Turtle Beach Earnings 2020-06-30

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

hear-10q_20200630.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 June 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)

11011 Via Frontera, Suite A/B San Diego, California	92127
(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	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 July 31, 2020 was 14,594,759.

INDEX

		Page

PART I. FINANCIAL INFORMATION		3

Item 1.	Financial Statements (unaudited)	3

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

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

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

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

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

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	26

Item 4.	Controls and Procedures	26

PART II. OTHER INFORMATION		28

Item 1.	Legal Proceedings	28

Item 1A.	Risk Factors	28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 5.	Other Information	39

Item 6.	Exhibits	40

SIGNATURES		41

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Turtle Beach Corporation

Condensed Consolidated Balance Sheets


	June 30,			December 31,
	2020			2019
	(unaudited)
ASSETS	(in thousands, except par value and share amounts)
Current Assets:
Cash and cash equivalents	$	21,206		$	8,249
Accounts receivable, net		37,007			44,530
Inventories		44,953			45,711
Prepaid expenses and other current assets		10,233			4,057
Total Current Assets		113,399			102,547
Property and equipment, net		4,366			3,962
Deferred income taxes		6,664			7,439
Goodwill		8,178			8,515
Intangible assets, net		5,518			6,011
Other assets		2,370			2,877
Total Assets	$	140,495		$	131,351
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Revolving credit facility	$	—		$	15,655
Accounts payable		41,694			22,511
Other current liabilities		26,331			26,422
Total Current Liabilities		68,025			64,588
Deferred income taxes		140			153
Other liabilities		2,869			3,223
Total Liabilities		71,034			67,964
Commitments and Contingencies
Stockholders’ Equity
Common stock, $0.001 par value - 25,000,000 shares authorized; 14,594,731 and 14,488,182 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively		15			14
Additional paid-in capital		179,132			176,776
Accumulated deficit		(108,870	)		(113,519	)
Accumulated other comprehensive income (loss)		(816	)		116
Total Stockholders’ Equity		69,461			63,387
Total Liabilities and Stockholders’ Equity	$	140,495		$	131,351

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

Turtle Beach Corporation

Condensed Consolidated Statements of Operations

(unaudited)

	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
	2020			2019			2020			2019
	(in thousands, except per-share data)
Net revenue	$	79,680		$	41,330		$	114,687		$	86,176
Cost of revenue		50,453			28,159			74,675			58,218
Gross profit		29,227			13,171			40,012			27,958
Operating expenses:
Selling and marketing		9,559			7,550			17,207			14,431
Research and development		3,001			1,734			5,428			3,190
General and administrative		6,710			6,194			12,433			10,843
Total operating expenses		19,270			15,478			35,068			28,464
Operating income (loss)		9,957			(2,307	)		4,944			(506	)
Interest expense		83			111			252			355
Other non-operating expense (income), net		(1,616	)		(70	)		(1,419	)		(1,732	)
Income (loss) before income tax		11,490			(2,348	)		6,111			871
Income tax expense		3,286			25			1,462			189
Net income (loss)	$	8,204		$	(2,373	)	$	4,649		$	682

Net income (loss) per share
Basic	$	0.56		$	(0.16	)	$	0.32		$	0.05
Diluted	$	0.51		$	(0.16	)	$	0.30		$	(0.06	)
Weighted average number of shares:
Basic		14,581			14,586			14,538			14,462
Diluted		16,229			14,586			15,363			15,699

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

Turtle Beach Corporation

Condensed Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

	Three Months Ended						Six Months Ended
	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019
	(in thousands)
Net income (loss)	$	8,204		$	(2,373	)	$	4,649		$	682
Other comprehensive income (loss):
Foreign currency translation adjustment		(113	)		(158	)		(932	)		7
Other comprehensive income (loss)		(113	)		(158	)		(932	)		7
Comprehensive income (loss)	$	8,091		$	(2,531	)	$	3,717		$	689

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

Turtle Beach Corporation

Condensed Consolidated Statements of Cash Flows

(unaudited)

	Six Months Ended
	June 30, 2020			June 30, 2019
	(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	4,649		$	682
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,061			2,180
Amortization of intangible assets		443			221
Amortization of debt financing costs		94			94
Stock-based compensation		2,405			1,525
Deferred income taxes		761			—
Reversal of sales returns reserve		(1,207	)		(5,166	)
Provision for obsolete inventory		1,493			1,602
Unrealized gain on financial instrument obligation		—			(1,601	)
Increase in fair value of contingent consideration		335			—
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		8,730			40,979
Inventories		(734	)		4,461
Accounts payable		19,020			(1,066	)
Prepaid expenses and other assets		(6,124	)		(950	)
Income taxes payable		135			(405	)
Other liabilities		(219	)		(4,384	)
Net cash provided by operating activities		31,842			38,172
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(2,303	)		(1,007	)
Acquisition of a business, net of cash acquired		-			(12,667	)
Net cash used for investing activities		(2,303	)		(13,674	)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on revolving credit facilities		48,426			99,453
Repayment of revolving credit facilities		(64,081	)		(126,036	)
Proceeds from exercise of stock options and warrants		59			94
Repurchase of common stock		-			(1,499	)
Repurchase of common stock to satisfy employee tax withholding obligations		(108	)		(145	)
Net cash used for financing activities		(15,704	)		(28,133	)
Effect of exchange rate changes on cash and cash equivalents		(878	)		3
Net increase in cash and cash equivalents		12,957			(3,632	)
Cash and cash equivalents - beginning of period		8,249			7,078
Cash and cash equivalents - end of period	$	21,206		$	3,446

SUPPLEMENTAL DISCLOSURE OF INFORMATION
Cash paid for interest	$	198		$	308
Cash paid for income taxes	$	44		$	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	)		(816	)		69,461

Common Stock

Additional

Paid-In

Accumulated

Other

Comprehensive

Amount

Capital

Deficit

Income (Loss)

Total

(in thousands)

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	2020-06-30	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	2020-08-07	Enter Agreement, Exhibits
8-K	2020-08-06	Earnings, Exhibits
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_8.htm
EX-31.2	hear-ex312_6.htm
EX-32.1	hear-ex321_7.htm

HEAR 10Q Quarterly Report

Turtle Beach Earnings 2020-06-30