Turtle Beach Corp 10-Q for FY2021 Q2

Turtle Beach Corp (TBCH)

10-Q 2021-08-05 For: 2021-06-30

Added on April 11, 2026

About this 10-Q

Turtle Beach Corp filed this 10-Q on August 5, 2021, covering the quarter ended June 30, 2021 (FY2021 Q2).

Headline figures

Quarter ended June 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $78.56M; down 1.4% from $79.68M a year earlier
Net income: $1.72M; down 79.0% from net income of $8.2M a year earlier
Diluted EPS: $0.09; down 82.4% from $0.51 a year earlier

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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)

Title of each class	Trading Symbols	Name of each exchange on which registered
Common Stock, par value $0.001	HEAR	The Nasdaq Global Market

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☐

		Page

PART I. FINANCIAL INFORMATION		2

Item 1.	Financial Statements (unaudited)	2

	Condensed Consolidated Statements of Operations for the Six Months Ended June 30, 2021 and 2020	2

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2021 and 2020	3

	Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020	4

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020	5

	Condensed Consolidated Statement of Stockholder's Equity (Deficit) for the Six Months Ended June 30, 2021 and 2020	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25

Item 4.	Controls and Procedures	25

PART II. OTHER INFORMATION		26

Item 1.	Legal Proceedings	26

Item 1A.	Risk Factors	26

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35

Item 5.	Other Information	35

Item 6.	Exhibits	36

SIGNATURES		37

	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,		June 30,
	2021			2020			2021		2020
	(in thousands, except per-share data)
Net revenue	$	78,564		$	79,680		$	171,617	$	114,687
Cost of revenue		49,854			50,453			108,052		74,675
Gross profit		28,710			29,227			63,565		40,012
Operating expenses:
Selling and marketing		15,678			9,559			27,223		17,207
Research and development		4,416			3,001			8,409		5,428
General and administrative		8,173			6,710			15,210		12,433
Total operating expenses		28,267			19,270			50,842		35,068
Operating income		443			9,957			12,723		4,944
Interest expense		73			83			170		252
Other non-operating expense (income), net		(65	)		(1,616	)		514		(1,419	)
Income before income tax		435			11,490			12,039		6,111
Income tax expense (benefit)		(1,286	)		3,286			1,480		1,462
Net income	$	1,721		$	8,204		$	10,559	$	4,649

Net income per share
Basic	$	0.11		$	0.56		$	0.67	$	0.32
Diluted	$	0.09		$	0.51		$	0.58	$	0.30
Weighted average number of shares:
Basic		15,920			14,581			15,737		14,538
Diluted		18,329			16,229			18,204		15,363

	Three Months Ended					Six Months Ended
	June 30, 2021		June 30, 2020			June 30, 2021		June 30, 2020
	(in thousands)
Net income	$	1,721	$	8,204		$	10,559	$	4,649
Other comprehensive income (loss):
Foreign currency translation adjustment		805		(113	)		94		(932	)
Other comprehensive income (loss)		805		(113	)		94		(932	)
Comprehensive income (loss)	$	2,526	$	8,091		$	10,653	$	3,717


	June 30,			December 31,
	2021			2020
	(unaudited)
ASSETS	(in thousands, except par value and share amounts)
Current Assets:
Cash and cash equivalents	$	56,197		$	46,681
Accounts receivable, net		28,025			43,867
Inventories		81,931			71,301
Prepaid expenses and other current assets		19,418			8,127
Total Current Assets		185,571			169,976
Property and equipment, net		6,917			6,575
Deferred income taxes		7,047			6,946
Goodwill		10,686			8,178
Intangible assets, net		6,442			5,138
Other assets		6,090			6,640
Total Assets	$	222,753		$	203,453
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Revolving credit facility	$	—		$	—
Accounts payable		47,909			42,529
Other current liabilities		32,835			36,122
Total Current Liabilities		80,744			78,651
Income tax payable		3,328			3,146
Other liabilities		4,989			5,257
Total Liabilities		89,061			87,054
Commitments and Contingencies
Stockholders’ Equity
Common stock, $0.001 par value - 25,000,000 shares authorized; 16,065,231 and 15,475,504 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively		16			15
Additional paid-in capital		197,207			190,568
Accumulated deficit		(64,214	)		(74,773	)
Accumulated other comprehensive income (loss)		683			589
Total Stockholders’ Equity		133,692			116,399
Total Liabilities and Stockholders’ Equity	$	222,753		$	203,453

	Six Months Ended
	June 30, 2021			June 30, 2020
	(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	10,559		$	4,649
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,847			2,061
Amortization of intangible assets		625			443
Amortization of debt financing costs		95			94
Stock-based compensation		3,727			2,405
Deferred income taxes		(101	)		761
Change in sales returns reserve		(4,186	)		(1,207	)
Provision for obsolete inventory		783			1,493
Increase in fair value of contingent consideration		—			335
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		20,028			8,730
Inventories		(11,413	)		(734	)
Accounts payable		4,580			19,020
Prepaid expenses and other assets		(11,299	)		(6,124	)
Income taxes payable		(6,850	)		135
Other liabilities		4,053			(219	)
Net cash provided by operating activities		12,448			31,842
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(3,316	)		(2,303	)
Acquisition of a business, net of cash acquired		(2,500	)		—
Net cash used for investing activities		(5,816	)		(2,303	)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on revolving credit facilities		120,858			48,426
Repayment of revolving credit facilities		(120,858	)		(64,081	)
Proceeds from exercise of stock options and warrants		3,262			59
Repurchase of common stock to satisfy employee tax withholding obligations		(463	)		(108	)
Net cash provided by (cash used for) financing activities		2,799			(15,704	)
Effect of exchange rate changes on cash and cash equivalents		85			(878	)
Net increase in cash and cash equivalents		9,516			12,957
Cash and cash equivalents - beginning of period		46,681			8,249
Cash and cash equivalents - end of period	$	56,197		$	21,206

SUPPLEMENTAL DISCLOSURE OF INFORMATION
Cash paid for interest	$	88		$	198
Cash paid for income taxes	$	8,041		$	44
		-

	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
Net income		—			—		—			1,721			—			1,721
Other comprehensive income, net of tax		—			—		—			—			805			805
Issuance of restricted stock		202			—		1			—			—			1
Repurchase of common stock and retirement of related treasury shares		(9	)		—		(248	)		—			—			(248	)
Stock options exercised		217			—		2,350			—			—			2,350
Stock-based compensation		—			—		1,941			—			—			1,941
Balance at June 30, 2021		16,065			16		197,207			(64,214	)		683			133,692

(In thousands)	Life	Amount
Developed technology	7 Years	$	1,100
Customer relationships	2 Years		440
Tradenames	10 Years		380
Total		$	1,920

	June 30, 2021				December 31, 2020
	Reported		Fair Value		Reported		Fair Value
	(in thousands)
Financial Assets and Liabilities:
Cash and cash equivalents	$	56,197	$	56,197	$	46,681	$	46,681
Contingent consideration liabilities	$	1,928	$	1,928	$	-	$	-

	June 30, 2021		December 31, 2020
	(in thousands)
Finished goods	$	81,235	$	69,939
Raw materials		696		1,362
Total inventories	$	81,931	$	71,301

	June 30, 2021
	Gross Carrying Value			Accumulated Amortization			Net Book Value
	(in thousands)
Customer relationships	$	8,355		$	5,944		$	2,411
Tradenames		3,066			577			2,489
Developed technology		1,884			305			1,579
Foreign currency		(781	)		(744	)		(37	)
Total Intangible Assets	$	12,524		$	6,082		$	6,442

	(in thousands)
2021	$	658
2022		1,283
2023		1,041
2024		1,008
2025		889
Thereafter		1,600
Total	$	6,479

	(in thousands)
Balance as of January 1, 2021	$	8,178
Neat Microphones acquisition		2,508
Balance as of June 30, 2021	$	10,686

	June 30, 2021			December 31, 2020
	(in thousands)
Machinery and equipment	$	2,295		$	2,223
Software and software development		2,412			1,629
Furniture and fixtures		1,091			1,123
Tooling		7,419			6,548
Leasehold improvements		1,832			1,833
Demonstration units and convention booths		14,346			14,439
Total property and equipment, gross		29,395			27,795
Less: accumulated depreciation and amortization		(22,478	)		(21,220	)
Total property and equipment, net	$	6,917		$	6,575

	June 30, 2021		December 31, 2020
	(in thousands)
Accrued royalty		13,586		5,166
Accrued marketing		4,125		5,487
Accrued freight		3,400		3,401
Accrued employee expenses		2,848		7,138
Contingent consideration		1,928		-
Accrued customer fees		1,388		1,562
Accrued expenses		5,560		13,368
Total other current liabilities	$	32,835	$	36,122

	(in thousands)
Balance at December 31, 2020		501
Plan Amendment		975
Options granted		(12	)
Options cancelled		8
Restricted stock granted		(362	)
Forfeited/Expired restricted stock added back		3
Performance-Based restricted stock granted		(134	)
Balance at June 30, 2021		979

	Options Outstanding
	Number of Shares Underlying Outstanding Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
						(in years)
Outstanding at December 31, 2020		2,383,427		$	7.85	$	7.78	$	33,064,942
Options Granted		11,550			27.20
Options Exercised		(376,040	)		8.68
Options Forfeited		(8,380	)		11.64
Outstanding at June 30, 2021		2,010,557		$	7.80		7.54	$	48,396,166
Vested and expected to vest at June 30, 2021		1,964,509		$	7.82		7.51	$	47,376,677
Exercisable at June 30, 2021		1,004,264		$	6.84		6.77	$	25,212,628

Expected term (in years)		6.1
Risk-free interest rate	0.5%- 1.1%
Expected volatility	59.6%- 59.8%
Dividend rate	0%

	Shares			Weighted Average Grant Date Fair Value Per Share
Nonvested restricted stock at December 31, 2020		677,590		$	9.71
Granted		362,195			26.01
Vested		(228,161	)		11.16
Shares forfeited		(3,234	)		11.87
Nonvested restricted stock at June 30, 2021		808,390		$	16.59

	Balance Sheet Classification	June 30, 2021
		(in thousands)
Right-of-use assets	Other assets	$	5,331

Lease liability obligations, current	Other current liabilities	$	747
Lease liability obligations, noncurrent	Other liabilities		4,861
Total lease liability obligations		$	5,608
Weighted-average remaining lease term (in years)			5.0
Weighted-average discount rate			3.75	%

	Issuer Purchases of Equity Securities
	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
Period
April 1-30, 2021		—	$	—		—		—
May 1-31, 2021		6,204	$	28.00		—		—
June 1-30, 2021		2,069	$	36.07		—		—
Total		8,273	$	—		—

3.1	Articles of Incorporation of Turtle Beach Corporation, as amended (Incorporated by reference to Exhibit 3.1 to Company’s 10-Q filed August 6, 2018).

3.2	Bylaws, as amended, of Turtle Beach Corporation (Incorporated by reference to Exhibit 3.1 to Company’s 8-K filed June 20, 2019).

31.1 **	Certification of Juergen Stark, Principal Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

31.2 **	Certification of John T. Hanson, Principal Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.1 **	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Juergen Stark, Principal Executive Officer and John Hanson, Principal Financial Officer (filed herewith).

	Extensible Business Reporting Language (XBRL) Exhibits

101.INS	Inline XBRL Instance Document

101.SCH	Inline XBRL Taxonomy Extension Schema Document

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	Inline XBRL Taxonomy Extension Labels Linkbase Document

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)


			TURTLE BEACH CORPORATION

Date:	August 5, 2021	By:	/s/ JOHN T. HANSON
			John T. Hanson Chief Financial Officer, Treasurer and Secretary
			(Principal Financial and Accounting Officer)

Date:	August 5, 2021	By:	/s/ JUERGEN STARK
			Juergen Stark
			Chief Executive Officer and President