What changed in this filing

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Item 1. Financial Statements

2020-11-05 compared with 2020-08-06 · 128 added, 81 removed, 451 unchanged (32% of the section changed)

2 unchanged sentences

Condensed Consolidated 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;

14,594,731 and 14,488,182 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively

15,186,990 and 14,488,182 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

Additional paid-in capital

7 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 Consolidated Statements of Cash Flows

Six Months Ended

June 30, 2020

June 30, 2019

Nine Months Ended

September 30, 2020

September 30, 2019

(in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES

Net income (loss)

Adjustments to reconcile net income to net cash provided by operating activities:

4 unchanged sentences

Deferred income taxes

Reversal of sales returns reserve

Change in sales returns reserve

Provision for obsolete inventory

Provision for doubtful accounts

Unrealized gain on financial instrument obligation

14 unchanged sentences

Repayment of revolving credit facilities

Proceeds from sale of equity securities

Proceeds from exercise of stock options and warrants

3 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents

Net increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents - beginning of period

23 unchanged sentences

Balance at June 30, 2020

Other comprehensive income, net of tax

Issuance of restricted stock

Repurchase of common stock and retirement of related treasury shares

Stock options exercised

Proceeds of sales of equity securities

Stock-based compensation

Balance at September 30, 2020

Turtle Beach Corporation

Condensed Consolidated Statement of Stockholders ’ Equity (Deficit)

Comprehensive

17 unchanged sentences

Balance at June 30, 2019

Other comprehensive income, net of tax

Issuance of restricted stock

Repurchase of common stock and retirement of related treasury shares

Common stock buyback

Stock options exercised

Stock-based compensation

Balance at September 30, 2019

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

2 unchanged sentences

Background and Basis of Presentation

Turtle Beach Corporation (“Turtle Beach” or the “Company”), headquartered in San Diego, California 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 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.

3 unchanged sentences

(“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 Valhalla, New York.

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.

Basis of Presentation

14 unchanged sentences

The novel coronavirus (“COVID-19”) pandemic has disrupted worldwide economic markets and the extent to which COVID-19 continues to affect the Company’s business, results of operations and financial condition will depend on future developments, which are highly uncertain and difficult to predict.

During the first half of 2020, we experienced a significant increase in demand for our products due to the COVID-19-related stay-at-home orders, which resulted in increased revenue.

During the first nine months of 2020, we experienced a significant increase in demand for our products due to the COVID-19-related stay-at-home orders, which resulted in increased revenue.

Nonetheless, we continue to actively monitor and assess the impact of the pandemic on our business, operations, and financial condition.

14 unchanged sentences

The pronouncement is effective for fiscal years beginning after December 15, 2020, or for any interim periods within those fiscal years, with early adoption permitted.

The Company adopted ASU 2019-12 on January 1, 2020 and does not expect the adoption of this guidance to have a material impact on its financial statements.

The Company adopted ASU 2019-12 on January 1, 2020 , which did not have a material impact on the consolidated financial statements.

On May 31, 2019, the Company completed its acquisition of the business and assets of ROCCAT, a provider of gaming keyboards, mice and other accessories for a purchase price of approximately $ 12.7 million at the closing and up to $ 3.4 million in potential earn-outs based on revenues for the years ending December 31, 2019 and 2020, as provided in the asset purchase agreement .

The purchase price was paid in cash at closing and was funded by the Company’s cash reserves and additional borrowings under its credit facility.

In addition, business transaction costs incurred in connection with the acquisition totaled $ 3.9 million, of which $ 0.1 million and $ 0.3 million was recorded as a component of “General and administrative” expenses in the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020, respectively.

In addition, business transaction costs incurred in connection with the acquisition totaled $ 3.9 million, of which there were no expenses for the three months ended September 30, 2020, and $ 0.4 million recorded as a component of “General and administrative” expenses in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2020, respectively.

The ROCCAT purchase price allocation is shown in the following table:

20 unchanged sentences

Developed technology

For the three and six months ended June 30, 2020, revenue related to ROCCAT products was $ 8.0 million and $ 12.5 million.

For the three and nine months ended September 30, 2020, revenue related to ROCCAT products was $ 9.6 million and $ 22.0 million, respectively.

The Company is unable to provide the results of operations attributable to ROCCAT as those operations were substantially integrated into our legacy business.

The Company has not presented combined pro forma financial information of the Company and the pre-acquisition ROCCAT business because the results of operations of the acquired business are considered immaterial.

In connection with the $ 1.6 million fair value of the potential $ 3.4 million earn-outs, for the year ended December 31, 2019, the fair value of the contingent consideration decreased $ 0.1 million primarily as a result of the revenues not achieving the stated threshold in the asset purchase agreement.

In connection with the $ 1.6 million fair value of the potential $ 3.4 million earn-outs, for the year ended December 31, 2019, the fair value of the contingent consideration has increased as a result of current year revenue performance.

Fair Value Measurement

7 unchanged sentences

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

As of June 30, 2020 and December 31, 2019, 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 at June 30, 2020 and December 31, 2019 .

June 30, 2020

As of September 30, 2020 and December 31, 2019, 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 at September 30, 2020 and December 31, 2019 .

September 30, 2020

December 31, 2019

11 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)

3 unchanged sentences

Accrued marketing

Foreign tax liability

Accrued expenses

3 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

4 unchanged sentences

Total other non-operating expense (income),net

In the three months ended June 30, 2020, the Company recorded income approximately $ 1.7 million for a settlement of claims unrelated to purchase price pursuant to a previously closed acquisition.

In the nine months ended September 30, 2020, the Company recorded income of approximately $ 1.7 million for a settlement of claims unrelated to purchase price pursuant to a previously closed acquisition.

Goodwill and Other Intangible Assets

Acquired Intangible Assets

Acquired identifiable intangible assets, and related accumulated amortization, as of June 30, 2020 and December 31, 2019 consist of:

June 30, 2020

Acquired identifiable intangible assets, and related accumulated amortization, as of September 30, 2020 and December 31, 2019 consist of:

September 30, 2020

(in thousands)

13 unchanged sentences

Refer to Note 3, “Acquisitions” for additional information related to ROCCAT’s identifiable intangible assets.

Amortization expense related to definite lived intangible assets of $ 0.2 million and $ 0.4 million was recognized for the three and six months ended June 30, 2020, respectively, and $ 0.2 million for both the three and six months ended June 30, 2019.

As of June 30, 2020, 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 $ 0.2 million and $ 0.7 million was recognized for the three and nine months ended September 30, 2020, respectively, and $ 0.2 million and $ 0.4 million for the three and nine months ended September 30, 2019, respectively.

As of September 30, 2020, estimated annual amortization expense related to definite lived intangible assets in future periods is as follows:

(in thousands)

Changes in the carrying values of goodwill for the six months ended June 30, 2020 are as follows:

Changes in the carrying values of goodwill for the nine months ended September 30, 2020 are as follows:

(in thousands)

1 unchanged sentence

ROCCAT acquisition opening balance adjustment

Balance as of June 30, 2020

Balance as of September 30, 2020

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 $ 0.3 million for the three and six months ended June 30, 2020, respectively, and $ 0.1 million and $ 0.4 million for the three and six months ended June 30, 2019, respectively.

Amortization of deferred financing costs was $47 thousand and $ 0.1 million for the three and six months ended June 30, 2020, respectively, and $ 47 thousand and $ 0.1 million for the three and six months ended June 30, 2019, respectively.

Total interest expense, inclusive of amortization of deferred financing costs, on long-term debt obligations was $ 0.1 million and $ 0.4 million for the three and nine months ended September 30, 2020, respectively, and $ 0.2 million and $ 0.6 million for the three and nine months ended September 30, 2019, respectively.

Amortization of deferred financing costs was $ 47,000 and $ 0.1 million for the three and nine months ended September 30, 2020, respectively, and $ 47,000 and $ 0.1 million for the three and nine months ended September 30, 2019, respectively.

Revolving Credit Facility

10 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, 2020, interest rates for outstanding borrowings were 3.75 % for base rate loans and 3.00 % for LIBOR rate loans.

As of September 30, 2020, interest rates for outstanding borrowings were 3.75 % for base rate loans and 3.00 % for LIBOR rate loans.

As of September 30, 2020, there were no outstanding borrowings under the Credit Facility.

The Company is subject to quarterly financial covenant testing if certain availability thresholds are not met or certain other events occur (as defined in the Credit Facility).

2 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, 2020, the Company was in compliance with all financial covenants under the Credit Facility, as amended, and excess borrowing availability was approximately $ 48.0 million.

As of September 30, 2020, the Company was in compliance with all financial covenants under the Credit Facility, as amended, and excess borrowing availability was approximately $ 79.8 million.

In order to determine the quarterly provision for income taxes, the Company uses an estimated annual effective tax rate (“ETR”), 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 expense for the three and six months ended June 30, 2020 was $ 3.3 million at an effective tax rate of 28.6 % and $ 1.5 million at an effective tax rate of 23.9 %, respectively.

Income tax expense for the three and six months ended June 30, 2019 was $ 25,000 at an effective tax rate of ( 1.1 %) and $ 0.2 million at an effective tax rate of 21.7 %, respectively.

The effective tax rate for the three and six months ended June 30, 2020 was primarily impacted by permanent items including global intangible low taxed income and executive compensation and, certain state tax expense.

Income tax expense for the three and nine months ended September 30, 2020 was $ 6.4 million at an effective tax rate of 26.5 % and $ 7.9 million at an effective tax rate of 26.0 %, respectively.

Income tax expense for the three and nine months ended September 30, 2019 was $ 63 thousand at an effective tax rate of ( 2.1 %) and $ 0.3 million at an effective tax rate of ( 11.5 %), respectively.

The effective tax rate for the three and nine months ended September 30, 2020 was primarily impacted by permanent items including global intangible low taxed income and executive compensation and, certain state tax expense.

The Company is subject to income taxes domestically and in various foreign jurisdictions.

2 unchanged sentences

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, 2020, the Company had uncertain tax positions of $ 2.9 million, inclusive of $ 0.7 million of interest and penalties.

As of September 30, 2020, the Company had uncertain tax positions of $ 2.9 million, inclusive of $ 0.7 million of interest and penalties.

The Company files U.S., state and foreign income tax returns in jurisdictions with various statutes of limitations.

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, 2020:

The following table presents the stock activity and the total number of shares available for grant as of September 30, 2020:

(in thousands)

4 unchanged sentences

Forfeited/Expired restricted stock added back

Balance at June 30, 2020

Balance at September 30, 2020

Stock Option Activity

1 unchanged sentence

Outstanding at December 31, 2019

Outstanding at June 30, 2020

Vested and expected to vest at June 30, 2020

Exercisable at June 30, 2020

Outstanding at September 30, 2020

Vested and expected to vest at September 30, 2020

Exercisable at September 30, 2020

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.

2 unchanged sentences

Forfeitures on option grants are estimated at 10 % for non-executives and 0 % for executives based on evaluation of historical and expected future turnover.

Stock-based compensation expense was recorded net of estimated forfeitures, such that expense was recorded only for those stock-based awards expected to vest.

Stock-based compensation expense was recorded net of estimated forfeitures, such that expense was recorded only for those stock-based awards

expected to vest.

The Company reviews this assumption periodically and will adjust it if it is not representative of future forfeiture data and trends within employee types (executive vs.

1 unchanged sentence

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 $ 0.1 million for the six months ended June 30, 2020.

The aggregate intrinsic value of options exercised was $ 3.9 million for the nine months ended September 30, 2020.

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

The following are the assumptions for options granted during the six months ended June 30, 2020 .

The following are the assumptions for options granted during the nine months ended September 30, 2020 .

Expected term (in years)

3 unchanged sentences

Each of these inputs is subjective and generally requires significant judgment to determine.

The weighted average grant date fair value of options granted during the six months ended June 30, 2020 was $ 3.63 .

The total estimated fair value of employee options vested during the six months ended June 30, 2020 was $ 1.0 million.

As of June 30, 2020, total unrecognized compensation cost related to non-vested stock options granted to employees was $ 5.6 million, which is expected to be recognized over a remaining weighted average vesting period of 3.0 years.

The weighted average grant date fair value of options granted during the nine months ended September 30, 2020 was $ 3.70 .

The total estimated fair value of employee options vested during the nine months ended September 30, 2020 was $ 1.4 million.

As of September 30, 2020, total unrecognized compensation cost related to nonvested stock options granted to employees was $ 5.7 million, which is expected to be recognized over a remaining weighted average vesting period of 2.8 years.

Restricted Stock Activity

1 unchanged sentence

Shares forfeited

Nonvested restricted stock at June 30, 2020

As of June 30, 2020, total unrecognized compensation costs related to the nonvested restricted stock awards was $ 6.9 million, which will be recognized over a remaining weighted average vesting period of 3.0 years.

Nonvested restricted stock at September 30, 2020

As of September 30, 2020, total unrecognized compensation costs related to the nonvested restricted stock awards was $ 6.5 million, which will be recognized over a remaining weighted average vesting period of 2.8 years.

Stockholder’s Equity

At-the-Market Common Stock Issuance

On August 7, 2020, the Company entered into an ATM Equity Offering Sales Agreement (the “Sales Agreement”) with BofA Securities, Inc.

(the “Sales Agent”).

Pursuant to the terms of the Sales Agreement, the Company may sell from time to time through the Sales Agent shares of the Company’s common stock, par value $ 0.001 per share, having an aggregate offering price of up to $ 30 million.

The Company intends to use the net proceeds from the offering, after deducting the Sales Agent’s commissions and the Company’s offering expenses, to support its strategic growth plans, as well as for general corporate purposes.

During the three months ended September 30, 2020, the Company sold a total of 237,813 shares of its common stock under the Sales Agreement in the open market at an average gross selling price of $ 18.39 per share for net proceeds of $ 4.4 million.

Net Income (Loss) Per Share

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands, except per-share data)

Net income (loss)

Unrealized gain on financial instrument obligation

Net income (loss) – diluted

Weighted average common shares outstanding — Basic

9 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)

24 unchanged sentences

On January 18, 2019, the district court certified a class of shareholders of the Company as of January 15, 2014.

On October 11, 2019, the parties

notified the District Court that they had reached a settlement that would resolve the pending action if ultimately approved by the Court.

On January 13, 2020, the District Court preliminarily approved the settlement between the plaintiffs and all d efendants.

On October 11, 2019, the parties notified the district court that they had reached a settlement that would resolve the pending action if ultimately approved by the Court.

On January 13, 2020, the district court preliminarily approved the settlement between the plaintiffs and all defendants.

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

On May 22, 2020, PAMPTP 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.

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.

This opt-out action asserts the same direct claims that were asserted by the class of shareholders described above.

The defendants have filed two motions to dismiss this complaint which are scheduled to be heard on August 10, 2020.

The defendants filed two motions to dismiss this complaint, which were heard on August 10, 2020.

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

Discovery is ongoing and the case is scheduled for trial in August 2021.

Commercial Dispute :

On July 20, 2016, BigBen Interactive S.A.

(“BigBen”) filed a statement of claim before the Regional Court of Berlin, Germany against VTB, which statement of claim was formally serviced upon VTB on June 28, 2017.

The statement of claim alleges that VTB’s termination of a distribution agreement by and between BigBen and VTB breached the terms thereof and was invalid, and that BigBen is entitled to damages amounting to € 5.0 million plus accrued interest thereon plus certain additional damages as a result of such invalid termination.

VTB filed its statement of defense with the court on September 21, 2017.

On January 7, 2019, the Regional Court of Berlin issued its judgment on this dispute, dismissing BigBen’s claim in its entirety.

On February 7, 2019, BigBen Interactive S.A.

filed an appeal against the judgment of the Regional Court of Berlin on January 7, 2019 (the “Judgment”).

On April 15, 2019, Big Ben provided the reasoning for its appeal against the Judgment.

On June 21, 2019, VTB replied to the reasoning for the appeal.

Upon Big Ben’s application, the Higher Regional Court of Berlin has reviewed the provisions of the Judgment specifically relating to preliminary enforceability of the Judgment in separate proceedings and before the appellate proceedings regarding the main part of the Judgment.

On July 9, 2019, the Higher Regional Court of Berlin completely rejected Big Ben’s applications with regard to the suspension of the preliminary enforceability of the Judgment.

On November 19, 2019, an oral hearing was held at the Higher Regional Court of Berlin on Big Ben’s appeal against the Judgement on January 7, 2019.

The next oral hearing at the Higher Regional Court of Berlin is scheduled for September 4, 2020.

(“BigBen”) filed a statement of claim against VTB before the Regional Court of Berlin, Germany.

The statement of claim alleged that VTB’s termination of a distribution agreement by and between BigBen and VTB breached the terms thereof and was invalid, and that BigBen was entitled to damages as a result.

On September 30, 2020, the Company and BigBen mutually agreed to resolve this claim.

Employment Litigation:

4 unchanged sentences

Discovery is closed and the case was set for trial on April 6, 2020 in San Diego County Superior Court.

Due to the COVID-19 outbreak, the April 6, 2020 trial date was vacated, and the new trial date is October 2, 2020.

Due to the continued closure of the Court, the April 6, 2020 trial date was vacated and the current trial date is February 26, 2021.

Settlement of Disputes :

On May 5th, 2020, Jöllenbeck GmbH and First Wise Media GmbH, two of our distributors and affiliates of the sellers of the ROCCAT business, filed for insolvency in Germany.

On June 30, 2020, the Company entered into a Settlement Agreement with those companies and the sellers of the ROCCAT business pursuant to which, among other things, the Company received a payment for certain outstanding claims and accounts receivable.

On May 5, 2020, Jöllenbeck GmbH and First Wise Media GmbH, two of our distributors and affiliates of the sellers of the ROCCAT business, filed for insolvency in Germany.

outstanding claims and accounts receivable.

On July 1, 2020, the insolvency proceedings for the two companies formally commenced.

3 unchanged sentences

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

The Company has not recorded any accrual at June 30, 2020 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, 2020 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.

6 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

9 unchanged sentences

Balance Sheet Classification

June 30, 2020

September 30, 2020

(in thousands)

7 unchanged sentences

Weighted-average discount rate

During the six months ended June 30, 2020, the Company recognized approximately $ 0.6 million of lease costs in operating expenses and approximately $ 0.3 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, 2020, are as follows:

During the nine months ended September 30, 2020, the Company recognized approximately $ 1.0 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 September 30, 2020, 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