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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, 2022

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 April 30, 2022 was 16,479,134

 


 

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, 2022 and 2021

2

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2022 and 2021

3

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021

5

 

 

 

 

Condensed Consolidated Statement of Stockholder's Equity (Deficit) for the Three Months Ended March 31, 2022 and 2021

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

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

16

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

22

 

 

 

Item 4.

Controls and Procedures

22

 

 

 

PART II. OTHER INFORMATION

23

 

 

 

Item 1.

Legal Proceedings

23

 

 

 

Item 1A.

Risk Factors

23

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

 

 

 

Item 5.

Other Information

33

 

 

 

Item 6.

Exhibits

34

 

 

SIGNATURES

35

 

 

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,

 

 

 

2022

 

 

2021

 

 

 

(in thousands, except per-share data)

 

Net revenue

 

$

46,662

 

 

$

93,053

 

Cost of revenue

 

 

32,633

 

 

 

58,198

 

Gross profit

 

 

14,029

 

 

 

34,855

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling and marketing

 

 

10,829

 

 

 

11,545

 

Research and development

 

 

5,252

 

 

 

3,993

 

General and administrative

 

 

6,235

 

 

 

7,037

 

Total operating expenses

 

 

22,316

 

 

 

22,575

 

Operating income (loss)

 

 

(8,287

)

 

 

12,280

 

Interest expense

 

 

109

 

 

 

97

 

Other non-operating expense, net

 

 

719

 

 

 

579

 

Income (loss) before income tax

 

 

(9,115

)

 

 

11,604

 

Income tax expense (benefit)

 

 

(2,639

)

 

 

2,766

 

Net income (loss)

 

$

(6,476

)

 

$

8,838

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share

 

 

 

 

 

 

 

 

Basic

 

$

(0.40

)

 

$

0.57

 

Diluted

 

$

(0.40

)

 

$

0.49

 

Weighted average number of shares:

 

 

 

 

 

 

 

 

Basic

 

 

16,194

 

 

 

15,551

 

Diluted

 

 

16,194

 

 

 

18,076

 

 

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,

2022

 

 

March 31,

2021

 

 

 

 

(in thousands)

Net income (loss)

 

$

(6,476

)

 

$

8,838

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(429

)

 

 

(711

)

 

Other comprehensive income (loss)

 

 

(429

)

 

 

(711

)

 

Comprehensive income (loss)

 

$

(6,905

)

 

$

8,127

 

 

 

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

 

3


 

 

Turtle Beach Corporation

Condensed Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

(in thousands, except par value and share amounts)

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

23,700

 

 

$

37,720

 

Accounts receivable, net

 

 

11,814

 

 

 

35,953

 

Inventories

 

 

117,422

 

 

 

101,933

 

Prepaid expenses and other current assets

 

 

15,773

 

 

 

17,506

 

Total Current Assets

 

 

168,709

 

 

 

193,112

 

Property and equipment, net

 

 

6,293

 

 

 

6,955

 

Deferred income taxes

 

 

8,229

 

 

 

5,899

 

Goodwill

 

 

10,686

 

 

 

10,686

 

Intangible assets, net

 

 

5,464

 

 

 

5,788

 

Other assets

 

 

8,669

 

 

 

8,065

 

Total Assets

 

$

208,050

 

 

$

230,505

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Revolving credit facility

 

$

 

 

$

 

Accounts payable

 

 

32,899

 

 

 

40,475

 

Other current liabilities

 

 

27,385

 

 

 

37,693

 

Total Current Liabilities

 

 

60,284

 

 

 

78,168

 

Income tax payable

 

 

3,774

 

 

 

3,774

 

Other liabilities

 

 

7,630

 

 

 

7,194

 

Total Liabilities

 

 

71,688

 

 

 

89,136

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

Common stock, $0.001 par value - 25,000,000 shares authorized; 16,244,625 and 16,168,147 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

 

 

16

 

 

 

16

 

Additional paid-in capital

 

 

200,176

 

 

 

198,278

 

Accumulated deficit

 

 

(63,528

)

 

 

(57,052

)

Accumulated other comprehensive income (loss)

 

 

(302

)

 

 

127

 

Total Stockholders’ Equity

 

 

136,362

 

 

 

141,369

 

Total Liabilities and Stockholders’ Equity

 

$

208,050

 

 

$

230,505

 

 

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, 2022

 

 

March 31, 2021

 

 

 

(in thousands)

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(6,476

)

 

$

8,838

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,192

 

 

 

739

 

Amortization of intangible assets

 

 

312

 

 

 

303

 

Amortization of debt financing costs

 

 

47

 

 

 

47

 

Stock-based compensation

 

 

1,537

 

 

 

1,786

 

Deferred income taxes

 

 

(2,329

)

 

 

(388

)

Change in sales returns reserve

 

 

(3,285

)

 

 

678

 

Provision for obsolete inventory

 

 

(874

)

 

 

57

 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

27,423

 

 

 

10,819

 

Inventories

 

 

(14,615

)

 

 

12,108

 

Accounts payable

 

 

(7,494

)

 

 

(15,669

)

Prepaid expenses and other assets

 

 

1,734

 

 

 

(6,568

)

Income taxes payable

 

 

(657

)

 

 

3,086

 

Other liabilities

 

 

(9,863

)

 

 

5,251

 

Net cash provided by (used for) operating activities

 

 

(13,348

)

 

 

21,087

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(611

)

 

 

(2,280

)

Acquisition of a business, net of cash acquired

 

 

 

 

 

(2,500

)

Net cash used for investing activities

 

 

(611

)

 

 

(4,780

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Borrowings on revolving credit facilities

 

 

 

 

 

97,032

 

Repayment of revolving credit facilities

 

 

 

 

 

(97,032

)

Proceeds from exercise of stock options and warrants

 

 

361

 

 

 

911

 

Repurchase of common stock to satisfy employee tax withholding obligations

 

 

 

 

 

(215

)

Net cash provided by financing activities

 

 

361

 

 

 

696

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(422

)

 

 

(719

)

Net increase (decrease) in cash and cash equivalents

 

 

(14,020

)

 

 

16,284

 

Cash and cash equivalents - beginning of period

 

 

37,720

 

 

 

46,681

 

Cash and cash equivalents - end of period

 

$

23,700

 

 

$

62,965

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF INFORMATION

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

64

 

 

$

64

 

Cash paid for income taxes

 

$

126

 

 

$

5

 

 

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, 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

 

 

 

 

 

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

 

 

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:

 

 

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, 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. The following is a summary of the carrying amounts and estimated fair values of our financial instruments as of March 31, 2022 and December 31, 2021.

 

 

 

March 31, 2022

 

 

December 31, 2021

 

 

 

Reported

 

 

Fair Value

 

 

Reported

 

 

Fair Value

 

 

 

(in thousands)

 

Financial Assets and Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

23,700

 

 

$

23,700

 

 

$

37,720

 

 

$

37,720

 

 

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:

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

Balance, beginning of period

 

$

8,998

 

 

$

11,233

 

Reserve accrual

 

 

2,683

 

 

 

6,551

 

Recoveries and deductions, net

 

 

(5,968

)

 

 

(5,873

)

Balance, end of period

 

$

5,713

 

 

$

11,911

 

 

Note 5. Composition of Certain Financial Statement Items

Inventories

Inventories consist of the following:

 

 

 

March 31,

2022

 

 

December 31,

2021

 

 

 

(in thousands)

 

Finished goods

 

$

116,811

 

 

$

101,446

 

Raw materials

 

 

611

 

 

 

487

 

Total inventories

 

$

117,422

 

 

$

101,933

 

 

8


 

Property and Equipment, net

Property and equipment, net, consists of the following:

 

 

 

March 31,

2022

 

 

December 31,

2021

 

 

 

(in thousands)

 

Machinery and equipment

 

$

2,317

 

 

$

2,255

 

Software and software development

 

 

2,406

 

 

 

2,404

 

Furniture and fixtures

 

 

1,422

 

 

 

1,257

 

Tooling

 

 

8,036

 

 

 

7,855

 

Leasehold improvements

 

 

1,752

 

 

 

1,794

 

Demonstration units and convention booths

 

 

14,657

 

 

 

14,493

 

Total property and equipment, gross

 

 

30,590

 

 

 

30,058

 

Less: accumulated depreciation and amortization

 

 

(24,297

)

 

 

(23,103

)

Total property and equipment, net

 

$

6,293

 

 

$

6,955

 

 

Other Current Liabilities

Other current liabilities consist of the following:

 

 

 

March 31,

2022

 

 

December 31,

2021

 

 

 

(in thousands)

 

Accrued royalty

 

 

8,261

 

 

 

11,582

 

Accrued employee expenses

 

 

4,328

 

 

 

4,114

 

Accrued freight

 

 

4,028

 

 

 

6,251

 

Accrued marketing

 

 

2,411

 

 

 

3,723

 

Accrued expenses

 

 

8,357

 

 

 

12,023

 

Total other current liabilities

 

$

27,385

 

 

$

37,693

 

 

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:

 

 

 

March 31, 2022

 

 

 

Gross

Carrying

Value

 

 

Accumulated

Amortization

 

 

Net Book

Value

 

 

 

(in thousands)

 

Customer relationships

 

$

8,355

 

 

$

6,491

 

 

$

1,864

 

Tradenames

 

 

3,066

 

 

 

807

 

 

 

2,259

 

Developed technology

 

 

1,884

 

 

 

507

 

 

 

1,377

 

Foreign currency

 

 

(1,025

)

 

 

(989

)

 

 

(36

)

Total Intangible Assets

 

$

12,280

 

 

$

6,816

 

 

$

5,464

 

 

 

 

December 31, 2021

 

 

 

Gross

Carrying

Value

 

 

Accumulated

Amortization

 

 

Net Book

Value

 

 

 

(in thousands)

 

Customer relationships

 

$

8,355

 

 

$

6,315

 

 

$

2,040

 

Tradenames

 

 

3,066

 

 

 

730

 

 

 

2,336

 

Developed technology

 

 

1,884

 

 

 

440

 

 

 

1,444

 

Foreign currency

 

 

(896

)

 

 

(865

)

 

 

(32

)

Total Intangible Assets

 

$

12,409

 

 

$

6,620

 

 

$

5,788

 

 

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 thirteen years with the amortization being included within sales and marketing expense.

 

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 $0.3 million for each of the three months ended March 31, 2022 and March 31, 2021.

 

As of March 31, 2022, estimated annual amortization expense related to definite lived intangible assets in future periods is as follows:

 

 

 

(in thousands)

 

2022

 

$

961

 

2023

 

 

1,041

 

2024

 

 

1,008

 

2025

 

 

889

 

2026

 

 

637

 

Thereafter

 

 

964

 

Total

 

$

5,500

 

 

There were no changes in the carrying values of goodwill for the three months ended March 31, 2022 from the balance as of December 31, 2021.

 

 

Note 7. Revolving Credit Facility and Long-Term Debt

 

The Company had no outstanding balance related to its revolving credit facility as of March 31, 2022 and December 31, 2021.

 

Total interest expense, inclusive of amortization of deferred financing costs, on long-term debt obligations was $0.1 million for each of the three months ended March 31, 2022 and March 31, 2021.

Amortization of deferred financing costs was $47,000 for each of the three months ended March 31, 2022 and March 31, 2021.

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 March 5, 2024, provides for a line of credit of up to $80 million inclusive of a sub-facility limit of $12 million for TB Europe, a wholly-owned subsidiary of Turtle Beach. In addition, the Credit Facility provides for a $40 million accordion feature and the ability to increase the borrowing base with a “first-in, last-out” loan (a “FILO Loan”) of up to $6.8 million. 

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 $4 million in connection with the acquisition of the business of ROCCAT and up to an additional $4 million annually.

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 0.50% to 1.25% for base rate loans and between 1.25% to 2.00% for U.S. LIBOR loans and U.K. loans, and between 2.00% to 2.75% for the FILO Loan. In addition, Turtle Beach is required to pay a commitment fee on the unused revolving loan commitment at a rate ranging from 0.25% to 0.50% and letter of credit fees and agent fees. As of March 31, 2022, interest rates for outstanding borrowings were 4.00% for base rate loans and 3.00% for LIBOR rate loans. As of March 31, 2022, there were no outstanding borrowings under the Credit Facility.

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 1.00 to 1.00 as of the last day of each fiscal quarter.

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 $48.7 million.

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

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

Income tax expense (benefit)

 

$

(2,639

)

 

$

2,766

 

Effective income tax rate

 

 

29.0

%

 

 

23.8

%

 

Income tax benefi