What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-11-14 compared with 2022-08-08 · 106 added, 56 removed, 421 unchanged (28% of the section changed)

3 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands, except per-share data)

17 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

7 unchanged sentences

Condensed Consolida ted Balance Sheets

September 30,

(in thousands, except par value and share amounts)

19 unchanged sentences

Common stock, $ 0.001 par value - 25,000,000 shares authorized;

16,526,393 and 16,168,147 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively

16,556,798 and 16,168,147 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

Additional paid-in capital

6 unchanged sentences

Condensed Consolidated S tatements of Cash Flows

Six Months Ended

June 30, 2022

June 30, 2021

Nine Months Ended

September 30, 2022

September 30, 2021

(in thousands)

25 unchanged sentences

Repurchase of common stock to satisfy employee tax withholding obligations

Net cash provided by financing activities

Repurchase of common stock

Net cash provided by (used for) financing activities

Effect of exchange rate changes on cash and cash equivalents

23 unchanged sentences

Balance at June 30, 2022

Other comprehensive loss, net of tax

Issuance of restricted stock

Stock options exercised

Stock-based compensation

Balance at September 30, 2022

Comprehensive

14 unchanged sentences

Balance at June 30, 2021

Other comprehensive loss, net of tax

Issuance of restricted stock

Common stock buyback

Stock options exercised

Stock-based compensation

Balance at September 30, 2021

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

41 unchanged sentences

Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, debt instruments and certain warrants.

As of June 30, 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 June 30, 2022 and December 31, 2021.

June 30, 2022

As of September 30, 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 September 30, 2022 and December 31, 2021.

September 30, 2022

December 31, 2021

9 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

5 unchanged sentences

Inventories consist of the following:

September 30,

(in thousands)

4 unchanged sentences

Property and equipment, net, consists of the following:

September 30,

(in thousands)

9 unchanged sentences

Other current liabilities consist of the following:

September 30,

(in thousands)

Accrued legal

Accrued marketing

Accrued employee expenses

Accrued royalty

Accrued marketing

Accrued freight

Accrued royalty

Accrued legal

Accrued expenses

1 unchanged sentence

Goodwill and Other Intangible Assets

The Company’s results are affected by numerous macroeconomic factors including inflation, consumer spending confidence and global supply chains.

In 2022, we have experienced a higher rate of inflation than in recent years resulting in higher cost of goods, selling expenses, and general and administrative expenses.

Such increases have had a negative impact on the Company’s revenue and profit margin which have contributed to a decline in the Company’s market capitalization and have been considered triggering events during the third quarter 2022 and accordingly, the Company performed interim goodwill and long-lived asset quantitative impairment tests as of September 30, 2022.

Goodwill and Long-lived Assets Impairment Test

The Company estimated the fair value of goodwill and long-lived assets using both the income approach and market approach.

The income approach incorporates the use of a discounted cash flow model that involves management assumptions that are based upon future growth projections.

Assumptions include estimates of future revenues, growth rates which take into account estimated inflation rates, estimates of future levels of gross profit and operating profit, projected capital expenditures and discount rates based upon industry and competitor analyses.

The market approach, specifically the guideline public company method, which estimates the fair value of the Company using revenue and EBITDA multiples of selected public company peers that have similar characteristics to the Company.

Upon completing both the income approach and market approach, the Company determined that its fair value exceeded the net carry values of their assets and liabilities.

As such, goodwill and long-lived assets were not impaired as of September 30, 2022.

Acquired Intangible Assets

Acquired identifiable intangible assets, and related accumulated amortization, as of June 30, 2022 and December 31, 2021 consist of:

June 30, 2022

Acquired identifiable intangible assets, and related accumulated amortization, as of September 30, 2022 and December 31, 2021 consist of:

September 30, 2022

(in thousands)

12 unchanged sentences

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 of $ 0.3 million and $ 0.6 million was recognized for the three and six months ended June 30, 2022, respectively, and $ 0.3 million and $ 0.6 million was recognized for the three and six months ended June 30, 2021, respectively.

As of June 30, 2022, estimated annual amortization expense related to definite lived intangible assets in future periods is as follows:

Amortization expense related to definite lived intangible assets of $ 0.3 million and $ 0.9 million was recognized for the three and nine months ended September 30, 2022, respectively, and $ 0.3 million and $ 0.9 million was recognized for the three and nine months ended September 30, 2021, respectively.

As of September 30, 2022, estimated annual amortization expense related to definite lived intangible assets in future periods is as follows:

(in thousands)

There were no changes in the carrying values of goodwill for the three months ended June 30, 2022 from the balance as of December 31, 2021 .

There were no changes in the carrying values of goodwill for the three months ended September 30, 2022 from the balance as of December 31, 2021 .

Revolving Credit Facility and Long-Term Debt

September 30,

(in thousands)

Revolving credit facility, maturing March 2024

Total interest expense, inclusive of amortization of deferred financing costs, on long-term debt obligations was $ 0.1 million and $ 0.2 million for the three and six months ended June 30, 2022, respectively, and $ 0.1 million and $ 0.2 million for the three and six months ended June 30, 2021, respectively.

Amortization of deferred financing costs was $ 47 thousand and $ 94 thousand for the three and six months ended June 30, 2022 and $ 47 thousand and $ 95 thousand for the three and six months ended June 30, 2021, respectively.

Total interest expense, inclusive of amortization of deferred financing costs, on long-term debt obligations was $ 0.5 million and $ 0.6 million for the three and nine months ended September 30, 2022, respectively, and $ 0.1 million and $ 0.3 million for the three and nine months ended September 30, 2021, respectively.

Amortization of deferred financing costs was $ 48 thousand and $ 142 thousand for the three and nine months ended September 30, 2022 and $ 47 thousand and $ 142 thousand for the three and nine months ended September 30, 2021, respectively.

Revolving Credit Facility

7 unchanged sentences

The Credit Facility may be used for working capital, the issuance of bank guarantees, letters of credit and other corporate purposes.

In the second quarter of 2022, the Company accessed the Credit Facility as a result of increased inventory levels driven by global supply chain delays as well as lower retail channel inventory levels.

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.

2 unchanged sentences

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 June 30, 2022, interest rates for outstanding borrowings were 5.25 % for base rate loans and 3.00 % for LIBOR rate loans.

As of September 30, 2022, interest rates for outstanding borrowings were 7.50 % for base rate loans and 5.13 % for LIBOR rate loans.

The Company and the administrative agent entered into an amendment to the Credit Facility (the "LIBOR Transition Amendment") to replace the LIBOR rate as a reference rate available for use in the computation of interest under the Credit Agreement in favor of (i) the Applicable Rate (as defined in the Credit Facility) plus Sterling Overnight Index Average (“SONIA”) or the Euro Interbank Offered Rate (“EURIBOR”).

5 unchanged sentences

Obligations under the Credit Facility are secured by a security interest and lien upon substantially all of the Company’s assets.

As of June 30, 2022, the Company was in compliance with all financial covenants under the Credit Facility, as amended, and excess borrowing availability was approximately $ 22.0 million.

As of September 30, 2022, the Company was in compliance with all financial covenants under the Credit Facility, as amended, and excess borrowing availability was approximately $ 25.3 million.

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.

3 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

1 unchanged sentence

Effective income tax rate

Income tax benefit for the three months ended June 30, 2022 was $ 4.7 million at an effective tax rate of 21.0 % and income tax benefit for the six months ended June 30, 2022 was $ 7.4 million at an effective tax rate of 23.3 % .

Income tax benefit for the three months ended June 30, 2021 was $ 1.3 million at an effective tax rate of ( 295.6 %) and income tax expense for the six months ended June 30, 2021 was $ 1.5 million at an effective tax rate of 12.3 % .

The effective tax rate for the three and six months ended June 30, 2022 was primarily impacted by the deduction for stock option exercises, offset by certain non-deductible costs and state income tax expense.

Significant judgment is required in evaluating uncertain tax positions and determining the provision for income taxes.

Income tax benefit for the three months ended September 30, 2022 was $ 4.4 million at an effective tax rate of 26.8 % and income tax benefit for the nine months ended September 30, 2022 was $ 11.8 million at an effective tax rate of 24.5 % .

Income tax benefit for the three months ended September 30, 2021 was $ 1.8 million at an effective tax rate of ( 226.2 %) and income tax benefit for the nine months ended September 30, 2021 was ($ 0.3 ) million at an effective tax rate of ( 2.6 %) .

The effective tax rate for the three and nine months ended September 30, 2022 was primarily impacted by state taxes, certain credits and discrete deductions for employee stock option exercise, offset by nondeductible officer compensation and global intangible low taxed income.

The Company recognizes only those tax positions that meet the more-likely-than-not recognition threshold and establishes tax reserves for uncertain tax positions that do not meet this threshold.

Interest and penalties associated with income tax matters are included in the provision for income taxes in the condensed consolidated statements of operations.

As of June 30, 2022, the Company had uncertain tax positions of $ 3.8 million , inclusive of $ 1.1 million of interest and penalties.

The Company has determined that a valuation allowance is not needed against the deferred tax asset as of June 30, 2022, with the exception of net operating losses for certain separate state filings.

As of September 30, 2022, the Company had uncertain tax positions of $ 3.5 million , inclusive of $ 1.0 million of interest and penalties.

The Company has determined that a valuation allowance is not needed against the deferred tax asset as of September 30, 2022, with the exception of net operating losses for certain separate state filings.

This analysis is performed on a quarterly basis and includes an evaluation of all positive and negative evidence to determine whether it is more-likely-than-not that the deferred tax assets will be realizable.

7 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

4 unchanged sentences

Total stock-based compensation

The following table presents the stock activity and the total number of shares available for grant as of June 30, 2022:

The following table presents the stock activity and the total number of shares available for grant as of September 30, 2022:

(in thousands)

5 unchanged sentences

Performance Shares Granted

Balance at June 30, 2022

Balance at September 30, 2022

Stock Option Activity

4 unchanged sentences

Options Forfeited

Outstanding at June 30, 2022

Vested and expected to vest at June 30, 2022

Exercisable at June 30, 2022

Outstanding at September 30, 2022

Vested and expected to vest at September 30, 2022

Exercisable at September 30, 2022

Stock options are time-based and the majority are exercisable within 10 years of the date of grant, but only to the extent they have vested.

6 unchanged sentences

Aggregate intrinsic value represents the difference between the estimated fair value of the underlying common stock and the exercise price of outstanding, in-the-money options.

The aggregate intrinsic value of options exercised was $ 0.8 million for the six months ended June 30, 2022.

The aggregate intrinsic value of options exercised was $ 0.8 million for the nine months ended September 30, 2022.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of options granted as of the grant date.

There were no new options granted during the six months ended June 30, 2022.

The total estimated fair value of employee options vested during the six months ended June 30, 2022 was $ 3.5 million .

As of June 30, 2022, total unrecognized compensation cost related to non-vested stock options granted to employees was $ 2.0 million , which is expected to be recognized over a remaining weighted average vesting period of 1.6 years.

There were no new options granted during the nine months ended September 30, 2022.

The total estimated fair value of employee options vested during the nine months ended September 30, 2022 was $ 3.9 million .

As of September 30, 2022, total unrecognized compensation cost related to non-vested stock options granted to employees was $ 2.0 million , which is expected to be recognized over a remaining weighted average vesting period of 1.4 years.

Restricted Stock Activity

1 unchanged sentence

Shares forfeited

Nonvested restricted stock at June 30, 2022

As of June 30, 2022, total unrecognized compensation costs related to the nonvested restricted stock awards was $ 17.6 million , which will be recognized over a remaining weighted average vesting period of 2.5 years.

Nonvested restricted stock at September 30, 2022

As of September 30, 2022, total unrecognized compensation costs related to the nonvested restricted stock awards was $ 14.4 million , which will be recognized over a remaining weighted average vesting period of 2.3 years.

Performance-Based Restricted Share Units

As of June 30, 2022 , the Company had 256,342 performance-based restricted share units outstanding, including 167,000 issued in 2022.

As of September 30, 2022 , the Company had 256,342 performance-based restricted share units outstanding, including 167,000 issued in 2022.

The vesting of performance-based restricted share units is determined over a three-year period based on (i) the amount by which revenue growth exceeds a defined baseline market growth each year and (ii) the achievement of specified tiers of adjusted EBITDA as a percentage of net revenue each year, with the ability to earn and vest into such units ranging from 0 % to 200 %.

3 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands, except per-share data)

11 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

6 unchanged sentences

Shareholders Class Action :

On August 5, 2013, VTBH and the Company (f/k/a Parametric Sound Corporation) announced that they had entered into the Merger Agreement pursuant to which VTBH would acquire an approximately 80 % ownership interest and existing shareholders would maintain an approximately 20 % ownership interest in the combined company (the “Merger”).

shareholders would maintain an approximately 20 % ownership interest in the combined company (the “Merger”).

Following the announcement, several shareholders filed class action lawsuits in California and Nevada seeking to enjoin the Merger.

20 unchanged sentences

A final hearing was held on May 18, 2020, wherein the Court approved the settlement and entered final judgment.

Plantiff has filed a notice of their intent to appeal the judgment.

On May 22, 2020, PAMTP LLC, which purports to hold the claims of eight shareholders who opted out of the class settlement described above, brought suit against the Company, the Company’s CEO, Juergen Stark, Stripes Group, LLC, SG VTB Holdings, LLC, Kenneth Fox, and former members of the Company’s Board of Directors in Nevada state court.

2 unchanged sentences

The Court denied those motions by order of August 20, 2020.

The case was tried in August 2021 and all defendants, including the Company, prevailed on all counts with final judgment entered in their favor on September 3, 2021.

The case was tried in August 2021 and all remaining defendants, including the Company, prevailed on all counts with final judgment entered in their favor on September 3, 2021.

Plaintiff is appealing that judgment.

Employment Litigation:

28 unchanged sentences

Accordingly, the Company cannot predict the outcome of these matters.

The Company has not recorded any accrual at June 30, 2022 for contingent losses associated with these matters based on its belief that losses, while possible, are not probable.

The Company has not recorded any accrual at September 30, 2022 for contingent losses associated with these matters based on its belief that losses, while possible, are not probable.

Further, any possible range of loss cannot be reasonably estimated at this time.

The unfavorable resolution of these matters could have a material adverse effect on the Company’s business, results of operations, financial condition, or cash flows.

The unfavorable resolution of these matters could have a material

adverse effect on the Company’s business, results of operations, financial condition, or cash flows.

The Company is engaged in other legal actions, not described above, arising in the ordinary course of its business and, while there can be no assurance, believes that the ultimate outcome of these other legal actions will not have a material adverse effect on its business, results of operations, financial condition, or cash flows.

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

9 unchanged sentences

Balance Sheet Classification

June 30, 2022

September 30, 2022

(in thousands)

7 unchanged sentences

Weighted-average discount rate

During the six months ended June 30, 2022, the Company recognized approximately $ 0.7 million of lease costs in operating expenses and approximately $ 0.5 million of operating cash flows from operating leases.

Approximate future minimum lease payments for the Company’s right of use assets over the remaining lease periods as of June 30, 2022, are as follows:

During the nine months ended September 30, 2022, the Company recognized approximately $ 1.1 million of lease costs in operating expenses and approximately $ 0.8 million of operating cash flows from operating leases.

Approximate future minimum lease payments for the Company’s right of use assets over the remaining lease periods as of September 30, 2022, are as follows:

(in thousands)

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements