Turtle Beach Corporation (NASDAQ:HEAR)

CAPS Rating: 1 out of 5

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4 Outperform
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jed71 (99.85)
Submitted September 28, 2016

This company, and its equity, is what I would term the “death by a thousand cuts” type of investment. Nothing here is a super huge red flag but there enough small and medium sized red flags to make me scratch my head and wonder why any investor would… More

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Recent Community Commentary

Read the most recent pitches from players about HEAR.

Recs

5
Member Avatar jed71 (99.85) Submitted: 9/28/2016 11:37:07 AM : Underperform Start Price: $1.33 HEAR Score: +78.72

This company, and its equity, is what I would term the “death by a thousand cuts” type of investment. Nothing here is a super huge red flag but there enough small and medium sized red flags to make me scratch my head and wonder why any investor would put good money here. If this is a wild casino bet with a small portion of your portfolio’s capital, fine, but any real sized investment would be foolish (small “f”).

Bank of America owns substantially all of the company through a line of credit agreement and a term loan agreement due in 2019. Notice that any time the company does a capital raise, a large chunk of it has to go to that line of credit, per the terms of the agreement. From the most recent 10-Q:

“The Company received net proceeds from the Offering and a side by side private placement of approximately $6.0 million after deducting the underwriting discount and offering expenses of $0.7 million. The Company used all net proceeds from the Offering to pay down amounts outstanding under its working capital line of credit, which is consistent with past practice and required under the terms of our Credit Facility and Term Loan Due 2019.”

“The Term Loan Due 2019 is secured by a security interest in substantially all of the Company and each of its subsidiaries' working capital assets and is subject to the first priority lien of Bank of America, as agent, under the Credit Facility, other than with respect to equipment, fixtures, real property interests, intellectual property, intercompany property, intercompany indebtedness, equity interest in their subsidiaries, and certain other assets specified in an inter-creditor agreement between Bank of America and Crystal.”

Their cash is beginning to run very thin, although they seem to have some room on the line of credit agreement again. If you strip our intangibles, TANGIBLE book value has gone very negative. In addition, their assets have dropped tremendously in the last 5 quarters from $201MM to $96MM. Subsequently, the shareholder equity has gone very negative with the large drop in total assets. They also have nearly $22MM in debt (includes short and long term).

Here are a few additional sections that are scary. They had a product recall and were sued by one of their larger shareholders:

On February 18, 2015, Dr. John Bonanno, a minority shareholder of VTBH, filed a complaint in Delaware Chancery Court alleging breach of contract against VTBH. According to the complaint, the Merger purportedly triggered a contractual obligation for VTBH to redeem Dr. Bonanno's stock. Dr. Bonanno requests a declaratory judgment stating that he is entitled to damages including a redemption of his stock for the redemption value of $15.1 million (equal to the original issue price of his stock plus accrued dividends) as well as other costs and expenses. On February 8, 2016, the Delaware Chancery Court granted VTBH's motion to dismiss for improper venue, and Dr. Bonnano's complaint was dismissed without prejudice. VTBH maintains that the Merger did not trigger any obligation to redeem Mr. Bonanno's stock.”

“XO FOUR Stealth Product Recall: In August 2015, the Company received a limited number of reports from consumers and retailers that certain EAR FORCE® XO FOUR Stealth headsets appeared to have a white substance or spots on the ear pads. Upon receiving the reports, the Company promptly stopped shipping any units of the XO FOUR Stealth headsets and notified our retail customers to stop sales pending the results of the Company’s investigation. An outside laboratory engaged by the Company identified the substance as mold. In cooperation with the U.S. Consumer Product Safety Commission (“CPSC”), the Company is voluntarily recalling certain units of the headsets. As of June 30, 2016 and the date of this report, the Company has not received notice of any law suits against the Company in connection with the recall and is working with the contract manufacturer to collect reimbursement for certain related costs.”

Like I said, lots of small red flags, but no giant death blows. Like most of these small firms, this one will probably limp along for anywhere from 12 months to 5 more years, eventually folding with the bank lenders snatching up the remaining assets. Probably not the best short I’ve ever found, but a solid play if you have the patience to wait for this red thumb to play out.

Recs

0
Member Avatar EvanBuck (99.92) Submitted: 4/17/2015 4:33:19 PM : Outperform Start Price: $2.58 HEAR Score: -102.55

Heard that this stock is in the same position as SKUL was when it was ~$3-$4 per share, which piqued my interest. Seems to be an intriguing headset play. Commencing homework now.

Leaderboard

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Score Leader

constructive

constructive (99.98) Score: +149.52

The Score Leader is the player with the highest score across all their picks in HEAR.

Top
Pick
Member Name Member
Rating
Start
Date
Call Time
Frame
Start
Price
Stock
Gain
Index
Gain
Score Commentary
kevinshaw98 80.73 3/13/2015 Underperform 3W $2.39 -76.57% +26.86% +103.43 0 Comment
StrokenJ 64.62 12/1/2015 Underperform NS $2.32 -75.86% +24.03% +99.89 0 Comment
NobleOrSomeBull 99.82 1/19/2016 Underperform 5Y $1.45 -61.38% +36.74% +98.12 0 Comment
FunesDMemorious 99.73 2/1/2016 Underperform 5Y $1.21 -53.72% +33.61% +87.33 0 Comment
warrenout2 69.29 11/14/2016 Underperform 5Y $1.60 -65.00% +19.69% +84.69 0 Comment
rustianowski 48.95 11/2/2016 Underperform 1Y $1.29 -56.59% +23.51% +80.10 0 Comment
jed71 99.85 9/28/2016 Underperform 5Y $1.33 -57.89% +20.82% +78.72 1 Comment
JoeySolitro3 99.31 4/1/2016 Underperform 5Y $1.14 -50.88% +26.27% +77.15 0 Comment
This player feels very strongly about this pick and has marked it a Top Pick. Top Picks do not affect a player’s score. gpierson128 96.38 3/8/2017 Underperform 5Y $1.39 -59.71% +9.46% +69.17 0 Comment
onthewallst 99.91 5/31/2016 Underperform 5Y $0.97 -42.29% +23.37% +65.65 0 Comment

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