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)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
|
(Address of principal executive offices) |
(Zip Code) |
(
(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 |
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.
Large 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
The number of shares of the registrant’s Common Stock, par value $0.001 per share, outstanding on May 1, 2023 was
INDEX
|
|
Page |
|
|
|
2 |
||
|
|
|
Item 1. |
2 |
|
|
|
|
|
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022 |
2 |
|
|
|
|
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 |
|
|
|
|
6 |
|
|
|
|
|
7 |
|
|
|
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
17 |
|
|
|
Item 3. |
23 |
|
|
|
|
Item 4. |
24 |
|
|
|
|
25 |
||
|
|
|
Item 1. |
25 |
|
|
|
|
Item 1A. |
25 |
|
|
|
|
Item 2. |
37 |
|
|
|
|
Item 5. |
37 |
|
|
|
|
Item 6. |
38 |
|
|
|
|
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 |
|
$ |
|
|
$ |
|
||
Cost of revenue |
|
|
|
|
|
|
||
Gross profit |
|
|
|
|
|
|
||
Operating expenses: |
|
|
|
|
|
|
||
Selling and marketing |
|
|
|
|
|
|
||
Research and development |
|
|
|
|
|
|
||
General and administrative |
|
|
|
|
|
|
||
Total operating expenses |
|
|
|
|
|
|
||
Operating loss |
|
|
( |
) |
|
|
( |
) |
Interest expense |
|
|
|
|
|
|
||
Other non-operating expense, net |
|
|
|
|
|
|
||
Loss before income tax |
|
|
( |
) |
|
|
( |
) |
Income tax benefit |
|
|
( |
) |
|
|
( |
) |
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
||
Net loss per share |
|
|
|
|
|
|
||
Basic |
|
$ |
( |
) |
|
$ |
( |
) |
Diluted |
|
$ |
( |
) |
|
$ |
( |
) |
Weighted average number of shares: |
|
|
|
|
|
|
||
Basic |
|
|
|
|
|
|
||
Diluted |
|
|
|
|
|
|
||
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, |
|
|
March 31, |
|
||
|
|
(in thousands) |
|
|||||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive income (loss): |
|
|
|
|
|
|
||
Foreign currency translation adjustment |
|
|
|
|
|
( |
) |
|
Other comprehensive income (loss) |
|
|
|
|
|
( |
) |
|
Comprehensive loss |
|
$ |
( |
) |
|
$ |
( |
) |
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 |
|
$ |
|
|
$ |
|
||
Accounts receivable, net |
|
|
|
|
|
|
||
Inventories |
|
|
|
|
|
|
||
Prepaid expenses and other current assets |
|
|
|
|
|
|
||
Total Current Assets |
|
|
|
|
|
|
||
Property and equipment, net |
|
|
|
|
|
|
||
Goodwill |
|
|
|
|
|
|
||
Intangible assets, net |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Total Assets |
|
$ |
|
|
$ |
|
||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
||
Current Liabilities: |
|
|
|
|
|
|
||
Revolving credit facility |
|
$ |
— |
|
|
$ |
|
|
Accounts payable |
|
|
|
|
|
|
||
Other current liabilities |
|
|
|
|
|
|
||
Total Current Liabilities |
|
|
|
|
|
|
||
Income tax payable |
|
|
|
|
|
|
||
Other liabilities |
|
|
|
|
|
|
||
Total Liabilities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Stockholders’ Equity |
|
|
|
|
|
|
||
Common stock, $ |
|
|
|
|
|
|
||
Additional paid-in capital |
|
|
|
|
|
|
||
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
Accumulated other comprehensive income (loss) |
|
|
( |
) |
|
|
( |
) |
Total Stockholders’ Equity |
|
|
|
|
|
|
||
Total Liabilities and Stockholders’ Equity |
|
$ |
|
|
$ |
|
||
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 |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Amortization of intangible assets |
|
|
|
|
|
|
||
Amortization of debt financing costs |
|
|
|
|
|
|
||
Stock-based compensation |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
( |
) |
|
|
( |
) |
Change in sales returns reserve |
|
|
( |
) |
|
|
( |
) |
Provision for obsolete inventory |
|
|
( |
) |
|
|
( |
) |
Changes in operating assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
|
|
|
|
||
Inventories |
|
|
|
|
|
( |
) |
|
Accounts payable |
|
|
|
|
|
( |
) |
|
Prepaid expenses and other assets |
|
|
|
|
|
|
||
Income taxes payable |
|
|
( |
) |
|
|
( |
) |
Other liabilities |
|
|
|
|
|
( |
) |
|
Net cash provided by (used for) operating activities |
|
|
|
|
|
( |
) |
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
||
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
Net cash used for investing activities |
|
|
( |
) |
|
|
( |
) |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
||
Borrowings on revolving credit facilities |
|
|
|
|
|
— |
|
|
Repayment of revolving credit facilities |
|
|
( |
) |
|
|
— |
|
Proceeds from exercise of stock options and warrants |
|
|
|
|
|
|
||
Debt issuance costs |
|
|
( |
) |
|
|
— |
|
Net cash provided by (used for) financing activities |
|
|
( |
) |
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
( |
) |
|
Net increase (decrease) in cash and cash equivalents |
|
|
|
|
|
( |
) |
|
Cash and cash equivalents - beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents - end of period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
SUPPLEMENTAL DISCLOSURE OF INFORMATION |
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
|
|
$ |
|
||
Cash paid (received) for income taxes |
|
$ |
- |
|
|
$ |
|
|
See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited)
5
Turtle Beach Corporation
Condensed Consolidated Statement of Stockholders’ Equity
(unaudited)
|
|
Common Stock |
|
|
Additional |
|
|
Accumulated |
|
|
Accumulated |
|
|
|
|
|||||||||
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Income (Loss) |
|
|
Total |
|
||||||
|
|
(in thousands) |
|
|||||||||||||||||||||
Balance at December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
$ |
|
||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
$ |
( |
) |
Other comprehensive income, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
$ |
|
||
Issuance of restricted stock |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
- |
|
|
Stock options exercised |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
$ |
|
|||
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
$ |
|
||
Balance at March 31, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
|
|
Common Stock |
|
|
Additional |
|
|
Accumulated |
|
|
Accumulated |
|
|
|
|
|||||||||
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Income (Loss) |
|
|
Total |
|
||||||
|
|
(in thousands) |
|
|||||||||||||||||||||
Balance at December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
$ |
|
|||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Other comprehensive loss, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Issuance of restricted stock |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock options exercised |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Balance at March 31, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
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.
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:
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.
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||
|
|
Reported |
|
|
Fair Value |
|
|
Reported |
|
|
Fair Value |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Financial Assets and Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Revolving credit facility |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
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 |
|
$ |
|
|
$ |
|
||
Reserve accrual |
|
|
|
|
|
|
||
Recoveries and deductions, net |
|
|
( |
) |
|
|
( |
) |
Balance, end of period |
|
$ |
|
|
$ |
|
||
Note 5. Composition of Certain Financial Statement Items
Inventories
Inventories consist of the following:
|
|
March 31, |
|
|
December 31, |
|
||
|
|
(in thousands) |
|
|||||
Finished goods |
|
$ |
|
|
$ |
|
||
Raw materials |
|
|
|
|
|
|
||
Total inventories |
|
$ |
|
|
$ |
|
||
8
Property and Equipment, net
Property and equipment, net, consists of the following:
|
|
March 31, |
|
|
December 31, |
|
||
|
|
(in thousands) |
|
|||||
Machinery and equipment |
|
$ |
|
|
$ |
|
||
Software and software development |
|
|
|
|
|
|
||
Furniture and fixtures |
|
|
|
|
|
|
||
Tooling |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Demonstration units and convention booths |
|
|
|
|
|
|
||
Total property and equipment, gross |
|
|
|
|
|
|
||
Less: accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Total property and equipment, net |
|
$ |
|
|
$ |
|
||
Other Current Liabilities
Other current liabilities consist of the following:
|
|
March 31, |
|
|
December 31, |
|
||
|
|
(in thousands) |
|
|||||
Accrued employee expenses |
|
$ |
|
|
$ |
|
||
Accrued tax-related payables |
|
|
|
|
|
|
||
Accrued marketing |
|
|
|
|
|
|
||
Accrued royalty |
|
|
|
|
|
|
||
Accrued freight |
|
|
|
|
|
|
||
Accrued expenses |
|
|
|
|
|
|
||
Total other current liabilities |
|
$ |
|
|
$ |
|
||
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 |
|
|
Accumulated |
|
|
Net Book |
|
|||
|
|
(in thousands) |
|
|||||||||
Customer relationships |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Tradenames |
|
|
|
|
|
|
|
|
|
|||
Developed technology |
|
|
||||||||||