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)
|
|
|
|
Page
|
PART I. FINANCIAL INFORMATION
|
|
|
|
|
|
Item 1.
|
Financial Statements (unaudited)
|
|
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
Item 2.
|
||
|
|
|
Item 3.
|
||
|
|
|
Item 4.
|
||
|
|
|
PART II. OTHER INFORMATION
|
||
|
|
|
Item 1.
|
||
|
|
|
Item 1A.
|
||
|
|
|
Item 5.
|
|
|
|
|
|
Item 6.
|
||
|
|
|
SIGNATURES
|
|
June 30,
2018 |
|
December 31, 2017
|
||||
|
(unaudited)
|
|
|
||||
ASSETS
|
(in thousands, except par value and share amounts)
|
||||||
Current Assets:
|
|
|
|
|
|
||
Cash and cash equivalents
|
$
|
9,108
|
|
|
$
|
5,247
|
|
Accounts receivable, net
|
34,582
|
|
|
50,534
|
|
||
Inventories
|
28,043
|
|
|
27,518
|
|
||
Prepaid expenses and other current assets
|
5,190
|
|
|
3,467
|
|
||
Total Current Assets
|
76,923
|
|
|
86,766
|
|
||
Property and equipment, net
|
2,839
|
|
|
4,677
|
|
||
Intangible assets, net
|
1,196
|
|
|
1,404
|
|
||
Deferred income taxes
|
127
|
|
|
362
|
|
||
Other assets
|
1,095
|
|
|
1,042
|
|
||
Total Assets
|
$
|
82,180
|
|
|
$
|
94,251
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|||
Current Liabilities:
|
|
|
|
|
|||
Revolving credit facility
|
$
|
—
|
|
|
$
|
38,467
|
|
Term loans
|
375
|
|
|
4,173
|
|
||
Accounts payable
|
29,976
|
|
|
13,459
|
|
||
Other current liabilities
|
14,061
|
|
|
11,451
|
|
||
Total Current Liabilities
|
44,412
|
|
|
67,550
|
|
||
Term loans, long-term portion, net of unamortized debt issuance costs of $734 and $759
|
11,391
|
|
|
6,789
|
|
||
Series B redeemable preferred stock
|
—
|
|
|
18,921
|
|
||
Subordinated notes - related party, net of unamortized discount of $811 and $1,075
|
19,092
|
|
|
20,836
|
|
||
Other liabilities
|
2,311
|
|
|
2,312
|
|
||
Total Liabilities
|
77,206
|
|
|
116,408
|
|
||
Commitments and Contingencies
|
|
|
|
||||
Stockholders' Equity (Deficit)
|
|
|
|
|
|
||
Common stock, $0.001 par value - 25,000,000 shares authorized; 13,794,251 and 12,349,449 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively
|
14
|
|
|
12
|
|
||
Additional paid-in capital
|
167,668
|
|
|
148,082
|
|
||
Accumulated deficit
|
(162,390
|
)
|
|
(170,048
|
)
|
||
Accumulated other comprehensive loss
|
(318
|
)
|
|
(203
|
)
|
||
Total Stockholders' Equity (Deficit)
|
4,974
|
|
|
(22,157
|
)
|
||
Total Liabilities and Stockholders' Equity (Deficit)
|
$
|
82,180
|
|
|
$
|
94,251
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
2018 |
|
June 30,
2017 |
|
June 30,
2018 |
|
June 30,
2017 |
||||||||
|
(in thousands, except per-share data)
|
||||||||||||||
Net revenue
|
$
|
60,805
|
|
|
$
|
19,112
|
|
|
$
|
101,691
|
|
|
$
|
33,464
|
|
Cost of revenue
|
40,528
|
|
|
12,811
|
|
|
66,385
|
|
|
24,947
|
|
||||
Gross profit
|
20,277
|
|
|
6,301
|
|
|
35,306
|
|
|
8,517
|
|
||||
Operating expenses:
|
|
|
|
|
|
|
|
||||||||
Selling and marketing
|
6,818
|
|
|
5,529
|
|
|
12,747
|
|
|
9,978
|
|
||||
Research and development
|
1,327
|
|
|
1,697
|
|
|
2,656
|
|
|
3,087
|
|
||||
General and administrative
|
3,863
|
|
|
4,070
|
|
|
7,848
|
|
|
8,241
|
|
||||
Restructuring charges
|
—
|
|
|
(30
|
)
|
|
—
|
|
|
268
|
|
||||
Total operating expenses
|
12,008
|
|
|
11,266
|
|
|
23,251
|
|
|
21,574
|
|
||||
Operating income (loss)
|
8,269
|
|
|
(4,965
|
)
|
|
12,055
|
|
|
(13,057
|
)
|
||||
Interest expense
|
1,258
|
|
|
1,835
|
|
|
3,263
|
|
|
3,675
|
|
||||
Other non-operating expense (income), net
|
410
|
|
|
(214
|
)
|
|
165
|
|
|
(265
|
)
|
||||
Income (loss) before income tax
|
6,601
|
|
|
(6,586
|
)
|
|
8,627
|
|
|
(16,467
|
)
|
||||
Income tax expense
|
300
|
|
|
475
|
|
|
364
|
|
|
520
|
|
||||
Net income (loss)
|
$
|
6,301
|
|
|
$
|
(7,061
|
)
|
|
$
|
8,263
|
|
|
$
|
(16,987
|
)
|
|
|
|
|
|
|
|
|
||||||||
Net income (loss) per share:
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
0.47
|
|
|
$
|
(0.57
|
)
|
|
$
|
0.64
|
|
|
$
|
(1.38
|
)
|
Diluted
|
$
|
0.40
|
|
|
$
|
(0.57
|
)
|
|
$
|
0.56
|
|
|
$
|
(1.38
|
)
|
Weighted average number of shares:
|
|
|
|
|
|
|
|
||||||||
Basic
|
13,401
|
|
|
12,337
|
|
|
12,877
|
|
|
12,325
|
|
||||
Diluted
|
15,644
|
|
|
12,337
|
|
|
14,816
|
|
|
12,325
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30, 2018
|
|
June 30, 2017
|
|
June 30, 2018
|
|
June 30, 2017
|
||||||||
|
(in thousands)
|
||||||||||||||
Net income (loss)
|
$
|
6,301
|
|
|
$
|
(7,061
|
)
|
|
$
|
8,263
|
|
|
$
|
(16,987
|
)
|
|
|
|
|
|
|
|
|
||||||||
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
||||||||
Foreign currency translation adjustment
|
(270
|
)
|
|
118
|
|
|
(115
|
)
|
|
158
|
|
||||
Other comprehensive income (loss)
|
(270
|
)
|
|
118
|
|
|
(115
|
)
|
|
158
|
|
||||
Comprehensive income (loss)
|
$
|
6,031
|
|
|
$
|
(6,943
|
)
|
|
$
|
8,148
|
|
|
$
|
(16,829
|
)
|
|
Six Months Ended
|
||||||
|
June 30, 2018
|
|
June 30, 2017
|
||||
|
(in thousands)
|
||||||
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
||
Net income (loss)
|
$
|
8,263
|
|
|
$
|
(16,987
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
||||
Depreciation and amortization
|
2,204
|
|
|
2,213
|
|
||
Amortization of intangible assets
|
156
|
|
|
170
|
|
||
Amortization of debt financing costs
|
642
|
|
|
781
|
|
||
Stock-based compensation
|
822
|
|
|
817
|
|
||
Accrued interest on Series B redeemable preferred stock
|
501
|
|
|
702
|
|
||
Paid-in-kind interest
|
1,256
|
|
|
1,196
|
|
||
Deferred income taxes
|
235
|
|
|
(43
|
)
|
||
Reversal of sales returns reserve
|
(489
|
)
|
|
(2,438
|
)
|
||
Provision for doubtful accounts
|
144
|
|
|
3
|
|
||
Provision for obsolete inventory
|
1,766
|
|
|
1,689
|
|
||
Loss on disposal of property and equipment
|
93
|
|
|
—
|
|
||
Changes in operating assets and liabilities:
|
|
|
|
||||
Accounts receivable
|
15,692
|
|
|
47,073
|
|
||
Inventories
|
(2,291
|
)
|
|
(907
|
)
|
||
Accounts payable
|
16,461
|
|
|
(601
|
)
|
||
Prepaid expenses and other assets
|
(1,723
|
)
|
|
(505
|
)
|
||
Income taxes payable
|
293
|
|
|
329
|
|
||
Other liabilities
|
2,316
|
|
|
(6,845
|
)
|
||
Net cash provided by operating activities
|
46,341
|
|
|
26,647
|
|
||
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
||||
Purchase of property and equipment
|
(402
|
)
|
|
(506
|
)
|
||
Net cash used for investing activities
|
(402
|
)
|
|
(506
|
)
|
||
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
||||
Borrowings on revolving credit facilities
|
81,991
|
|
|
51,909
|
|
||
Repayment of revolving credit facilities
|
(120,458
|
)
|
|
(82,638
|
)
|
||
Repayment of capital leases
|
—
|
|
|
(4
|
)
|
||
Proceeds from term loan
|
3,265
|
|
|
—
|
|
||
Repayment of term loan
|
(2,485
|
)
|
|
(427
|
)
|
||
Repayment of subordinated notes - related party
|
(3,265
|
)
|
|
—
|
|
||
Settlement of Series B Preferred Stock
|
(1,390
|
)
|
|
—
|
|
||
Proceeds from exercise of stock options
|
734
|
|
|
—
|
|
||
Debt financing costs
|
(405
|
)
|
|
—
|
|
||
Net cash used for financing activities
|
(42,013
|
)
|
|
(31,160
|
)
|
||
Effect of exchange rate changes on cash and cash equivalents
|
(65
|
)
|
|
74
|
|
||
Net decrease in cash and cash equivalents
|
3,861
|
|
|
(4,945
|
)
|
||
Cash and cash equivalents - beginning of period
|
5,247
|
|
|
6,183
|
|
||
Cash and cash equivalents - end of period
|
$
|
9,108
|
|
|
$
|
1,238
|
|
|
|
|
|
||||
SUPPLEMENTAL DISCLOSURE OF INFORMATION
|
|
|
|
||||
Cash paid for interest
|
$
|
763
|
|
|
$
|
918
|
|
Cash paid for income taxes
|
$
|
—
|
|
|
$
|
—
|
|
Exchange of Series B Preferred Stock
|
$
|
18,032
|
|
|
$
|
—
|
|
|
Common Stock
|
|
Additional Paid-In Capital
|
|
Accumulated Deficit
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Total
|
||||||||||||
|
Shares
|
Amount
|
|
|
|
|
|||||||||||||||
|
(in thousands)
|
||||||||||||||||||||
Balance at December 31, 2017
|
12,349
|
|
$
|
12
|
|
|
$
|
148,082
|
|
|
$
|
(170,048
|
)
|
|
$
|
(203
|
)
|
|
$
|
(22,157
|
)
|
Cumulative effect of the adoption of ASC 606
|
—
|
|
—
|
|
|
—
|
|
|
(605
|
)
|
|
—
|
|
|
(605
|
)
|
|||||
Issuance of common stock in exchange for Series B preferred stock, net of issuance costs
|
1,307
|
|
1
|
|
|
18,031
|
|
|
|
|
|
|
18,032
|
|
|||||||
Issuance of restricted stock
|
28
|
|
—
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|||||||
Net income
|
—
|
|
—
|
|
|
—
|
|
|
8,263
|
|
|
—
|
|
|
8,263
|
|
|||||
Other comprehensive income
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(115
|
)
|
|
(115
|
)
|
|||||
Stock options exercised
|
110
|
|
1
|
|
|
733
|
|
|
—
|
|
|
—
|
|
|
734
|
|
|||||
Stock-based compensation
|
|
—
|
|
|
822
|
|
|
—
|
|
|
—
|
|
|
822
|
|
||||||
Balance at June 30, 2018
|
13,794
|
|
$
|
14
|
|
|
$
|
167,668
|
|
|
$
|
(162,390
|
)
|
|
$
|
(318
|
)
|
|
$
|
4,974
|
|
•
|
Level 1 — Quoted prices in active markets for identical assets or liabilities.
|
•
|
Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
|
•
|
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
|
|
June 30, 2018
|
|
December 31, 2017
|
||||||||||||
|
Reported
|
|
Fair Value
|
|
Reported
|
|
Fair Value
|
||||||||
|
(in thousands)
|
||||||||||||||
Financial Assets and Liabilities:
|
|
|
|
|
|
|
|
||||||||
Cash and cash equivalents
|
$
|
9,108
|
|
|
$
|
9,108
|
|
|
$
|
5,247
|
|
|
$
|
5,247
|
|
Revolving credit facility
|
—
|
|
|
—
|
|
|
38,467
|
|
|
38,467
|
|
||||
Term loans
|
12,500
|
|
|
13,020
|
|
|
11,721
|
|
|
11,329
|
|
||||
Subordinated notes
|
19,903
|
|
|
22,394
|
|
|
21,911
|
|
|
22,442
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
(in thousands)
|
||||||||||||||
Balance, beginning of period
|
$
|
4,260
|
|
|
$
|
3,033
|
|
|
$
|
5,533
|
|
|
$
|
4,591
|
|
Reserve accrual
|
5,184
|
|
|
951
|
|
|
8,441
|
|
|
2,082
|
|
||||
Recoveries and deductions, net
|
(4,400
|
)
|
|
(1,831
|
)
|
|
(8,930
|
)
|
|
(4,520
|
)
|
||||
Balance, end of period
|
$
|
5,044
|
|
|
$
|
2,153
|
|
|
$
|
5,044
|
|
|
$
|
2,153
|
|
|
June 30, 2018
|
|
December 31, 2017
|
||||
|
(in thousands)
|
||||||
Raw materials
|
$
|
1,581
|
|
|
$
|
837
|
|
Finished goods
|
26,462
|
|
|
26,681
|
|
||
Total inventories
|
$
|
28,043
|
|
|
$
|
27,518
|
|
|
June 30, 2018
|
|
December 31, 2017
|
||||
|
(in thousands)
|
||||||
Machinery and equipment
|
$
|
1,506
|
|
|
$
|
1,396
|
|
Software and software development
|
300
|
|
|
383
|
|
||
Furniture and fixtures
|
530
|
|
|
525
|
|
||
Tooling
|
1,997
|
|
|
1,968
|
|
||
Leasehold improvements
|
1,327
|
|
|
1,318
|
|
||
Demonstration units and convention booths
|
9,308
|
|
|
11,719
|
|
||
Total property and equipment, gross
|
14,968
|
|
|
17,309
|
|
||
Less: accumulated depreciation and amortization
|
(12,129
|
)
|
|
(12,632
|
)
|
||
Total property and equipment, net
|
$
|
2,839
|
|
|
$
|
4,677
|
|
|
June 30, 2018
|
|
December 31, 2017
|
||||
|
(in thousands)
|
||||||
Accrued vendor expenses
|
$
|
242
|
|
|
$
|
652
|
|
Accrued royalties
|
4,361
|
|
|
2,848
|
|
||
Accrued employee expenses
|
2,302
|
|
|
2,510
|
|
||
Accrued freight
|
2,242
|
|
|
130
|
|
||
Accrued expenses
|
4,914
|
|
|
5,311
|
|
||
Total other current liabilities
|
$
|
14,061
|
|
|
$
|
11,451
|
|
|
June 30, 2018
|
||||||||||
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net Book Value
|
||||||
|
(in thousands)
|
||||||||||
Customer relationships
|
$
|
5,796
|
|
|
$
|
4,356
|
|
|
$
|
1,440
|
|
Foreign currency
|
(997
|
)
|
|
(753
|
)
|
|
(244
|
)
|
|||
Total Intangible Assets
|
$
|
4,799
|
|
|
$
|
3,603
|
|
|
$
|
1,196
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
||||||
|
December 31, 2017
|
||||||||||
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net Book Value
|
||||||
|
(in thousands)
|
||||||||||
Customer relationships
|
$
|
5,796
|
|
|
$
|
4,173
|
|
|
$
|
1,623
|
|
Foreign currency
|
(899
|
)
|
|
(680
|
)
|
|
(219
|
)
|
|||
Total Intangible Assets
|
$
|
4,897
|
|
|
$
|
3,493
|
|
|
$
|
1,404
|
|
|
(in thousands)
|
||
2018
|
$
|
183
|
|
2019
|
307
|
|
|
2020
|
258
|
|
|
2021
|
217
|
|
|
2022
|
182
|
|
|
Thereafter
|
293
|
|
|
Total
|
$
|
1,440
|
|
|
June 30, 2018
|
|
December 31, 2017
|
||||
|
(in thousands)
|
||||||
Revolving credit facility, maturing March 2023
|
$
|
—
|
|
|
$
|
38,467
|
|
|
|
|
|
||||
Term Loan Due 2018
|
—
|
|
|
1,923
|
|
||
Term Loan Due 2019
|
—
|
|
|
9,798
|
|
||
Term Loan Due 2023
|
12,500
|
|
|
—
|
|
||
Less: unamortized deferred financing fees
|
734
|
|
|
759
|
|
||
Total Term Loans
|
11,766
|
|
|
10,962
|
|
||
|
|
|
|
||||
Subordinated notes - related party
|
19,903
|
|
|
21,911
|
|
||
Less: unamortized debt discount
|
811
|
|
|
1,075
|
|
||
Total Subordinated notes
|
19,092
|
|
|
20,836
|
|
||
Total outstanding debt
|
30,858
|
|
|
70,265
|
|
||
Less: current portion of revolving credit facility
|
—
|
|
|
(38,467
|
)
|
||
Less: current portion of term loans
|
(375
|
)
|
|
(4,173
|
)
|
||
Total noncurrent portion of long-term debt
|
$
|
30,483
|
|
|
$
|
27,625
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
(in thousands)
|
||||||||||||||
Income tax expense
|
$
|
300
|
|
|
$
|
475
|
|
|
$
|
364
|
|
|
$
|
520
|
|
Effective income tax rate
|
4.5
|
%
|
|
(7.2
|
)%
|
|
4.2
|
%
|
|
(3.2
|
)%
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
(in thousands)
|
||||||||||||||
Cost of revenue
|
$
|
313
|
|
|
$
|
(1
|
)
|
|
$
|
331
|
|
|
$
|
(86
|
)
|
Selling and marketing
|
30
|
|
|
20
|
|
|
55
|
|
|
56
|
|
||||
Research and development
|
33
|
|
|
63
|
|
|
63
|
|
|
120
|
|
||||
General and administrative
|
223
|
|
|
349
|
|
|
373
|
|
|
727
|
|
||||
Total stock-based compensation
|
$
|
599
|
|
|
$
|
431
|
|
|
$
|
822
|
|
|
$
|
817
|
|
|
Options Outstanding
|
|||||||||||
|
Number of Shares Underlying Outstanding Options
|
|
Weighted-Average Exercise Price
|
|
Weighted-Average Remaining Contractual Term
|
|
Aggregate Intrinsic Value
|
|||||
|
|
|
|
|
(In years)
|
|
|
|||||
Outstanding at December 31, 2017
|
1,740,103
|
|
|
$
|
6.20
|
|
|
6.64
|
|
$
|
6
|
|
Granted
|
445,195
|
|
|
3.55
|
|
|
|
|
|
|||
Exercised
|
(109,681
|
)
|
|
6.69
|
|
|
|
|
|
|||
Forfeited
|
(142,297
|
)
|
|
7.83
|
|
|
|
|
|
|||
Outstanding at June 30, 2018
|
1,933,320
|
|
|
$
|
5.44
|
|
|
7.40
|
|
$
|
28,762,929
|
|
Vested and expected to vest at June 30, 2018
|
1,875,294
|
|
|
$
|
5.56
|
|
|
7.34
|
|
$
|
27,788,808
|
|
Exercisable at June 30, 2018
|
949,598
|
|
|
$
|
7.42
|
|
|
5.69
|
|
$
|
12,348,636
|
|
Expected term (in years)
|
6.1
|
Risk-free interest rate
|
2.3% - 3.0%
|
Expected volatility
|
38.2% - 39.5%
|
Dividend rate
|
0%
|
|
Shares
|
|
Weighted Average Grant Date Fair Value Per Share
|
||
Nonvested restricted stock at December 31, 2017
|
41,867
|
|
|
3.84
|
|
Granted
|
198,247
|
|
|
17.60
|
|
Vested
|
(27,978
|
)
|
|
4.02
|
|
Nonvested restricted stock at June 30, 2018
|
212,136
|
|
|
16.68
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
(in thousands, except per-share data)
|
||||||||||||||
Net income (loss)
|
$
|
6,301
|
|
|
$
|
(7,061
|
)
|
|
$
|
8,263
|
|
|
$
|
(16,987
|
)
|
|
|
|
|
|
|
|
|
||||||||
Weighted average common shares outstanding — Basic
|
13,401
|
|
|
12,337
|
|
|
12,877
|
|
|
12,325
|
|
||||
Plus incremental shares from assumed conversions:
|
|
|
|
|
|
|
|
||||||||
Dilutive effect of restricted stock
|
57
|
|
|
—
|
|
|
49
|
|
|
—
|
|
||||
Dilutive effect of stock options
|
1,369
|
|
|
—
|
|
|
1,271
|
|
|
—
|
|
||||
Dilutive effect of warrants
|
817
|
|
|
—
|
|
|
619
|
|
|
—
|
|
||||
Weighted average common shares outstanding — Diluted
|
15,644
|
|
|
12,337
|
|
|
14,816
|
|
|
12,325
|
|
||||
Net income (loss) per share:
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
0.47
|
|
|
$
|
(0.57
|
)
|
|
$
|
0.64
|
|
|
$
|
(1.38
|
)
|
Diluted
|
$
|
0.40
|
|
|
$
|
(0.57
|
)
|
|
$
|
0.56
|
|
|
$
|
(1.38
|
)
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||
|
June 30,
|
|
June 30,
|
||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||
|
(in thousands)
|
||||||||||
Stock options
|
19
|
|
|
1,602
|
|
|
19
|
|
|
1,591
|
|
Warrants
|
—
|
|
|
765
|
|
|
—
|
|
|
766
|
|
Unvested restricted stock awards
|
1
|
|
|
34
|
|
|
1
|
|
|
30
|
|
Total
|
20
|
|
|
2,401
|
|
|
20
|
|
|
2,387
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Net Revenues
|
(in thousands)
|
||||||||||||||
Headset
|
$
|
60,805
|
|
|
$
|
19,084
|
|
|
$
|
101,673
|
|
|
$
|
33,344
|
|
HyperSound
|
—
|
|
|
28
|
|
|
18
|
|
|
120
|
|
||||
Total
|
$
|
60,805
|
|
|
$
|
19,112
|
|
|
$
|
101,691
|
|
|
$
|
33,464
|
|
|
|
|
|
|
|
|
|
||||||||
Operating Income (Loss)
|
|
|
|
|
|
|
|
||||||||
Headset
|
$
|
8,369
|
|
|
$
|
(4,542
|
)
|
|
$
|
12,166
|
|
|
$
|
(11,598
|
)
|
HyperSound
|
(100
|
)
|
|
(423
|
)
|
|
(111
|
)
|
|
(1,459
|
)
|
||||
Total
|
8,269
|
|
|
(4,965
|
)
|
|
12,055
|
|
|
(13,057
|
)
|
||||
Interest Expense
|
1,258
|
|
|
1,835
|
|
|
3,263
|
|
|
3,675
|
|
||||
Other non-operating expense (income), net
|
410
|
|
|
(214
|
)
|
|
165
|
|
|
(265
|
)
|
||||
Income (loss) before income tax
|
$
|
6,601
|
|
|
$
|
(6,586
|
)
|
|
$
|
8,627
|
|
|
$
|
(16,467
|
)
|
|
June 30,
2018 |
|
December 31,
2017 |
||||
Total Assets
|
(in thousands)
|
||||||
Headset
|
$
|
82,194
|
|
|
$
|
94,114
|
|
HyperSound
(1)
|
36,402
|
|
|
26,787
|
|
||
Eliminations
|
(36,416
|
)
|
|
(26,650
|
)
|
||
Total
|
$
|
82,180
|
|
|
$
|
94,251
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
(in thousands)
|
||||||||||||||
North America
|
$
|
45,967
|
|
|
$
|
12,996
|
|
|
$
|
78,951
|
|
|
$
|
24,051
|
|
United Kingdom
|
7,628
|
|
|
2,124
|
|
|
11,657
|
|
|
3,978
|
|
||||
Europe
|
5,858
|
|
|
2,769
|
|
|
9,105
|
|
|
3,937
|
|
||||
Other
|
1,352
|
|
|
1,223
|
|
|
1,978
|
|
|
1,498
|
|
||||
Total net revenues
|
$
|
60,805
|
|
|
$
|
19,112
|
|
|
$
|
101,691
|
|
|
$
|
33,464
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
(in thousands)
|
||||||||||||||
Warranty, beginning of period
|
$
|
534
|
|
|
$
|
589
|
|
|
$
|
472
|
|
|
$
|
639
|
|
Warranty costs accrued
|
210
|
|
|
54
|
|
|
444
|
|
|
114
|
|
||||
Settlements of warranty claims
|
(162
|
)
|
|
(113
|
)
|
|
(334
|
)
|
|
(223
|
)
|
||||
Warranty, end of period
|
$
|
582
|
|
|
$
|
530
|
|
|
$
|
582
|
|
|
$
|
530
|
|
•
|
Turtle Beach is a worldwide leading provider of feature-rich headset solutions for use across multiple platforms, including video game and entertainment consoles, handheld consoles, personal computers, tablets and mobile devices.
|
•
|
HyperSound technology is an innovative patent-protected sound technology that delivers immersive, directional audio with applications in digital signage and kiosks, consumer electronics and hearing healthcare.
|
•
|
Adjusted EBITDA
is defined as net income (loss) before interest, taxes, depreciation and amortization, stock-based compensation (non-cash) and certain special items that we believe are not representative of core operations.
|
•
|
Cash Margin
is defined as gross margin excluding depreciation and amortization, and stock-based compensation.
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
(in thousands)
|
||||||||||||||
Net income (loss)
|
$
|
6,301
|
|
|
$
|
(7,061
|
)
|
|
$
|
8,263
|
|
|
$
|
(16,987
|
)
|
Interest expense
|
1,258
|
|
|
1,835
|
|
|
3,263
|
|
|
3,675
|
|
||||
Depreciation and amortization
|
1,333
|
|
|
1,530
|
|
|
2,360
|
|
|
2,383
|
|
||||
Stock-based compensation
|
599
|
|
|
431
|
|
|
822
|
|
|
817
|
|
||||
Income tax expense
|
300
|
|
|
475
|
|
|
364
|
|
|
520
|
|
||||
Restructuring charges
|
—
|
|
|
(30
|
)
|
|
—
|
|
|
268
|
|
||||
Business model transition charge
|
—
|
|
|
—
|
|
|
—
|
|
|
353
|
|
||||
Adjusted EBITDA
|
$
|
9,791
|
|
|
$
|
(2,820
|
)
|
|
$
|
15,072
|
|
|
$
|
(8,971
|
)
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
(in thousands)
|
||||||||||||||
Net revenue
|
$
|
60,805
|
|
|
$
|
19,112
|
|
|
$
|
101,691
|
|
|
$
|
33,464
|
|
Cost of revenue
|
40,528
|
|
|
12,811
|
|
|
66,385
|
|
|
24,947
|
|
||||
Gross profit
|
20,277
|
|
|
6,301
|
|
|
35,306
|
|
|
8,517
|
|
||||
Operating expenses
|
12,008
|
|
|
11,266
|
|
|
23,251
|
|
|
21,574
|
|
||||
Operating income (loss)
|
8,269
|
|
|
(4,965
|
)
|
|
12,055
|
|
|
(13,057
|
)
|
||||
Interest expense
|
1,258
|
|
|
1,835
|
|
|
3,263
|
|
|
3,675
|
|
||||
Other non-operating expense (income), net
|
410
|
|
|
(214
|
)
|
|
165
|
|
|
(265
|
)
|
||||
Income (loss) before income tax
|
6,601
|
|
|
(6,586
|
)
|
|
8,627
|
|
|
(16,467
|
)
|
||||
Income tax expense
|
300
|
|
|
475
|
|
|
364
|
|
|
520
|
|
||||
Net income (loss)
|
$
|
6,301
|
|
|
$
|
(7,061
|
)
|
|
$
|
8,263
|
|
|
$
|
(16,987
|
)
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
(in thousands)
|
||||||||||||||
Net Revenue
|
$
|
60,805
|
|
|
$
|
19,112
|
|
|
$
|
101,691
|
|
|
$
|
33,464
|
|
Gross Profit
|
$
|
20,277
|
|
|
$
|
6,301
|
|
|
$
|
35,306
|
|
|
$
|
8,517
|
|
Gross Margin
|
33.3
|
%
|
|
33.0
|
%
|
|
34.7
|
%
|
|
25.5
|
%
|
||||
Cash Margin
(1)
|
34.0
|
%
|
|
34.0
|
%
|
|
35.3
|
%
|
|
26.1
|
%
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
(in thousands)
|
||||||||||||||
Selling and marketing
|
$
|
6,818
|
|
|
$
|
5,529
|
|
|
$
|
12,747
|
|
|
$
|
9,978
|
|
Research and development
|
1,327
|
|
|
1,697
|
|
|
2,656
|
|
|
3,087
|
|
||||
General and administrative
|
3,863
|
|
|
4,070
|
|
|
7,848
|
|
|
8,241
|
|
||||
Restructuring charges
|
—
|
|
|
(30
|
)
|
|
—
|
|
|
268
|
|
||||
Total operating expenses
|
$
|
12,008
|
|
|
$
|
11,266
|
|
|
$
|
23,251
|
|
|
$
|
21,574
|
|
|
|
|
|
|
|
|
|
||||||||
By Segment:
|
|
|
|
|
|
|
|
||||||||
Headset
|
$
|
12,008
|
|
|
$
|
10,901
|
|
|
$
|
23,251
|
|
|
$
|
20,735
|
|
HyperSound
|
$
|
—
|
|
|
$
|
365
|
|
|
$
|
—
|
|
|
$
|
839
|
|
|
Six Months Ended
|
||||||
|
June 30,
|
||||||
|
2018
|
|
2017
|
||||
|
(in thousands)
|
||||||
Cash and cash equivalents at beginning of period
|
$
|
5,247
|
|
|
$
|
6,183
|
|
Net cash provided by operating activities
|
46,341
|
|
|
26,647
|
|
||
Net cash used for investing activities
|
(402
|
)
|
|
(506
|
)
|
||
Net cash used for financing activities
|
(42,013
|
)
|
|
(31,160
|
)
|
||
Effect of foreign exchange on cash
|
(65
|
)
|
|
74
|
|
||
Cash and cash equivalents at end of period
|
$
|
9,108
|
|
|
$
|
1,238
|
|
•
|
If our forecasts of demand for products are too high, we may accumulate excess inventories of products, which could lead to markdown allowances or write-offs affecting some or all of such excess inventories. We may also have to adjust the prices of our existing products to reduce such excess inventories;
|
•
|
If demand for specific products increases beyond what we forecast, our suppliers and third-party manufacturers may not be able to increase production quickly enough to meet the demand. Our failure to meet market demand may lead to missed opportunities to increase our base of gamers, damage our relationships with retailers or harm our business;
|
•
|
The on-going console transition increases the likelihood that we could fail to accurately forecast demand for our new generation console headsets and our existing headsets; and
|
•
|
Rapid increases in production levels to meet unanticipated demand could result in increased manufacturing errors, as well as higher component, manufacturing and shipping costs, all of which could reduce our profit margins and harm our relationships with retailers and consumers.
|
•
|
trade restrictions, higher tariffs, currency fluctuations or the imposition of additional regulations relating to import or export of our products, especially in China, where all of our Turtle Beach products are manufactured, which could force us to seek alternate manufacturing sources or increase our costs;
|
•
|
difficulties obtaining domestic and foreign export, import and other governmental approvals, permits and licenses, and compliance with foreign laws, which could halt, interrupt or delay our operations if we cannot obtain such approvals, permits and licenses;
|
•
|
difficulties encountered by our international distributors or us in staffing and managing foreign operations or international sales, including higher labor costs;
|
•
|
transportation delays and difficulties of managing international distribution channels;
|
•
|
longer payment cycles for, and greater difficulty collecting, accounts receivable;
|
•
|
political and economic instability, including wars, terrorism, political unrest, boycotts, curtailment of trade and other business restrictions, any of which could materially and adversely affect our net sales and results of operations; and
|
•
|
natural disasters.
|
•
|
cease selling, incorporating or using products or services that incorporate the challenged intellectual property;
|
•
|
obtain a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms, if at all; and/or
|
•
|
redesign products or services that incorporate the disputed technology.
|
|
|
|
TURTLE BEACH CORPORATION
|
|
|
|
|
Date:
|
August 6, 2018
|
By:
|
/S/ JOHN T. HANSON
|
|
|
|
John T. Hanson
Chief Financial Officer, Treasurer and Secretary
|
|
|
|
(Principal Financial and Accounting Officer)
|
1.
|
I have reviewed this quarterly report on Form
10-Q of Turtle Beach Corporation;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date:
|
August 6, 2018
|
By:
|
/s/ JUERGEN STARK
|
|
|
|
Juergen Stark
|
|
|
|
Chief Executive Officer and President
|
1.
|
I have reviewed this quarterly report on Form
10-Q of Turtle Beach Corporation;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date:
|
August 6, 2018
|
By:
|
/s/ JOHN T. HANSON
|
|
|
|
John T. Hanson
|
|
|
|
Chief Financial Officer, Treasurer and Secretary
|
Date:
|
August 6, 2018
|
By:
|
/s/ JUERGEN STARK
|
|
|
|
Juergen Stark
|
|
|
|
Chief Executive Officer and President
|
|
|
|
(Principal Executive Officer)
|
Date:
|
August 6, 2018
|
By:
|
/s/ JOHN T. HANSON
|
|
|
|
John T. Hanson
|
|
|
|
Chief Financial Officer, Treasurer and Secretary
|
|
|
|
(Principal Financial Officer)
|