Equity Method Investments

9 Months Ended

Sep. 30, 2017

Equity Method Investments and Joint Ventures [Abstract]

Equity Method Investments

 Equity Method Investments

On July 25, 2016, we acquired a 17% equity interest, on a fully diluted basis, in SmileDirectClub, LLC (“SDC”) for $46.7 million. The investment is accounted for under an equity method investment and the investee, SDC, is considered a related party. The investment is reported in our Condensed Consolidated Balance Sheet under equity method investments, and we record our proportional share of SDC's losses within equity in losses of investee, net of tax, in our Condensed Consolidated Statement of Operations. On July 24, 2017, we purchased an additional 2% equity interest in SDC for $12.8 million. As a result of this purchase, we hold a 19% equity interest in SDC on a fully diluted basis. As of September 30, 2017, the balance of our equity method investments was $52.9 million.

Concurrently with the investment on July 25, 2016, we also entered into a supply agreement with SDC to manufacture clear aligners for SDC's doctor-led, at-home program for simple teeth straightening. The term of the supply agreement expires on December 31, 2019. We commenced supplying aligners to SDC in October 2016. The sale of aligners to SDC and the income from the supply agreement are reported in our Clear Aligner business segment after eliminating outstanding intercompany transactions. As of September 30, 2017, the balance of accounts receivable due from SDC is $12.7 million.

On July 25, 2016, we entered into a Loan and Security Agreement with SDC where we agreed to provide a loan of up to $30.0 million in one or more advances to SDC. As of September 30, 2017, $17.0 million of advances under the Loan Facility were outstanding (Refer to Note 9 "Commitments and Contingencies" of the Notes to Condensed Consolidated Financial Statements for information on the Loan and Security Agreement with SDC).