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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
or
☐ 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
2
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)
3
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)
4
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)
5
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)
6
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
|
|
|
|
|
Accumulated
Other
Comprehensive
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
Amount
|
|
|
|
|
Capital
|
|
|
|
|
Deficit
|
|
|
|
|
Income (Loss)
|
|
|
|
|
Total
|
|
|
|
|
(in thousands)
|
|
|
Balance at December 31, 2018
|
|
|
14,268
|
|
|
|
|
$
|
14
|
|
|
|
|
$
|
169,421
|
|
|
|
|
$
|
(131,463
|
)
|
|
|
|
$
|
(476
|
)
|
|
|
|
$
|
37,496
|
|
|
Net income
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
3,055
|
|
|
|
|
|
—
|
|
|
|
|
|
3,055
|
|
|
Other comprehensive income, net of tax
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
165
|
|
|
|
|
|
165
|
|
|
Reclassification of financial instrument obligation
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
6,248
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
6,248
|
|
|
Issuance of restricted stock
|
|
|
12
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
Repurchase of common stock and retirement of related treasury
shares
|
|
|
(6
|
)
|
|
|
|
|
—
|
|
|
|
|
|
(101
|
)
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(101
|
)
|
|
Issuance of common stock upon exercise of warrants
|
|
|
295
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
Stock options exercised
|
|
|
6
|
|
|
|
|
|
—
|
|
|
|
|
|
23
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
23
|
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
522
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
522
|
|
|
Balance at March 31, 2019
|
|
|
14,575
|
|
|
|
|
$
|
14
|
|
|
|
|
$
|
176,113
|
|
|
|
|
$
|
(128,408
|
)
|
|
|
|
$
|
(311
|
)
|
|
|
|
$
|
47,408
|
|
|
Net loss
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(2,373
|
)
|
|
|
|
|
—
|
|
|
|
|
|
(2,373
|
)
|
|
Other comprehensive income, net of tax
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
-
|
|
|
|
|
|
(158
|
)
|
|
|
|
|
(158
|
)
|
|
Issuance of restricted stock
|
|
|
56
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
-
|
|
|
Repurchase of common stock and retirement of related treasury
shares
|
|
|
(4
|
)
|
|
|
|
|
—
|
|
|
|
|
|
(44
|
)
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(44
|
)
|
|
Common stock buyback
|
|
|
(156
|
)
|
|
|
|
|
—
|
|
|
|
|
|
(1,499
|
)
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(1,499
|
)
|
|
Stock options exercised
|
|
|
22
|
|
|
|
|
|
—
|
|
|
|
|
|
71
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
71
|
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
1,003
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
1,003
|
|
|
Balance at June 30, 2019
|
|
|
14,493
|
|
|
|
|
|
14
|
|
|
|
|
|
175,644
|
|
|
|
|
|
(130,781
|
)
|
|
|
|
|
(469
|
)
|
|
|
|
|
44,408
|
|
See accompanying Notes to the Condensed Consolidated Financial
Statements (unaudited)
7
Turtle
Beach Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 1. Background and Basis of Presentation
Organization
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 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. ROCCAT is a gaming keyboards,
mice and other accessories brand focused in the PC peripherals
market.
VTB Holdings, Inc. (“VTBH”), a wholly-owned subsidiary of Turtle
Beach and the owner of Voyetra Turtle Beach, Inc. (“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.
Basis of Presentation
The accompanying interim condensed consolidated financial
statements have been prepared pursuant to the rules and regulations
of the Securities and Exchange Commission (“SEC”) and, in the
opinion of management, reflect all adjustments (which include
normal recurring adjustments) considered necessary for a fair
presentation of the financial position, results of operations, and
cash flows for the periods presented. All intercompany accounts and
transactions have been eliminated in consolidation. Certain
information and footnote disclosures, normally included in annual
financial statements prepared in accordance with U.S. generally
accepted accounting principles (“GAAP”), have been condensed or
omitted pursuant to those rules and regulations. The Company
believes that the disclosures made are adequate to make the
information presented not misleading. The results of operations for
the interim periods are not necessarily indicative of the results
of operations for the entire fiscal year.
The December 31, 2019 Condensed Consolidated Balance Sheet has
been derived from the Company’s audited financial statements
included in its Annual Report on Form 10-K filed with the SEC on
March 13, 2020 (“Annual Report”).
These financial statements should be read in conjunction with the
annual financial statements and the notes thereto included in the
Annual Report that contains information useful to understanding the
Company's businesses and financial statement presentations.
Use of estimates: The preparation
of accompanying unaudited consolidated financial statements in
conformity with U.S. GAAP requires management to make estimates and
assumptions about future events. These estimates and assumptions
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
unaudited consolidated financial statements and reported amounts of
revenues and expenses during the reporting period. These estimates
may change, as new events occur and additional information is
obtained, and will be recognized in the consolidated financial
statements in the period in which such changes occur. Future actual
results could differ materially from these estimates. 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. Nonetheless, we continue to actively monitor and assess
the impact of the pandemic on our business, operations, and
financial condition.
Note 2. Summary of Significant Accounting Policies
The preparation of consolidated annual and quarterly financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the
Company’s consolidated financial statements, and the reported
amounts of revenue and expenses during the reporting
periods. The Company can give no assurance that actual results
will not differ from those estimates.
There have been no material changes to the critical accounting
policies and estimates from the information provided in Note 1 of
the notes to our consolidated financial statements in our Annual
Report.
8
Recent Accounting Pronouncements
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other: Simplifying
the Test for Goodwill Impairment, which simplifies how an
entity is required to test goodwill for impairment. A goodwill
impairment will be measured by the amount by which a reporting
unit’s carrying value exceeds its fair value, with the amount of
impairment not to exceed the carrying amount of goodwill. ASU
2017-04 is effective for goodwill impairment tests in fiscal years
beginning after December 15, 2019, and for interim periods within
those fiscal years, and must be adopted on a prospective basis. The
Company adopted the ASU prospectively on January 1, 2020, which did
not have a material impact on the consolidated financial
statements.
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income
Taxes, which amends ASC Topic 740 by removing certain
exceptions related to the approach for intraperiod tax allocation,
the methodology for calculating income taxes in an interim period
and the recognition of deferred tax liabilities for outside basis
differences. It also simplifies aspects of the accounting for
franchise taxes and enacted changes in tax laws or rates and
clarifies the accounting for transactions that result in a step-up
in the tax basis of goodwill. 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.
Note 3. Acquisitions
ROCCAT
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 Operati