Turtle Beach Earnings 2020-09-30

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

hear-10q_20200930.htm

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 September 30, 2020

☐ 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 Number)

44 South Broadway, 4^th Floor White Plains, New York	10601
(Address of principal executive offices)	(Zip Code)

(888) 496-8001

(Registrant’s telephone number, including area code)

11011 Via Frontera, Suite A/B, San Diego, CA 92127

(Former name, former address and former fiscal year, if changed since last report)

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	Nasdaq

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 October 31,2020 was 15,187,576.

INDEX

		Page

PART I. FINANCIAL INFORMATION		3

Item 1.	Financial Statements (unaudited)	3

	Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	3

	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019	4

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019	5

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019	6

	Condensed Consolidated Statement of Stockholder's Equity (Deficit) for the Three and Nine Months Ended September 30, 2020 and 2019	7

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28

Item 4.	Controls and Procedures	29

PART II. OTHER INFORMATION		30

Item 1.	Legal Proceedings	30

Item 1A.	Risk Factors	30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

Item 5.	Other Information	40

Item 6.	Exhibits	41

SIGNATURES		42

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Turtle Beach Corporation

Condensed Consolidated Balance Sheets


	September 30,			December 31,
	2020			2019
	(unaudited)
ASSETS	(in thousands, except par value and share amounts)
Current Assets:
Cash and cash equivalents	$	27,265		$	8,249
Accounts receivable, net		53,825			44,530
Inventories		79,453			45,711
Prepaid expenses and other current assets		8,451			4,057
Total Current Assets		168,994			102,547
Property and equipment, net		5,004			3,962
Deferred income taxes		7,800			7,439
Goodwill		8,178			8,515
Intangible assets, net		5,325			6,011
Other assets		6,230			2,877
Total Assets	$	201,531		$	131,351
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Revolving credit facility	$	—		$	15,655
Accounts payable		63,699			22,511
Other current liabilities		34,432			26,422
Total Current Liabilities		98,131			64,588
Deferred income taxes		140			153
Other liabilities		7,524			3,223
Total Liabilities		105,795			67,964
Commitments and Contingencies
Stockholders’ Equity
Common stock, $0.001 par value - 25,000,000 shares authorized; 15,186,990 and 14,488,182 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively		15			14
Additional paid-in capital		187,065			176,776
Accumulated deficit		(91,076	)		(113,519	)
Accumulated other comprehensive income (loss)		(268	)		116
Total Stockholders’ Equity		95,736			63,387
Total Liabilities and Stockholders’ Equity	$	201,531		$	131,351

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

Turtle Beach Corporation

Condensed Consolidated Statements of Operations

(unaudited)

	Three Months Ended						Nine Months Ended
	September 30,			September 30,			September 30,			September 30,
	2020			2019			2020			2019
	(in thousands, except per-share data)
Net revenue	$	112,494		$	46,723		$	227,181		$	132,899
Cost of revenue		66,358			31,680			141,033			89,898
Gross profit		46,136			15,043			86,148			43,001
Operating expenses:
Selling and marketing		11,857			10,150			29,064			24,581
Research and development		3,260			2,198			8,688			5,388
General and administrative		6,799			5,214			19,232			16,057
Total operating expenses		21,916			17,562			56,984			46,026
Operating income (loss)		24,220			(2,519	)		29,164			(3,025	)
Interest expense		103			240			355			595
Other non-operating expense (income), net		(101	)		302			(1,520	)		(1,430	)
Income (loss) before income tax		24,218			(3,061	)		30,329			(2,190	)
Income tax expense		6,424			63			7,886			252
Net income (loss)	$	17,794		$	(3,124	)	$	22,443		$	(2,442	)

Net income (loss) per share
Basic	$	1.20		$	(0.22	)	$	1.53		$	(0.17	)
Diluted	$	1.04		$	(0.22	)	$	1.41		$	(0.17	)
Weighted average number of shares:
Basic		14,845			14,506			14,642			14,477
Diluted		17,154			14,506			15,961			14,477

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

Turtle Beach Corporation

Condensed Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

	Three Months Ended					Nine Months Ended
	September 30, 2020		September 30, 2019			September 30, 2020			September 30, 2019
	(in thousands)
Net income (loss)	$	17,794	$	(3,124	)	$	22,443		$	(2,442	)
Other comprehensive income (loss):
Foreign currency translation adjustment		548		(330	)		(384	)		(323	)
Other comprehensive income (loss)		548		(330	)		(384	)		(323	)
Comprehensive income (loss)	$	18,342	$	(3,454	)	$	22,059		$	(2,765	)

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

Turtle Beach Corporation

Condensed Consolidated Statements of Cash Flows

(unaudited)

	Nine Months Ended
	September 30, 2020			September 30, 2019
	(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	22,443		$	(2,442	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,302			3,477
Amortization of intangible assets		665			413
Amortization of debt financing costs		142			142
Stock-based compensation		3,977			2,555
Deferred income taxes		(375	)		—
Change in sales returns reserve		2,173			(4,262	)
Provision for obsolete inventory		2,216			2,081
Provision for doubtful accounts		—			(8	)
Unrealized gain on financial instrument obligation		—			(1,601	)
Increase in fair value of contingent consideration		510			—
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		(11,468	)		30,017
Inventories		(35,957	)		(12,622	)
Accounts payable		40,763			14,426
Prepaid expenses and other assets		(4,322	)		(1,005	)
Income taxes payable		6,769			(1,569	)
Other liabilities		1,800			(2,298	)
Net cash provided by operating activities		32,638			27,304
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(3,918	)		(1,628	)
Acquisition of a business, net of cash acquired		—			(12,667	)
Net cash used for investing activities		(3,918	)		(14,295	)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on revolving credit facilities		185,486			148,087
Repayment of revolving credit facilities		(201,141	)		(158,911	)
Proceeds from sale of equity securities		4,372			—
Proceeds from exercise of stock options and warrants		2,155			214
Repurchase of common stock		—			(1,941	)
Repurchase of common stock to satisfy employee tax withholding obligations		(215	)		(201	)
Net cash used for financing activities		(9,343	)		(12,752	)
Effect of exchange rate changes on cash and cash equivalents		(361	)		(298	)
Net increase (decrease) in cash and cash equivalents		19,016			(41	)
Cash and cash equivalents - beginning of period		8,249			7,078
Cash and cash equivalents - end of period	$	27,265		$	7,037

SUPPLEMENTAL DISCLOSURE OF INFORMATION
Cash paid for interest	$	245		$	488
Cash paid for income taxes	$	800		$	447
Reclassification of financial instrument obligation	$	—		$	6,248

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

Turtle Beach Corporation

Condensed Consolidated Statement of Stockholders’ Equity (Deficit)

(unaudited)

	Common Stock					Additional Paid-In			Accumulated			Accumulated Other Comprehensive
	Shares			Amount		Capital			Deficit			Income (Loss)			Total
	(in thousands)
Balance at December 31, 2019		14,488		$	14	$	176,776		$	(113,519	)	$	116		$	63,387
Net loss		—			—		—			(3,555	)		—			(3,555	)
Other comprehensive loss, net of tax		—			—		—			—			(819	)		(819	)
Issuance of restricted stock		19			1		—			—			—			1
Repurchase of common stock and retirement of related treasury shares		(7	)		—		(48	)		—			—			(48	)
Stock options exercised		6			—		18			—			—			18
Stock-based compensation		—			—		999			—			—			999
Balance at March 31, 2020		14,506		$	15	$	177,745		$	(117,074	)	$	(703	)	$	59,983
Net income		—			—		—			8,204			—			8,204
Other comprehensive income, net of tax		—			—		—			—			(113	)		(113	)
Issuance of restricted stock		85			—		—			—			—			—
Repurchase of common stock and retirement of related treasury shares		(6	)		—		(60	)		—			—			(60	)
Stock options exercised		9			—		41			—			—			41
Stock-based compensation		—			—		1,406			—			—			1,406
Balance at June 30, 2020		14,594			15		179,132			(108,870	)

Price	11.28	EPS	2
Shares	15	P/E	7
MCap	164	P/FCF	6
Net Debt	-7	EBIT	23
TEV	157	TEV/EBIT	7
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-09-30	Filed 2020-11-05
10-Q	2020-06-30	Filed 2020-08-06
10-Q	2020-03-31	Filed 2020-05-07
10-K	2019-12-31	Filed 2020-03-13
10-Q	2019-09-30	Filed 2019-11-07
10-Q	2019-06-30	Filed 2019-08-09
10-Q	2019-03-31	Filed 2019-05-08
10-K	2018-12-31	Filed 2019-03-18
10-Q	2018-09-30	Filed 2018-11-06
10-Q	2018-06-30	Filed 2018-08-06
10-Q	2018-03-31	Filed 2018-05-09
10-K	2017-12-31	Filed 2018-03-07
10-Q	2017-09-30	Filed 2017-11-02
10-Q	2017-06-30	Filed 2017-08-10
10-Q	2017-03-31	Filed 2017-05-09
10-K	2016-12-31	Filed 2017-03-08
10-Q	2016-09-30	Filed 2016-11-14
10-Q	2016-06-30	Filed 2016-08-09
10-Q	2016-03-31	Filed 2016-05-16
10-K	2015-12-31	Filed 2016-03-30
10-Q	2015-09-30	Filed 2015-11-09
10-Q	2015-06-30	Filed 2015-08-06
10-Q	2015-03-31	Filed 2015-05-07
10-K	2014-12-31	Filed 2015-03-30
10-Q	2014-09-30	Filed 2014-11-10
10-Q	2014-06-30	Filed 2014-08-11
10-Q	2014-03-31	Filed 2014-05-13
10-Q	2013-12-31	Filed 2014-02-10
10-K	2013-09-30	Filed 2013-11-26
10-Q	2013-06-30	Filed 2013-08-08
10-Q	2013-03-31	Filed 2013-05-02
10-Q	2012-12-31	Filed 2013-02-07
10-K	2012-09-30	Filed 2012-11-28
10-Q	2012-06-30	Filed 2012-08-09
10-Q	2012-03-31	Filed 2012-05-07
10-Q	2011-12-31	Filed 2012-01-25
10-K	2011-09-30	Filed 2011-11-22
10-Q	2011-06-30	Filed 2011-08-02
10-Q	2011-03-31	Filed 2011-04-28
10-Q	2010-12-31	Filed 2011-01-25
10-K	2010-09-30	Filed 2010-12-08

8-K	2020-11-05
8-K	2020-08-07
8-K	2020-08-06
8-K	2020-06-23
8-K	2020-06-16
8-K	2020-05-07
8-K	2020-03-10
8-K	2019-11-07
8-K	2019-11-05
8-K	2019-08-12
8-K	2019-08-08
8-K	2019-06-20
8-K	2019-06-05
8-K	2019-05-08
8-K	2019-04-16
8-K	2019-03-30
8-K	2019-03-19
8-K	2019-03-14
8-K	2019-03-14
8-K	2019-03-11
8-K	2019-02-07
8-K	2018-12-17
8-K	2018-11-09
8-K	2018-11-06
8-K	2018-10-11
8-K	2018-08-06
8-K	2018-06-15
8-K	2018-05-09
8-K	2018-04-23
8-K	2018-04-09
8-K	2018-04-06
8-K	2018-03-12
8-K	2018-03-06
8-K	2018-03-05
8-K	2018-02-07
8-K	2018-01-18

EX-31.1	hear-ex311_7.htm
EX-31.2	hear-ex312_8.htm
EX-32.1	hear-ex321_6.htm

HEAR 10Q Quarterly Report

Turtle Beach Earnings 2020-09-30