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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 June 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)

 

 

11011 Via Frontera, Suite A/B

San Diego, California

92127

(Address of principal executive offices)

(Zip Code)

 

(888) 496-8001

(Registrant’s telephone number, including area code)

 

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 July 31, 2020 was 14,594,759.

 

 

 


 

INDEX

 

 

 

Page

 

 

 

PART I. FINANCIAL INFORMATION

3

 

 

 

Item 1.

Financial Statements (unaudited)

3

 

 

 

 

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

3

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019

4

 

 

 

 

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

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019

6

 

 

 

 

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

7

 

 

 

 

Notes to Condensed Consolidated Financial Statements

8

 

 

 

Item 2.

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

20

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

26

 

 

 

Item 4.

Controls and Procedures

26

 

 

 

PART II. OTHER INFORMATION

28

 

 

 

Item 1.

Legal Proceedings

28

 

 

 

Item 1A.

Risk Factors

28

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

 

 

 

Item 5.

Other Information

39

 

 

 

Item 6.

Exhibits

40

 

 

SIGNATURES

41

 

 

2


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Turtle Beach Corporation

Condensed Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

(in thousands, except par value and share amounts)

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,206

 

 

$

8,249

 

Accounts receivable, net

 

 

37,007

 

 

 

44,530

 

Inventories

 

 

44,953

 

 

 

45,711

 

Prepaid expenses and other current assets

 

 

10,233

 

 

 

4,057

 

Total Current Assets

 

 

113,399

 

 

 

102,547

 

Property and equipment, net

 

 

4,366

 

 

 

3,962

 

Deferred income taxes

 

 

6,664

 

 

 

7,439

 

Goodwill

 

 

8,178

 

 

 

8,515

 

Intangible assets, net

 

 

5,518

 

 

 

6,011

 

Other assets

 

 

2,370

 

 

 

2,877

 

Total Assets

 

$

140,495

 

 

$

131,351

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Revolving credit facility

 

$

 

 

$

15,655

 

Accounts payable

 

 

41,694

 

 

 

22,511

 

Other current liabilities

 

 

26,331

 

 

 

26,422

 

Total Current Liabilities

 

 

68,025

 

 

 

64,588

 

Deferred income taxes

 

 

140

 

 

 

153

 

Other liabilities

 

 

2,869

 

 

 

3,223

 

Total Liabilities

 

 

71,034

 

 

 

67,964

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

Common stock, $0.001 par value - 25,000,000 shares authorized; 14,594,731 and 14,488,182 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively

 

 

15

 

 

 

14

 

Additional paid-in capital

 

 

179,132

 

 

 

176,776

 

Accumulated deficit

 

 

(108,870

)

 

 

(113,519

)

Accumulated other comprehensive income (loss)

 

 

(816

)

 

 

116

 

Total Stockholders’ Equity

 

 

69,461

 

 

 

63,387

 

Total Liabilities and Stockholders’ Equity

 

$

140,495

 

 

$

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

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(in thousands, except per-share data)

 

Net revenue

 

$

79,680

 

 

$

41,330

 

 

$

114,687

 

 

$

86,176

 

Cost of revenue

 

 

50,453

 

 

 

28,159

 

 

 

74,675

 

 

 

58,218

 

Gross profit

 

 

29,227

 

 

 

13,171

 

 

 

40,012

 

 

 

27,958

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

 

9,559

 

 

 

7,550

 

 

 

17,207

 

 

 

14,431

 

Research and development

 

 

3,001

 

 

 

1,734

 

 

 

5,428

 

 

 

3,190

 

General and administrative

 

 

6,710

 

 

 

6,194

 

 

 

12,433

 

 

 

10,843

 

Total operating expenses

 

 

19,270

 

 

 

15,478

 

 

 

35,068

 

 

 

28,464

 

Operating income (loss)

 

 

9,957

 

 

 

(2,307

)

 

 

4,944

 

 

 

(506

)

Interest expense

 

 

83

 

 

 

111

 

 

 

252

 

 

 

355

 

Other non-operating expense (income), net

 

 

(1,616

)

 

 

(70

)

 

 

(1,419

)

 

 

(1,732

)

Income (loss) before income tax

 

 

11,490

 

 

 

(2,348

)

 

 

6,111

 

 

 

871

 

Income tax expense

 

 

3,286

 

 

 

25

 

 

 

1,462

 

 

 

189

 

Net income (loss)

 

$

8,204

 

 

$

(2,373

)

 

$

4,649

 

 

$

682

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.56

 

 

$

(0.16

)

 

$

0.32

 

 

$

0.05

 

Diluted

 

$

0.51

 

 

$

(0.16

)

 

$

0.30

 

 

$

(0.06

)

Weighted average number of shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

14,581

 

 

 

14,586

 

 

 

14,538

 

 

 

14,462

 

Diluted

 

 

16,229

 

 

 

14,586

 

 

 

15,363

 

 

 

15,699

 

 

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

 

 

Six Months Ended

 

 

 

June 30,

2020

 

 

June 30,

2019

 

 

June 30,

2020

 

 

June 30,

2019

 

 

 

(in thousands)

 

Net income (loss)

 

$

8,204

 

 

$

(2,373

)

 

$

4,649

 

 

$

682

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(113

)

 

 

(158

)

 

 

(932

)

 

 

7

 

Other comprehensive income (loss)

 

 

(113

)

 

 

(158

)

 

 

(932

)

 

 

7

 

Comprehensive income (loss)

 

$

8,091

 

 

$

(2,531

)

 

$

3,717

 

 

$

689

 

 

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

5


 

Turtle Beach Corporation

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

 

 

Six Months Ended

 

 

 

June 30, 2020

 

 

June 30, 2019

 

 

 

(in thousands)

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

4,649

 

 

$

682

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,061

 

 

 

2,180

 

Amortization of intangible assets

 

 

443

 

 

 

221

 

Amortization of debt financing costs

 

 

94

 

 

 

94

 

Stock-based compensation

 

 

2,405

 

 

 

1,525

 

Deferred income taxes

 

 

761

 

 

 

 

Reversal of sales returns reserve

 

 

(1,207

)

 

 

(5,166

)

Provision for obsolete inventory

 

 

1,493

 

 

 

1,602

 

Unrealized gain on financial instrument obligation

 

 

 

 

 

(1,601

)

Increase in fair value of contingent consideration

 

 

335

 

 

 

 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

8,730

 

 

 

40,979

 

Inventories

 

 

(734

)

 

 

4,461

 

Accounts payable

 

 

19,020

 

 

 

(1,066

)

Prepaid expenses and other assets

 

 

(6,124

)

 

 

(950

)

Income taxes payable

 

 

135

 

 

 

(405

)

Other liabilities

 

 

(219

)

 

 

(4,384

)

Net cash provided by operating activities

 

 

31,842

 

 

 

38,172

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(2,303

)

 

 

(1,007

)

Acquisition of a business, net of cash acquired

 

 

-

 

 

 

(12,667

)

Net cash used for investing activities

 

 

(2,303

)

 

 

(13,674

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Borrowings on revolving credit facilities

 

 

48,426

 

 

 

99,453

 

Repayment of revolving credit facilities

 

 

(64,081

)

 

 

(126,036

)

Proceeds from exercise of stock options and warrants

 

 

59

 

 

 

94

 

Repurchase of common stock

 

 

-

 

 

 

(1,499

)

Repurchase of common stock to satisfy employee tax withholding obligations

 

 

(108

)

 

 

(145

)

Net cash used for financing activities

 

 

(15,704

)

 

 

(28,133

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(878

)

 

 

3

 

Net increase in cash and cash equivalents

 

 

12,957

 

 

 

(3,632

)

Cash and cash equivalents - beginning of period

 

 

8,249

 

 

 

7,078

 

Cash and cash equivalents - end of period

 

$

21,206

 

 

$

3,446

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF INFORMATION

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

198

 

 

$

308

 

Cash paid for income taxes

 

$

44

 

 

$

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

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,055

 

 

 

 

 

 

 

 

 

 

3,055

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

165

 

 

 

 

 

165

 

Reclassification of financial instrument obligation

 

 

 

 

 

 

 

 

 

 

 

 

6,248

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,248

 

Issuance of restricted stock

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase of common stock and retirement of related treasury shares

 

 

(6

)

 

 

 

 

 

 

 

 

 

(101

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(101

)

Issuance of common stock upon exercise of warrants

 

 

295

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options exercised

 

 

6

 

 

 

 

 

 

 

 

 

 

23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

522

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

522

 

Balance at March 31, 2019

 

 

14,575

 

 

 

 

$

14