Turtle Beach Corporation
Turtle Beach Corp (Form: 8-K, Received: 11/21/2016 16:05:29)


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: November 21, 2016
(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)

12220 Scripps Summit Drive, Suite 100
San Diego, California 92131
(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))





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 Appendix A 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
99.1
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:
November 21, 2016
By:
/S/ JOHN T. HANSON
 
 
 
John T. Hanson
Chief Financial Officer, Treasurer and Secretary





 
N A S D A Q : H E A R 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, the application of quarter-end and year-end accounting procedures and adjustments, 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, the outcome of our previously announced HyperSound strategic review process, and the other factors discussed in our public filings, including the section entitled “Risk Factors” in our most recent Annual Report on Form 10-K, Quarterly Report on Form 10-Q 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 ire 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. Non-GAAP EPS is defined as EPS less $1.45 per diluted share in year-to-date goodwill impairment charges and inventory reserves associated with the HyperSound restructuring. The Adjusted EBITDA outlook for the fourth quarter and full year 2016 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. © 2016 Turtle Beach Corporation. All Rights Reserved. 1


 
N A S D A Q : H E A R Who We Are  Turtle Beach is a premier audio innovation company with a 40-year legacy of creating new audio categories  Longstanding, #1 brand for gaming headsets with 42% share of the U.S. market1  Positioned for renewed revenue and profit growth as major industry product cycle continues  We have created an entirely new audio market for directional sound with HyperSound Clear™ 500P and HyperSound Glass 2 1) Based on U.S. NPD market data, revenue share for 2015.


 
N A S D A Q : H E A R Headsets HyperSound Overview Market share leader with large, loyal customer base Breakthrough audio technology that allows directed placement of sound Markets Catalysts Leading product portfolio for new-gen consoles Evolving to a licensed model Leading Gaming Headset Business & Transformational New Directed Audio Technology 3 Console Gaming PC Gaming Healthcare Commercial Consumer Licensing Mobile ™ Virtual Reality


 
N A S D A Q : H E A R Tracking Towards 2016 Management Objectives  Significantly improve profitability of headset business (~5X EBITDA improvement) ✓Drive overall growth, offsetting expected $20M+ YoY decline in old-gen revenues with new-gen increases ✓Continue to improve headset gross margins to achieve ~30% for the year ✓Improve international performance in spite of strong dollar impact ✓Manage OpEx to improve headset adjusted EBITDA to ~$12.5M+ (~5x increase)  Move HyperSound business towards cash flow breakeven ✓Continue to drive additional advancements in technology and HyperSound intellectual property ✓Manage costs carefully to have HyperSound adjusted EBITDA less than $(11)M ✓Strategic options process underway to explore business model modifications  Targeting positive consolidated adjusted EBITDA of $1-$3M for 2016 4


 
N A S D A Q : H E A R 1) Prior guidance as of Aug 8, 2016. 2) Guidance updated and effective on Nov 10, 2016. 3) Delta reflects midpoint of the outlook. 4) Excludes $1.30 for goodwill impairment and $0.15 for inventory reserve charges associated with the HyperSound restructuring. 2016 Outlook 5 ($ in millions) Prior¹ Revised² % ∆³ Management Commentary Revenue: New-Gen $154-$161 $157-$163 7% 27-31% growth from 2015 Old-Gen $8-$10 $7-$9 (11)% 71-77% decline from 2015 Other $5 $5 - Opportunity for international growth HyperSound $1-$2 $1 (83)% Slower than expected ramp, lower spend on sales & marketing Total Revenue $168-$178 $170-$178 7% 4-9% growth from 2015 Headset Gross Margin ~30% ~30% - +400 basis points over 2015 EPS $(1.08)-$(1.12) $(1.87)-$(1.91) (72)% Based upon 48.6M shares Non-GAAP EPS4 $(0.45)-$(0.49) $(0.42)-$(0.46) 7% $(0.58) per share in 2015, excluding a tax valuation expense and goodwill impairment Adjusted EBITDA: Headsets $12.5+ $11.5-$13.5 2% ~5X increase over 2015 HyperSound Investment <$12 <$11 (8)% Modest reduction from 2015 reflecting cost management Consol. Adj. EBITDA $0.5-$2.5 $1-$3 100% $11M+ increase from 2015


 
N A S D A Q : H E A R Gaming Headsets


 
N A S D A Q : H E A R Dominant Gaming Audio Provider with Leading Market Share  #1 gaming headset provider for Xbox and PlayStation  Completely transitioned portfolio from old-gen (Xbox 360 & PlayStation 3) to new-gen (Xbox One & PlayStation 4) from 2013 to 2015  New-gen headset revenues up:  55% Q1-Q3 2016 YoY  35% Q3 2016 YoY  Xbox One (Q1-Q3 2016):  3 of the top 5 headsets  4 of the top five 3rd party headsets and the top selling 3rd party headset  PlayStation 4 (Q1-Q3 2016):  3 of the top 5 headsets  4 of the top five 3rd party headsets and the top selling 3rd party headset 7 1) Video Games POS Monthly Update, The NPD Group, Inc. (US data measured by revenue share). 2) Gfk/Gfk Chart-Track. 42% 2015 U.S. Gaming Headset Market Share1


 
N A S D A Q : H E A R 3.0 10.9 20.0 28.7 36.7 44.0 4.6 18.0 34.6 51.5 67.1 82.4 0M 20M 40M 60M 80M 100M 120M 2013 2014 2015 2016E 2017E 2018E Xbox One PS4 0M 10M 20M 30M 40M 50M 60M 70M 80M 90M 2013 2014 2015 2016E 2017E 2018E (# of consoles) New-Gen Console Growth 35M  82M 20M  44M Sources: DFC Intelligence Forecasts: Worldwide Console Forecast, October 2016. Cumulative Sales (Current  2018 est.) Platform Cumulative Console Sales (in millions)  Cumulative new-gen console sales totaled 55M as of 12/31/15  New-gen console sales are up over 56% vs. old-gen at same time in cycle  Over 25M new-gen consoles expected to be sold worldwide in 2016  New-gen cumulative console sales projected to exceed 125M worldwide in 2018 New-Gen: Xbox One, PS4 Old-Gen: Xbox360, PS3 8 Active Installed Base of Consoles (in millions) (# of consoles)


 
N A S D A Q : H E A R Retail ASP <$50 $50 - $99 $100 - $200 >$200 Console PS4 Xbox One PS4 Xbox One PS4 Xbox One PS4 Xbox One TOTAL¹ Recon 60P Recon 50P P4c Recon 50X Recon 30X Stealth 400 S350VR PX24 XO4 Stealth XO1 PX24 Stealth 520 Elite Pro Stealth 420X+ XO7 Pro Elite Pro Elite 800 Elite 800X 18 Sony Gold Wireless Platinum Wireless 2 Microsoft XB1 Chat XB1 Stereo 2 Astro A40+M80 A40 + MixAmp A50 A40 + MixAmp A50 5 PDP LVL 3 LVL 1 Afterglow BT LVL 3 LVL 1 AG 9+ LVL 5+ Sound of Justice AG 9+ LVL 5+ Sound of Justice 11 Mad Catz Kaiken Headcomm pro Kama Kama ARK100 ARK 100 ARK300 ARK300 8 We Cover All Key Price Points – More Than Any Competitor 9 1) Table reflects competitive data as of November 2016.


 
N A S D A Q : H E A R We Have Differentiated Technology… Advanced Chat Chat technology like noise gate, chat boost, variable microphone monitor Bluetooth Dual-pairing Bluetooth in most wireless headsets for chat, mobile gaming, audio calls and music streaming DTS Headphone:X 1st gaming headsets with DTS 7.1 surround sound to provide incredibly accurate and immersive directional sound Digital Signal Processing (DSP) Game audio and chat presets that can be customized using a new mobile app Active Noise Cancellation 1st gaming headset to use noise cancellation for both inbound audio and outbound chat Superhuman Hearing™ Provides a competitive advantage by making important, quiet sounds louder and easier to hear 10


 
N A S D A Q : H E A R Strong Retail Presence Great Partnerships 12,000+ Interactive Displays Sample retailers …And Strong Distribution 11 Product sales in over 40 countries with over 266,000 points of distribution Partnerships with industry leading brands Market leader in deploying interactive gaming headset displays


 
N A S D A Q : H E A R International Virtual Reality (VR) PC Gaming Headset Growth Opportunities 12  VR market expected to reach $1B in 20161  $700M in hardware sales, remainder in content  According to SuperData Research, VR hardware market expected to reach $15.9B by 2020 (40% CAGR)²  STEALTH 350VR, our first gaming headset designed for upcoming VR devices, launched in Oct 2016  “If you’re buying a headset to use with your virtual reality hardware, you won’t find another headset on the market (yet) designed to physically accommodate the Rift, Vive and PSVR HMDs.” Tom’s Hardware review (online reach of 20M)  “It’s nice to be able to have so much control over volume and bass on a per- game basis, while having a band that’s easy to fit over the rather challenging design of the PlayStation VR.” Polygon review (online reach of 13M) 1) Deloitte. “Virtual reality (VR): a billion dollar niche.” 2) VR Focus, March 10, 2016. STEALTH 350VR


 
N A S D A Q : H E A R International Virtual Reality (VR) PC Gaming Headset Growth Opportunities 13  PC gaming headsets market ~$400M market globally1  Launched eight new SKUs in 2014 and 2015  Launched PC gaming accessories via a partner in 2014 including:  Keyboards  Mice  Mouse pads  PC gaming more popular than console gaming in markets like Germany, China and other parts of Asia2  Leveraging expanded portfolio as a growth platform in Germany and China Sample PC Products 1) The NPD Group, IDC and Company Estimates. 2) Newzoo 2015 Global Games Market Report Premium.


 
N A S D A Q : H E A R International Virtual Reality (VR) PC Gaming Headset Growth Opportunities 14  China represents long-term growth opportunity for console and PC gaming headsets  446M Chinese gamers2  China represents <2% of our annual revenues today  China has lifted video game console ban  Turtle Beach first-to-market with Xbox One gaming headsets, sales efforts begin 2016-2017 when console sales ramp  Initiate modest investment in 2016 to begin China growth efforts  Future investment in eSports Planned for first half of 2017  Growth Plans and Expansion in LATAM  209M estimated gamers3  Turtle Beach in 10 countries and 1400 stores $13.1B $15.2B $5.0B $7.0B 2014 2015 Chinese Games Market Sales Forecast¹ All Other Game Segments Computer Games $18.1B $22.2B 1) Newzoo 2015 Global Games Market Report Premium. 2) CGA, Newzoo China vs. US report Aug 2015. 3) Newzoo 2016 Global Games Market Report Premium.


 


 
N A S D A Q : H E A R HyperSound – A New Sound Delivery Mechanism  How does HyperSound technology work?  Thin panels produce directional audio within an ultrasound beam, masking ambient noise  HyperSound Clear 500P™ TV audio solution improves the listening experience and speech intelligibility for individuals with mild to severe hearing loss  HyperSound technology shown to be effective in commercial markets requiring directed sound (as demonstrated by national kiosk rollout at Best Buy)  Future opportunities in consumer markets and licensing agreements 16 How HyperSound Clear 500P Works Traditional Audio HyperSound Audio Beams


 
N A S D A Q : H E A R Commercial Retail Audio Commercial Markets and New Glass Technology 17 1) POPAI | HyperSound In-Store Research Report, Jun 2015. 2) BUNN Research, Jan 2014.  Pre-defined sound zones for in-store promotional, informational, beaconing and way-finding messages  Deployed in Nov 2014 to ~1,000 Best Buy stores in Activision Call of Duty® retail displays  HyperSound/Kiosk pairing has shown a 28% sales increase in a retail environment1 HyperSound Glass  Fully working prototype of HyperSound Glass speakers has been unveiled  Glass construction enables significant flexibility in size  Future applications across many segments  Fully working prototype of HyperSound Glass integrated into desktop monitors also revealed  Creates immersive, surround sound audio  Audio for interactive kiosks and displays  20M digital signs currently in North America2  2.5M self-service kiosks in 20152 Demos available at: HyperSound Glass Demo HyperSound Glass Integrated into Desktop Monitors


 
N A S D A Q : H E A R Evolving HyperSound to a License Model Potential licensing revenue streams include:  Retail sales of HyperSound Clear™ 500P  Test pilot at major consumer electronics retailer in Chicago area is off to a positive start  Alleviating Tinnitus symptoms  FDA 510(k) clearance for HyperSound tinnitus feature received Aug 2016  We are in discussions with multiple hearing healthcare providers  Commercial retail display sales  Continues to generate consistent monthly sales with a solid pipeline of opportunities  Licensing HyperSound Glass technology and other applications  We are in discussions with multiple potential licensees 18 HyperSound Clear 500P


 
N A S D A Q : H E A R 26 28 35 48 74 20 68 86 108 83 Jan 2013 Jan 2014 Jan 2015 Jan 2016 Nov 2016¹ Pending Issued  Headset innovations:  Audio processing  Gaming specific features  HyperSound innovations:  Emitter construction  Ultrasound and emitter electronics  Digital signal processing techniques 121 96 46 157 Strong & Growing Patent Portfolio 19 1) As of Nov 7, 2016. 156


 
N A S D A Q : H E A R Financial Summary


 
N A S D A Q : H E A R Balance Sheet Highlights  Revolver typically peaks in Q4 and lowest in Q1 after holiday receipts  In Feb 2016, raised $6.2M in net proceeds (over 50% purchased by insiders), stabilizing liquidity  $44.6M federal, $20.6M state net operating losses @ Dec 31, 2015 offset taxable income (not scheduled to expire until 2029) Key Stats 21 Sources: S&P Capital IQ, company filings. 1) As of September 30, 2016. 2) Includes SG VTB Holdings (Stripes Group LLC, a private equity fund and our largest shareholder) and trusts affiliated with Ron Doornink, the Company’s chairman of the board. 3) Non-callable, due in October 2030, and has 8% per annum PIK interest. Trading Data (@ Nov 17, 2016) Stock Price $1.61 Market Cap. (primary shares) $79.3M 52 Wk. Low/High $0.83/$2.59 Avg. Daily Vol. (3 mo) 316.3K Public Float¹ 46.8% Primary Shares¹ 49.2M SG VTB Holdings & Affiliates¹ 21.5M Retired Founders of Turtle Beach¹ 5.6M Options/Restricted Stock¹ 6.9M Warrants¹ 3.1M Fully Diluted Shares¹ 59.2M Capitalization @ 9-30-15 @ 9-30-16 Cash & Equivalents $3.1M $3.3M Debt Revolver (asset-based loan) $20.6M $26.3M Term Loans $21.4M $14.8M Subordinated Notes² $14.3M $18.8M Total Debt $56.3M $59.9M Series B - Preferred Stock³ $15.8M $17.1M


 
N A S D A Q : H E A R Headset Revenue Growth Revenue Growth Profile 22  New-gen sales up 24% from 2014 to 2015, up 41% in Q3-16 YoY  New-gen revenue expected to increase 27-31% in 2016²  Old-gen revenue expected to decline 71-77% in 2016²  Strong revenue growth supporting further gains in our #1 market share Note: Old-gen, new-gen revenue splits are approximations. 1) Strong dollar and rapid drop in old-gen significantly reduced revenues from 2014 to 2015. 2) Guidance updated and effective on Nov 10, 2016 2013 2014 2015¹ 2016E² New Gen Old Gen Other HyperSound $178M $186M $163M $170-178M


 
N A S D A Q : H E A R Headset Net Revenue¹ Headset Gross Margin¹ Headset Adj. EBITDA¹ ² 23 $162M $166M $173M $175M $174M Q4-15 Q1-16 Q2-16 Q3-16 Q4-16E³ 26.5% 26.6% 27.7% 28.9% 30.0% Q4-15 Q1-16 Q2-16 Q3-16 Q4-16E³ $2M $6M $8M $11M $12M Q4-15 Q1-16 Q2-16 Q3-16 Q4-16E³ 1) Excludes HyperSound allocation in Q4-16. 2) Please see appendix for a reconciliation of Adjusted EBITDA. 3) Guidance updated and effective on Nov 10, 2016. Midpoint of guidance where applicable. Strong Headset Growth Trailing 12-month data by quarter


 
N A S D A Q : H E A R Q4 2016 Outlook 24 Q4-16¹ YoY ∆2 Management Commentary Revenue $78-$86M 4% Holiday ‘16 units sold in somewhat earlier than in the past Gross Margin >29.1% Up vs. last year New-gen headsets carry higher gross margin, offset by HyperSound amortization Adj. EBITDA $13-15M 41% Prudent cost management in headsets and HyperSound EPS $0.13-$0.17 Q4-15 = $(1.09) $0.08 in Q4-15 excluding a $1.17 goodwill impairment charge 1) Guidance updated and effective on Nov 10, 2016. 2) Delta reflects midpoint of the outlook.


 
N A S D A Q : H E A R 1) Prior guidance as of Aug 8, 2016. 2) Guidance updated and effective on Nov 10, 2016. 3) Delta reflects midpoint of the outlook. 4) Excludes $1.30 for goodwill impairment and $0.15 for inventory reserve charges associated with the HyperSound restructuring. 2016 Outlook 25 ($ in millions) Prior¹ Revised² % ∆³ Management Commentary Revenue: New-Gen $154-$161 $157-$163 7% 27-31% growth from 2015 Old-Gen $8-$10 $7-$9 (11)% 71-77% decline from 2015 Other $5 $5 - Opportunity for international growth HyperSound $1-$2 $1 (83)% Slower than expected ramp, lower spend on sales & marketing Total Revenue $168-$178 $170-$178 7% 4-9% growth from 2015 Headset Gross Margin ~30% ~30% - +400 basis points over 2015 EPS $(1.08)-$(1.12) $(1.87)-$(1.91) (72)% Based upon 48.6M shares Non-GAAP EPS4 $(0.45)-$(0.49) $(0.42)-$(0.46) 7% $(0.58) per share in 2015, excluding a tax valuation expense and goodwill impairment Adjusted EBITDA: Headsets $12.5+ $11.5-$13.5 2% ~5X increase over 2015 HyperSound Investment <$12 <$11 (8)% Modest reduction from 2015 reflecting cost management Consol. Adj. EBITDA $0.5-$2.5 $1-$3 100% $11M+ increase from 2015


 
N A S D A Q : H E A R Key Takeaways  Dominant market leader in console gaming headset market with technologically differentiated products  Console market growing strongly post new platform launches late 2013  Company now completed successful portfolio transition for new Xbox and PlayStation consoles  New-gen headset transition and HyperSound licensing opportunity expected to meaningfully improve margins, profitability and cash flows  VR, PC gaming and international expansion all provide meaningful headset growth opportunities 26


 
N A S D A Q : H E A R Contact Information 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 www.turtlebeach.com www.hypersound.com C O M PA N Y W E B S I T E S www.turtlebeachcorp.com Contact Us 27


 
Appendix


 
N A S D A Q : H E A R Experienced Management Team Juergen Stark CEO • COO of Motorola Mobility’s mobile business • 10 years as principal at McKinsey & Company John Hanson CFO • EVP and CFO at Dialogic • CFO at One Communications Corp Richard Kuvalik CTO • 15+ years in consumer audio • Led peripheral products for PlayStation at Sony Rob Andris SVP, Global Supply Chain & Ops • VP, Global Supply Chain Operations, Hewlett Packard • 20 year, supply chain management, IBM, Cisco, HP Cris Keirn SVP, Global Sales Andrew Lilien VP of Marketing Megan Wynne General Counsel Scott Steele SVP of Product Development • 20+ years of brand, consumer and retail marketing experience • Past experience at ESPN, Fleer Trading Cards and National Media Group • 5 years with I-Flow, a Kimberly-Clark Health Care Company • 13 years with Morris Polich & Purdy law firm • 23 years of experience in technology product development • Founded Green Edge Technologies and served for 2 years as its CEO 29 • Led headset transition as VP of business planning & strategy • 17 years with Motorola in product management, operations, quality and customer relations


 
N A S D A Q : H E A R Experienced Board of Directors Laureen DeBuono Director Ken Fox Director William Keitel Director Dr. Andrew Wolfe, PhD Director Ron Doornink Chairman • Partner at leading CFO consulting services firm FLG Partners, LLC • Former President and CEO of Coapt Systems, Inc. • Former COO and CFO of hearing aid manufacturer ReSound Corp. • Managing partner of Stripes Group, LLC • Former Managing Director and co-founder of Internet Capital Group (NASDAQ: ICGE) • Co-founder of A-10 Capital and Sentinel Fund • 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) and Pepsico (NYSE: PEP) • Founder and principal of Wolfe Consulting • Former Chief Technology Officer for SONICblue, Inc. • B.S.E.E. in Electrical Engineering and Computer Science, Johns Hopkins; Ph.D. in Computer Engineering, Carnegie Mellon • Former Chairman and CEO of Activision Publishing (NASDAQ: ATVI) • Operating partner of Stripes Group, LLC • Founder and principal of Erasmus Equity Investments Juergen Stark CEO and Director • COO of Motorola Mobility’s mobile business • 10 years as Principal at McKinsey & Company, Inc. • MBA, Harvard Business School; B.S. Aerospace, University of Michigan 30


 
N A S D A Q : H E A R Adjusted EBITDA Reconciliation (Trailing 12 months) 31 $ in thousands Q4-15 Q1-16 Q2-16 Q3-16 Net Loss $ (17,201) $ (17,440) $ (17,341) $ (5,630) Interest 5,096 6,091 6,943 7,270 Depreciation & Amortization 6,374 5,865 5,443 4,959 Stock Compensation 5,347 5,197 4,228 3,982 Taxes 2,393 5,858 8,702 335 Restructuring Expense 399 280 96 269 Adjusted EBITDA $ 2,408 $ 5,851 $ 8,071 $ 11,185