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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, 2021

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 No.)

 

 

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)     

 

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

The Nasdaq Global Market

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, 2021 was 16,065,231

 


 

INDEX

 

 

 

Page

 

 

 

PART I. FINANCIAL INFORMATION

2

 

 

 

Item 1.

Financial Statements (unaudited)

2

 

 

 

 

  Condensed Consolidated Statements of Operations for the Six Months Ended June 30, 2021 and 2020

2

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2021 and 2020

3

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020

5

 

 

 

 

Condensed Consolidated Statement of Stockholder's Equity (Deficit) for the Six Months Ended June 30, 2021 and 2020

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

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

19

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

 

 

 

Item 4.

Controls and Procedures

25

 

 

 

PART II. OTHER INFORMATION

26

 

 

 

Item 1.

Legal Proceedings

26

 

 

 

Item 1A.

Risk Factors

26

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

 

 

 

Item 5.

Other Information

35

 

 

 

Item 6.

Exhibits

36

 

 

SIGNATURES

37

 

 

1


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Turtle Beach Corporation

Condensed Consolidated Statements of Operations

(unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(in thousands, except per-share data)

 

Net revenue

 

$

78,564

 

 

$

79,680

 

 

$

171,617

 

 

$

114,687

 

Cost of revenue

 

 

49,854

 

 

 

50,453

 

 

 

108,052

 

 

 

74,675

 

Gross profit

 

 

28,710

 

 

 

29,227

 

 

 

63,565

 

 

 

40,012

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

 

15,678

 

 

 

9,559

 

 

 

27,223

 

 

 

17,207

 

Research and development

 

 

4,416

 

 

 

3,001

 

 

 

8,409

 

 

 

5,428

 

General and administrative

 

 

8,173

 

 

 

6,710

 

 

 

15,210

 

 

 

12,433

 

Total operating expenses

 

 

28,267

 

 

 

19,270

 

 

 

50,842

 

 

 

35,068

 

Operating income

 

 

443

 

 

 

9,957

 

 

 

12,723

 

 

 

4,944

 

Interest expense

 

 

73

 

 

 

83

 

 

 

170

 

 

 

252

 

Other non-operating expense (income), net

 

 

(65

)

 

 

(1,616

)

 

 

514

 

 

 

(1,419

)

Income before income tax

 

 

435

 

 

 

11,490

 

 

 

12,039

 

 

 

6,111

 

Income tax expense (benefit)

 

 

(1,286

)

 

 

3,286

 

 

 

1,480

 

 

 

1,462

 

Net income

 

$

1,721

 

 

$

8,204

 

 

$

10,559

 

 

$

4,649

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.11

 

 

$

0.56

 

 

$

0.67

 

 

$

0.32

 

Diluted

 

$

0.09

 

 

$

0.51

 

 

$

0.58

 

 

$

0.30

 

Weighted average number of shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

15,920

 

 

 

14,581

 

 

 

15,737

 

 

 

14,538

 

Diluted

 

 

18,329

 

 

 

16,229

 

 

 

18,204

 

 

 

15,363

 

 

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

2


Turtle Beach Corporation

Condensed Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

2021

 

 

June 30,

2020

 

 

June 30,

2021

 

 

June 30,

2020

 

 

 

(in thousands)

 

Net income

 

$

1,721

 

 

$

8,204

 

 

$

10,559

 

 

$

4,649

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

805

 

 

 

(113

)

 

 

94

 

 

 

(932

)

Other comprehensive income (loss)

 

 

805

 

 

 

(113

)

 

 

94

 

 

 

(932

)

Comprehensive income (loss)

 

$

2,526

 

 

$

8,091

 

 

$

10,653

 

 

$

3,717

 

 

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

 

3


 

 

Turtle Beach Corporation

Condensed Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

(in thousands, except par value and share amounts)

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

56,197

 

 

$

46,681

 

Accounts receivable, net

 

 

28,025

 

 

 

43,867

 

Inventories

 

 

81,931

 

 

 

71,301

 

Prepaid expenses and other current assets

 

 

19,418

 

 

 

8,127

 

Total Current Assets

 

 

185,571

 

 

 

169,976

 

Property and equipment, net

 

 

6,917

 

 

 

6,575

 

Deferred income taxes

 

 

7,047

 

 

 

6,946

 

Goodwill

 

 

10,686

 

 

 

8,178

 

Intangible assets, net

 

 

6,442

 

 

 

5,138

 

Other assets

 

 

6,090

 

 

 

6,640

 

Total Assets

 

$

222,753

 

 

$

203,453

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Revolving credit facility

 

$

 

 

$

 

Accounts payable

 

 

47,909

 

 

 

42,529

 

Other current liabilities

 

 

32,835

 

 

 

36,122

 

Total Current Liabilities

 

 

80,744

 

 

 

78,651

 

Income tax payable

 

 

3,328

 

 

 

3,146

 

Other liabilities

 

 

4,989

 

 

 

5,257

 

Total Liabilities

 

 

89,061

 

 

 

87,054

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

Common stock, $0.001 par value - 25,000,000 shares authorized; 16,065,231 and 15,475,504 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

 

 

16

 

 

 

15

 

Additional paid-in capital

 

 

197,207

 

 

 

190,568

 

Accumulated deficit

 

 

(64,214

)

 

 

(74,773

)

Accumulated other comprehensive income (loss)

 

 

683

 

 

 

589

 

Total Stockholders’ Equity

 

 

133,692

 

 

 

116,399

 

Total Liabilities and Stockholders’ Equity

 

$

222,753

 

 

$

203,453

 

 

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

 

4


 

Turtle Beach Corporation

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

 

 

Six Months Ended

 

 

 

June 30, 2021

 

 

June 30, 2020

 

 

 

(in thousands)

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

10,559

 

 

$

4,649

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,847

 

 

 

2,061

 

Amortization of intangible assets

 

 

625

 

 

 

443

 

Amortization of debt financing costs

 

 

95

 

 

 

94

 

Stock-based compensation

 

 

3,727

 

 

 

2,405

 

Deferred income taxes

 

 

(101

)

 

 

761

 

Change in sales returns reserve

 

 

(4,186

)

 

 

(1,207

)

Provision for obsolete inventory

 

 

783

 

 

 

1,493

 

Increase in fair value of contingent consideration

 

 

 

 

 

335

 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

20,028

 

 

 

8,730

 

Inventories

 

 

(11,413

)

 

 

(734

)

Accounts payable

 

 

4,580

 

 

 

19,020

 

Prepaid expenses and other assets

 

 

(11,299

)

 

 

(6,124

)

Income taxes payable

 

 

(6,850

)

 

 

135

 

Other liabilities

 

 

4,053

 

 

 

(219

)

Net cash provided by operating activities

 

 

12,448

 

 

 

31,842

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(3,316

)

 

 

(2,303

)

Acquisition of a business, net of cash acquired

 

 

(2,500

)

 

 

 

Net cash used for investing activities

 

 

(5,816

)

 

 

(2,303

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Borrowings on revolving credit facilities

 

 

120,858

 

 

 

48,426

 

Repayment of revolving credit facilities

 

 

(120,858

)

 

 

(64,081

)

Proceeds from exercise of stock options and warrants

 

 

3,262

 

 

 

59

 

Repurchase of common stock to satisfy employee tax withholding obligations

 

 

(463

)

 

 

(108

)

Net cash provided by (cash used for) financing activities

 

 

2,799

 

 

 

(15,704

)

Effect of exchange rate changes on cash and cash equivalents

 

 

85

 

 

 

(878

)

Net increase in cash and cash equivalents

 

 

9,516

 

 

 

12,957

 

Cash and cash equivalents - beginning of period

 

 

46,681

 

 

 

8,249

 

Cash and cash equivalents - end of period

 

$

56,197

 

 

$

21,206

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF INFORMATION

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

88

 

 

$

198

 

Cash paid for income taxes

 

$

8,041

 

 

$

44

 

 

 

 

-

 

 

 

 

 

 

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

5


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, 2020

 

 

15,476

 

 

$

15

 

 

$

190,568

 

 

$

(74,773

)

 

$

589

 

 

$

116,399

 

Net income

 

 

 

 

 

 

 

 

 

 

 

8,838

 

 

 

 

 

 

8,838

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(711

)

 

 

(711

)

Issuance of restricted stock

 

 

26

 

 

 

 

 

 

113

 

 

 

 

 

 

 

 

 

113

 

Repurchase of common stock and retirement of related treasury shares

 

 

(6

)

 

 

 

 

 

(215

)

 

 

 

 

 

 

 

 

(215

)

Stock options exercised

 

 

159

 

 

 

1

 

 

 

911

 

 

 

 

 

 

 

 

 

912

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,786

 

 

 

 

 

 

 

 

 

1,786

 

Balance at March 31, 2021

 

 

15,655

 

 

$

16

 

 

$

193,163

 

 

$

(65,935

)

 

$

(122

)

 

$

127,122

 

Net income

 

 

 

 

 

 

 

 

 

 

 

1,721

 

 

 

 

 

 

1,721

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

805

 

 

 

805

 

Issuance of restricted stock

 

 

202

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Repurchase of common stock and retirement of related treasury shares

 

 

(9

)

 

 

 

 

 

(248

)

 

 

 

 

 

 

 

 

(248

)

Stock options exercised

 

 

217

 

 

 

 

 

 

2,350

 

 

 

 

 

 

 

 

 

2,350

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,941

 

 

 

 

 

 

 

 

 

1,941

 

Balance at June 30, 2021

 

 

16,065

 

 

 

16

 

 

 

197,207

 

 

 

(64,214

)

 

 

683

 

 

 

133,692

 

 

 

 

 

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