Inc. is contractually committed to pay the Continuing LLC Members 85% of the amount of any tax benefits that SDC Inc. actually realizes, or in some cases is deemed to realize, as a result of certain transactions. The Company is not obligated to make any payments under the Tax Receivable Agreement until the tax benefits associated with the transactions that gave rise to the payments are realized. TRA Payments are contingent upon, among other things, (i) generation of future taxable income over the term of the Tax Receivable Agreement and (ii) future changes in tax laws. If the Company does not generate sufficient taxable income in the aggregate over the term of the Tax Receivable Agreement to utilize the tax benefits, then it will not be required to make the related TRA Payments. During the three and nine months ended September 30, 2020 and 2019, the Company recognized no liabilities relating to its obligations under the Tax Receivable Agreement, after concluding that it was not probable that the Company would have sufficient future taxable income over the term of the Tax Receivable Agreement to utilize the related tax benefits. There were no transactions subject to the Tax Receivable Agreement for which the Company recognized the related liability, as the Company concluded that it would not have sufficient future taxable income to utilize all of the related tax benefits. |
Segment Reporting
Segment Reporting | 9 Months Ended |
Sep. 30, 2020 | |
Segment Reporting [Abstract] | |
Segment Reporting | Segment Reporting The Company provides aligner products. The Company’s chief operating decision maker views the operations and manages the business on a consolidated basis and, therefore the Company has one operating segment, aligner products, for segment reporting purposes in accordance with ASC 280-10, “ Segment Reporting .” For the three and nine months ended September 30, 2020 and 2019, a substantial majority of the Company’s revenues were generated by sales within the United States and substantially all of its net property, plant and equipment was within the United States. |
Summary of Significant Accoun_2
Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2020 | |
Accounting Policies [Abstract] | |
Basis of Presentation and Consolidation | Basis of Presentation and Consolidation The accompanying unaudited condensed financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01of Regulation S-X of the SEC and, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of results for the unaudited interim periods presented. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. The results of operations for the interim period are not necessarily indicative of the results to be obtained for the full fiscal year. All intercompany accounts and transactions have been eliminated in the unaudited condensed financial statements. The interim condensed consolidated financial statements include the accounts of SDC Inc., which consolidates SDC Financial and its wholly-owned subsidiaries, as well as accounts of contractually affiliated professional corporations (“PCs”) managed by the Company. The interim condensed consolidated financial statements include the accounts of variable interest entities in which the Company is the primary beneficiary under the provisions of Accounting Standards Codification (‘‘ASC”) Topic 810, ‘ ‘ Consolidation. ” At September 30, 2020, the variable interest entities include 52 dentist owned PCs and at December 31, 2019 the variable interest entities included 44 dentist owned PCs. The Company is a dental service organization and does not engage in the practice of dentistry. All clinical services are provided by dentists and orthodontists who are engaged as independent contractors or otherwise engaged by the dentist-owned PCs. The Company contracts with the PCs and dentists and orthodontists through a suite of agreements, including but not limited to, management services agreements, supply agreements, and licensing agreements, pursuant to which the Company provides the administrative, non-clinical management services to the PCs and independent contractors. The Company has the contractual right to manage the activities that most significantly impact the variable interest entities’ economic performance through these agreements without engaging in the corporate practice of dentistry. Additionally, the Company would absorb substantially all of the expected losses of these entities should they occur. The accompanying consolidated statements of operations reflect the revenue earned and the expenses incurred by the PCs. All significant intercompany balances and transactions are eliminated in consolidation. |
Recent Accounting Pronouncements | In January 2020, the Company adopted lease accounting guidance as discussed in Note 2 and Note 7 to the Unaudited Condensed Consolidated Financial Statements. Adoption of the new lease accounting guidance had a material impact to the Company’s unaudited condensed consolidated balance sheets and related disclosures, and resulted in the recording of additional right-of-use assets and lease liabilities as of the date of adoption. This guidance was applied using the optional transition method which allowed the Company to not recast comparative financial information but rather recognize a cumulative-effect adjustment to retained earnings as of the effective date in the period of adoption. No material adjustments to retained earnings were made as a result of the adoption of this guidance. Consistent with the optional transition method, the financial information in the condensed consolidated balance sheets prior to the adoption of this new lease accounting guidance has not been adjusted and is therefore not comparable to the current period presented. The standard did not materially impact the Company’s condensed consolidated statements of operations, comprehensive loss, changes in equity (deficit), or cash flows. For additional information, including the required disclosures, related to the impact of adopting this standard, see Note 2 and Note 7 to the Unaudited Condensed Consolidated Financial Statements. Recent Accounting Pronouncements In January 2020, the Company adopted FASB ASU 2018-07, “Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures. In fiscal year 2020, the Company adopted FASB ASU 2018-15, “ Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ” This update clarifies the accounting treatment for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. The adoption of ASU 2018-15 did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures. |
Management Use of Estimates | Management Use of Estimates The preparation of the interim condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that impact the reported amounts. On an ongoing basis, the Company evaluates its estimates, including those related to the fair values of financial instruments, useful lives of property, plant and equipment, revenue recognition, equity-based compensation, long-lived assets, and contingent liabilities, among others. In connection with its credit facility with HPS Investment Partners, the Company issued warrants to certain affiliates of HPS Investment Partners. The warrants were recorded at fair value within equity on the condensed consolidated balance sheets using the Black-Scholes option pricing model (see Note 10). Each of these estimates varies in regard to the level of judgment involved and its potential impact on the Company’s financial results. Estimates are considered critical either when a different estimate could have reasonably been used, or where changes in the estimate are reasonably likely to occur from period to period, and such use or change would materially impact the Company’s financial condition, results of operations, or cash flows. Actual results could differ from those estimates. |
Revenue Recognition | Revenue Recognition The Company’s revenues are derived primarily from sales of aligners, impression kits, whitening gel, and retainers, and interest earned through its SmilePay financing program. Revenue is recorded for all customers based on the amount that is expected to be collected, which considers implicit price concessions, discounts and returns. The Company identifies a performance obligation as distinct if both of the following criteria are met: the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. Determining the standalone selling price (“SSP”) and allocation of consideration from a contract to the individual performance obligations, and the appropriate timing of revenue recognition, is the result of significant qualitative and quantitative judgments. Management considers a variety of factors such as historical sales, usage rates (the number of times a customer is expected to order additional aligners), costs, and expected margin, which may vary over time depending upon the unique facts and circumstances related to each performance obligation, in making these estimates. Further, the Company’s process for estimating usage rates requires significant judgment and evaluation of inputs, including historical data and forecasted usages. Changes in the allocation of the SSP between performance obligations will not affect the amount of total revenues recognized for a particular contract. The Company uses the expected cost plus a margin approach to determine the SSP for performance obligations, and discounts are allocated to each performance obligation based on the relative standalone selling price. However, any material changes in the allocation of the SSP could impact the timing of revenue recognition, which may have a material effect on the Company’s financial position and result of operations as the contract consideration is allocated to each performance obligation, delivered or undelivered, at the inception of the contract based on the SSP of each distinct performance obligation. The Company estimates the amount expected to be collected based upon management’s assessment of historical write-offs and expected net collections, business and economic conditions, and other collection indicators. Management relies on the results of detailed reviews of historical write-offs and collections as a primary source of information in estimating the amount of contract consideration expected to be collected and implicit price concessions. Uncollectible receivables are written-off in the period management believes it has exhausted its ability to collect payment from the customer. The Company believes its analysis provides reasonable estimates of its revenues and valuations of its accounts receivable. A description of the revenue recognition for each product sold by the Company is detailed below. Aligners and Impression Kits: The Company enters into contracts with customers for aligner sales that involve multiple future performance obligations. The Company determined that aligner sales comprise the following distinct performance obligations: initial aligners, modified aligners, refinement aligners, and retainers for international sales only which can occur at any time throughout the treatment plan (which is typically between five to ten months) upon the direction of and prescription from the treating dentist or orthodontist. The Company allocates revenues for each performance obligation based on its SSP and recognizes the revenues as control of the performance obligation is transferred upon shipment of the aligners. The Company recognizes aligner revenue on amounts expected to be collected during the course of the treatment plan. The Company bills its customers either upfront for the full cost of aligners or monthly through its SmilePay financing program, which involves a down payment and a fixed amount per month for up to 24 months. The Company’s accounts receivable related to the SmilePay financing program are reported at the amount expected to be collected on the consolidated balance sheets, which considers implicit price concessions. Financing revenue from its accounts receivable is recognized based on the contractual market interest rate with the customer, net of implicit price concessions. There are no fees or origination costs included in accounts receivable. The Company sells doctor prescribed impression kits to its customers as an alternative to an in-person visit at one of its SmileShops or Partner Network locations, comprised of affiliated dentist and orthodontist offices, where the customer receives a free oral digital imaging of their teeth. The Company combines the sales of its impression kits with aligner sales and recognizes the revenues as control of the performance obligation is transferred upon shipment of the aligners. The Company estimates the amount of impression kit sales that do not result in an aligner therapy treatment plan and recognizes such revenue when aligner conversion becomes remote. Retainers and Other Products: The Company sells retainers and other products (such as whitening gel and tooth brushes) to customers, which can be purchased on the Company’s website or certain retail outlets. The sales of these products are independent and separate from the customer’s decision to purchase aligner therapy for domestic sales. The Company determined that the transfer of control for these performance obligations occurs as the title of such products passes to the customer. The following table summarizes revenue recognized for each product sold by the Company: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Aligner revenue, net of implicit price concessions $ 139,279 $ 162,174 $ 388,111 $ 508,898 Financing revenue, net of implicit price concessions 12,042 11,522 37,428 31,185 Retainers and other products revenue 17,180 6,489 46,685 13,631 Total revenue $ 168,501 $ 180,185 $ 472,224 $ 553,714 Implicit price concessions included in total revenue $ 15,362 $ 17,299 $ 50,051 $ 56,394 Deferred Revenue: Deferred revenue represents the Company’s contract liability for performance obligations associated with sales of aligners. Of the Company’s revenues during the three and nine months ended September 30, 2020 and 2019, $2,684, $1,882, $19,547, and $16,386 was previously included in deferred revenue on the consolidated balance sheets as of December 31, 2019 and 2018, respectively. Shipping and Handling Costs Shipping and handling charges are recorded in cost of revenues in the consolidated statements of operations upon shipment. The Company incurred approximately $5,891, $4,481, $18,516 and $12,082 in outsourced shipping expenses for the three and nine months ended September 30, 2020 and 2019, respectively. Cost of Revenues Cost of revenues includes the total cost of products produced and sold. Such costs include direct materials, direct labor, overhead costs (occupancy costs, indirect labor, and depreciation), fees retained by doctors, freight and duty expenses associated with moving materials from vendors to the Company’s facilities and from its facilities to the customers, and adjustments for shrinkage (physical inventory losses), lower of cost or net realizable value, slow moving product and excess inventory quantities. |
Marketing and Selling, General and Administrative Expenses | Marketing and Selling Expenses Marketing and selling expenses include direct online and offline marketing and advertising costs, costs associated with intraoral imaging services, selling labor, and occupancy costs of SmileShop locations. All marketing and selling expenses are expensed as incurred. For the three and nine months ended September 30, 2020 and 2019, the Company incurred marketing and selling costs of $66,722, $131,263, $243,564 and $340,409, respectively. General and Administrative Expenses General and administrative expenses include payroll and benefit costs for corporate team members, equity-based compensation expenses, occupancy costs of corporate facilities, bank charges and costs associated with credit and debit card interchange fees, outside service fees, and other administrative costs, such as computer maintenance, supplies, travel, and lodging. |
Depreciation and Amortization | Depreciation and AmortizationDepreciation includes expenses related to the Company’s property, plant and equipment, including finance leases. Amortization includes expenses related to definite-lived intangible assets and capitalized software. Depreciation and amortization are calculated using the straight-line method over the useful lives of the related assets, ranging from three |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The Company measures the fair value of financial instruments as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement: Level 1 — Quoted (unadjusted) prices in active markets for identical assets or liabilities. Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. Level 3 — Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability. |
Derivatives Financial Instruments | Derivative Financial InstrumentsThe Company accounts for derivative financial instruments in accordance with applicable accounting standards for such instruments and hedging activities, which require that all derivatives are recorded on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting, and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company had no outstanding derivatives at September 30, 2020 or December 31, 2019; however, the Company may enter into derivative contracts that are intended to economically hedge a certain portion of its risk, even though hedge accounting does not apply or the Company elects not to apply the hedge accounting standards. |
Certain Risks and Uncertainties | Certain Risks and Uncertainties The Company’s operating results depend to a significant extent on the ability to market and develop its products. The life cycles of the Company’s products are difficult to estimate due, in part, to the effect of future product enhancements and competition. The inability to successfully develop and market the Company’s products as a result of competition or other factors would have a material adverse effect on its business, financial condition, and results of operations. The Company provides credit to customers in the normal course of business. The Company maintains reserves for potential credit losses and such losses have been within management’s expectations. No individual customer accounted for 1% or more of the Company’s accounts receivable at September 30, 2020 or December 31, 2019, or net revenue for the three or nine months ended September 30, 2020 and 2019. Some of the Company’s products are considered medical devices and are subject to extensive regulation in the U.S. and internationally. The regulations to which the Company is subject are complex. Regulatory changes could result in restrictions on the Company’s ability to carry on or expand its operations, higher than anticipated costs or lower than anticipated sales. The failure to comply with applicable regulatory requirements may have a material adverse impact on the Company. The Company’s reliance on international operations exposes it to related risks and uncertainties, including difficulties in staffing and managing international operations, such as hiring and retaining qualified personnel; political, social and economic instability; interruptions and limitations in telecommunication services; product and material transportation delays or disruption; trade restrictions and changes in tariffs; import and export license requirements and restrictions; fluctuations in foreign currency exchange rates; and potential adverse tax consequences. If any of these risks materialize, operating results may be harmed. The Company purchases certain inventory from sole suppliers, and the inability of any supplier or manufacturer to fulfill the supply requirements could materially and adversely impact its future operating results. |
Cash and Cash Equivalents | Cash and Cash Equivalents Cash and cash equivalents consists of all highly-liquid investments with original maturities of less than three months. Cash is held in various financial institutions in the U.S. and internationally, including certain reserve accounts in accordance with the Company’s credit facility with HPS Investment Partners (see Note 10). |
Inventories | InventoriesInventories are stated at the lower of cost or net realizable value using the first-in, first-out method of inventory accounting. Inventory consists of raw materials for producing impression kits and aligners and finished goods. Inventory is net of shrinkage and obsolescence. |
Property, Plant and Equipment, net | Property, Plant and Equipment, net Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Routine maintenance and repairs are charged to expense as incurred. At the time property, plant and equipment are retired from service, the cost and accumulated depreciation or amortization are removed from the respective accounts and the related gains or losses are reflected in the consolidated statements of operations. |
Leases | Leases On January 1, 2020, the Company adopted the new leases standard using the modified retrospective transition method, which requires that it recognizes leases differently pre- and post-adoption. See “Recently Adopted Accounting Pronouncements—ASU No. 2016-02” below for more information. The Company categorizes leases at their inception as either operating or finance leases. Lease agreements cover certain retail locations, office space, warehouse, manufacturing and distribution space and equipment. Operating leases are included in operating lease right-of-use assets, other current liabilities, and long-term right-of-use operating lease obligations in the condensed consolidated balance sheet. Finance leases are included in property, plant and equipment, net, current portion of long-term debt, and long-term debt. Leased assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses a secured incremental borrowing rate as the discount rate for determining the present value of lease payments when the rate implicit in the contract is not readily determinable. Leases that have a term of twelve months or less upon commencement date are considered short-term in nature. Accordingly, short-term leases are not included on the condensed consolidated balance sheets and are expensed on a straight-line basis over the lease term, which commences on the date we have the right to control the property. |
Internally Developed Software Costs | Internally Developed Software CostsThe Company generally provides services to its customers using software developed for internal use. The costs that are incurred to develop such software are expensed as incurred during the preliminary project stage. Once certain criteria have been met, direct costs incurred in developing or obtaining computer software are capitalized. Training and maintenance costs are expensed as incurred. Capitalized software costs are included in property, plant and equipment in the consolidated balance sheets and are amortized over a three-year period. |
Impairment | Impairment The Company evaluates long-lived assets (including finite-lived intangible assets) for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. An asset or asset group is considered impaired if its carrying amount exceeds the future undiscounted net cash flows that the asset or asset group is expected to generate. Factors the Company considers important which could trigger an impairment review include significant negative industry or economic trends, significant loss of customers and changes in the competitive environment. If an asset or asset group is considered to be impaired, the impairment to be recognized is calculated as the amount by which the carrying amount of the asset or asset group exceeds its fair market value. The Company’s estimates of future cash flows attributable to long-lived assets require significant judgment based on its historical and anticipated results and are subject to many assumptions. The estimation of fair value utilizing a discounted cash flow approach includes numerous uncertainties which require significant judgment when making assumptions of expected growth rates and the selection of discount rates, as well as assumptions regarding |
Debt Issuance Costs | Debt Issuance Costs The Company records debt issuance costs related to its term debt as direct deductions from the carrying amount of the debt. The costs are amortized to interest expense over the life of the debt using the effective interest method. |
Income Taxes | Income Taxes SDC Inc. is the managing member of SDC Financial and, as a result, consolidates the financial results of SDC Financial in the unaudited condensed consolidated financial statements. SDC Financial and its subsidiaries are limited liability companies and have elected to be taxed as partnerships for income tax purposes except for a subsidiary, SDC Holding, LLC (‘‘SDC Holding”) and its domestic and foreign subsidiaries, which are taxed as corporations. As such, SDC Financial does not pay any federal income taxes, as any income or loss is included in the tax returns of the individual members. SDC Financial does pay state income tax in certain jurisdictions, and the Company’s income tax provision in the consolidated financial statements reflects the income taxes for those states. Additionally, certain wholly-owned entities taxed as corporations are subject to federal, state, and foreign income taxes, in the jurisdictions in which they operate, and accruals for such taxes are included in the consolidated financial statements. The Company further evaluates deferred tax assets in each jurisdiction and recognizes associated benefits when positive evidence of realization exceeds negative evidence, and otherwise records valuation allowances as necessary. Tax Receivable Agreement In connection with the Reorganization Transactions and the IPO, the Company entered into a Tax Receivable Agreement (the “Tax Receivable Agreement”) with the Continuing LLC Members, pursuant to which SDC Inc. agreed to pay the Continuing LLC Members 85% of the amount of cash tax savings, if any, in U.S. federal, state, and local income tax or franchise tax that SDC Inc. actually realizes as a result of (a) the increases in tax basis attributable to exchanges by Continuing LLC Members and (b) tax benefits related to imputed interest deemed to be paid by SDC Inc. as a result of the Tax Receivable Agreement. The Company recognizes this contingent liability in its consolidated financial statements when amounts become probable as to incurrence and estimable in amount. |
Summary of Significant Accoun_3
Summary of Significant Accounting Policies (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Accounting Policies [Abstract] | |
Schedule of Revenue by Product | The following table summarizes revenue recognized for each product sold by the Company: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Aligner revenue, net of implicit price concessions $ 139,279 $ 162,174 $ 388,111 $ 508,898 Financing revenue, net of implicit price concessions 12,042 11,522 37,428 31,185 Retainers and other products revenue 17,180 6,489 46,685 13,631 Total revenue $ 168,501 $ 180,185 $ 472,224 $ 553,714 Implicit price concessions included in total revenue $ 15,362 $ 17,299 $ 50,051 $ 56,394 |
Schedule of Depreciation and Amortization | Depreciation and amortization by financial statement line item were as follows: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Cost of revenues $ 5,945 $ 2,518 $ 17,385 $ 6,932 Marketing and selling expenses 1,635 1,257 4,906 3,318 General and administrative expenses 6,462 2,739 17,108 5,987 Total $ 14,042 $ 6,514 $ 39,399 $ 16,237 |
Inventories (Tables)
Inventories (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Inventory Disclosure [Abstract] | |
Schedule of Inventory | Inventories are comprised of the following: September 30, 2020 December 31, 2019 Raw materials $ 6,067 $ 5,950 Finished goods 20,034 12,481 Total inventories $ 26,101 $ 18,431 |
Prepaid and other assets (Table
Prepaid and other assets (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |
Schedule Prepaid and Other Assets | Prepaid and other assets are comprised of the following: September 30, 2020 December 31, 2019 Prepaid expenses $ 9,195 $ 10,503 Deposits to vendors 2,199 3,132 Other 3,943 551 Total prepaid and other current assets $ 15,337 $ 14,186 Prepaid expenses, non-current $ 2,721 $ 1,308 Deposits to vendors, non-current 1,672 3,346 Indefinite-lived intangible assets 6,833 6,217 Other intangible assets, net 235 428 Total other assets $ 11,461 $ 11,299 |
Lease Abandonment, Impairment_2
Lease Abandonment, Impairment of Long-Lived Assets and Store Closure and Other Related Charges (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Restructuring and Related Activities [Abstract] | |
Schedule of Restructuring Charges | The following table summarizes charges for the three and nine months ended September 30, 2020. There were no similar charges for the three and nine months ended September 30, 2019. Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Lease abandonment and impairment of long-lived assets and inventory: Impairment of property, plant and equipment $ 3,131 $ — $ 19,878 $ — Impairment of right of use asset 829 — 8,715 — $ 3,960 $ — $ 28,593 $ — Store closure and other related charges: Impairment of inventory $ 786 $ — $ 786 $ — Short-term lease termination fees 864 — 4,687 — Other expenses 64 — 717 — $ 1,714 $ — $ 6,190 $ — |
Property, plant and equipment_2
Property, plant and equipment, net (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Property, Plant and Equipment [Abstract] | |
Schedule of Property, Plant, and Equipment, Net | Property, plant and equipment were comprised of the following: September 30, 2020 December 31, 2019 Lab and SmileShop equipment $ 92,252 $ 79,103 Computer equipment and software 74,346 48,401 Leasehold improvements 24,447 13,275 Furniture and fixtures 13,491 13,152 Vehicles 6,154 2,660 Construction in progress 49,978 60,317 Property, plant and equipment, gross 260,668 216,908 Less: accumulated depreciation (77,238) (39,365) Property, plant and equipment, net $ 183,430 $ 177,543 |
Leases (Tables)
Leases (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Leases [Abstract] | |
Schedule of Right of Use Assets and Lease Liabilities | The following table presents lease-related assets and liabilities at September 30, 2020: Leases Assets and Liabilities Balance Sheet Classification September 30, 2020 Assets: Operating leases Operating lease right-of-use asset $ 30,564 Finance leases Property, plant, and equipment, net 22,981 $ 53,545 Liabilities: Operating leases Other current liabilities $ 6,452 Finance leases Current portion of long-term debt 10,631 Operating leases Operating lease liabilities, net of current portion 32,038 Finance leases Long-term debt, net of current portion 14,015 $ 63,136 Weighted average remaining term: Operating leases 5.9 years Finance leases 1.9 years Weighted average discount rate: Operating leases 5.70 % Finance leases 7.50 % (1) Finance lease assets are recorded net of accumulated amortization of $12,947 as of September 30, 2020. (2) Upon adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2020. |
Schedule of Lease Expense and Supplemental Cash Flow Informatoin for Finance and Operating Leases | The following table presents certain information related to lease expense for finance and operating leases: Expense Category Statement of Operations Classification Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020 Finance lease expense: Amortization of leased assets Cost of revenues $ 2,497 $ 7,491 Interest of lease liabilities Interest expense 493 1,619 Operating leases (3) 2,296 7,333 Short-term lease expense (3) 3,255 12,898 Variable lease expense (3) 351 2,855 Total lease expense $ 8,892 $ 32,196 (3) Expenses are included in “Cost of revenues”, “Marketing and selling expenses”, or “General and administrative expenses” in our condensed consolidated statements of operations, depending on the purpose of the related asset. Other Information The following table represents supplemental cash flow information: Nine Months Ended September 30, 2020 Cash paid for amounts used in the measurement of lease liabilities: Cash used in operating activities $ 6,799 Cash used in investing activities $ — Cash used in financing activities $ 7,543 |
Schedule of Operating Lease Liability Maturities | The following table reconciles the undiscounted cash flows to the finance lease liabilities and operating lease liabilities recorded on the condensed consolidated balance sheet at September 30, 2020: Finance Leases Operating Leases 2020 (remaining) $ 3,038 $ 2,046 2021 11,209 8,298 2022 6,859 7,558 2023 — 6,904 2024 — 6,136 2025 and thereafter — 15,404 Total minimum lease payments 21,106 46,346 Residual value 5,661 — Amount representing interest (2,121) (7,856) Present value of future minimum lease payments 24,646 38,490 Less: current portion (10,631) (6,452) Long-term lease liabilities $ 14,015 $ 32,038 |
Schedule of Finance Lease Liability Maturities | The following table reconciles the undiscounted cash flows to the finance lease liabilities and operating lease liabilities recorded on the condensed consolidated balance sheet at September 30, 2020: Finance Leases Operating Leases 2020 (remaining) $ 3,038 $ 2,046 2021 11,209 8,298 2022 6,859 7,558 2023 — 6,904 2024 — 6,136 2025 and thereafter — 15,404 Total minimum lease payments 21,106 46,346 Residual value 5,661 — Amount representing interest (2,121) (7,856) Present value of future minimum lease payments 24,646 38,490 Less: current portion (10,631) (6,452) Long-term lease liabilities $ 14,015 $ 32,038 |
Accrued liabilities (Tables)
Accrued liabilities (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Payables and Accruals [Abstract] | |
Schedule of Accrued Liabilities | Accrued liabilities were comprised of the following: September 30, December 31, Accrued marketing and selling costs $ 21,202 $ 31,804 Accrued payroll and payroll related expenses 29,609 25,019 Accrued sales and other taxes 13,249 8,367 Other 29,248 28,149 Total accrued liabilities $ 93,308 $ 93,339 |
Income taxes (Tables)
Income taxes (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Income Tax Disclosure [Abstract] | |
Schedule of Income Tax Provision | The income tax provision was as follows: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Current: Federal $ 186 $ — $ 186 $ — State 160 63 318 165 Foreign 525 — 865 — Current income tax provision $ 871 $ 63 $ 1,369 $ 165 Deferred: Federal $ — $ — $ — $ — State 319 416 376 431 Foreign — — — — Deferred income tax provision $ 319 416 $ 376 $ 431 Total income tax provision $ 1,190 $ 479 $ 1,745 $ 596 |
Long-Term Debt (Tables)
Long-Term Debt (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Debt Disclosure [Abstract] | |
Schedule of Debt and Capital Lease Obligations | The Company’s debt and capital lease obligations are comprised of the following: September 30, December 31, HPS Credit Facility, net of unamortized financing costs of $10,942 $ 377,267 $ — JPM Credit Facility, net of unamortized financing costs of $2,513 — 147,935 Align redemption promissory note 13,767 34,090 Capital lease obligations (Note 7) 24,646 26,501 Total debt 415,680 208,526 Less current portion (24,398) (35,376) Total long-term debt $ 391,282 $ 173,150 |
Schedule of Maturities of Long-term Debt | Annual future maturities of long-term debt, excluding finance lease obligations, unamortized financing costs and unamortized HPS Warrant value, are as follows: HPS Credit Facility Align Redemption Promissory Note Total 2020 (remaining) $ — $ 6,861 $ 6,861 2021 — 6,906 6,906 2022 — — — 2023 — — — 2024 — — — 2025 404,569 — 404,569 Total $ 404,569 $ 13,767 $ 418,336 |
Incentive Compensation Plans (T
Incentive Compensation Plans (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Share-based Payment Arrangement [Abstract] | |
Schedule of Stock Option Activity | Options activity was as follows during the nine months ended September 30, 2020: Weighted Weighted Number of Average Average Remaining Aggregate Options Exercise Price Contractual Term Intrinsic Value Outstanding at December 31, 2019 1,744,556 $ 23.00 9.7 $ — Granted — — — — Exercised — — — — Expired — — — — Forfeited 65,217 23.00 — — Outstanding at September 30, 2020 1,679,339 $ 23.00 9.0 $ — Exercisable at September 30, 2020 298,908 $ 23.00 9.0 $ — |
Schedule of Restricted Stock Unit Activity | A summary of activity related to these RSUs is as follows: IBA RSUs Non-IBA RSUs Total RSUs Weighted Average Grant Date Fair Value RSUs outstanding, December 31, 2019 4,794,394 1,089,796 5,884,190 $ 21.88 Granted — 1,852,696 1,852,696 $ 8.61 Vested (2,218,257) (142,375) (2,360,632) $ 22.98 Forfeited (143,556) (347,118) (490,674) $ 14.26 RSUs outstanding, September 30, 2020 2,432,581 2,452,999 4,885,580 $ 17.10 |
Earnings per Share (Tables)
Earnings per Share (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Earnings Per Share [Abstract] | |
Schedule of Earnings Per Share, Basic and Diluted | The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings per share of Class A common stock: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Numerator: Net loss $ (43,482) $ (387,564) $ (245,548) $ (440,479) Less: Net income attributable to SDC Financial prior to the Reorganization Transactions — (51,330) — (104,245) Less: Net loss attributable to noncontrolling interests subsequent to the Reorganization Transactions (30,892) (247,938) (176,909) (247,938) Net loss attributable to SDC Inc. - basic (12,590) (88,296) (68,639) (88,296) Add: Reallocation of net loss attributable to noncontrolling interests after the Reorganization Transactions from the assumed exchange of LLC Units for Class A common stock (30,892) (247,938) (176,909) (247,938) Net loss attributable to SDC Inc. - diluted $ (43,482) $ (336,234) $ (245,548) $ (336,234) Denominator: Weighted average shares of Class A common stock outstanding - basic 111,703,080 99,533,877 108,459,488 99,533,877 Add: Dilutive effects as shown separately below LLC Units that are exchangeable for Class A common stock 273,969,597 279,474,505 276,429,361 279,474,505 Weighted average shares of Class A common stock outstanding - diluted 385,672,677 379,008,382 384,888,849 379,008,382 Earnings per share of Class A common stock outstanding - basic $ (0.11) $ (0.89) $ (0.63) $ (0.89) Earnings per share of Class A common stock outstanding - diluted $ (0.11) $ (0.89) $ (0.64) $ (0.89) |
Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share | Due to their anti-dilutive effect, the following securities have been excluded from diluted net loss per share in the periods presented: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Options 1,679,339 1,760,860 1,679,339 1,760,860 Restricted Stock Units 4,885,580 6,062,955 4,885,580 6,062,955 Warrants 3,889,575 1,471,735 3,889,575 1,471,735 Underwriters option to purchase additional shares — 8,780,550 — 8,780,550 |
Organization and Basis of Pre_2
Organization and Basis of Presentation - Initial Public Offering (Details) - IPO $ / shares in Units, $ in Millions | Sep. 16, 2019USD ($)$ / sharesshares |
Subsidiary, Sale of Stock [Line Items] | |
Number of shares issued in transaction (in shares) | shares | 58,537,000 |
Price per share of stock sold (USD per share) | $ / shares | $ 23 |
Consideration received on sale of stock | $ | $ 1,286 |
Organization and Basis of Pre_3
Organization and Basis of Presentation - Reorganization Transactions (Details) | Sep. 17, 2019 | Sep. 12, 2019 |
SDC Financial, LLC | ||
Noncontrolling Interest [Line Items] | ||
Ownership percentage | 26.90% | |
Continuing LLC Members | SDC Financial, LLC | ||
Noncontrolling Interest [Line Items] | ||
Ownership percentage | 73.10% | |
Affiliated Entity | Tax Receivable Agreement | ||
Noncontrolling Interest [Line Items] | ||
Related party transaction rate | 85.00% |
Organization and Basis of Pre_4
Organization and Basis of Presentation - Basis of Presentation and Consolidation (Details) - variable_interest_entity | Sep. 30, 2020 | Dec. 31, 2019 |
Variable Interest Entity, Primary Beneficiary | ||
Variable Interest Entity [Line Items] | ||
Variable Interest Entity, Number Of Entities | 52 | 44 |
Organization and Basis of Pre_5
Organization and Basis of Presentation - COVID-19 Pandemic (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||
Restructuring costs and asset impairment Charges | $ 5,674 | $ 0 | $ 34,783 | $ 0 |
Summary of Significant Accoun_4
Summary of Significant Accounting Policies - Schedule of Revenue by Product Including Price Concessions (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Disaggregation of Revenue [Line Items] | ||||
Revenue recognized | $ 168,501 | $ 180,185 | $ 472,224 | $ 553,714 |
Implicit price concessions included in total revenue | 15,362 | 17,299 | 50,051 | 56,394 |
Aligner revenue, net of implicit price concessions | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenue recognized | 139,279 | 162,174 | 388,111 | 508,898 |
Financing revenue, net of implicit price concessions | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenue recognized | 12,042 | 11,522 | 37,428 | 31,185 |
Retainers and other products revenue | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenue recognized | $ 17,180 | $ 6,489 | $ 46,685 | $ 13,631 |
Summary of Significant Accoun_5
Summary of Significant Accounting Policies - Deferred Revenue (Details) - USD ($) $ in Thousands | Jun. 30, 2020 | Dec. 31, 2019 | Jun. 30, 2019 | Dec. 31, 2018 |
Aligners | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenue recognized that was included in deferred revenue | $ 2,684 | $ 19,547 | $ 1,882 | $ 16,386 |
Summary of Significant Accoun_6
Summary of Significant Accounting Policies - Shipping and Handling Costs (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Disaggregation of Revenue [Line Items] | ||||
Cost of revenues | $ 49,760 | $ 39,125 | $ 158,313 | $ 111,363 |
Shipping and Handling | ||||
Disaggregation of Revenue [Line Items] | ||||
Cost of revenues | $ 5,891 | $ 4,481 | $ 18,516 | $ 12,082 |
Summary of Significant Accoun_7
Summary of Significant Accounting Policies - Marketing and Selling Expenses (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Accounting Policies [Abstract] | ||||
Marketing and selling expenses | $ 66,722 | $ 131,263 | $ 243,564 | $ 340,409 |
Summary of Significant Accoun_8
Summary of Significant Accounting Policies - Summary of Depreciation and Amortization, Income Statement Location (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Property, Plant and Equipment [Line Items] | ||||
Depreciation and amortization | $ 14,042 | $ 6,514 | $ 39,399 | $ 16,237 |
Cost of revenues | ||||
Property, Plant and Equipment [Line Items] | ||||
Depreciation and amortization | 5,945 | 2,518 | 17,385 | 6,932 |
Marketing and selling expenses | ||||
Property, Plant and Equipment [Line Items] | ||||
Depreciation and amortization | 1,635 | 1,257 | 4,906 | 3,318 |
General and administrative expenses | ||||
Property, Plant and Equipment [Line Items] | ||||
Depreciation and amortization | $ 6,462 | $ 2,739 | $ 17,108 | $ 5,987 |
Minimum | ||||
Property, Plant and Equipment [Line Items] | ||||
Amortization and depreciation, useful life | 3 years | |||
Maximum | ||||
Property, Plant and Equipment [Line Items] | ||||
Amortization and depreciation, useful life | 10 years |
Summary of Significant Accoun_9
Summary of Significant Accounting Policies - Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands | Sep. 30, 2020 | Dec. 31, 2019 |
Accounting Policies [Abstract] | ||
Debt facilities borrowings | $ 404,569 | $ 150,448 |
Summary of Significant Accou_10
Summary of Significant Accounting Policies - Internally Developed Software Costs (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Property, Plant and Equipment [Line Items] | ||||
Capitalized internally developed software costs | $ 3,556 | $ 2,143 | $ 10,938 | $ 7,029 |
Amortization of internally developed software costs | $ 2,091 | $ 810 | $ 5,373 | $ 1,547 |
Capitalized Computer Software | ||||
Property, Plant and Equipment [Line Items] | ||||
Amortization period | 3 years |
Summary of Significant Accou_11
Summary of Significant Accounting Policies - Tax Receivable Agreement (Details) | Sep. 12, 2019 |
Affiliated Entity | Tax Receivable Agreement | |
Related Party Transaction [Line Items] | |
Related party transaction rate | 85.00% |
Inventories - Schedule of Inven
Inventories - Schedule of Inventory (Details) - USD ($) $ in Thousands | Sep. 30, 2020 | Dec. 31, 2019 |
Inventory Disclosure [Abstract] | ||
Raw materials | $ 6,067 | $ 5,950 |
Finished goods | 20,034 | 12,481 |
Total inventories | $ 26,101 | $ 18,431 |
Prepaid and other assets - Summ
Prepaid and other assets - Summary of Prepaid and Other Assets (Details) - USD ($) $ in Thousands | Sep. 30, 2020 | Dec. 31, 2019 |
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||
Prepaid expenses | $ 9,195 | $ 10,503 |
Deposits to vendors | 2,199 | 3,132 |
Other | 3,943 | 551 |
Total prepaid and other current assets | 15,337 | 14,186 |
Prepaid expenses, non-current | 2,721 | 1,308 |
Deposits to vendors, non-current | 1,672 | 3,346 |
Indefinite-lived intangible assets | 6,833 | 6,217 |
Other intangible assets, net | 235 | 428 |
Total other assets | $ 11,461 | $ 11,299 |
Prepaid and other assets - Narr
Prepaid and other assets - Narrative (Details) - USD ($) | 3 Months Ended | 9 Months Ended |
Sep. 30, 2020 | Sep. 30, 2020 | |
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||
Impairment of indefinite-lived intangible assets | $ 0 | $ 0 |
Lease Abandonment, Impairment_3
Lease Abandonment, Impairment of Long-Lived Assets and Store Closure and Other Related Charges - Narrative (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Restructuring and Related Activities [Abstract] | ||||
Restructuring costs and asset impairment Charges | $ 5,674 | $ 0 | $ 34,783 | $ 0 |
Restructuring reserve | $ 605 | $ 605 |
Lease Abandonment, Impairment_4
Lease Abandonment, Impairment of Long-Lived Assets and Store Closure and Other Related Charges - Schedule of Restructuring Charges (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Lease abandonment and impairment of long-lived assets and inventory: | ||||
Impairment of property, plant and equipment | $ 3,131 | $ 0 | $ 19,878 | $ 0 |
Impairment of right of use asset | 829 | 0 | 8,715 | 0 |
Lease abandonment and impairment of long-lived assets, total | 3,960 | 0 | 28,593 | 0 |
Store closure and other related charges: | ||||
Impairment of inventory | 786 | 0 | 786 | 0 |
Short-term lease termination fees | 864 | 0 | 4,687 | 0 |
Other expenses | 64 | 0 | 717 | 0 |
Other store closure and related costs | $ 1,714 | $ 0 | $ 6,190 | $ 0 |
Property, plant and equipment_3
Property, plant and equipment, net - Schedule of Property, Plant and Equipment (Details) - USD ($) $ in Thousands | Sep. 30, 2020 | Dec. 31, 2019 |
Property, Plant and Equipment [Line Items] | ||
Property, Plant, and Equipment and Finance Lease Right-of-Use Asset, before Accumulated Depreciation and Amortization | $ 260,668 | |
Property, plant and equipment, gross | $ 216,908 | |
Property, Plant, and Equipment and Finance Lease Right-of-Use Asset, Accumulated Depreciation and Amortization | (77,238) | |
Less: accumulated depreciation | (39,365) | |
Property, Plant, and Equipment and Finance Lease Right-of-Use Asset, after Accumulated Depreciation and Amortization, Total | 183,430 | 177,543 |
Property, plant and equipment, net | 177,543 | |
Lab and SmileShop equipment | ||
Property, Plant and Equipment [Line Items] | ||
Property, Plant, and Equipment and Finance Lease Right-of-Use Asset, before Accumulated Depreciation and Amortization | 92,252 | |
Property, plant and equipment, gross | 79,103 | |
Computer equipment and software | ||
Property, Plant and Equipment [Line Items] | ||
Property, plant and equipment, gross | 74,346 | 48,401 |
Leasehold improvements | ||
Property, Plant and Equipment [Line Items] | ||
Property, plant and equipment, gross | 24,447 | 13,275 |
Furniture and fixtures | ||
Property, Plant and Equipment [Line Items] | ||
Property, plant and equipment, gross | 13,491 | 13,152 |
Vehicles | ||
Property, Plant and Equipment [Line Items] | ||
Property, plant and equipment, gross | 6,154 | 2,660 |
Construction in progress | ||
Property, Plant and Equipment [Line Items] | ||
Property, plant and equipment, gross | $ 49,978 | $ 60,317 |
Property, plant and equipment_4
Property, plant and equipment, net - Narrative (Details) - USD ($) $ in Thousands | Sep. 30, 2020 | Dec. 31, 2019 |
Property, Plant and Equipment [Line Items] | ||
Finance lease ROU, before accumulated amortization | $ 22,981 | |
Property, plant and equipment, net | $ 177,543 | |
Finance lease ROU, after accumulated amortization | $ 12,947 | |
Accumulated depreciation | 39,365 | |
Assets Held under Capital Leases | ||
Property, Plant and Equipment [Line Items] | ||
Property, plant and equipment, net | 26,501 | |
Accumulated depreciation | $ 4,670 |
Leases - ROU Assets and Lease L
Leases - ROU Assets and Lease Liabilities (Details) - USD ($) $ in Thousands | Sep. 30, 2020 | Dec. 31, 2019 |
Assets: | ||
Operating leases | $ 30,564 | $ 0 |
Finance leases | 22,981 | |
Total leased assets | $ 53,545 | |
Finance Lease, Right-of-Use Asset, Statement of Financial Position [Extensible List] | us-gaap:PropertyPlantAndEquipmentAndFinanceLeaseRightOfUseAssetAfterAccumulatedDepreciationAndAmortization | |
Liabilities: | ||
Operating lease, liability, current | $ 6,452 | |
Finance lease, liability, current | 10,631 | |
Operating Lease, Liability, Noncurrent | 32,038 | $ 0 |
Finance lease, liability, noncurrent | 14,015 | |
Lease liability | $ 63,136 | |
Operating Lease, Liability, Current, Statement of Financial Position [Extensible List] | us-gaap:OtherLiabilitiesCurrent | |
Finance Lease, Liability, Current, Statement of Financial Position [Extensible List] | us-gaap:LongTermDebtAndCapitalLeaseObligationsCurrent | |
Finance Lease, Liability, Noncurrent, Statement of Financial Position [Extensible List] | us-gaap:LongTermDebtAndCapitalLeaseObligations | |
Weighted average remaining term: | ||
Operating lease, weighted average remaining lease term | 5 years 10 months 24 days | |
Finance lease, weighted average remaining lease term | 1 year 10 months 24 days | |
Weighted average discount rate: | ||
Operating lease, weighted average discount rate, percent | 5.70% | |
Finance lease, weighted average discount rate, percent | 7.50% | |
Finance lease ROU, after accumulated amortization | $ 12,947 |
Leases - Components of Lease Co
Leases - Components of Lease Cost and Other Information (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | |
Sep. 30, 2020 | Sep. 30, 2020 | Sep. 30, 2019 | |
Finance lease expense: | |||
Amortization of leased assets | $ 2,497 | $ 7,491 | |
Interest of lease liabilities | 493 | 1,619 | |
Operating leases | 2,296 | 7,333 | |
Short-term lease expense | 3,255 | 12,898 | |
Variable lease expense | 351 | 2,855 | |
Total lease expense | $ 8,892 | 32,196 | |
Cash used in operating activities | 6,799 | ||
Cash used in investing activities | 0 | ||
Cash used in financing activities | $ 7,543 | $ 0 |
Leases - Undiscounted Cash Flow
Leases - Undiscounted Cash Flows of Operating Lease and Finance Lease (Details) - USD ($) $ in Thousands | Sep. 30, 2020 | Dec. 31, 2019 |
Finance Lease, Liability, Payment, Due [Abstract] | ||
2020 (remaining) | $ 3,038 | |
2021 | 11,209 | |
2022 | 6,859 | |
2023 | 0 | |
2024 | 0 | |
2025 and thereafter | 0 | |
Total minimum lease payments | 21,106 | |
Residual value | 5,661 | |
Amount representing interest | (2,121) | |
Present value of future minimum lease payments | 24,646 | |
Less: current portion | (10,631) | |
Long-term lease liabilities | 14,015 | |
Lessee, Operating Lease, Liability, Payment, Due [Abstract] | ||
2020 (remaining) | 2,046 | |
2021 | 8,298 | |
2022 | 7,558 | |
2023 | 6,904 | |
2024 | 6,136 | |
2025 and thereafter | 15,404 | |
Total minimum lease payments | 46,346 | |
Residual value | 0 | |
Amount representing interest | (7,856) | |
Present value of future minimum lease payments | 38,490 | |
Less: current portion | (6,452) | |
Long-term lease liabilities | $ 32,038 | $ 0 |
Accrued liabilities - Schedule
Accrued liabilities - Schedule of Accrued Liabilities (Details) - USD ($) $ in Thousands | Sep. 30, 2020 | Dec. 31, 2019 |
Payables and Accruals [Abstract] | ||
Accrued marketing and selling costs | $ 21,202 | $ 31,804 |
Accrued payroll and payroll related expenses | 29,609 | 25,019 |
Accrued sales and other taxes | 13,249 | 8,367 |
Other | 29,248 | 28,149 |
Total accrued liabilities | $ 93,308 | $ 93,339 |
Income taxes - Schedule of Inco
Income taxes - Schedule of Income Tax Provision (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Current: | ||||
Federal | $ 186 | $ 0 | $ 186 | $ 0 |
State | 160 | 63 | 318 | 165 |
Foreign | 525 | 0 | 865 | 0 |
Current income tax provision | 871 | 63 | 1,369 | 165 |
Deferred: | ||||
Federal | 0 | 0 | 0 | 0 |
State | 319 | 416 | 376 | 431 |
Foreign | 0 | 0 | 0 | 0 |
Deferred income tax provision | 319 | 416 | 376 | 431 |
Total income tax provision | $ 1,190 | $ 479 | $ 1,745 | $ 596 |
Income taxes - Narrative (Detai
Income taxes - Narrative (Details) - USD ($) $ in Thousands | Sep. 12, 2019 | Dec. 31, 2019 | Sep. 30, 2020 |
Operating Loss Carryforwards [Line Items] | |||
Valuation allowance | $ 218,681 | ||
LLC units acquired in the period | $ 635,690 | ||
Tax Receivable Agreement | |||
Operating Loss Carryforwards [Line Items] | |||
Expected income tax benefit from remaining cash savings percentage | 15.00% | ||
Affiliated Entity | Tax Receivable Agreement | |||
Operating Loss Carryforwards [Line Items] | |||
Related party transaction rate | 85.00% | ||
Domestic Tax Authority | |||
Operating Loss Carryforwards [Line Items] | |||
Operating loss carryforwards, tax effected | 31,785 | ||
State and Local Jurisdiction | |||
Operating Loss Carryforwards [Line Items] | |||
Operating loss carryforwards, tax effected | 16,913 | ||
Foreign Tax Authority | |||
Operating Loss Carryforwards [Line Items] | |||
Operating loss carryforwards, tax effected | $ 1,320 |
Long-Term Debt - Schedule of De
Long-Term Debt - Schedule of Debt and Capital Lease Obligations (Details) - USD ($) $ in Thousands | Sep. 30, 2020 | Dec. 31, 2019 |
Debt Instrument [Line Items] | ||
Long-term debt | $ 418,336 | |
Capital lease obligations | 24,646 | |
Capital lease obligations | $ 26,501 | |
Total debt | 415,680 | 208,526 |
Less current portion | (24,398) | (35,376) |
Total long-term debt | 391,282 | 173,150 |
Line of Credit | HPS Credit Facility | ||
Debt Instrument [Line Items] | ||
Long-term debt | 377,267 | 0 |
Unamortized financing costs | 10,942 | |
Line of Credit | JPM Credit Facility | ||
Debt Instrument [Line Items] | ||
Long-term debt | 0 | 147,935 |
Unamortized financing costs | 2,513 | |
Promissory Note | Align Redemption Promissory Note | ||
Debt Instrument [Line Items] | ||
Long-term debt | $ 13,767 | $ 34,090 |
Long-Term Debt - HPS Credit Fac
Long-Term Debt - HPS Credit Facility (Details) - USD ($) | 1 Months Ended | 9 Months Ended | |
May 31, 2020 | Sep. 30, 2020 | Sep. 30, 2019 | |
Line of Credit Facility [Line Items] | |||
Deferred loan cost amortization | $ 3,021,000 | $ 1,496,000 | |
Revolving Credit Facility | HPS Credit Facility | Line of Credit | SDC U.S. SmilePay SPV | |||
Line of Credit Facility [Line Items] | |||
Debt term | 5 years | ||
Maximum borrowing capacity | $ 400,000,000 | ||
Debt discount | 12,000,000 | ||
Additional aggregate principal available | 100,000,000 | ||
Financing costs incurred | 187,000 | ||
Write off of deferred debt issuance cost | 1,594,000 | ||
Deferred financing costs | 11,784,000 | ||
Deferred loan cost amortization | 842,000 | ||
Receivables collateralized on outstanding debt | 345,996,000 | ||
Debt instrument, covenant minimum monthly liquidity | $ 100,000,000 | ||
Debt instrument, refinancing fee, percentage of principal amount prepaid, year one | 4.00% | ||
Debt instrument, refinancing fee, percentage of principal amount prepaid, year two | 4.00% | ||
Debt instrument, refinancing fee, percentage of principal amount prepaid, year three | 3.00% | ||
Debt instrument, refinancing fee, percentage of principal amount prepaid, year four | 2.00% | ||
Debt instrument, refinancing fee, percentage of principal amount prepaid, year five | 1.00% | ||
Long-term debt, including unamortized financing costs | $ 404,569,000 | ||
Revolving Credit Facility | HPS Credit Facility | Line of Credit | SDC U.S. SmilePay SPV | London Interbank Offered Rate (LIBOR) | Minimum | |||
Line of Credit Facility [Line Items] | |||
Basis spread on variable rate | 1.75% | ||
Revolving Credit Facility | HPS Credit Facility | Line of Credit | SDC U.S. SmilePay SPV | LIBOR - Payable In Cash | |||
Line of Credit Facility [Line Items] | |||
Basis spread on variable rate | 7.50% | ||
Revolving Credit Facility | HPS Credit Facility | Line of Credit | SDC U.S. SmilePay SPV | LIBOR - Payable In Kind | |||
Line of Credit Facility [Line Items] | |||
Basis spread on variable rate | 3.25% |
Long-Term Debt - HPS Warrants (
Long-Term Debt - HPS Warrants (Details) $ / shares in Units, $ in Thousands | May 12, 2020USD ($)$ / sharesshares |
Debt Instrument [Line Items] | |
Exercise price of warrants (USD per share) | $ / shares | $ 7.11 |
Fair value of warrants | $ | $ 17,620 |
Common Class A | |
Debt Instrument [Line Items] | |
Warrants outstanding (in shares) | shares | 3,889,575 |
Common Class A, Common Class B, And Warrants | |
Debt Instrument [Line Items] | |
Warrants as a percentage of outstanding common stock and warrants | 1.00% |
Long-Term Debt - JPM Credit Fac
Long-Term Debt - JPM Credit Facility (Details) - Line of Credit - JPM Credit Facility - USD ($) | 9 Months Ended | |
Sep. 30, 2020 | Jun. 30, 2019 | |
Debt Instrument [Line Items] | ||
Maximum borrowing capacity | $ 500,000,000 | |
Additional borrowing capacity | 250,000,000 | |
Deferred financing costs | $ 6,188,000 | |
Amortization of deferred financing and debt issuance costs | $ 919,000 |
Long-Term Debt - Align Redempti
Long-Term Debt - Align Redemption Promissory Note (Details) - USD ($) | Sep. 16, 2019 | Sep. 30, 2020 | Dec. 31, 2019 |
Debt Instrument [Line Items] | |||
Pre-IPO units required for redemption (in shares) | 20,710 | ||
Long-term debt | $ 418,336,000 | ||
Promissory Note | Align Redemption Promissory Note | |||
Debt Instrument [Line Items] | |||
Monthly payments | $ 2,311,000 | ||
Interest rate, stated percentage | 2.52% | ||
Long-term debt | $ 13,767,000 | $ 34,090,000 |
Long-Term Debt - Schedule of _2
Long-Term Debt - Schedule of Debt Maturities (Details) - USD ($) $ in Thousands | Sep. 30, 2020 | Dec. 31, 2019 |
Debt Instrument [Line Items] | ||
2020 (remaining) | $ 6,861 | |
2021 | 6,906 | |
2022 | 0 | |
2023 | 0 | |
2024 | 0 | |
2025 | 404,569 | |
Total | 418,336 | |
Line of Credit | HPS Credit Facility | ||
Debt Instrument [Line Items] | ||
Total | 377,267 | $ 0 |
Line of Credit | HPS Credit Facility | Revolving Credit Facility | SDC U.S. SmilePay SPV | ||
Debt Instrument [Line Items] | ||
2020 (remaining) | 0 | |
2021 | 0 | |
2022 | 0 | |
2023 | 0 | |
2024 | 0 | |
2025 | 404,569 | |
Total | 404,569 | |
Promissory Note | Align Redemption Promissory Note | ||
Debt Instrument [Line Items] | ||
2020 (remaining) | 6,861 | |
2021 | 6,906 | |
2022 | 0 | |
2023 | 0 | |
2024 | 0 | |
2025 | 0 | |
Total | $ 13,767 | $ 34,090 |
Noncontrolling Interests - Narr
Noncontrolling Interests - Narrative (Details) - shares | 9 Months Ended | |
Sep. 30, 2020 | Dec. 31, 2019 | |
SDC Financial, LLC | ||
Class of Stock [Line Items] | ||
Economic ownership interest | 29.30% | |
Common Class A | ||
Class of Stock [Line Items] | ||
Common stock, shares outstanding (in shares) | 113,105,780 | 103,303,674 |
Variable Interest Entities (Det
Variable Interest Entities (Details) | 9 Months Ended |
Sep. 30, 2020 | |
Variable Interest Entity, Primary Beneficiary | |
Variable Interest Entity [Line Items] | |
Ownership percentage | 100.00% |
Incentive Compensation Plans -
Incentive Compensation Plans - Class A Common Stock Options Narrative (Details) $ / shares in Units, $ in Thousands | 9 Months Ended | |
Sep. 30, 2020USD ($)award_type$ / shares | Aug. 31, 2019shares | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Number of award types | award_type | 2 | |
Expected dividend yield | 0.00% | |
Expected volatility rate | 45.00% | |
Risk-free interest rate | 1.70% | |
Unrecognized compensation expense | $ | $ 11,398 | |
Weighted average period, expected expense recognition | 2 years | |
2019 Omnibus Incentive Compensation Plan | Common Class A | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Number of shares reserved for future issuance (in shares) | shares | 38,486,295 | |
Minimum | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Expected term | 6 years | |
Weighted average fair value per option (in dollars per share) | $ 10.29 | |
Maximum | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Expected term | 6 years 6 months | |
Weighted average fair value per option (in dollars per share) | $ 10.68 |
Incentive Compensation Plans _2
Incentive Compensation Plans - Schedule of Stock Option Activity (Details) - USD ($) $ / shares in Units, $ in Thousands | 9 Months Ended | 12 Months Ended | |
Sep. 30, 2020 | Dec. 31, 2019 | Sep. 30, 2020 | |
Weighted Average Remaining Contractual Term | |||
Weighted Average Remaining Contractual Term, exercisable | 9 years | ||
2019 Omnibus Incentive Compensation Plan | |||
Number of Options | |||
Outstanding at beginning of period (in shares) | 1,744,556 | ||
Granted (in shares) | 0 | ||
Exercised (in shares) | 0 | ||
Expired (in shares) | 0 | ||
Forfeited (in shares) | 65,217 | ||
Outstanding at end of period (in shares) | 1,679,339 | 1,744,556 | |
Exercisable at end of period (in shares) | 298,908 | ||
Weighted Average Exercise Price | |||
Outstanding at beginning of period (in dollars per share) | $ 23 | ||
Granted (in dollars per share) | 0 | ||
Exercised (in dollars per share) | 0 | ||
Expired (in dollars per share) | 0 | ||
Forfeited (in dollars per share) | 23 | ||
Outstanding at end of period (in dollars per share) | $ 23 | $ 23 | |
Exercisable at end of period (in dollars per share) | $ 23 | ||
Weighted Average Remaining Contractual Term | |||
Weighted Average Remaining Contractual Term, outstanding | 9 years | 9 years 8 months 12 days | |
Aggregate Intrinsic Value | |||
Outstanding at December 31, 2019 | $ 0 | ||
Outstanding at September 30, 2020 | $ 0 | $ 0 | $ 0 |
Exercisable at September 30, 2020 | $ 0 |
Incentive Compensation Plans _3
Incentive Compensation Plans - Incentive Bonus Awards Narrative (Details) - USD ($) $ in Thousands | 1 Months Ended | 3 Months Ended | 9 Months Ended | |||
Aug. 31, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | Dec. 31, 2019 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Equity-based compensation expense | $ 10,972 | $ 324,497 | $ 38,189 | $ 332,759 | ||
Restricted Stock Units (RSUs), Incentive Bonus Awards | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
RSUs to be released (in shares) | 2,432,581 | 2,432,581 | 4,794,394 | |||
Restricted Stock Units (RSUs), Incentive Bonus Awards | 2019 Omnibus Incentive Compensation Plan | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Award vesting period | 5 years | |||||
Award accelerated vesting, percent settled in cash | 50.00% | |||||
Award accelerated vesting, percent of Cash award, withheld for taxes | 80.00% | |||||
Award accelerated vesting, percent of total vested award | 40.00% | |||||
Equity-based compensation expense | $ 316,959 | |||||
RSUs to be released (in shares) | 2,199,453 | |||||
Restricted Stock Units (RSUs), Incentive Bonus Awards | 2019 Omnibus Incentive Compensation Plan | Minimum | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Award vesting period | 2 years | |||||
Award requisite service period | 6 months | |||||
Restricted Stock Units (RSUs), Incentive Bonus Awards | 2019 Omnibus Incentive Compensation Plan | Maximum | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Award vesting period | 4 years | |||||
Award requisite service period | 24 months | |||||
Restricted Stock Units (RSUs), Incentive Bonus Awards | 2019 Omnibus Incentive Compensation Plan | Common Class A | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Award accelerated vesting, percent settled through stock issuance | 50.00% | |||||
Shares issued, after forfeiture (in shares) | 5,654,078 |
Incentive Compensation Plans _4
Incentive Compensation Plans - Non-IBA Restricted Stock Units Narrative (Details) - USD ($) $ in Thousands | 1 Months Ended | 9 Months Ended |
Dec. 31, 2019 | Sep. 30, 2020 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Unrecognized compensation expense | $ 11,398 | |
Weighted average period, expected expense recognition | 2 years | |
Restricted Stock Units | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Unrecognized compensation expense | $ 47,933 | |
Weighted average period, expected expense recognition | 1 year 8 months 12 days | |
Minimum | Restricted Stock Units | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Award vesting period | 2 years | |
Maximum | Restricted Stock Units | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Award vesting period | 3 years |
Incentive Compensation Plans _5
Incentive Compensation Plans - Schedule of Restricted Stock Unit Activity (Details) | 9 Months Ended |
Sep. 30, 2020$ / sharesshares | |
IBA RSUs | |
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward] | |
RSUs outstanding at beginning of period (in shares) | 4,794,394 |
Granted (in shares) | 0 |
Vested (in shares) | (2,218,257) |
Cancelled (in shares) | (143,556) |
RSUs outstanding at end of period (in shares) | 2,432,581 |
Non-IBA RSUs | |
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward] | |
RSUs outstanding at beginning of period (in shares) | 1,089,796 |
Granted (in shares) | 1,852,696 |
Vested (in shares) | (142,375) |
Cancelled (in shares) | (347,118) |
RSUs outstanding at end of period (in shares) | 2,452,999 |
Restricted Stock Units | |
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward] | |
RSUs outstanding at beginning of period (in shares) | 5,884,190 |
Granted (in shares) | 1,852,696 |
Vested (in shares) | (2,360,632) |
Cancelled (in shares) | (490,674) |
RSUs outstanding at end of period (in shares) | 4,885,580 |
Weighted Average Grant Date Fair Value | |
RSUs outstanding at beginning of period (in dollars per share) | $ / shares | $ 21.88 |
Granted (in dollars per share) | $ / shares | 8.61 |
Vested (in dollars per share) | $ / shares | 22.98 |
Cancelled (in dollars per share) | $ / shares | 14.26 |
RSUs outstanding at end of period (in dollars per share) | $ / shares | $ 17.10 |
Incentive Compensation Plans _6
Incentive Compensation Plans - Incentive Bonus Units Narrative (Details) - USD ($) $ in Thousands | 1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||
Jul. 31, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | Dec. 31, 2019 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Equity-based compensation expense | $ 10,972 | $ 324,497 | $ 38,189 | $ 332,759 | ||
Unrecognized compensation expense | 11,398 | 11,398 | ||||
Incentive Bonus Units, Employee | 2019 Omnibus Incentive Compensation Plan | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Number of awards modified (in shares) | 2 | |||||
Incentive Bonus Units | 2019 Omnibus Incentive Compensation Plan | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Equity-based compensation expense | $ 436 | |||||
Unrecognized compensation expense | $ 424 | $ 424 |
Incentive Compensation Plans _7
Incentive Compensation Plans - Employee Stock Purchase Plan Narrative (Details) - Employee Stock - Employee Stock Purchase Plan | 1 Months Ended |
Nov. 30, 2019shares | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Number of shares authorized (in shares) | 5,772,944 |
Option period | 6 months |
Maximum employee subscription rate | 30.00% |
Purchase price of common stock, as a percent of the closing market price | 85.00% |
Incentive Compensation Plans _8
Incentive Compensation Plans - Narrative (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Share-based Payment Arrangement [Abstract] | ||||
Equity-based compensation expense | $ 10,972 | $ 324,497 | $ 38,189 | $ 332,759 |
Earnings per Share - Summary of
Earnings per Share - Summary of Earnings per Share (Details) - USD ($) $ / shares in Units, $ in Thousands | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | Sep. 16, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | Sep. 16, 2019 |
Numerator [Abstract] | |||||||
Net loss | $ (336,234) | $ (43,482) | $ (387,564) | $ (245,548) | $ (440,479) | ||
Less: Net income attributable to SDC Financial prior to the Reorganization Transactions and net loss attributable to noncontrolling interests subsequent to the Reorganization Transactions | $ (247,938) | (30,892) | (299,268) | $ (51,330) | (176,909) | (352,183) | $ (104,245) |
Net loss attributable to SDC Inc. - basic | (12,590) | (88,296) | (68,639) | (88,296) | |||
Add: Reallocation of net loss attributable to noncontrolling interests after the Reorganization Transactions from the assumed exchange of LLC Units for Class A common stock | (30,892) | (247,938) | (176,909) | (247,938) | |||
Net loss attributable to SDC Inc. - diluted | $ (43,482) | $ (336,234) | $ (245,548) | $ (336,234) | |||
Denominator [Abstract] | |||||||
Weighted average shares of Class A common stock outstanding - basic (in shares) | 111,703,080 | 99,533,877 | 108,459,488 | 99,533,877 | |||
Add: Dilutive effects as shown separately below (in shares) | 273,969,597 | 279,474,505 | 276,429,361 | 279,474,505 | |||
Weighted average shares of Class A common stock outstanding - diluted (in shares) | 385,672,677 | 379,008,382 | 384,888,849 | 379,008,382 | |||
Earnings per share of Class A common stock, basic (in USD per share) | $ (0.11) | $ (0.89) | $ (0.63) | $ (0.89) | |||
Earnings per share of Class A common stock, diluted (in USD per share) | $ (0.11) | $ (0.89) | $ (0.64) | $ (0.89) |
Earnings per Share - Antidiluti
Earnings per Share - Antidilutive Securities Excluded From Computation of Earnings per Share (Details) - shares | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Options | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Antidilutive securities excluded from computation of earnings per share (in shares) | 1,679,339 | 1,760,860 | 1,679,339 | 1,760,860 |
Restricted Stock Units | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Antidilutive securities excluded from computation of earnings per share (in shares) | 4,885,580 | 6,062,955 | 4,885,580 | 6,062,955 |
Warrants | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Antidilutive securities excluded from computation of earnings per share (in shares) | 3,889,575 | 1,471,735 | 3,889,575 | 1,471,735 |
Underwriters option to purchase additional shares | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Antidilutive securities excluded from computation of earnings per share (in shares) | 0 | 8,780,550 | 0 | 8,780,550 |
Employee Benefit Plans (Details
Employee Benefit Plans (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Defined Contribution Plan Disclosure [Line Items] | ||||
Company contribution for 401(k) | $ 890 | $ 711 | $ 2,551 | $ 1,742 |
Threshold One | ||||
Defined Contribution Plan Disclosure [Line Items] | ||||
Employer match | 100.00% | 100.00% | ||
Employer matching contribution, percent of Employees' gross pay | 3.00% | 3.00% | ||
Threshold Two | ||||
Defined Contribution Plan Disclosure [Line Items] | ||||
Employer match | 50.00% | 50.00% | ||
Threshold Two | Minimum | ||||
Defined Contribution Plan Disclosure [Line Items] | ||||
Employer matching contribution, percent of Employees' gross pay | 3.00% | 3.00% | ||
Threshold Two | Maximum | ||||
Defined Contribution Plan Disclosure [Line Items] | ||||
Employer matching contribution, percent of Employees' gross pay | 5.00% | 5.00% |
Related Party Transactions - Pr
Related Party Transactions - Products and Services and Distribution Payable Narrative (Details) - USD ($) $ in Thousands | 1 Months Ended | 3 Months Ended | 9 Months Ended | ||||
Feb. 29, 2020 | Aug. 31, 2019 | Feb. 28, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
SDC Financial, LLC | |||||||
Related Party Transaction [Line Items] | |||||||
Distribution declared | $ 43,400 | ||||||
Private Aircraft | |||||||
Related Party Transaction [Line Items] | |||||||
Purchases from related party | $ 3,400 | ||||||
Align | |||||||
Related Party Transaction [Line Items] | |||||||
Cost of revenues—related parties | $ 0 | $ 0 | $ 0 | $ 7,659 | |||
Align | Oral Digital Imaging Equipment | |||||||
Related Party Transaction [Line Items] | |||||||
Purchases from related party | 0 | 0 | 0 | 6,025 | |||
David Katzman Revocable Trust | |||||||
Related Party Transaction [Line Items] | |||||||
Purchase of members' units, value | $ 1,100 | ||||||
Affiliated Entity | |||||||
Related Party Transaction [Line Items] | |||||||
Management fees paid to affiliate | 0 | 355 | 0 | 1,255 | |||
Affiliated Entity | Freight | |||||||
Related Party Transaction [Line Items] | |||||||
Cost of revenues—related parties | 0 | 2,646 | 0 | 7,433 | |||
Law Firm of Immediate Family Member of Director of the Company | |||||||
Related Party Transaction [Line Items] | |||||||
Management fees paid to affiliate | $ 1,761 | $ 311,000 | $ 4,305 | $ 656,000 |
Commitments and Contingencies -
Commitments and Contingencies - Narrative (Details) $ in Thousands | Sep. 12, 2019 | Sep. 30, 2019orthodontist | Mar. 31, 2019USD ($) | Mar. 31, 2020complaint |
Affiliated Entity | Tax Receivable Agreement | ||||
Loss Contingencies [Line Items] | ||||
Related party transaction rate | 85.00% | |||
Pending Litigation | ||||
Loss Contingencies [Line Items] | ||||
Complaints filed | complaint | 3 | |||
Pending Litigation | U.S. District Court For The Middle District Of Tennessee, Ciccio, et al. v. SmileDirectClub, LLC | ||||
Loss Contingencies [Line Items] | ||||
Number of plaintiffs | orthodontist | 3 | |||
Promissory Note | Align Redemption Promissory Note | ||||
Loss Contingencies [Line Items] | ||||
Debt instrument, face amount | $ 54,000 | |||
Term of debt | 24 months | |||
Additional damages sought | $ 43,400 |
Segment Reporting - Narrative (
Segment Reporting - Narrative (Details) | 9 Months Ended |
Sep. 30, 2020segment | |
Segment Reporting [Abstract] | |
Number of operating segments | 1 |