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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to           

 

Commission File Number: 001-35465

 

TURTLE BEACH CORPORATION

(Exact name of registrant as specified in its charter)

 

Nevada

27-2767540

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

 

 

44 South Broadway, 4th Floor

White Plains, New York

10601

(Address of principal executive offices)

(Zip Code)

 

(888) 496-8001

(Registrant’s telephone number, including area code)

 

11011 Via Frontera, Suite A/B, San Diego, CA 92127

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

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbols

Name of each exchange on which registered

Common Stock, par value $0.001

HEAR

Nasdaq

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes   No

The number of shares of the registrant’s Common Stock, par value $0.001 per share, outstanding on October 31,2020 was 15,187,576.

 


 

INDEX

 

 

 

Page

 

 

 

PART I. FINANCIAL INFORMATION

3

 

 

 

Item 1.

Financial Statements (unaudited)

3

 

 

 

 

  Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019

3

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019

4

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019

6

 

 

 

 

Condensed Consolidated Statement of Stockholder's Equity (Deficit) for the Three and Nine Months Ended September 30, 2020 and 2019

7

 

 

 

 

Notes to Condensed Consolidated Financial Statements

9

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

28

 

 

 

Item 4.

Controls and Procedures

29

 

 

 

PART II. OTHER INFORMATION

30

 

 

 

Item 1.

Legal Proceedings

30

 

 

 

Item 1A.

Risk Factors

30

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

40

 

 

 

Item 5.

Other Information

40

 

 

 

Item 6.

Exhibits

41

 

 

SIGNATURES

42

 

 

2


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Turtle Beach Corporation

Condensed Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

(in thousands, except par value and share amounts)

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

27,265

 

 

$

8,249

 

Accounts receivable, net

 

 

53,825

 

 

 

44,530

 

Inventories

 

 

79,453

 

 

 

45,711

 

Prepaid expenses and other current assets

 

 

8,451

 

 

 

4,057

 

Total Current Assets

 

 

168,994

 

 

 

102,547

 

Property and equipment, net

 

 

5,004

 

 

 

3,962

 

Deferred income taxes

 

 

7,800

 

 

 

7,439

 

Goodwill

 

 

8,178

 

 

 

8,515

 

Intangible assets, net

 

 

5,325

 

 

 

6,011

 

Other assets

 

 

6,230

 

 

 

2,877

 

Total Assets

 

$

201,531

 

 

$

131,351

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Revolving credit facility

 

$

 

 

$

15,655

 

Accounts payable

 

 

63,699

 

 

 

22,511

 

Other current liabilities

 

 

34,432

 

 

 

26,422

 

Total Current Liabilities

 

 

98,131

 

 

 

64,588

 

Deferred income taxes

 

 

140

 

 

 

153

 

Other liabilities

 

 

7,524

 

 

 

3,223

 

Total Liabilities

 

 

105,795

 

 

 

67,964

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

Common stock, $0.001 par value - 25,000,000 shares authorized; 15,186,990 and 14,488,182 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

 

 

15

 

 

 

14

 

Additional paid-in capital

 

 

187,065

 

 

 

176,776

 

Accumulated deficit

 

 

(91,076

)

 

 

(113,519

)

Accumulated other comprehensive income (loss)

 

 

(268

)

 

 

116

 

Total Stockholders’ Equity

 

 

95,736

 

 

 

63,387

 

Total Liabilities and Stockholders’ Equity

 

$

201,531

 

 

$

131,351

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited)

3


 

Turtle Beach Corporation

Condensed Consolidated Statements of Operations

(unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(in thousands, except per-share data)

 

Net revenue

 

$

112,494

 

 

$

46,723

 

 

$

227,181

 

 

$

132,899

 

Cost of revenue

 

 

66,358

 

 

 

31,680

 

 

 

141,033

 

 

 

89,898

 

Gross profit

 

 

46,136

 

 

 

15,043

 

 

 

86,148

 

 

 

43,001

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

 

11,857

 

 

 

10,150

 

 

 

29,064

 

 

 

24,581

 

Research and development

 

 

3,260

 

 

 

2,198

 

 

 

8,688

 

 

 

5,388

 

General and administrative

 

 

6,799

 

 

 

5,214

 

 

 

19,232

 

 

 

16,057

 

Total operating expenses

 

 

21,916

 

 

 

17,562

 

 

 

56,984

 

 

 

46,026

 

Operating income (loss)

 

 

24,220

 

 

 

(2,519

)

 

 

29,164

 

 

 

(3,025

)

Interest expense

 

 

103

 

 

 

240

 

 

 

355

 

 

 

595

 

Other non-operating expense (income), net

 

 

(101

)

 

 

302

 

 

 

(1,520

)

 

 

(1,430

)

Income (loss) before income tax

 

 

24,218

 

 

 

(3,061

)

 

 

30,329

 

 

 

(2,190

)

Income tax expense

 

 

6,424

 

 

 

63

 

 

 

7,886

 

 

 

252

 

Net income (loss)

 

$

17,794

 

 

$

(3,124

)

 

$

22,443

 

 

$

(2,442

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.20

 

 

$

(0.22

)

 

$

1.53

 

 

$

(0.17

)

Diluted

 

$

1.04

 

 

$

(0.22

)

 

$

1.41

 

 

$

(0.17

)

Weighted average number of shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

14,845

 

 

 

14,506

 

 

 

14,642

 

 

 

14,477

 

Diluted

 

 

17,154

 

 

 

14,506

 

 

 

15,961

 

 

 

14,477

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited)

4


 

Turtle Beach Corporation

Condensed Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

2020

 

 

September 30,

2019

 

 

September 30,

2020

 

 

September 30,

2019

 

 

 

(in thousands)

 

Net income (loss)

 

$

17,794

 

 

$

(3,124

)

 

$

22,443

 

 

$

(2,442

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

548

 

 

 

(330

)

 

 

(384

)

 

 

(323

)

Other comprehensive income (loss)

 

 

548

 

 

 

(330

)

 

 

(384

)

 

 

(323

)

Comprehensive income (loss)

 

$

18,342

 

 

$

(3,454

)

 

$

22,059

 

 

$

(2,765

)

 

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited)

5


 

Turtle Beach Corporation

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30, 2020

 

 

September 30, 2019

 

 

 

(in thousands)

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income (loss)

 

$

22,443

 

 

$

(2,442

)

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,302

 

 

 

3,477

 

Amortization of intangible assets

 

 

665

 

 

 

413

 

Amortization of debt financing costs

 

 

142

 

 

 

142

 

Stock-based compensation

 

 

3,977

 

 

 

2,555

 

Deferred income taxes

 

 

(375

)

 

 

 

Change in sales returns reserve

 

 

2,173

 

 

 

(4,262

)

Provision for obsolete inventory

 

 

2,216

 

 

 

2,081

 

Provision for doubtful accounts

 

 

 

 

 

(8

)

Unrealized gain on financial instrument obligation

 

 

 

 

 

(1,601

)

Increase in fair value of contingent consideration

 

 

510

 

 

 

 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(11,468

)

 

 

30,017

 

Inventories

 

 

(35,957

)

 

 

(12,622

)

Accounts payable

 

 

40,763

 

 

 

14,426

 

Prepaid expenses and other assets

 

 

(4,322

)

 

 

(1,005

)

Income taxes payable

 

 

6,769

 

 

 

(1,569

)

Other liabilities

 

 

1,800

 

 

 

(2,298

)

Net cash provided by operating activities

 

 

32,638

 

 

 

27,304

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(3,918

)

 

 

(1,628

)

Acquisition of a business, net of cash acquired

 

 

 

 

 

(12,667

)

Net cash used for investing activities

 

 

(3,918

)

 

 

(14,295

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Borrowings on revolving credit facilities

 

 

185,486

 

 

 

148,087

 

Repayment of revolving credit facilities

 

 

(201,141

)

 

 

(158,911

)

Proceeds from sale of equity securities

 

 

4,372

 

 

 

 

Proceeds from exercise of stock options and warrants

 

 

2,155

 

 

 

214

 

Repurchase of common stock

 

 

 

 

 

(1,941

)

Repurchase of common stock to satisfy employee tax withholding obligations

 

 

(215

)

 

 

(201

)

Net cash used for financing activities

 

 

(9,343

)

 

 

(12,752

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(361

)

 

 

(298

)

Net increase (decrease) in cash and cash equivalents

 

 

19,016

 

 

 

(41

)

Cash and cash equivalents - beginning of period

 

 

8,249

 

 

 

7,078

 

Cash and cash equivalents - end of period

 

$

27,265

 

 

$

7,037

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF INFORMATION

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

245

 

 

$

488

 

Cash paid for income taxes

 

$

800

 

 

$

447

 

Reclassification of financial instrument obligation

 

$

 

 

$

6,248

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited)

6


 

Turtle Beach Corporation

Condensed Consolidated Statement of StockholdersEquity (Deficit)

(unaudited)

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Total

 

 

 

(in thousands)

 

Balance at December 31, 2019

 

 

14,488

 

 

$

14

 

 

$

176,776

 

 

$

(113,519

)

 

$

116

 

 

$

63,387

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(3,555

)

 

 

 

 

 

(3,555

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(819

)

 

 

(819

)

Issuance of restricted stock

 

 

19

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Repurchase of common stock and retirement of related treasury shares

 

 

(7

)

 

 

 

 

 

(48

)

 

 

 

 

 

 

 

 

(48

)

Stock options exercised

 

 

6

 

 

 

 

 

 

18

 

 

 

 

 

 

 

 

 

18

 

Stock-based compensation

 

 

 

 

 

 

 

 

999

 

 

 

 

 

 

 

 

 

999

 

Balance at March 31, 2020

 

 

14,506

 

 

$

15

 

 

$

177,745

 

 

$

(117,074

)

 

$

(703

)

 

$

59,983

 

Net income

 

 

 

 

 

 

 

 

 

 

 

8,204

 

 

 

 

 

 

8,204

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(113

)

 

 

(113

)

Issuance of restricted stock

 

 

85

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase of common stock and retirement of related treasury shares

 

 

(6

)

 

 

 

 

 

(60

)

 

 

 

 

 

 

 

 

(60

)

Stock options exercised

 

 

9

 

 

 

 

 

 

41

 

 

 

 

 

 

 

 

 

41

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,406

 

 

 

 

 

 

 

 

 

1,406

 

Balance at June 30, 2020

 

 

14,594

 

 

 

15

 

 

 

179,132

 

 

 

(108,870

)

 

 

(816

)

 

 

69,461

 

Net income

 

 

 

 

 

 

 

 

 

 

 

17,794

 

 

 

 

 

 

17,794

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

548

 

 

 

548

 

Issuance of restricted stock

 

 

34

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase of common stock and retirement of related treasury shares

 

 

(6

)

 

 

 

 

 

(107

)

 

 

 

 

 

 

 

 

(107

)

Stock options exercised

 

 

327

 

 

 

 

 

 

2,096

 

 

 

 

 

 

 

 

 

2,096

 

Proceeds of sales of equity securities

 

 

238

 

 

 

 

 

 

4,372

 

 

 

 

 

 

 

 

 

4,372

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,572

 

 

 

 

 

 

 

 

 

1,572

 

Balance at September 30, 2020

 

 

15,187

 

 

$

15

 

 

$

187,065

 

 

$

(91,076

)

 

$

(268

)

 

$

95,736

 

7


 

Turtle Beach Corporation

Condensed Consolidated Statement of StockholdersEquity (Deficit)

(unaudited)

 

 

 

Common Stock

 

 

 

 

Additional

Paid-In

 

 

 

 

Accumulated

 

 

 

 

Accumulated

Other

Comprehensive

 

 

 

 

 

 

 

 

 

Shares

 

 

 

 

Amount

 

 

 

 

Capital

 

 

 

 

Deficit

 

 

 

 

Income (Loss)

 

 

 

 

Total

 

 

 

(in thousands)

 

Balance at December 31, 2018

 

 

14,268

 

 

 

 

$

14

 

 

 

 

$

169,421

 

 

 

 

$

(131,463

)

 

 

 

$

(476

)

 

 

 

$

37,496

 

Net income