What changed in this filing

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Item 1. Financial Statements

2021-11-04 compared with 2021-08-05 · 113 added, 69 removed, 435 unchanged (29% of the section changed)

3 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands, except per-share data)

7 unchanged sentences

Interest expense

Other non-operating expense (income), net

Other non-operating expense, net

Income before income tax

6 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

2 unchanged sentences

Other comprehensive income (loss)

Comprehensive income (loss)

Comprehensive income

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

1 unchanged sentence

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;

16,065,231 and 15,475,504 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

16,043,808 and 15,475,504 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

Additional paid-in capital

6 unchanged sentences

Condensed Consolidated Statements of Cash Flows

Six Months Ended

June 30, 2021

June 30, 2020

Nine Months Ended

September 30, 2021

September 30, 2020

(in thousands)

15 unchanged sentences

Other liabilities

Net cash provided by operating activities

Net cash provided by (used for) operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

5 unchanged sentences

Repayment of revolving credit facilities

Proceeds from sale of equity securities

Proceeds from exercise of stock options and warrants

Repurchase of common stock to satisfy employee tax withholding obligations

Net cash provided by (cash used for) financing activities

Repurchase of common stock

Net cash cash used for financing activities

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

22 unchanged sentences

Balance at June 30, 2021

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, 2021

Comprehensive

14 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

Proceeds of sales of equity securities

Stock options exercised

Stock-based compensation

Balance at September 30, 2020

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

35 unchanged sentences

The closing payment was funded from cash on the Company’s balance sheet.

In addition, business transaction costs incurred in connection with the acquisition of $ 0.1 million and $ 0.3 million for the three and six months ended June 30, 2021, respectively, were recorded as a component of “General and administrative” expenses in the Company’s Condensed Consolidated Statements of Operations.

In addition, business transaction costs incurred in connection with the acquisition of $ 39,000 and $ 0.3 million for the three and nine months ended September 30, 2021, respectively, were recorded as a component of “General and administrative” expenses in the Company’s Condensed Consolidated Statements of Operations.

Neat Microphones creates, manufactures, and sells high-quality digital USB and analog microphones that embrace cutting-edge technology and design.

The fair values of Neat Microphone’s assets and liabilities are provisional and were determined based on preliminary estimates and assumptions that management believes are reasonable.

The preliminary purchase price allocation is subject to further refinement and may require significant adjustments to arrive at the final purchase price allocation.

These adjustments will primarily relate to certain intangible assets and certain liabilities including contingent consideration.

The final determination of the fair value of certain assets and liabilities will be completed as soon as the necessary information is available, including the completion of a valuation of the intangible assets and the contingent consideration, but no later than one year from the acquisition date.

The goodwill from the acquisition of Neat Microphones, which is fully deductible for tax purposes, consists largely of synergies and economies of scale expected from adding the operations of Neat Microphones’ and the Company’s existing business and supply channels.

The preliminary estimate of fair value of Neat Microphone’s identifiable intangible assets was determined primarily using the “income approach,” which requires a forecast of all expected future cash flows either through the use of the multi-period excess earnings method or the relief-from-royalty method.

The fair value of Neat Microphone’s identifiable intangible assets was determined primarily using the “income approach,” which requires a forecast of all expected future cash flows either through the use of the multi-period excess earnings method or the relief-from-royalty method.

Some of the more significant assumptions inherent in the development of intangible asset values include:

14 unchanged sentences

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

As of June 30, 2021 and December 31, 2020 , 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, 2021 and December 31, 2020 .

June 30, 2021

As of September 30, 2021 and December 31, 2020, 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, 2021 and December 31, 2020 .

September 30, 2021

December 31, 2020

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)

9 unchanged sentences

Acquired Intangible Assets

Acquired identifiable intangible assets, and related accumulated amortization, as of June 30, 2021 and December 31, 2020 consist of:

June 30, 2021

Acquired identifiable intangible assets, and related accumulated amortization, as of September 30, 2021 and December 31, 2020 consist of:

September 30, 2021

(in thousands)

15 unchanged sentences

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

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, 2021, and $ 0.2 million and $ 0.4 million for the three and six months ended June 30, 2020.

As of June 30, 2021, 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, 2021, respectively, and $ 0.2 million and $ 0.7 million for the three and nine months ended September 30, 2020, respectively.

As of September 30, 2021, 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, 2021 are as follows:

Changes in the carrying values of goodwill for the nine months ended September 30, 2021 are as follows:

(in thousands)

1 unchanged sentence

Neat Microphones acquisition

Balance as of June 30, 2021

Balance as of September 30, 2021

Revolving Credit Facility and Long-Term Debt

The Company had no outstanding balance related to its revolving credit facility as of June 30, 2021 and December 31, 2020.

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, 2021, and $ 0.1 million and $ 0.3 million for the three and six months ended June 30, 2020.

Amortization of deferred financing costs was $ 47,000 and $ 0.1 million for the three and six months ended June 30, 2021 and 2020.

The Company had no outstanding balance related to its revolving credit facility as of September 30, 2021 and December 31, 2020.

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 nine months ended September 30, 2021, respectively, and $ 0.1 million and $ 0.4 million for the three and nine months ended September 30, 2020, respectively.

Amortization of deferred financing costs for both the three and nine months ended September 30, 2021 and 2020, was $ 47,000 and $ 0.1 million, 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, 2021, interest rates for outstanding borrowings were 3.75 % for base rate loans and 3.00 % for LIBOR rate loans.

As of June 30, 2021, there were no outstanding borrowings under the Credit Facility.

As of September 30, 2021, interest rates for outstanding borrowings were 3.75 % for base rate loans and 3.00 % for LIBOR rate loans.

As of September 30, 2021, 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, 2021, the Company was in compliance with all financial covenants under the Credit Facility, as amended, and excess borrowing availability was approximately $ 49.7 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.

As of September 30, 2021, the Company was in compliance with all financial covenants under the Credit Facility, as amended, and excess borrowing availability was approximately $ 54.6 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.

However, to the extent that application of the estimated annual effective tax rate is not representative of the quarterly portion of actual tax expense expected to be recorded for the year, the Company determines the provision for income taxes based on actual year-to-date income (loss).

2 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, 2021 was $ 1.3 million at an effective tax rate of ( 295.6 %) and income tax expense for the six months ended June 30, 2021was $ 1.5 million at an effective tax rate of 12.3 %.

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.

The effective tax rate for the three and six months ended June 30, 2021 was primarily impacted by discrete windfall tax benefits of $( 1.8 ) million attributable to stock option exercises and restricted stock vestings, partially offset by the impact of disallowed compensation and state income tax expense on the estimated annual effective tax rate.

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 %).

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.

The effective tax rate for the three and nine months ended September 30, 2021 was primarily impacted by discrete stock-based compensation related tax benefits of $ ( 2.3 ) million attributable to stock option exercises and restricted stock vestings, Research and Development (“R&D”) credits and the reduced tax rate on our Foreign Derived Intangible Income (“FDII”).

These tax benefits were partially offset by the impact of disallowed compensation and state income tax expense on the estimated annual effective tax rate.

During the third quarter of 2021, we substantially completed a federal R&D study for the 2018-2020 tax years, recognizing tax benefits of $ 0.5 million, net of reserves.

In addition, we completed an analysis of our foreign sales and recognized a tax benefit of $ 0.8 million on our FDII.

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, 2021, the Company had uncertain tax positions of $ 3.3 million, inclusive of $ 0.8 million of interest and penalties.

As of September 30, 2021, the Company had uncertain tax positions of $ 3.8 million, inclusive of $ 1.2 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, 2021:

The following table presents the stock activity and the total number of shares available for grant as of September 30, 2021:

(in thousands)

6 unchanged sentences

Performance-Based restricted stock granted

Balance at June 30, 2021

Balance at September 30, 2021

Stock Option Activity

4 unchanged sentences

Options Forfeited

Outstanding at June 30, 2021

Vested and expected to vest at June 30, 2021

Exercisable at June 30, 2021

Outstanding at September 30, 2021

Vested and expected to vest at September 30, 2021

Exercisable at September 30, 2021

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 $ 8.6 million for the six months ended June 30, 2021.

The aggregate intrinsic value of options exercised was $ 11.1 million for the nine months ended September 30, 2021.

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, 2021 :

The following are the assumptions for options granted during the nine months ended September 30, 2021 :

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, 2021 was $ 14.89 .

The total estimated fair value of employee options vested during the six months ended June 30, 2021 was $ 1.6 million.

As of June 30, 2021, total unrecognized compensation cost related to non-vested stock options granted to employees was $ 3.9 million, which is expected to be recognized over a remaining weight average vesting period of 2.3 years.

The weighted average grant date fair value of options granted during the nine months ended September 30, 2021 was $ 14.89 .

The total estimated fair value of employee options vested during the nine months ended September 30, 2021 was $ 2.1 million.

As of September 30, 2021, total unrecognized compensation cost related to non-vested stock options granted to employees was $ 3.9 million, which is expected to be recognized over a remaining weight average vesting period of 2.1 years.

Restricted Stock Activity

1 unchanged sentence

Shares forfeited

Nonvested restricted stock at June 30, 2021

As of June 30, 2021, total unrecognized compensation costs related to the nonvested restricted stock awards was $ 12.4 million, which will be recognized over a remaining weighted average vesting period of 2.8 years.

Nonvested restricted stock at September 30, 2021

As of September 30, 2021, total unrecognized compensation costs related to the nonvested restricted stock awards was $ 11.4 million, which will be recognized over a remaining weighted average vesting period of 2.6 years.

Performance-Based Restricted Share Units

As of June 30, 2021, the Company had 134,000 performance-based restricted share units outstanding.

As of September 30, 2021, the Company had 134,000 performance-based restricted share units outstanding.

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 %.

6 unchanged sentences

During the year ended December 31, 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.

During the six months ended June 30, 2021, the Company had no sales of its common stock under the Sales Agreement.

During the nine months ended September 30, 2021, the Company had no sales of its common stock under the Sales Agreement.

Net Income Per Share

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands, except per-share data)

10 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 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.

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

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

3 unchanged sentences

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

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

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.

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

Defendants have pending motions to obtain their costs and fees in successfully defending against the claims, which will be heard in November 2021.

Commercial Dispute :

8 unchanged sentences

The Company filed a cross-complaint against the former employee on May 25, 2017 for certain activities related to his employment with the Company.

Discovery is closed and the case was set for trial on July 9, 2021 in San Diego County Superior Court.

Due to continued Court delays with civil jury trials, the trial date was vacated and the current trial date is September 24, 2021.

The matter was tried between September 24 and October 7, 2021.

On October 8, 2021 a jury rendered a unanimous verdict in favor of the Company on the employment claims.

The Court granted a directed verdict to the Company on its Cross Complaint against the former employee.

Judgment was entered in favor of the Company on October 27, 2021.

Settlement of Disputes :

4 unchanged sentences

Intellectual Property dispute:

On November 24, 2020, ABP Technology Limited (ABP) issued a claim for trade mark infringement in the High Court of England and Wales against Voyetra Turtle Beach, Inc.

On November 24, 2020, ABP Technology Limited (ABP) issued a claim for trademark infringement in the High Court of England and Wales against Voyetra Turtle Beach, Inc.

(“VTB”) and Turtle Beach Europe Limited (“TBEU”) relating to the use by VTB and TBEU of the sign STEALTH on and in relation to gaming headsets in the UK.

3 unchanged sentences

The trial is expected to be set for late-2022.

The Company will continue to vigorously defend itself in the foregoing matters.

The Company will continue to vigorously defend itself in the foregoing unresolved matters.

However, litigation and investigations are inherently uncertain.

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

The Company has not recorded any accrual at June 30, 2021 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, 2021 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, 2021

September 30, 2021

(in thousands)

7 unchanged sentences

Weighted-average discount rate

During the six months ended June 30, 2021, the Company recognized approximately $ 0.7 million of lease costs in operating expenses and approximately $ 0.6 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, 2021, are as follows:

During the nine months ended September 30, 2021, the Company recognized approximately $ 1.1 million of lease costs in operating expenses and approximately $ 0.9 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, 2021, 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