0000950170-23-017960.txt : 20230504 0000950170-23-017960.hdr.sgml : 20230504 20230504170130 ACCESSION NUMBER: 0000950170-23-017960 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 73 CONFORMED PERIOD OF REPORT: 20230331 FILED AS OF DATE: 20230504 DATE AS OF CHANGE: 20230504 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Turtle Beach Corp CENTRAL INDEX KEY: 0001493761 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 272767540 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-35465 FILM NUMBER: 23889806 BUSINESS ADDRESS: STREET 1: 44 SOUTH BROADWAY STREET 2: 4TH FLOOR CITY: WHITE PLAINS STATE: NY ZIP: 10601 BUSINESS PHONE: 888-496-8001 MAIL ADDRESS: STREET 1: 44 SOUTH BROADWAY STREET 2: 4TH FLOOR CITY: WHITE PLAINS STATE: NY ZIP: 10601 FORMER COMPANY: FORMER CONFORMED NAME: Parametric Sound Corp DATE OF NAME CHANGE: 20100609 10-Q 1 hear-20230331.htm 10-Q 10-Q
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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 March 31, 2023

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

img252835359_0.jpg

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

Preferred Stock Purchase Rights

N/A

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 May 1, 2023 was 17,036,026.

 


 

INDEX

 

 

 

Page

 

 

 

PART I. FINANCIAL INFORMATION

2

 

 

 

Item 1.

Financial Statements (unaudited)

2

 

 

 

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022

2

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2023 and 2022

3

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022

5

 

 

 

 

Condensed Consolidated Statement of Stockholder's Equity for the Three Months Ended March 31, 2023 and 2022

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

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

17

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

23

 

 

 

Item 4.

Controls and Procedures

24

 

 

 

PART II. OTHER INFORMATION

25

 

 

 

Item 1.

Legal Proceedings

25

 

 

 

Item 1A.

Risk Factors

25

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

 

 

 

Item 5.

Other Information

37

 

 

 

Item 6.

Exhibits

38

 

 

SIGNATURES

39

 

 

1


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Turtle Beach Corporation

Condensed Consolidated Statements of Operations

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2023

 

 

2022

 

 

(in thousands, except per-share data)

 

Net revenue

 

$

51,444

 

 

$

46,662

 

Cost of revenue

 

 

37,305

 

 

 

32,633

 

Gross profit

 

 

14,139

 

 

 

14,029

 

Operating expenses:

 

 

 

 

 

 

Selling and marketing

 

 

9,523

 

 

 

10,829

 

Research and development

 

 

4,101

 

 

 

5,252

 

General and administrative

 

 

7,007

 

 

 

6,235

 

Total operating expenses

 

 

20,631

 

 

 

22,316

 

Operating loss

 

 

(6,492

)

 

 

(8,287

)

Interest expense

 

 

163

 

 

 

109

 

Other non-operating expense, net

 

 

120

 

 

 

719

 

Loss before income tax

 

 

(6,775

)

 

 

(9,115

)

Income tax benefit

 

 

(70

)

 

 

(2,639

)

Net loss

 

$

(6,705

)

 

$

(6,476

)

 

 

 

 

 

 

 

Net loss per share

 

 

 

 

 

 

Basic

 

$

(0.40

)

 

$

(0.40

)

Diluted

 

$

(0.40

)

 

$

(0.40

)

Weighted average number of shares:

 

 

 

 

 

 

Basic

 

 

16,578

 

 

 

16,194

 

Diluted

 

 

16,578

 

 

 

16,194

 

 

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

 

 

 

March 31,
2023

 

 

March 31,
2022

 

 

 

(in thousands)

 

Net loss

 

$

(6,705

)

 

$

(6,476

)

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

445

 

 

 

(429

)

Other comprehensive income (loss)

 

 

445

 

 

 

(429

)

Comprehensive loss

 

$

(6,260

)

 

$

(6,905

)

 

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

3


 

Turtle Beach Corporation

Condensed Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

(unaudited)

 

 

 

 

ASSETS

 

(in thousands, except par value and share amounts)

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

20,573

 

 

$

11,396

 

Accounts receivable, net

 

 

23,955

 

 

 

43,336

 

Inventories

 

 

65,214

 

 

 

71,252

 

Prepaid expenses and other current assets

 

 

9,108

 

 

 

9,196

 

Total Current Assets

 

 

118,850

 

 

 

135,180

 

Property and equipment, net

 

 

6,144

 

 

 

6,362

 

Goodwill

 

 

10,686

 

 

 

10,686

 

Intangible assets, net

 

 

2,471

 

 

 

2,612

 

Other assets

 

 

8,361

 

 

 

8,547

 

Total Assets

 

$

146,512

 

 

$

163,387

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Revolving credit facility

 

$

 

 

$

19,053

 

Accounts payable

 

 

21,887

 

 

 

19,846

 

Other current liabilities

 

 

30,023

 

 

 

25,433

 

Total Current Liabilities

 

 

51,910

 

 

 

64,332

 

Income tax payable

 

 

2,135

 

 

 

2,076

 

Other liabilities

 

 

7,703

 

 

 

8,038

 

Total Liabilities

 

 

61,748

 

 

 

74,446

 

Commitments and Contingencies

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

Common stock, $0.001 par value - 25,000,000 shares authorized; 16,604,099 and 16,569,173 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

 

 

17

 

 

 

17

 

Additional paid-in capital

 

 

208,999

 

 

 

206,916

 

Accumulated deficit

 

 

(123,303

)

 

 

(116,598

)

Accumulated other comprehensive income (loss)

 

 

(949

)

 

 

(1,394

)

Total Stockholders’ Equity

 

 

84,764

 

 

 

88,941

 

Total Liabilities and Stockholders’ Equity

 

$

146,512

 

 

$

163,387

 

 

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

4


 

Turtle Beach Corporation

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 31, 2023

 

 

March 31, 2022

 

 

 

(in thousands)

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net loss

 

$

(6,705

)

 

$

(6,476

)

Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

978

 

 

 

1,192

 

Amortization of intangible assets

 

 

264

 

 

 

312

 

Amortization of debt financing costs

 

 

42

 

 

 

47

 

Stock-based compensation

 

 

1,959

 

 

 

1,537

 

Deferred income taxes

 

 

(89

)

 

 

(2,329

)

Change in sales returns reserve

 

 

(1,178

)

 

 

(3,285

)

Provision for obsolete inventory

 

 

(561

)

 

 

(874

)

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

Accounts receivable

 

 

20,578

 

 

 

27,423

 

Inventories

 

 

7,111

 

 

 

(14,615

)

Accounts payable

 

 

2,162

 

 

 

(7,494

)

Prepaid expenses and other assets

 

 

473

 

 

 

1,734

 

Income taxes payable

 

 

(271

)

 

 

(657

)

Other liabilities

 

 

4,226

 

 

 

(9,863

)

Net cash provided by (used for) operating activities

 

 

28,989

 

 

 

(13,348

)

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Purchases of property and equipment

 

 

(887

)

 

 

(611

)

Net cash used for investing activities

 

 

(887

)

 

 

(611

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Borrowings on revolving credit facilities

 

 

53,892

 

 

 

 

Repayment of revolving credit facilities

 

 

(72,945

)

 

 

 

Proceeds from exercise of stock options and warrants

 

 

125

 

 

 

361

 

Debt issuance costs

 

 

(80

)

 

 

 

Net cash provided by (used for) financing activities

 

 

(19,008

)

 

 

361

 

Effect of exchange rate changes on cash and cash equivalents

 

 

83

 

 

 

(422

)

Net increase (decrease) in cash and cash equivalents

 

 

9,177

 

 

 

(14,020

)

Cash and cash equivalents - beginning of period

 

 

11,396

 

 

 

37,720

 

Cash and cash equivalents - end of period

 

$

20,573

 

 

$

23,700

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF INFORMATION

 

 

 

 

 

 

Cash paid for interest

 

$

190

 

 

$

64

 

Cash paid (received) for income taxes

 

$

-

 

 

$

126

 

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

5


 

Turtle Beach Corporation

Condensed Consolidated Statement of StockholdersEquity

(unaudited)

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Total

 

 

 

(in thousands)

 

Balance at December 31, 2022

 

 

16,569

 

 

 

17

 

 

 

206,916

 

 

 

(116,598

)

 

 

(1,394

)

 

$

88,941

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(6,705

)

 

 

 

 

$

(6,705

)

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

445

 

 

$

445

 

Issuance of restricted stock

 

 

14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

-

 

Stock options exercised

 

 

21

 

 

 

 

 

 

124

 

 

 

 

 

 

 

 

$

124

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,959

 

 

 

 

 

 

 

 

$

1,959

 

Balance at March 31, 2023

 

 

16,604

 

 

$

17

 

 

$

208,999

 

 

$

(123,303

)

 

$

(949

)

 

$

84,764

 

 

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Total

 

 

 

(in thousands)

 

Balance at December 31, 2021

 

 

16,168

 

 

 

16

 

 

 

198,278

 

 

 

(57,052

)

 

 

127

 

 

$

141,369

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(6,476

)

 

 

 

 

 

(6,476

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(429

)

 

 

(429

)

Issuance of restricted stock

 

 

30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options exercised

 

 

47

 

 

 

 

 

 

361

 

 

 

 

 

 

 

 

 

361

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,537

 

 

 

 

 

 

 

 

 

1,537

 

Balance at March 31, 2022

 

 

16,245

 

 

$

16

 

 

$

200,176

 

 

$

(63,528

)

 

$

(302

)

 

$

136,362

 

 

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

6


 

Turtle Beach Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

Note 1. Background and Basis of Presentation

Organization

Turtle Beach Corporation (“Turtle Beach” or the “Company”), headquartered in White Plains, New York and incorporated in the state of Nevada in 2010, is a premier audio and gaming technology company with expertise and experience in developing, commercializing, and marketing innovative products across a range of large addressable markets under the Turtle Beach® and ROCCAT® brands. Turtle Beach is a worldwide leader of feature-rich headset solutions for use across multiple platforms, including video game and entertainment consoles, handheld consoles, personal computers (“PC”), tablets and mobile devices. ROCCAT is a gaming keyboards, mice and other accessories brand focused on the PC peripherals market.

VTB Holdings, Inc. (“VTBH”), a wholly-owned subsidiary of Turtle Beach Corporation and the owner of Voyetra Turtle Beach, Inc. (“VTB”), was incorporated in the state of Delaware in 2010. VTB, the owner of Turtle Beach Europe Limited (“TB Europe”), was incorporated in the state of Delaware in 1975 with operations principally located in White Plains, New York.



Basis of Presentation

The accompanying interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, reflect all adjustments (which include normal recurring adjustments) considered necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. All intercompany accounts and transactions have been eliminated in consolidation. Certain information and footnote disclosures, normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), have been condensed or omitted pursuant to those rules and regulations. The Company believes that the disclosures made are adequate to make the information presented not misleading. The results of operations for the interim periods are not necessarily indicative of the results of operations for the entire fiscal year.

The December 31, 2022 Condensed Consolidated Balance Sheet has been derived from the Company’s audited financial statements included in its Annual Report on Form 10-K filed with the SEC on March 29, 2023 (“Annual Report”).

These financial statements should be read in conjunction with the annual financial statements and the notes thereto included in the Annual Report that contains information useful to understanding the Company’s businesses and financial statement presentations.

Use of estimates: The preparation of accompanying unaudited consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions about future events. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and reported amounts of revenues and expenses during the reporting period. These estimates may change, as new events occur and additional information is obtained, and will be recognized in the consolidated financial statements in the period in which such changes occur. Future actual results could differ materially from these estimates.

 

Note 2. Summary of Significant Accounting Policies

The preparation of consolidated annual and quarterly financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the Company’s consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. The Company can give no assurance that actual results will not differ from those estimates.

There have been no material changes to the significant accounting policies and estimates from the information provided in Note 1 of the notes to our consolidated financial statements in our Annual Report.

 

7


 

Note 3. Fair Value Measurement

The Company follows a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, debt instruments and certain warrants. As of March 31, 2023 and December 31, 2022, the Company had not elected the fair value option for any financial assets and liabilities for which such an election would have been permitted. The following is a summary of the carrying amounts and estimated fair values of our financial instruments as of March 31, 2023 and December 31, 2022:

 

 

 

March 31, 2023

 

 

December 31, 2022

 

 

 

Reported

 

 

Fair Value

 

 

Reported

 

 

Fair Value

 

 

 

(in thousands)

 

Financial Assets and Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

20,573

 

 

$

20,573

 

 

$

11,396

 

 

$

11,396

 

Revolving credit facility

 

$

 

 

$

 

 

$

19,053

 

 

$

19,053

 

 

Cash equivalents are stated at amortized cost, which approximates fair value as of the consolidated balance sheet dates, due to the short period of time to maturity; and accounts receivable and accounts payable are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment. The carrying value of the Credit Facility approximates fair value, due to the variable rate nature of the debt, as of March 31, 2023 and December 31, 2022.

Note 4. Allowance for Sales Returns

The following table provides the changes in our sales return reserve, which is classified as a reduction of accounts receivable:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

Balance, beginning of period

 

$

7,817

 

 

$

8,998

 

Reserve accrual

 

 

3,594

 

 

 

2,683

 

Recoveries and deductions, net

 

 

(4,772

)

 

 

(5,968

)

Balance, end of period

 

$

6,639

 

 

$

5,713

 

 

Note 5. Composition of Certain Financial Statement Items

Inventories

Inventories consist of the following:

 

 

 

March 31,
2023

 

 

December 31,
2022

 

 

 

(in thousands)

 

Finished goods

 

$

64,360

 

 

$

70,407

 

Raw materials

 

 

854

 

 

 

845

 

Total inventories

 

$

65,214

 

 

$

71,252

 

 

8


 

 

Property and Equipment, net

Property and equipment, net, consists of the following:

 

 

 

March 31,
2023

 

 

December 31,
2022

 

 

 

(in thousands)

 

Machinery and equipment

 

$

2,758

 

 

$

2,373

 

Software and software development

 

 

2,396

 

 

 

2,396

 

Furniture and fixtures

 

 

1,721

 

 

 

1,713

 

Tooling

 

 

9,964

 

 

 

9,901

 

Leasehold improvements

 

 

2,037

 

 

 

2,050

 

Demonstration units and convention booths

 

 

15,662

 

 

 

15,379

 

Total property and equipment, gross

 

 

34,538

 

 

 

33,812

 

Less: accumulated depreciation and amortization

 

 

(28,394

)

 

 

(27,450

)

Total property and equipment, net

 

$

6,144

 

 

$

6,362

 

 

Other Current Liabilities

Other current liabilities consist of the following:

 

 

 

March 31,
2023

 

 

December 31,
2022

 

 

 

(in thousands)

 

Accrued employee expenses

 

$

5,140

 

 

$

4,171

 

Accrued tax-related payables

 

 

2,838

 

 

 

4,159

 

Accrued marketing

 

 

2,665

 

 

 

4,147

 

Accrued royalty

 

 

1,621

 

 

 

2,527

 

Accrued freight

 

 

1,279

 

 

 

1,746

 

Accrued expenses

 

 

16,480

 

 

 

8,683

 

Total other current liabilities

 

$

30,023

 

 

$

25,433

 

 

Note 6. Goodwill and Other Intangible Assets

 


Acquired Intangible Assets

Acquired identifiable intangible assets, and related accumulated amortization, as of March 31, 2023 and December 31, 2022 consisted of:

 

 

 

March 31, 2023

 

 

 

Gross
Carrying
Value

 

 

Accumulated
Amortization

 

 

Net Book
Value

 

 

 

(in thousands)

 

Customer relationships

 

$

8,085

 

 

$

6,872

 

 

$

1,213

 

Tradenames

 

 

3,066

 

 

 

2,263

 

 

 

803

 

Developed technology

 

 

1,884

 

 

 

1,529

 

 

 

355

 

Foreign currency

 

 

(1,466

)

 

 

(1,566

)

 

 

100

 

Total Intangible Assets

 

$

11,569

 

 

$

9,098

 

 

$

2,471

 

 

9