UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report: March 12, 2018
(Date of earliest event reported)
Turtle Beach Corporation
(Exact name of registrant as specified in its charter)
Nevada | 001-35465 | 27-2767540 |
(State or other jurisdiction of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification Number) |
11011 Via Frontera, Suite A/B
San Diego, California 92127
(Address of principal executive offices)
(888) 496-8001
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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.☐
Item 7.01. Regulation FD Disclosure
Investor Presentation
Certain information concerning our business and financial results can be currently accessed on our website, http://corp.turtlebeach.com/investor-relations under the heading “Investor Presentations.” Representatives of the Company expect to use this presentation, in whole or in part, and possibly with modifications, periodically in connection with conferences and presentations to investors, analysts and others. Portions of the presentation are attached hereto as Exhibit 99.1.
The investor presentation includes financial information not prepared in accordance with generally accepted accounting principles (“Non-GAAP Financial Measures”). A reconciliation of the Non-GAAP Financial Measures included in the presentation to financial information prepared in accordance with generally accepted accounting principles (“GAAP”), as required by Regulation G, appears in the Appendix to the presentation. The information contained in the presentation is summary information that is intended to be considered in the context of the Company’s Securities and Exchange Commission (“SEC”) filings and other public announcements that it may make, by press release or otherwise, from time to time. The Company undertakes no duty or obligation to publicly update or revise the information contained in the presentation or this report, although it may do so from time to time as its management believes is warranted. Any such updating may be made through the filing of other reports or documents with the SEC, through press releases or through other public disclosure.
The information in this report is being furnished pursuant to Item 7.01 and shall not be deemed to be “filed” for purposes of Section 17 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act.
Item 9.01 — Financial Statements and Exhibits
(d) Exhibits
Exhibit No. | Description |
Turtle Beach Corporation Investor Presentation | |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
TURTLE BEACH CORPORATION | |||
Date: | March 12, 2018 | By: | /S/ JOHN T. HANSON |
John T. Hanson Chief Financial Officer, Treasurer and Secretary | |||
Corporate Presentation
March 2018
SAFE HARBOR STATEMENT
Forward-Looking Information
This presentation includes “forward-looking statements” within the meaning of the federal securities laws. These forward-looking statements are statements that are not historical
facts including statements about our beliefs and expectations and statements, and may contain the words “may,” “could,” “would,” “should,” “believe,” “expect,” “anticipate,”
“plan,” “estimate,” “target,” “project,” “intend,” “foresee,” and similar expressions. There are a number of risks and uncertainties that could cause actual results to differ materially
from the forward-looking statements made herein, including but not limited to, risks related to the Company’s liquidity and financial position, the substantial uncertainties inherent
in the acceptance of existing and future products, the difficulty of commercializing and protecting new technology, the impact of competitive products and pricing, general business
and economic conditions, risks associated with the expansion of our business including the implementation of any businesses we acquire, our indebtedness, and the other factors
discussed in our public filings, including the section entitled “Risk Factors” in our most recent Quarterly Report on Form 10-Q, our Annual Report on Form 10-K and other periodic
reports filed with the Securities and Exchange Commission (the “SEC”) and available on the SEC’s website, www.sec.gov. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this presentation. Except as required by law, Turtle Beach Corporation (the “Company”) undertakes no obligation to
publicly release any revision to its forward-looking statements to reflect events or circumstances after the date of this presentation. All of the forward-looking statements in this
presentation are qualified by such cautionary statements, and subject to the protection of the safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. This presentation also contains trademarks and trade names that are property of their respective owners.
Non-GAAP Financial Measures
This presentation contains certain financial measures, including adjusted EBITDA and non-GAAP earnings per share (“EPS”), that are not calculated under the standards or rules of
U.S. GAAP, which are referred to as "non-GAAP financial measures." These non-GAAP financial measures, as calculated by the Company, are not necessarily comparable to similarly
titled measures reported by other companies. Additionally, these non-GAAP financial measures are not measurements of financial performance or liquidity under GAAP and should
not be considered an alternative to the Company’s other financial information determined under GAAP. Management believes that these non-GAAP financial measures, when read
in conjunction with the Company's reported results, can provide useful supplemental information for investors analyzing period to period comparisons of the Company's results.
“Adjusted EBITDA” is defined by the Company as net income (loss) before interest, taxes, depreciation and amortization, stock-based compensation (non-cash), and certain special
items that we believe are not representative of core operations. The Adjusted EBITDA outlook for the first quarter and full year 2018 has not been reconciled with the Company’s net
loss outlook for the same periods because of the variability, complexity and lack of visibility with respect to certain reconciling items between adjusted EBITDA and net loss, including
other income (expense), provision for income taxes and stock-based compensation. These items cannot be reasonably and accurately predicted without the investment of undue
time, cost and other resources and, accordingly, a reconciliation of the Company’s adjusted EBITDA outlook to its net loss outlook for such periods is not available without
unreasonable effort. These reconciling items could be material to the Company’s actual results for such periods.
© 2018 Turtle Beach Corporation. All Rights Reserved.
2
WHO WE ARE
• Key player in $100 billion gaming market
• Critical accessory provider to esports fans and players
• Dominant market leader in gaming headsets
• Strong brand with high consumer loyalty
• Global distribution & partnerships
• Full line of differentiated products
• Extensive & valuable patent portfolio
• Strengthening balance sheet
•Well positioned for a strong 2018
• Opportunities to drive double-digit long-term growth
• Experienced board & management team
3
KEY PLAYER IN $100B GLOBAL GAMING MARKET
4
PC Gaming: $33B
5.9% YOY Growth(1)
Mobile Gaming: $38B
10.8% YOY Growth(1)
Console Gaming: $35B
17.2% YOY Growth (1)
$106B
Global Gaming
Opportunity(1)
Esports: $0.7B
41.3% YOY Growth(2)
Virtual Reality: $6.4B
73% YOY Growth(3)
$7B
Opportunity(2)(3)
(1) DFC Intelligence Video Game Worldwide Market Forecast (March 2017)
(2) 2017 Newzoo - 2017 Global esports Market Report
(3) Statista Virtual Reality Worldwide Market Size
AUDIO HEADSETS ARE A CRITICAL ACCESSORY FOR GAMERS
5
Gaming Headsets Provide…
• Good microphone for multi-player gaming
• More immersive audio for a better gaming experience
• Competitive advantage in picking up key audio cues
• Privacy of game and chat audio
Headsets,
$1,088
[CATEGO
RY
NAME],
[VALUE]
Keyboard
s, $459
Other,
$106
Global Gaming Accessory Market $2,180B(1)
(1) NewZoo Report
Americas and Europe are
over 75% of the market
…And Are Largest Segment In $2+B Accessory Market With over 700M
Gamers and 175M
esports fans in the
Americas and
Europe(1)
WE ARE THE DOMINANT LEADER IN GAMING HEADSETS
6
#1 gaming headset
provider for Xbox &
PlayStation
Longstanding position with
higher share than next 3
players combined
Source: The NPD Group, Inc., Video Games Console Headset Update 1.11.18
5 of the top 10 sellers
overall (1st & 3rd party)
are Turtle Beach
4 of the top 5 selling
3rd party headsets are
Turtle Beach
STRONG BRAND WITH HIGH CONSUMER LOYALTY
7 (1) Source: Bowen Research (June 2015); (2) Source: Survey Sampling International Research (April 2017), showing main Console Gaming Headset competitors; (3) Source: Simply Measured Service, June 2017.
Consumers’ Favorite Gaming Headset Brand¹
Facebook “Likes”³ Unaided Brand Awareness²
#1 rated
headset based
on audio
quality¹
#1 rated
headset based
on comfort¹
+52 Net Promoter Score²
36%
30%
12%
8%
5% 4% 3% 3%
Comp #1 Comp #2 Comp #3 Comp #4 Comp #5 Comp #6 Comp #7
23%
21%
6% 5%
2%
Comp #1 Comp #2 Comp #3 Comp #4
654,090
251,349
201,407 200,719
129,948
61,981
Comp #1 Comp #2 Comp #3 Comp #4
Comp #1 Comp #2 Comp #3 Comp #4 Comp #5
Strong Retail Presence Great partnerships 10,000+ Interactive Displays
Sample retailers
GLOBAL DISTRIBUTION & PARTNERSHIPS
8
Product sales in 42 countries
with over 260,000 points of
distribution
Partnerships with industry-leading
brands
Market leader in deploying
interactive gaming headset
displays
STRONG PRESENCE IN ESPORTS
9
Optic Gaming
#1 Console esports organization in the world,
top ranked teams across Halo, Gears of War
and Call of Duty
Astralis
One of world’s best CS:GO teams, Major
Champions; one of Europe’s top Call of Duty
teams
Key Partnerships
Splyce
Europe’s top Call of Duty team
69% of esports
fans play on
Xbox One or
PS4(1)
(1) Nielsen Esports Playbook (2017)
FULL LINE OF PRODUCTS…WITH COMPELLING NEW LAUNCHES
ASP TB Key Features Sample Products
• Wireless game & chat
• Active noise-cancellation & Bluetooth®
• DTS Headphone:X® 7.1 surround sound
• Superhuman Hearing
• Magnetic base station
• Immersive surround sound
• Xbox Wireless (connects directly to Xbox One)
• Active noise-cancellation & Bluetooth (700 only)
• Glasses friendly design
• Superhuman Hearing
• Large, powerful 50mm speakers
• High-sensitivity mic
• Durable, fan-favorite headset ID
• Superhuman Hearing (PX24)
• High-quality 40mm speakers
• High-sensitivity mic
• Lightweight comfort
• Innovative open earcup
• Glasses friendly design
• Tournament-grade game & chat audio
• Unmatched comfort with glasses friendly design &
cooling gel-infused ear cushions
• Powerful amplified audio w/ DTS Headphone:X® 7.1
surround sound and Superhuman Hearing™ (PC
Edition)
> $200
$100 - $200
$50 - $100
< $50
Varies
10
Entry-Level
Gamer
< 4 hours per week
Casual Gamer
4-6 hours per week
Enthusiast
Gamer
7-15 hours per week
Core Gamer
16+ hours per week
Esports
PC Edition
Launched
July & Oct.
2017
Launched
Sept. 2017
Launched
July & Oct.
2017
Launched
Apr. 2017
…AND DIFFERENTIATED TECHNOLOGY
11
Rechargeable Batteries
Built-in rechargeable batteries provide for hours of
continuous game play.
100% Wireless
Interference-free game audio & chat.
First Xbox direct-correct wireless
DTS Headphone:X 7.1 Surround
Superior surround sound that adds a height
dimension, recreating the sound in your environment.
Audio Presets
Customize your settings to create the perfect,
personalized experience.
Dynamic Chat BoostTM
Chat volume increases as game volume increases.
Mic Monitoring
Allows gamers to hear their voice within the headset
so they know how loud they are speaking.
Magnetic Charging Stand
Easily charge & store your headset when
not in use without fussing with wires.
Bolded & Italicized Text = Turtle Beach Headset First Mover Advantage
Active Noise Cancellation
Silence unwanted background sound for an
immersive listening experience.
Bluetooth
Bluetooth integration allows you to take phone
calls with your headset while playing.
Bass Boost
Bass boost enhances deep rumbling sounds
in games.
Superhuman Hearing
Hear every single thing around you, from enemy
footsteps to distant vehicles to weapon reloads.
ProSpecs™ Glasses Relief System
Ear pads with pressure-release technology that
provides relief for gamers who wear glasses.
(Not on pictured headset.)
Boomless Mic
Hidden, high-quality noise-cancelling
microphones.
OVERVIEW OF UNIQUE HYPERSOUND TECHNOLOGY
12
New Sound Delivery Mechanism
Thin panels generate ultrasound beam
Audio is injected into the ultrasound beam
Sound is created in the air along the beam
Fundamentally new and different approach to audio
Fully functional from glass emitters enabling glass “speakers”
Multiple, Innovative Benefits
Highly controlled direction of sound
Full 3D surround sound with 2 emitters (vs. 5 or 7 speakers)
Significantly higher level of audio clarity to the listener
Monetization via Licensing or Sale
55 issued and 22 pending patents
Small team engaged with prospective licensees
Also exploring Strategic Alternatives
HYPERSOUND APPLICATIONS
13
Commercial
Audio
Enables retailers and retail display
manufacturers to add focused zone of
audio to retail displays / kiosks
Healthcare
Improves sound clarity and listening
benefits for people with hearing loss. Early
indications of benefits for sufferers of
Tinnitus
Market Application
Enterprise
Audio
Enables private zone of audio in
office/enterprise environments
Consumer
Audio
Utilize the 3D nature of HyperSound to
create individual surround sound
experience with two emitters
HyperSound
Glass
Directional audio with all benefits and
applications above but from glass panel.
Creates glass speaker which can be stand-
alone or integrated into video displays
Demos available at:
HyperSound Glass Demo
HyperSound Glass Integrated into Desktop Monitors
EXTENSIVE & VALUABLE PATENT PORTFOLIO
14
26 28
35
49
78
95
20
68
86
109
65
60
0
20
40
60
80
100
120
140
160
180
Jan 2013 Jan 2014 Jan 2015 Jan 2016 Jan 2017 Feb 2018
Issued Pending
121
96
46
158
143
155
•Headset innovations:
• Audio processing
• Gaming specific features
•HyperSound innovations:
• Emitter construction
• Ultrasound & emitter
electronics
• Digital signal processing
techniques
REVENUE PROFILE
15
$163
$174
$149
$157
2015 2016 2017 2018E³
Company Revenues (1)
Millions
Channel Inventory Adjustments
$211 $217 $215
$228
2015 2016 2017 TTM Jan 2018
Company Product Retail Sell-Through in Core Markets (2)
Millions
1) Company net revenues=wholesale revenues.
2) NPD and GFK reported retail revenue value of Turtle Beach headset sell-through for North America and UK representing vast majority of company global sales. January 2018 numbers are unaudited.
3) Guidance effective on March 6, 2018.
EBITDA PROFILE
16
-$11.4
$4.0
$11.6 $12.0
2015 2016 2017 2018E²
Adjusted EBITDA (1)
Millions
2016:
Returned headset business to profitability. Converted
HyperSound to licensing model. Entered esports, VR,
streaming mic categories.
2017:
Focused on core headset business and continued
profitability improvements. Laid groundwork for 2018+
growth initiatives.
2018:
Continue to deliver good profitability in headset
business. Lower cost of debt. Make select investments
to drive future growth.
1) See appendix for a reconciliation of non-GAAP measures.
2) Guidance effective on March 6, 2018.
STRONG FREE CASH FLOW GROWTH
17
-$19.8
-$1.3
$5.2 $6.0
-$25.0
-$20.0
-$15.0
-$10.0
-$5.0
$0.0
$5.0
$10.0
2015 2016 2017 2018E²
Strong free cash flow generation…
• Positioned the company to amend and
improve debt agreements Mar 2018
• Allows important growth investments
throughout 2018
Free Cash Flow (1)
Millions
1) Free cash flow defined as consolidated adjusted EBITDA less capital expenditures, less cash interest.
2) Guidance effective on March 6, 2018.
GROWTH OPPORTUNITIES – PC GAMING
18
Virtual Reality (VR)
PC Gaming International
• PC gaming headsets market
~$730M market globally1
• PC gaming more popular than
console gaming in markets
like Germany, China & other
parts of Asia1
• Leveraging expanded
portfolio as growth platform
in Germany & China
• Esports partnerships
expected to help build upon
our leading gaming audio
position
1) ©Newzoo 2018.
Recent Esports/PC Gaming Partnerships
Astralis - one of world’s best CS:GO
teams & major champions
Eclipse –
Top 5
ranked
CS:GO
team in
China
Splyce – Europe’s top Call of Duty team
Dr.
Disrespect –
fastest
growing
streamer on
Twitch
GROWTH OPPORTUNITIES – CHINA
19
Virtual Reality (VR)
International PC Gaming
China Opportunity
• 573M Chinese gamers1
• 114M esports audience in China of which 53.8M are esports
Enthusiasts1
• Turtle Beach has establish presence and making modest
investments in 2018 with further activities planned for 2019
Latin America Opportunity
• 205M estimated gamers1
• Turtle Beach in 15 countries & 113 retailers in Latin America
$32.5B
$42.0B
2017 2020E
Chinese Games Market
Forecast¹
1.©Newzoo 2018.
GROWTH OPPORTUNITIES – VR
20
PC Gaming
Virtual Reality (VR) International
1) https://www.statista.com/statistics/550461/virtual-reality-market-size-worldwide/
2) NPD data from 2016, 2017, through January 2018 .
• According to SuperData Research, VR hardware market
expected to reach $17.8B by 2020 from $1.5B in 2016 (85%
CAGR)¹
• Consoles likely to be key driver of non-mobile VR as evidenced
by Sony PSVR having 69% revenue share of major non-mobile
VR headsets since Oct ’16 launch²
• STEALTH 350VR, our first gaming headset designed for VR
devices, launched in Oct 2016 is now the leader in this
category in North America²
STEALTH 350VR
Balance Sheet Highlights
• Revolver typically peaks in Q4 and lowest
in Q1 after holiday receipts. 2017 average
Revolver balance was $12.4M.
• $49.0M federal, $21.0M state net
operating losses @ Dec 31, 2016 offset
taxable income (not scheduled to expire
until 2029)
• $60M line of credit and Mar 5, 2018
refinancing anticipated to provide
sufficient capital to make various growth
investments
BALANCE SHEET
21
Capitalization
@12-31-16 @12-31-17
Cash & Equivalents $6.2M $5.2M
Debt
Revolver (asset-based) $35.9M $38.5M
Term Loans $14.4M $11.7M
Subordinated Notes $19.4M $21.9M
Total Debt $69.7M $72.1M
Series B - Preferred Stock¹ $17.5M $18.9M
Leverage Ratio² 7.4x 2.1x
1) Due in October 2030 and has 8% per annum PIK interest.
2) Defined as total term loans outstanding and average trailing twelve month revolving debt, divided by consolidated trailing twelve month adjusted EBITDA.
AMENDED LENDING AGREEMENTS
•Amended lending agreements on Mar 6, 2018
•Improved terms include:
–Reduction in the interest rate and greater availability on revolving credit line
–Significant reduction in the interest rates on term loans (e.g., Crystal rate reduced by 3.5%)
–Reduction in the interest rate on sub debt with Stripes (e.g., majority reduced by 1.4%)
–Ability to use funds from the term loan to reduce sub debt, subject to certain conditions
–Elimination of EBITDA coverage covenants on the term loans
–Extension of the loans to 2023
•Expected interest savings of at least $3.5 million over the next five years
22
Q1 2018 OUTLOOK
23
Q1-18¹ YoY ∆ Year-Over-Year Commentary & Assumptions
Revenue ~$29M 102%
• Retailer restocking after holiday under-ordering, strong
consumer demand, healthy console gaming market
EPS ~$(0.12) 55% • Various revenue drivers noted above
Adj.
EBITDA
~$(1.5)M 76%
• Various revenue drivers noted above drive strong
improvement
1) Guidance effective on March 6, 2018.
2018 OUTLOOK
24
2017 2018¹ Year-Over-Year Commentary & Assumptions
Total Revenue $149.1M ~$157M
Quarterly revenue profile expected to shift revenue mix
from Q4 to earlier quarters similar to 2016
Gross Margin 34.2% ~34.2% Upper end of 33-35% targeted range
EPS $(0.07) ~$(0.03) Expecting continued improvements in EPS
Adj. EBITDA $11.6M ~$12M
Includes several million dollars of investments to drive
future growth
1) Guidance effective on March 6, 2018.
KEY TAKEAWAYS
#1 console gaming headset brand with dominant share
$106B global gaming market
Critical accessory for gaming and esports
Disruptive, cutting-edge technologies & patents
Significantly improved balance sheet and lower cost of debt
Projecting revenue growth in 2018
Q1 off to a very strong start
Room to grow in PC, esports, VR, and International markets
25
CONTACT US
Investor Relations: Media Contact:
Cody Slach Maclean Marshall
Liolios Turtle Beach Corporation
949.574.3860 858.914.5093
HEAR@Liolios.com Maclean.Marshall@turtlebeach.com
26
COMPANY WEBSITES
www.turtlebeachcorp.com www.turtlebeach.com www.hypersound.com
Investor Relations: Media Contact:
Cody Slach Maclean Marshall
Liolios Turtle Beach Corporation
949.574.3860 858.914.5093
HEAR@Liolios.com Maclean.Marshall@turtlebeach.com
APPENDIX
287
EXPERIENCED BOARD OF DIRECTORS
29
• Former Chairman & CEO of Activision Publishing (NASDAQ: ATVI)
• Operating partner of Stripes Group, LLC
• Founder & principal of Erasmus Equity Investments
Ron Doornink
Chairman
Juergen Stark
CEO & Director
• COO of Motorola Mobility’s mobile business
• 10 years as Principal at McKinsey & Company, Inc.
• MBA, Harvard Business School
Ken Fox
Director
• Managing partner of Stripes Group, LLC
• Former Managing Director & co-founder of Internet Capital Group (NASDAQ: ICGE)
• Co-founder of A-10 Capital & Sentinel Fund
William Keitel
Director
• Former CFO of Qualcomm Incorporated (NASDAQ: QCOM)
• During his time at the company grew revenues from ~$800M to ~$25B
• Held senior financial roles at Nortel (OTC: NRTLQ) & Pepsico (NYSE: PEP)
Dr. Andrew Wolfe, PhD
Director
• Founder & principal of Wolfe Consulting
• Former Chief Technology Officer for SONICblue, Inc.
• B.S.E.E. in Electrical Engineering & Computer Science, Johns Hopkins; Ph.D. in Computer
Engineering, Carnegie Mellon
Gregory Ballard
Director
• General partner with Eleven Ventures
• Former senior VP for mobile & social games at Warner Bros.
• Former CEO of Glu Mobile, former board member with DTS
EXPERIENCED MANAGEMENT TEAM
30
Juergen Stark
CEO
John Hanson
CFO
Cris Keirn
SVP, Global Sales
Matt Seymour
VP, Product Management
Megan Wynne
General Counsel
• COO of Motorola Mobility’s mobile business
• 10 years as principal at McKinsey & Company
Joe Stachula
CTO & VP Development
Andrew Lilien
VP of Marketing
Jose Rosado
VP Global Operations
Scott Rankin
VP Global Logistics
• 20+ years in consumer electronics
• 12 years at Plantronics engineering audio
headsets
• 20+ years of brand, consumer & retail
marketing experience
• Past experience at ESPN, Fleer Trading
Cards & National Media Group
• Former Sr. Director, Global Supply Chain
Operations for HP
• 22 years of supply chain management with
Motorola, On Semiconductor, HP, Cisco
• 20+ years of logistics, transportation &
operations experience
• 11+ years at Turtle Beach
• EVP & CFO at Dialogic
• CFO at One Communications Corp
• Led headset transition as VP of business planning &
strategy
• 17 years with Motorola in product management,
operations, quality & customer relations
• 20+ years in the Consumer Electronics industry
• Previously with Sony leading television portfolio
planning & development, product marketing
• 5 years with I-Flow, a Kimberly-Clark Health
Care Company
• 13 years with Morris Polich & Purdy law
firm
RECONCILIATION OF GAAP & NON-GAAP EARNINGS
31
Three Months Ended Year Ended
December 31,
2017
December 31,
2016
December 31,
2017
December 31,
2016
Net Income (Loss)
GAAP Net Income (Loss) $ 14,231 $ 12,201 $ (3,248 ) $ (87,182 )
Goodwill and intangible asset impairment — — — 63,236
HyperSound inventory reserve — — — 7,079
Restructuring charges 24 100 533 664
Non-GAAP Earnings $ 14,255 $ 12,301 $ (2,715 ) $ (16,203 )
Diluted Earnings Per Share
GAAP - Diluted $ 0.29 $ 0.25 $ (0.07 ) $ (1.79 )
Goodwill and intangible asset impairment $ — $ — $ — $ 1.30
HyperSound inventory reserve $ — $ — $ — $ 0.15
Restructuring charges $ — $ — $ 0.01 $ 0.01
Non-GAAP - Diluted $ 0.29 $ 0.25 $ (0.06 ) $ (0.33 )
GAAP TO ADJUSTED EBITDA RECONCILIATION – THREE MONTHS
ENDED DEC 31, 2017
32
(1) Other includes business transition costs and restructuring charges.
Three Months Ended
December 31, 2017
As
Reported
Adj
Depreciation
Adj
Amortization
Adj
Stock
Compensation
Other (1)
Adj
EBITDA
Net Revenue $ 79,696 $ — $ — $ — $ — $ 79,696
Cost of Revenue 49,748 (99 ) — — 120 49,769
Gross Profit 29,948 99 — — (120 ) 29,927
Operating Expense 13,969 (975 ) (89 ) (243 ) (24 ) 12,638
Operating income (loss) 15,979 1,074 89 243 (96 ) 17,289
Interest expense 2,199
Other non-operating (income) expense, net 54 54
Earnings before income tax benefit 13,726
Income tax benefit (505 )
Net income $ 14,231 Adjusted EBITDA $ 17,235
GAAP TO ADJUSTED EBITDA RECONCILIATION – YEAR ENDED DEC 31,
2017
33
Year Ended
December 31, 2017
As
Reported
Adj
Depreciation
Adj
Amortization
Adj
Stock
Compensation
Other (1)
Adj
EBITDA
Net Revenue $ 149,135 $ — $ — $ — $ — $ 149,135
Cost of Revenue 98,132 (578 ) — 66 79 97,699
Gross Profit 51,003 578 — (66 ) (79 ) 51,436
Operating Expense 46,205 (3,496 ) (348 ) (1,496 ) (533 ) 40,332
Operating income (loss) 4,798 4,074 348 1,430 454 11,104
Interest expense 7,916
Other non-operating (income) expense, net (463 ) (463 )
Loss before income tax expense (2,655 )
Income tax expense 593
Net loss $ (3,248 ) Adjusted EBITDA $ 11,567
(1) Other includes business transition costs and restructuring charges.
GAAP TO ADJUSTED EBITDA RECONCILIATION – THREE MONTHS
ENDED DEC 31, 2016
34
(2) Other includes goodwill and other intangible asset impairment, business transition and restructuring charges.
Three Months Ended
December 31, 2016
As
Reported
Adj
Depreciation
Adj
Amortization
Adj
Stock
Compensation Other (2)
Adj
EBITDA
Net Revenue $ 82,204 $ — $ — $ — $ — $ 82,204
Cost of Revenue 51,996 (151 ) — (159 ) — 51,686
Gross Profit 30,208 151 — 159 — 30,518
Operating Expense 14,912 (729 ) (100 ) (579 ) (100 ) 13,405
Operating income (loss) 15,296 880 100 738 100 17,113
Interest expense 2,116
Other non-operating (income) expense, net 1,026 1,026
Earnings before income tax benefit 12,154
Income tax benefit (47 )
Net income $ 12,201 Adjusted EBITDA $ 16,087
GAAP TO ADJUSTED EBITDA RECONCILIATION – YEAR ENDED DEC 31,
2016
35
Year Ended
December 31, 2016
As
Reported
Adj
Depreciation
Adj
Amortization
Adj
Stock
Compensation Other (2)
Adj
EBITDA
Net Revenue $ 173,978 $ — $ — $ — $ — $ 173,978
Cost of Revenue 131,368 (571 ) (3,660 ) (557 ) (7,079 ) 119,501
Gross Profit 42,610 571 3,660 557 7,079 54,477
Operating Expense 120,311 (4,496 ) (468 ) (3,403 ) (63,900 ) 48,045
Operating income (loss) (77,701 ) 5,067 4,128 3,960 70,979 6,432
Interest expense 7,447
Other non-operating (income) expense, net 2,421 2,421
Loss before income tax benefit (87,569 )
Income tax benefit (387 )
Net loss $ (87,182 ) Adjusted EBITDA $ 4,011
(2) Other includes goodwill and other intangible asset impairment, business transition and restructuring charges.
GAAP TO ADJUSTED EBITDA RECONCILIATION
36
December 31, 2017 December 31, 2016 December 31, 2015
Consolidated
Net Income (Loss) (3,248) (87,182) (82,907)
Depreciation 4,075 5,066 5,901
Amortization of intangibles 349 4,128 2,015
Interest 7,916 7,447 5,100
Taxes 592 (387) 2,392
Stock Compensation 1,429 3,960 5,897
Restructuring Expense 533 664 399
Goodwill Impairment - 63,236 49,822
Business Transaction Expense (79) 7,079 -
Adj EBITDA 11,567 4,011 (11,381)