MarketWatch First Take: Does anyone want to buy bankrupt SmileDirectClub?

by | Oct 2, 2023 | Stock Market

The sudden and unexpected bankruptcy filing by SmileDirectClub — the controversial tele-dentistry company — has some investors likely hoping it will make a comeback and survive through an acquisition. Late Friday, SmileDirectClub Inc.
which makes lower-cost teeth straighteners that compete with Align Technology Inc.’s
Invisalign, filed for bankruptcy protection in the Southern District of Texas. The company is based in Nashville, Tenn. On Monday, its shares plunged 61% to 16 cents a share.

But the company, which has been controversial and combative ever since it went public in 2019, may have an extremely hard time finding a buyer. SmileDirectClub said in court documents that its liquidity challenges were initially caused by lower sales during the pandemic, when — even though it had touted itself as a tele-dentistry company — supply-chain disruptions, forced store closures and a shortage of workers affected its ability to fulfill orders. While tele-health was the buzzword during the pandemic, SmileDirectClub saw its revenue fall 12% in 2020, 3% in 2021 and a steep drop of 26% in 2022. SDC said inflation hit its lower- to middle-income customers, who are its targeted customers for teeth straighteners. A legal judgment in a long-running case against its former supply partner, Align, appears to have pushed SDC to making its bankruptcy filing. In early August, SDC said in its quarterly earnings call with analysts that its cash from operations, less cash from investing, was negative-$28 million. “The company’s liquidity challenges were further exacerbated by a longstandingdispute with Align,” said Troy Crawford, SDC’s chief financial officer, in a court declaration filed on Friday. In August, a Santa Clara, Calif., Superior Court judge reaffirmed an arbitration decision in favor of Align, which awarded the company $63 million over a dispute relating to a supply agreement between the companies. “SDC may appeal, but in order to do so, SDC would be required to obtain a bond of 150% of the judgment, or over $94 million,” Align said in a statement in August after the arbitration award was stayed by the court. “If SDC’s appeal fails, SDC would be obligated to pay Align the judgment plus interest, at the rate of 10% …

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