UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
(Zip Code) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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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. ☒
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). ☒
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.
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Large accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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).
The number of shares of the registrant’s Common Stock, par value $0.001 per share, outstanding on April 30, 2022 was
INDEX
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Item 1. |
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Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021 |
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Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 |
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Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 5. |
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Item 6. |
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1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Turtle Beach Corporation
Condensed Consolidated Statements of Operations
(unaudited)
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Three Months Ended |
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March 31, |
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March 31, |
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2022 |
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2021 |
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(in thousands, except per-share data) |
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Net revenue |
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$ |
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$ |
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Cost of revenue |
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Gross profit |
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Operating expenses: |
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Selling and marketing |
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Research and development |
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General and administrative |
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Total operating expenses |
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Operating income (loss) |
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Interest expense |
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Other non-operating expense, net |
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Income (loss) before income tax |
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Income tax expense (benefit) |
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Net income (loss) |
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$ |
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$ |
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Net income (loss) per share |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Weighted average number of shares: |
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Basic |
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Diluted |
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See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited)
2
Turtle Beach Corporation
Condensed Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
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Three Months Ended |
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March 31, 2022 |
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March 31, 2021 |
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(in thousands) |
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Net income (loss) |
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$ |
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$ |
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Other comprehensive income (loss): |
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Foreign currency translation adjustment |
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Other comprehensive income (loss) |
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Comprehensive income (loss) |
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$ |
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$ |
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See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited)
3
Turtle Beach Corporation
Condensed Consolidated Balance Sheets
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March 31, |
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December 31, |
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2022 |
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2021 |
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(unaudited) |
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ASSETS |
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(in thousands, except par value and share amounts) |
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Current Assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Inventories |
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Prepaid expenses and other current assets |
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Total Current Assets |
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Property and equipment, net |
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Deferred income taxes |
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Goodwill |
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Intangible assets, net |
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Other assets |
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Total Assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current Liabilities: |
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Revolving credit facility |
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$ |
— |
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$ |
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Accounts payable |
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Other current liabilities |
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Total Current Liabilities |
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Income tax payable |
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Other liabilities |
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Total Liabilities |
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Commitments and Contingencies |
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Stockholders’ Equity |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Accumulated other comprehensive income (loss) |
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( |
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Total Stockholders’ Equity |
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Total Liabilities and Stockholders’ Equity |
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$ |
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$ |
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See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited)
4
Turtle Beach Corporation
Condensed Consolidated Statements of Cash Flows
(unaudited)
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Three Months Ended |
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March 31, 2022 |
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March 31, 2021 |
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(in thousands) |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net income (loss) |
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$ |
( |
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$ |
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Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
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Depreciation and amortization |
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Amortization of intangible assets |
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Amortization of debt financing costs |
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Stock-based compensation |
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Deferred income taxes |
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( |
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( |
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Change in sales returns reserve |
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( |
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Provision for obsolete inventory |
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( |
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Changes in operating assets and liabilities, net of acquisitions: |
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Accounts receivable |
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Inventories |
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( |
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Accounts payable |
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( |
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Prepaid expenses and other assets |
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( |
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Income taxes payable |
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( |
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Other liabilities |
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( |
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Net cash provided by (used for) operating activities |
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( |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Purchases of property and equipment |
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( |
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Acquisition of a business, net of cash acquired |
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— |
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( |
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Net cash used for investing activities |
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( |
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( |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Borrowings on revolving credit facilities |
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— |
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Repayment of revolving credit facilities |
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— |
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Proceeds from exercise of stock options and warrants |
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Repurchase of common stock to satisfy employee tax withholding obligations |
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— |
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Net cash provided by financing activities |
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Effect of exchange rate changes on cash and cash equivalents |
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( |
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( |
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Net increase (decrease) in cash and cash equivalents |
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( |
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Cash and cash equivalents - beginning of period |
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Cash and cash equivalents - end of period |
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$ |
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$ |
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SUPPLEMENTAL DISCLOSURE OF INFORMATION |
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Cash paid for interest |
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$ |
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$ |
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Cash paid for income taxes |
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$ |
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$ |
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See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited)
5
Turtle Beach Corporation
Condensed Consolidated Statement of Stockholders’ Equity (Deficit)
(unaudited)
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Common Stock |
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Additional Paid-In |
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Accumulated |
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Accumulated Other Comprehensive |
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Shares |
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Amount |
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Capital |
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Deficit |
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Income (Loss) |
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Total |
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(in thousands) |
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Balance at December 31, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Net loss |
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— |
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— |
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— |
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( |
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— |
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( |
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Other comprehensive loss, net of tax |
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— |
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— |
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— |
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— |
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( |
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( |
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Issuance of restricted stock |
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— |
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— |
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— |
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— |
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— |
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Stock options exercised |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Balance at March 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Common Stock |
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Additional Paid-In |
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Accumulated |
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Accumulated Other Comprehensive |
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Shares |
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Amount |
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Capital |
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Deficit |
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Income (Loss) |
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Total |
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(in thousands) |
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Balance at December 31, 2020 |
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( |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Other comprehensive loss, net of tax |
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— |
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— |
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— |
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— |
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( |
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( |
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Issuance of restricted stock |
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— |
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— |
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— |
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Repurchase of common stock and retirement of related treasury shares |
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( |
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— |
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( |
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— |
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— |
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( |
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Stock options exercised |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Balance at March 31, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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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®, ROCCAT® and Neat Microphones® 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. Neat Microphones is a microphones brand focused on using cutting edge technology and design to create high quality USB and analog microphones for gamers, streamers, and professionals.
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, 2021 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 2, 2022 (“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.
The novel coronavirus (“COVID-19”) pandemic has disrupted worldwide economic markets and the extent to which COVID-19 continues to affect the Company’s business, results of operations and financial condition will depend on future developments, which are highly uncertain and difficult to predict. We continue to actively monitor and assess the impact of the pandemic on our business, operations, and financial condition.
Note 2. Summary of Significant Accounting Policies
The preparation of consolidated annual and quarterly financial statements in conformity with U.S. 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 critical 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:
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Level 1 — Quoted prices in active markets for identical assets or liabilities. |
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• |
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. |
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• |
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, 2022 and December 31, 2021, the Company had not elected the fair value option for any financial assets and liabilities for which such an election would have been permitted.
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March 31, 2022 |
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December 31, 2021 |
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Reported |
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Fair Value |
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Reported |
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Fair Value |
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(in thousands) |
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Financial Assets and Liabilities: |
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Cash and cash equivalents |
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$ |
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$ |
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$ |
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$ |
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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.
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:
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Three Months Ended |
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March 31, |
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2022 |
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2021 |
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(in thousands) |
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Balance, beginning of period |
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$ |
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$ |
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Reserve accrual |
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Recoveries and deductions, net |
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( |
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( |
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Balance, end of period |
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$ |
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$ |
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Note 5. Composition of Certain Financial Statement Items
Inventories
Inventories consist of the following:
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March 31, 2022 |
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December 31, 2021 |
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(in thousands) |
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Finished goods |
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$ |
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$ |
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Raw materials |
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Total inventories |
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$ |
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$ |
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8
Property and Equipment, net
Property and equipment, net, consists of the following:
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March 31, 2022 |
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December 31, 2021 |
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(in thousands) |
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Machinery and equipment |
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$ |
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$ |
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Software and software development |
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Furniture and fixtures |
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Tooling |
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Leasehold improvements |
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Demonstration units and convention booths |
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Total property and equipment, gross |
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Less: accumulated depreciation and amortization |
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( |
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( |
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Total property and equipment, net |
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$ |
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$ |
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Other Current Liabilities
Other current liabilities consist of the following:
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March 31, 2022 |
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December 31, 2021 |
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(in thousands) |
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Accrued royalty |
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Accrued employee expenses |
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Accrued freight |
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Accrued marketing |
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Accrued expenses |
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Total other current liabilities |
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$ |
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$ |
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Note 6. Goodwill and Other Intangible Assets
Acquired Intangible Assets
Acquired identifiable intangible assets, and related accumulated amortization, as of March 31, 2022 and December 31, 2021 consist of:
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March 31, 2022 |
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Gross Carrying Value |
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Accumulated Amortization |
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Net Book Value |
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(in thousands) |
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Customer relationships |
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$ |
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$ |
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$ |
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Tradenames |
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Developed technology |
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Foreign currency |
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( |
) |
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( |
) |
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( |
) |
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Total Intangible Assets |
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$ |
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$ |
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$ |
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December 31, 2021 |
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Gross Carrying Value |
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Accumulated Amortization |
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Net Book Value |
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(in thousands) |
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Customer relationships |
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$ |
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$ |
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$ |
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Tradenames |
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Developed technology |
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Foreign currency |
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( |
) |
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( |
) |
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( |
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Total Intangible Assets |
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$ |
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$ |
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$ |
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9
In connection with the October 2012 acquisition of TB Europe, the acquired intangible assets related to customer relationships is being amortized over an estimated useful life of
In May 2019, the Company completed its acquisition of the business and assets of the ROCCAT business, and in January 2021, the Company completed its acquisition of the business and assets of the Neat Microphones business. The respective acquired intangible assets relating to developed technology, customer relationships and trade names are subject to amortization.
Amortization expense related to definite lived intangible assets was $
As of March 31, 2022, estimated annual amortization expense related to definite lived intangible assets in future periods is as follows:
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(in thousands) |
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2022 |
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$ |
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2023 |
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2024 |
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2025 |
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2026 |
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Thereafter |
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Total |
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$ |
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There were
Note 7. Revolving Credit Facility and Long-Term Debt
The Company had
Total interest expense, inclusive of amortization of deferred financing costs, on long-term debt obligations was $
Amortization of deferred financing costs was $
Revolving Credit Facility
On December 17, 2018, Turtle Beach and certain of its subsidiaries entered into an amended and restated loan, guaranty and security agreement (“Credit Facility”) with Bank of America, N.A. (“Bank of America”), as Agent, Sole Lead Arranger and Sole Bookrunner, which replaced the then existing asset-based revolving loan agreement. The Credit Facility, which expires on
On May 31, 2019, the Company amended the Credit Facility to provide for, amongst other items, (i) the addition of TBC Holding Company LLC, a wholly-owned subsidiary of VTB, as an obligor and (ii) the ability to make investments in TB Germany GmbH, a wholly-owned subsidiary of TB Europe, of up to $
The maximum credit availability for loans and letters of credit under the Credit Facility is governed by a borrowing base determined by the application of specified percentages to certain eligible assets, primarily eligible trade accounts receivable and inventories, and is subject to discretionary reserves and revaluation adjustments. The Credit Facility may be used for working capital, the issuance of bank guarantees, letters of credit and other corporate purposes.
Amounts outstanding under the Credit Facility bear interest at a rate equal to either a rate published by Bank of America or the LIBOR rate, plus in each case, an applicable margin, which is between
The Company is subject to quarterly financial covenant testing if certain availability thresholds are not met or certain other events occur (as defined in the Credit Facility). At such times, the Credit Facility requires the Company and its restricted subsidiaries to maintain a fixed charge coverage ratio of at least
10
The Credit Facility also contains affirmative and negative covenants that, subject to certain exceptions, limit our ability to take certain actions, including the Company’s ability to incur debt, pay dividends and repurchase stock, make certain investments and other payments, enter into certain mergers and consolidations, engage in sale leaseback transactions and transactions with affiliates, and encumber and dispose of assets. Obligations under the Credit Facility are secured by a security interest and lien upon substantially all of the Company’s assets.
As of March 31, 2022, the Company was in compliance with all financial covenants under the Credit Facility, as amended, and excess borrowing availability was approximately $
Note 8. Income Taxes
In order to determine the quarterly provision for income taxes, the Company uses an estimated annual effective tax rate, which is based on expected annual income and statutory tax rates in the various jurisdictions. However, to the extent that application of the estimated annual effective tax rate is not representative of the quarterly portion of actual tax expense expected to be recorded for the year, the Company determines the provision for income taxes based on actual year-to-date income (loss). Certain significant or unusual items are separately recognized as discrete items in the period during which they occur and can be a source of variability in the effective tax rates from quarter to quarter.
The following table presents the Company’s income tax expense and effective income tax rate:
|
|
|
Three Months Ended |
|
|||||
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|
|
March 31, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Income tax expense (benefit) |
|
$ |
( |
) |
|
$ |
|
|
|
Effective income tax rate |
|
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|
% |
|
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|
% |
Income tax benefi