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Item 2. Management’s Discussion and Analysis

2023-05-04 compared with 2022-11-14 · 247 added, 262 removed, 366 unchanged (58% of the section changed)

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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®, ROCCAT® and Neat Microphones® 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 headset, keyboards, mice and other accessories brand focused in the PC peripherals market.

Neat Microphones is a microphones brand focused on using cutting edge technology and design to create high quality USB and analog microphones for gamers, streamers, and professionals.

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 gaming 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 headsets, keyboards, mice, and other accessories brand focused on the personal computer peripherals market.

Business Trends

We participate in the global software and accessories gaming market, which is estimated to be approximately $200 billion, per updated data published by Newzoo in October 2022.

The global gaming audience exceeds global cinema and music markets with over 3 billion active gamers worldwide.

Gaming peripherals, such as headsets, keyboards, mice, microphones, controllers, and simulation are estimated to be an over $9.0 billion business globally with over 80% of that market in the Americas and Europe where the Company’s business is focused.

Turtle Beach participates in the global software and accessories gaming market, which is estimated to be approximately $193 billion.

The global gaming audience now exceeds global cinema and music markets with over three billion active gamers worldwide.

Gaming peripherals, such as headsets, keyboards, mice, microphones, controllers, and simulation controls are estimated to be an $8.4 billion business globally with about 80% of that market in the Americas and Europe where the Company’s business is focused.

Competitive esports is a global phenomenon where professional gamers train and compete to win prize money, partner with major brands, and attract dedicated fans –

similar to traditional professional sports.

There were over 490 million viewers in 2021, and that is expected to increase to roughly 685 million viewers by 2025, according to a report from Newzoo.

Of those 685 million projected viewers, approximately 341 million are considered “esports enthusiasts.”

Many gamers play online, where a gaming headset (which typically includes a microphone allowing players to communicate in real-time) provides a more immersive experience and a competitive advantage in the industry’s most popular games and franchises.

The Company’s results are affected by numerous macroeconomic factors including inflation, consumer spending confidence and global supply chains.

In 2022, we have experienced a higher rate of inflation than in recent years resulting in higher cost of goods, selling expenses, and general and administrative expenses.

Such increases have had and may continue to have a negative impact on the Company’s revenue and profit margins if the current decline in consumer demand for gaming accessories is not temporary and/or selling prices of products do not increase with the increased costs.

The COVID-19 pandemic has disrupted worldwide economic markets and the extent to which the pandemic and measures adopted in response thereto continue 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.

At the beginning of the pandemic, we saw an increase in demand for our products due to increased gaming and stay at home orders;

however, such increased demand for our products has subsided as restrictions imposed have been lifted and social functions and activities continue to return to pre-pandemic levels.

Recent results have been impacted by the difficult macroeconomic conditions, which have slowed discretionary spending across gaming and many other categories;

but in the long term, the growth prospects in the video game industry remain as strong as they have ever been.

In fact, according to Newzoo, the number of new gamers added globally from 2019 to 202 totals nearly 400 million.

In 2022, there were over 530 million esports viewers, approximately 50% of whom considered themselves “esports enthusiasts,”

and that number is expected to increase to roughly 650 million viewers by 2025 according to an April 2022 report from Newzoo.

The console and PC gaming accessory markets are also driven by major game launches and long-running franchises that encourage players to continually buy equipment and accessories.

On Xbox, PlayStation, Nintendo Switch and PC, flagship games like Call of Duty, Destiny, Star Wars:

Battlefront, Battlefield, Grand Theft Auto, and battle royale games like Fortnite, Call of Duty Warzone, Apex Legends, and PlayerUnknown’s Battlegrounds, are examples of major franchises that prominently feature online multiplayer modes that encourage communication and drive increased demand for gaming headsets.

Many of these established franchises launch new titles annually, leading into the holidays and as a result can cause an additional boost to the normally strong holiday sales for gaming accessories.

Many gamers play online where a gaming headset, which includes a microphone, is required because it allows players to communicate with each other in real-time, provides a more immersive experience, and delivers a competitive advantage.

Console Headset Market

The global market for console headsets is estimated to be approximately $1.7 billion.

Turtle Beach is the leading console gaming headset manufacturer in the U.S.

and other major console markets.

Turtle Beach has achieved these global market shares by delivering high-quality products that often include first-to-market innovations, robust features, superior sound, unmatched comfort, and top customer support –

all key factors that consumers seek when shopping for a gaming headset.

The global market for console gaming headsets, in which Turtle Beach has been the market leader for the past 13 years, is estimated to be approximately $1.4 billion.

PlayStation and Xbox consoles continue to be dominant gaming platforms in North America and Europe for games that drive headset usage.

Consistent with a historical pattern of major new console launches every 7-8 years, Microsoft and Sony released their latest next generation consoles, Xbox® Series and PlayStation®5 platforms just ahead of the 2020 holiday season.

Demand for these consoles has continued to be very strong and exceeded supply which is a good indicator of the enthusiasm for the latest consoles.

The demand for gaming consoles is forecasted to continue to be strong in 2022 with the additional supply of PlayStation®5 and Xbox ® Series platforms expected to help the overall console market reach single digit percentage growth in 2022.

Nintendo has sold over 110 million units of the Nintendo Switch since its release in early 2017.

Nintendo continues adding and expanding their library of games with an increased number of multiplayer chat-enabled games.

Consistent with a historical pattern of major new console launches every 7-8 years, Microsoft and Sony launched their latest consoles, Xbox Series X|S and PlayStation 5, ahead of the 2020 holiday season, and in 2021/2022 demand for the latest Xbox and PlayStation consoles exceeded the available supply for consumers to purchase.

In 2023, the demand for gaming consoles is expected to improve as additional supplies are available, which is expected to help the overall console market reach single digit percentage growth.

Nintendo has sold over 122.5 million units of its highly popular Nintendo Switch since the platform's release in early 2017.

Nintendo continues adding and expanding its library of games, including an increased number of multiplayer chat-enabled games.

Nintendo also sells the Nintendo Switch Lite, a follow-on product that offers gamers the hand-held only version of their popular gaming console.

While gaming on mobile/tablet devices represents about 53% of the global gaming market and headsets can be used for mobile gaming, console and PC gaming are by far the largest drivers of gaming headset use.

PC Accessories Market

The market for PC gaming headsets, mice, and keyboards is estimated to be approximately $3.2 billion.

The same gaming, work-from-home, and school-learn-from-home factors associated with the COVID-19 pandemic that benefitted the accessories market also resulted in increased consumer demand for headsets, keyboards, mice, and other accessories developed for PC gaming in recent years.

PC gaming in the U.S.

has seen a resurgence in popularity during the past few years and continues to be a main gaming platform internationally, driven by big AAA game launches, PC-specific esports leagues, popular teams and players, content creators and influencers and cross-platform play.

PC gaming continues to be a main gaming platform in the U.S.

and internationally, driven by big AAA game launches, PC-specific esports leagues, popular teams and players, content creators and influencers and cross-platform play.

While most games are available on multiple platforms, gaming on PC offers advantages including improved graphics, increased speed and precision of mouse/keyboard controls, and the ability for deeper customization.

Gaming mice and keyboards are engineered to provide gamers with high-end performance and a superior gaming experience through features such as faster response times, improved materials and build quality, programmable buttons and keys, and software suites to customize and control devices and settings.

PC gaming mice come in a variety of different ergonomic shapes and sizes, are available in both wired and wireless models, offer options for different sensors (optical and laser) and responsiveness, and often feature integrated RGB lighting and software to unify with the lighting on other devices for a visually consistent PC gaming appearance.

PC gaming mice come in a variety of different ergonomic shapes and sizes, are available in both wired and wireless models, offer options for different sensors (optical and laser) and responsiveness, and often feature integrated RGB LED lighting and software to unify the lighting with other devices for a visually consistent PC gaming appearance.

Similarly, PC gaming keyboards often deliver a competitive advantage by offering options for mechanical and optical key switches that feel and sound different and offer customizable lighting.

PC and console gaming markets are also driven by major game launches and franchises that encourage players to buy equipment and accessories.

On Xbox ® , PlayStation®, and PC flagship games like Call of Duty®, Destiny, Star Wars:

Many of these established franchises launch new titles annually, leading into the holidays and as a result can cause an additional boost to the normally strong holiday sales for gaming accessories.

Microphone Market

The microphone market is estimated to be $2.1 billion in size of which roughly an estimated $700 million is for digital/USB microphones.

The market for high-quality microphones, specifically digital microphones, has experienced significant growth as content creators on YouTube, Twitch and other popular platforms are gravitating toward using high-quality professional equipment for their workstations.

Additionally, with the trend to remote work, the need for a well-performing desktop microphone has become an important tool for working and learning from home, as well as staying connected with family and friends.

Turtle Beach’s acquisition of Neat Microphones in 2021 expanded the Company’s reach into the global microphone market, including, in particular, the market for digital/USB microphones that are often used by gamers, streamers, and influencers with other PC accessories.

Other Gaming Accessories Market

During 2021, the Company successfully expanded into the gaming simulation and gaming controller markets with the launch of the VelocityOne Flight simulation control system and the Xbox ® Recon Controller, respectively.

These markets increased our total addressable market by $1 billion, with third-party game controllers at roughly $600 million, and PC/console flight simulation hardware at roughly $400 million.

Supply Chain and Logistic Outlook

The ongoing global economic recovery, as well as a surge in imports and high demand for electronics, has created significant challenges for global supply chains resulting in inflationary cost pressures and component shortages.

We have also experienced logistical challenges related to transportation delays and have incurred incremental costs for commodities and components used in our products as well as component shortages that have negatively impacted our sales and results of operations.

These factors resulted in the demand for such goods to exceed supply chain capacity, which drove costs and lead times higher.

We expect that these challenges will continue to have an impact on our businesses for the foreseeable future.

As a result, we continue to take proactive steps to continue to limit the impact of these challenges and are working closely with our suppliers to manage availability of products and implement other cost savings initiatives.

Controllers and Gaming Simulation Market

In 2022, we further expanded our gaming simulation and gaming controller product lines.

For the flight simulation market, we launched the VelocityOne TM Pedals and VelocityOne TM Stand, which perfectly pair with the VelocityOne Flight TM simulation control system for the complete, most immersive flight simulation experience on the market, and also launched the VelocityOne TM Flightstick, which is a single stick joystick controller for air and space flight combat games.

For the gamepads/controllers market, we added new colorways for its original Recon Controller, as well as launched the lower-cost REACT-R controller, and mobile-focused Recon Cloud and Atom controller offerings.

These markets increased our total addressable market by $1 billion, with third-party game controllers at roughly $500 million and PC/console flight simulation hardware at roughly $500 million in the global market.

Supply Chain and Operations

We have a global network of suppliers that manufacture products to meet the quality standards sought by our customers and our cost objectives.

We have worked closely with component, manufacturing, and global logistic partners to build a supply chain that we consider dependable, scalable, and efficient to provide high-quality, reliable products employing leading cost management practices.

The use of outsourced manufacturing facilities is designed to take advantage of specific expertise and allow for flexibility and scalability to respond to both seasonality and changing demands for our products.

We have experienced and may continue to experience increased freight costs and component availability challenges.

Further, market conditions have significantly increased the lead time on many product components, causing us to purchase components earlier than normal to meet forecasted demand, which, in some cases, led to excess inventories of certain components ordered with long lead times ahead of shifting demand.

We expect to continue to experience challenges impacting our supply chain and logistics operations.

As a result, Turtle Beach continues to take proactive steps to limit the impact of these challenges and are working closely with our manufacturing and freight providers to reduce costs.

Key Performance Indicators and Non-GAAP Measures

In evaluating our results, management routinely reviews key performance indicators, which include non-GAAP measures as well as the operating metrics of revenue, operating income and margins, and earnings per share, among others.

In addition, we believe certain other measures provide useful information to management and investors about us and our financial condition and results of operations for the following reasons:

Management routinely reviews key performance indicators, including revenue, operating income and margins, and earnings per share, among others.

In addition, we believe certain other measures provide useful information to management and investors about us and our financial

condition and results of operations for the following reasons:

(i) they are measures used by our Board of Directors and management team to evaluate our operating performance;

(ii) they are measures used by our management team to make day-to-day operating decisions;

(iii) the adjustments made are often viewed as either non-recurring or not reflective of ongoing financial performance or have no cash impact on operations;

and (iv) they are used by securities analysts, investors and other interested parties as a common operating performance measure to compare results across companies in our industry by adjusting for potential differences caused by variations in capital structures (affecting relative interest expense), and the age and book value of facilities and equipment (affecting relative depreciation and amortization expense).

We consider the following metrics, which may not be comparable to similarly titled measures reported by other companies, to be key performance indicators:

Adjusted EBITDA is a non-GAAP measure that we believe is useful to investors to measure the operational strength and performance of our business.

Adjusted EBITDA is defined as net income (loss) before interest, taxes, depreciation and amortization, stock-based compensation and certain special items that we believe are not representative of core operations.

(iii) the adjustments made are often viewed as either non-recurring or not reflective of ongoing financial performance and/or have no cash impact on operations;

and (iv) the measures are used by securities analysts, investors and other interested parties as a common operating performance measure to compare results across companies in our industry by adjusting for potential differences caused by variations in capital structures (affecting relative interest expense), and the age and book value of facilities and equipment (affecting relative depreciation and amortization expense).

These other metrics, however, are not measures of financial performance under accounting principles generally accepted in the United States of America (“GAAP”) and given the limitations of these metrics as analytical tools, should not be considered a substitute for gross profit, gross margins, net income (loss) or other consolidated income statement data as determined in accordance with GAAP.

We consider the following non-GAAP measures, which may not be comparable to similarly titled measures reported by other companies, to be key performance indicators:

Adjusted EBITDA is defined as net income (loss) before interest, taxes, depreciation and amortization, stock-based compensation (non-cash) and certain non-recurring 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.

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However, Adjusted EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States of America (“GAAP”) and, given the limitations of these metrics as analytical tools, should not be considered a substitute for gross profit, gross margins, net income (loss) or other consolidated income statement data as determined in accordance with GAAP.

Adjusted EBITDA (and a reconciliation to Net income (loss), the nearest GAAP financial measure) for the three and nine months ended September 30, 2022 and September 30, 2021, are as follows:

Adjusted EBITDA (and a reconciliation to Net income (loss), the nearest GAAP financial measure) for the three months ended March 31, 2023 and March 31, 2022, are as follows:

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Net income (loss)

Interest expense

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Stock-based compensation

Income tax expense (benefit)

Inventory and component related reserves

Restructuring expense

Business transaction expense

Non-recurring business costs

Income tax benefit

Proxy contest and other

Adjusted EBITDA

Comparison of the Three Months Ended September 30, 2022 to the Three Months Ended September 30, 2021

Net loss for the three months ended September 30, 2022 was $12.0 million with Adjusted EBITDA of ($6.9) million, compared to net income of $2.6 million with Adjusted EBITDA of $6.7 million for the prior year, due to lower revenue as a result of macroeconomic conditions, as well as increased freight costs and volume-driven fixed cost deleveraging, partially offset by lower operating expenses.

Comparison of the Nine Months Ended September 30, 2022 to the Nine Months Ended September 30, 2021

Net loss for the nine months ended September 30, 2022 was $36.3 million with Adjusted EBITDA of ($24.8) million compared to net income of $13.2 million with Adjusted EBITDA of $27.0 million for the prior period due to lower revenue as a result of macroeconomic conditions, reduced channel inventory levels at retailers, increased freight costs, business mix, and volume-driven fixed cost deleveraging, partially offset by lower selling and marketing spend.

Comparison of the Three Months Ended March 31, 2023 to the Three Months Ended March 31, 2022

Net loss for the three months ended March 31, 2023 was $(6.7) million with Adjusted EBITDA of $(2.3) million, compared to $(6.5) million with Adjusted EBITDA of $(5.7) million for the prior year, due to higher revenue driven by consumer demand, and operating expense management initiatives during the prior year.

Results of Operations

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Operating expenses

Operating income (loss)

Operating loss

Interest expense

Other non-operating expense, net

Income (loss) before income tax

Income tax expense (benefit)

Net income (loss)

Loss before income tax

Income tax benefit

Net Revenue and Gross Profit

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Three Months Ended

Nine Months Ended

September 30,

(in thousands)

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(1) Excludes depreciation and amortization, and stock-based compensation

Comparison of the Three Months Ended September 30, 2022 to the Three Months Ended September 30, 2021

Net revenue for the three months ended September 30, 2022 was $51.3 million, a $34.0 million decrease from $85.3 million reflecting lower demand due to macroeconomic conditions and retailers adjusting inventory levels coming out of the higher pandemic driven 2021.

For the three months ended September 30, 2022, gross margin decreased to 14.1% from 34.3% in the comparable prior year period.

The three months ended September 30, 2022 included a $5.3 million charge for potential excess components and product inventory relating to pandemic driven supply chain and logistic impacts.

Additionally, promotional spend was above historic levels to reduce retailer inventories and address competitive pricing, freight costs continued above prior year levels and lower revenue has reduced fixed cost leverage.

Comparison of the Nine Months Ended September 30, 2022 to the Nine Months Ended September 30, 2021

Net revenue for the nine months ended September 30, 2022 was $139.3 million, a $117.7 million decrease from $256.9 million in the elevated comparable prior year period reflecting lower customer demand as a result of a challenging macroeconomic environment, channel inventory destocking at retailers and global supply chain issues.

For the nine months ended September 30, 2022, gross margin decreased to 20.9% from 36.1% in the comparable prior year period.

The decrease was primarily due to $5.3 million charge for potential excess components and product inventory relating to pandemic driven supply

chain and logistic impacts, higher freight and warehouse costs, higher promotional credits driven by more aggressive competitive pricing actions to reduce channel inventory levels, volume-driven fixed cost deleveraging and higher warehouse costs to ensure product supply.

Comparison of the Three Months Ended March 31, 2023 to the Three Months Ended March 31, 2022

Net revenue for the three months ended March 31, 2023 was $51.4 million, a $4.8 million increase from $46.7 million reflecting a stronger U.S.

console gaming headset market and increased consumer demand.

For the three months ended March 31, 2023, gross margin decreased to 27.5% from 30.1% in the comparable prior year period as a result of promotional spend above historic levels, partially offset by lower freight and logistics costs.

Operating Expenses

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Selling and Marketing

Selling and marketing expenses for the three and nine months ended September 30, 2022 totaled $10.6 million and $33.0 million, respectively, compared to $14.3 million and $41.5 million, respectively, for the three and nine months ended September 30, 2021.

This decrease was primarily due to lower revenue-based expenses and reduction of marketing initiatives to align with current consumer demand.

Selling and marketing expenses for the three months ended March 31, 2023 totaled $9.5 million compared to $10.8 million for the three months ended March 31, 2022.

This decrease was primarily due to lower marketing initiatives to align with current consumer demand.

Research and Development

Research and development costs for the three and nine months ended September 30, 2022 were $4.4 million and $14.8 million, respectively, compared to $4.5 million and $12.9 million, respectively, for the three and nine months ended September 30, 2021, as we continue to invest in new product categories and portfolio expansion to position the Company for growth.

Research and development costs for the three months ended March 31, 2023 were $4.1 million compared to $5.3 million for the three months ended March 31, 2022, due to expense management initiatives during the prior year to align headcount with new product and portfolio expansion strategies.

General and Administrative

General and administrative expenses for the three months ended September 30, 2022 totaled $6.0 million compared to $9.0 million for the three months ended September 30, 2021.

Excluding certain non-recurring fees related to the proxy contest with respect to the 2022 annual meeting of stockholders and shareholder litigation costs, expenses decreased $0.2 million primarily due to lower revenue-based employee expenses.

General and administrative expenses for the nine months ended September 30, 2022 totaled $24.8 million compared to $24.2 million for the nine months ended September 30, 2021.

Excluding certain non-recurring fees related to the proxy contest with respect to the 2022 annual meeting of stockholders ($6.7 million) and other litigation cost, expenses decreased $1.2 million primarily due to lower employee costs and professional fees.

Income tax benefit for the three months ended September 30, 2022 was $4.4 million at an effective tax rate of 26.8% and income tax benefit for the nine months ended September 30, 2022 was $11.8 million at an effective tax rate of 24.5%.

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%).

The effective tax rate for the three and nine months ended September 30, 2022 was primarily impacted by state taxes, certain credits and discrete deductions for employee stock option exercise, offset by nondeductible officer compensation and global intangible low taxed income.

General and administrative expenses for the three months ended March 31, 2023 totaled $7.0 million compared to $6.2 million for the three months ended March 31, 2022.

Excluding certain non-recurring proxy contest and other costs, expenses decreased $0.2 million primarily due to lower revenue-based employee expenses and certain corporate legal costs, partially offset by higher professional services costs.

Income tax benefit for the three months ended March 31, 2023 was ($0.1) million at an effective tax rate of 1.0% compared to income tax benefit for the three months ended March 31, 2022 of ($2.6) million at an effective tax rate of 29.0%.

The effective tax rate for the three months ended March 31, 2023 was primarily impacted by a true-up to foreign incomes tax payable, partially offset by the change in U.S.

valuation allowance, foreign taxes and interest on uncertain tax positions.

Liquidity and Capital Resources

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The following table summarizes our sources and uses of cash:

Nine Months Ended

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Three Months Ended

(in thousands)

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Operating activities

Cash used for operating activities for the nine months ended September 30, 2022 was $69.5 million, a decrease of $59.2 million as compared to cash used for operating activities of $10.3 million for the nine months ended September 30, 2021.

The decrease is primarily the result of lower gross receipts as well as higher inventory levels due to retailers compressing channel inventory and accelerated procurements to ensure product supply.

Cash provided by operating activities for the three months ended March 31, 2023 was $29.0 million, an increase of $42.3 million as compared to cash used for operating activities of $13.3 million for the three months ended March 31, 2022.

The increase is primarily the result of market-driven inventory management activity and higher gross receipts.

Investing activities

Cash used for investing activities was $1.9 million for the nine months ended September 30, 2022, which was related to certain capital investments, compared to $7.0 million for the nine months ended September 30, 2021, which included $2.5 million related to the Neat Microphones acquisition.

Cash used for investing activities was $0.9 million for the three months ended March 31, 2023, which was related to certain capital investments, compared to $0.6 million for the three months ended March 31, 2022.

Financing activities

Net cash provided by financing activities was $45.2 million during the nine months ended September 30, 2022 compared to net cash used for financing activities of $0.9 million during the nine months ended September 30, 2021.

Financing activities during the nine months ended September 30, 2022 consisted primarily of $44.6 million revolving credit facility borrowings.

Net cash used for financing activities was ($19.0) million during the three months ended March 31, 2023 compared to net cash provided by financing activities of $0.4 million during the three months ended March 31, 2022.

Financing activities during the three months ended March 31, 2023 consisted primarily of $19.1 million revolving credit facility net repayments.

Management assessment of liquidity

Management believes that our current cash and cash equivalents, the amounts available under our revolving credit facility and cash flows derived from operations will be sufficient to meet anticipated short-term and long-term funding for working capital and capital expenditures including amounts to develop new products, fund future stock repurchases and to pursue strategic opportunities.

Significant assumptions

underlie this belief, including, among other things, that there will be no material adverse developments in our business, liquidity or capital requirements.

In addition, the Company monitors the capital markets on an ongoing basis and may consider raising capital if favorable market conditions develop.

Significant assumptions underlie this belief, including, among other things, that there will be no material adverse developments in our business, liquidity or capital requirements.

Foreign cash balances at September 30, 2022 and December 31, 2021 were $2.8 million and $10.2 million, respectively.

Foreign cash balances at March 31, 2023 and December 31, 2022 were $3.7 million and $6.5 million, respectively.

Revolving Credit Facility

On December 17, 2018, Turtle Beach and certain of its subsidiaries entered into an amended and restated loan, guaranty and security agreement (“Credit Facility”) with Bank of America, N.A.

(“Bank of America”), as Agent, Sole Lead Arranger and Sole Bookrunner, which replaced the then existing asset-based revolving loan agreement.

The Credit Facility, which expires on March 5, 2024, provides for a line of credit of up to $80 million inclusive of a sub-facility limit of $12 million for TB Europe, a wholly-owned subsidiary of Turtle Beach.

In addition, the Credit Facility provides for a $40 million accordion feature and the ability to increase the borrowing base with a “first-in, last-out”

(a “FILO Loan”) of up to $6.8 million.

On May 31, 2019, the Company amended the Credit Facility to provide for, amongst other items, (i) the addition of TBC Holding Company LLC, a wholly-owned subsidiary of VTB, as an obligor and (ii) the ability to make investments in TB Germany GmbH, a wholly-owned subsidiary of TB Europe, of up to $4 million in connection with the acquisition of ROCCAT and up to an additional $4 million annually.

On March 5, 2018, Turtle Beach and certain of its subsidiaries entered into an amended and restated loan, guaranty and security agreement (the “Credit Facility”) with Bank of America, N.A.

(“Bank of America”), as administrative agent, collateral agent and security trustee for Lenders (as defined therein), which replaced the then existing asset-based revolving loan agreement.

The Credit Facility was amended on each of December 17, 2018, May 31, 2019, and March 10, 2023.

The Credit Facility, as amended, expires on April 1, 2025 and provides for a line of credit of up to $80 million inclusive of a sub-facility limit of $15 million for TB Europe, a wholly-owned subsidiary of Turtle Beach.

In addition, the Credit Facility provides for a $40 million accordion feature.

On March 10, 2023, the Company entered into a Third Amendment to Amended and Restated Loan, Guaranty and Security Agreement (the “Third Amendment”), by and among the Company, VTB, TBC Holding Company LLC, TB Europe, VTBH, the financial institutions party thereto from time to time and Bank of America, as administrative agent, collateral agent and security trustee for the lenders.

The Third Amendment provides for, among other things:

(i) extending the maturity date of the Credit Facility from March 5, 2024 to April 1, 2025;

(ii) updating the interest rate and margin terms;

(iii) removing the FILO Loan facility;

(iv) updating the sub-facility limit for TB Europe to $15 million;

(v) increasing our undrawn commitment fee by 0.125%;

and (vi) transitioning the reference interest rates from LIBOR to BSBY, SONIA and EUIBOR, as applicable.

The maximum credit availability for loans and letters of credit under the Credit Facility is governed by a borrowing base determined by the application of specified percentages to certain eligible assets, primarily eligible trade accounts receivable and inventories, and is subject to discretionary reserves and revaluation adjustments.

The Credit Facility may be used for working capital, the issuance of bank guarantees, letters of credit and other corporate purposes.

Amounts outstanding under the Credit Facility bear interest at a rate equal to either a rate published by Bank of America or the LIBOR rate, plus in each case, an applicable margin, which is between 0.50% to 1.25% for base rate loans and between 1.25% to 2.00% for U.S.

LIBOR loans and U.K.

loans, and between 2.00% to 2.75% for the FILO Loan.

Amounts outstanding under the Credit Facility bear interest at a rate equal to (i) a rate published by Bank of America or the U.S.

Bloomberg Short-Term Bank Yield Index (“BSBY”) rate for loans denominated in U.S.

Dollars, (ii) the Sterling Overnight Index Average Reference Rate (“SONIA”) for loans denominated in Sterling, (iii) and the Euro Interbank Offered Rate (“EUIBOR”) for loans denominated in Euros, plus in each case, an applicable margin, which is between 0.50% to 2.50% for base rate loans and UK base rate loans, and 1.50% to 3.50% for U.S.

BSBY rate loans, U.S.

BSBY daily floating rate loans and UK alternative currency loans.

In addition, Turtle Beach is required to pay a commitment fee on the unused revolving loan commitment at a rate ranging from 0.375% to 0.50% and letter of credit fees and agent fees.

As of September 30, 2022, interest rates for outstanding borrowings were 7.50% for base rate loans and 5.13% for LIBOR rate loans.

As of September 30, 2022, there was $44.6 million in outstanding borrowings under the Credit Facility.

The Company and the administrative agent entered into an amendment to the Credit Agreement (the “LIBOR Transition Amendment”) to replace the LIBOR rate as a reference rate available for use in the computation of interest under the Credit Agreement in favor of (i) the Applicable Rate (as defined in the Credit Agreement) plus Sterling Overnight Index Average (“SONIA”) or the Euro Interbank Offered Rate (“EURIBOR”).

The Company expects to enter into an additional agreement to finalize the transition of the U.S.

LIBOR rate prior its expiration on June 30, 2023.

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).

As of March 31, 2023, interest rates for outstanding borrowings were 10.50% for base rate loans and 6.50% for LIBOR rate loans, which reference interest rates were still in effect prior to the Libor Transition Amendments.

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

At such times, the Credit Facility requires the Company and its restricted subsidiaries to maintain a fixed charge coverage ratio of at least 1.00 to 1.00 as of the last day of each fiscal quarter.

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Obligations under the Credit Facility are secured by a security interest and lien upon substantially all of the Company’s assets.

As of September 30, 2022, the Company was in compliance with all financial covenants under the Credit Facility, as amended, and excess borrowing availability was approximately $25.3 million.

Critical Accounting Estimates

Our discussion and analysis of our results of operations and capital resources are based on our consolidated financial statements, which have been prepared in conformity with U.S.

Our discussion and analysis of our results of operations and capital resources are based on our consolidated financial statements, which have been prepared in conformity with GAAP.

The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities.

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The Company does not use derivative financial instruments for speculative or trading purposes.

As of September 30, 2022 and December 31, 2021, we did not have any derivative financial instruments.

As of March 31, 2023 and December 31, 2022, we did not have any derivative financial instruments.

Foreign Currency Exchange Risk

The Company has exchange rate exposure primarily with respect to the British Pound and Euro.

As of September 30, 2022 and December 31, 2021, our monetary assets and liabilities that are subject to this exposure are immaterial, therefore the potential immediate loss to us that would result from a hypothetical 10% change in foreign currency exchange rates would not be expected to have a material impact on our earnings or cash flows.

As of March 31, 2023 and December 31, 2022, our monetary assets and liabilities that are subject to this exposure are immaterial, therefore the potential immediate loss to us that would result from a hypothetical 10% change in foreign currency exchange rates would not be expected to have a material impact on our earnings or cash flows.

This sensitivity analysis assumes an unfavorable 10% fluctuation in the exchange rates affecting the foreign currencies in which monetary assets and liabilities are denominated and does not take into account the offsetting effect of such a change on our foreign currency denominated revenues.

Inflation Risk

The Company is exposed to market risk due to inflationary pressures, including higher labor-related costs, increases in the costs of the goods and services we purchase as part of the manufacture and distribution of our products, increased costs from supply chain and logistic headwinds and increased costs in our operations generally.

Such inflationary pressures have been and could continue to be exacerbated by higher oil prices, geopolitical turmoil, and economic policy actions.

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Reduced or delayed discretionary spending by consumers in response to inflationary pressures has reduced consumer demand for our products, resulting in reduced sales.

In 2022, we have experienced a higher rate of inflation than in recent years resulting in higher cost of goods, selling expenses, and general and administrative expenses.

In 2022, we experienced a higher rate of inflation than in recent years resulting in higher cost of goods, selling expenses, and general and administrative expenses.

Such increases have had and may continue to have a negative impact on the Company’s profit margins if selling prices of products do not increase with the increased costs.

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At the conclusion of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision of our Chief Executive Officer (our principal executive officer, or PEO) and our Chief Financial Officer (our principal financial officer, or PFO), of the effectiveness of the design and operation of our disclosure controls and procedures.

Based upon that evaluation, our PEO and PFO concluded that our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, were effective as of September 30, 2022.

Based upon that evaluation, our PEO and PFO concluded that our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, were not effective in regards to the internal controls over the tax provision as of March 31, 2023.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the period covered that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We identified a material weakness in internal control related to the proper design and implementation of certain controls over our income tax provision and management’s review of the income tax provision.

To address this material weakness, we have implemented certain remedial measures, as described in Item 9A of our 2022 Form 10-K.

Based on this evaluation, we consider the material weakness not to have been fully remediated as management has not yet been able to conclude, through testing, that the applicable controls have operated effectively.

Except as described above, there have been no changes in our internal control over financial reporting during the period covered that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies, which may be identified during this process.

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Our business has been and could continue to be adversely affected by inflationary pressures.

We are exposed to inflationary pressures including higher labor-related costs and potential increases in the costs of the goods and services we purchase as part of the manufacture and distribution of our products and in our operations generally.

Since 2021, global supply chain constraints and the continuing effects of the COVID-19 pandemic (including government measures adopted in response thereto) have resulted in heightened inflationary cost pressures.

Such inflationary pressures have also been and could continue to be exacerbated by higher oil prices, geopolitical turmoil (including the ongoing conflict in Ukraine), increased logistics costs and economic policy actions.

As interest rates rise to address inflation, such increases could lead to an increase in borrowing costs over time.

We are exposed to inflationary pressures including higher labor-related costs and increases in the costs of the goods and services we purchase as part of the manufacture and distribution of our products and in our operations generally.

As interest rates rise to address inflation, such increases have led to, and could lead to further increases in our borrowing costs over time.

Inflationary pressures can also have a negative impact on demand for the products we sell.

Reduced or delayed discretionary spending by consumers, specifically for consumer electronic goods, in response to inflationary pressures has and could continue to reduce demand for our products, resulting in reduced sales.

Our inability to adequately increase prices to offset increased costs associated with such inflationary pressures, or otherwise mitigate their impact, will increase our costs of doing business and reduce our margins and profitability.

If such impacts are prolonged or substantial, they could have a material negative effect on our results of operations.

In 2022, reduced margins and profitability stemming from inflationary pressures were considered triggering events and led to interim goodwill and long-lived asset quantitative impairment tests.

If such impacts are prolonged or substantial, they could necessitate similar impairment tests in the future or otherwise have a material negative effect on our results of operations.

Our brands face significant competition from other consumer electronics companies and this competition could have a material adverse effect on our financial condition and results of operations.

We compete with other producers of gaming accessories, including video game console manufacturers.

Our competitors may undertake more extensive marketing campaigns, adopt more aggressive pricing policies, or develop more commercially successful products for the PC and video game platforms than we do.

In addition, competitors with large product lines and popular products, in particular the video game console manufacturers, typically have greater leverage with retailers, distributors and other customers, who may be willing to promote products with less consumer appeal in return for access to those competitors’

more popular products.

In the event that a competitor reduces prices, we could be forced to respond by lowering our prices to remain competitive.

If we are forced to lower prices, we may be required to “price protect”

products that remain unsold in our customers’

inventories at the time of the price reduction.

Price protection results in our issuing a credit to our customers in the amount of the price reduction for each unsold unit in that customer’s inventory.

Our price protection policies, which are customary in the industry, can have a major impact on our profitability.

The manufacture, supply and shipment of our products are subject to supply chain and logistics risks that could adversely impact our financial results.

We face a number of risks related to supply chain management and logistics with respect to our products.

Recently, we have experienced, and may in the future continue to experience, supply or labor shortages or other disruptions to our supply chain or logistics, which could result in shipping delays and increased costs, each of which could negatively impact our results, operations, product development, and sales.

We experienced, and may in the future continue to experience, supply or labor shortages or other disruptions to our supply chain or logistics, which could result in shipping delays and increased costs, each of which could negatively impact our results, operations, product development, and sales.

The extent and duration of the impact of these challenges are subject to numerous factors, including the continuing impact of the COVID-19 pandemic, behavioral changes, wage and price costs, adoption of new or revised regulations, and broader macroeconomic conditions.

We have experienced supply chain disruptions that resulted in significant cost increases for commodities and components used in our products, as well as component shortages that have negatively affected our sales and results of operations.

For example, the recent market shortage of semiconductors has caused disruptions, from both a supply and pricing standpoint.

For example, the market shortage of semiconductors that persisted during 2020 and 2021 caused disruptions, from both a supply and pricing standpoint.

As discussed above, recent inflationary pressures have also been exacerbated by the lower availability of, and increased prices for, freight and logistics, including air, sea, and ground freight.

We may not be able to pass along these price increases to our customers.

While we have taken and continue to take measures implement cost saving initiatives and procure and maintain levels of inventory to prioritize product availability amidst global supply chain and logistical challenges, including by working closely with our suppliers, there can be no assurance that we will be able to continue to do so.

Accordingly, any future delays, disruptions, and supply and pricing risks, such as the ongoing supply chain challenges and disruptions that we

expect to continue during 2022, could affect our ability to meet customer demand for our products, which could have an adverse effect on our business, results of operations and financial condition.

While we have taken and continue to take measures to implement cost saving initiatives and procure and maintain levels of inventory to prioritize product availability amidst global supply chain and logistical challenges, including by working closely with our suppliers, there can be no assurance that we will be able to continue to do so.

Accordingly, any future delays, disruptions, and supply and pricing risks, such as the ongoing supply chain challenges and disruptions that we expect to continue during 2023, could affect our ability to meet customer demand for our products, which could have an adverse effect on our business, results of operations and financial condition.

The manufacture, supply and shipment of our products are dependent upon a limited number of third parties, and our success is dependent upon the ability of these parties to manufacture, supply and ship sufficient quantities of our products to us in a timely fashion, as well as the continued viability and financial stability of these third parties.

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Any disruption in supply of these components could materially impact the ability of our third-party manufacturing partners to produce our products.

We rely on third parties to manufacture and manage the logistics of transporting and distributing our products, which subjects us to a number of risks that have been exacerbated as a result of the COVID-19 pandemic and the ongoing supply chain issues associated therewith.

We rely on third parties to manufacture and manage the logistics of transporting and distributing our products, which subjects us to a number of risks that have been exacerbated as a result of the ongoing supply chain issues that originated during the COVID-19 pandemic.

Our manufacturers’

and suppliers’

ability to supply products to us is also subject to a number of risks, including the availability of raw materials or components, their financial instability, the destruction of their facilities, epidemics or work stoppages.

ability to supply products to us is also subject to a number of risks, including the unavailability of raw materials or components, their financial instability, the destruction of their facilities, work stoppages and any future public health crisis.

Any shortage of raw materials or components or an inability to control costs associated with manufacturing could increase our costs or impair our ability to ship orders in a timely and cost-efficient manner.

As a result, we could experience cancellations of orders, refusal to accept deliveries or a reduction in our prices and margins, any of which could harm our financial performance and results of operations.

The continuation of stay-at-home orders and other COVID-19 pandemic related restrictions internationally has led to factory closures, interruptions in supply chains, increased regulation and workforce shortages, each of which may continue in the future.

These issues and others may make it difficult for our suppliers and manufacturers to source raw materials or components, manufacture finished goods and export our products.

There may be significant and material disruptions to our supply chain and operations, and delays in the manufacture and shipment of our products, which may then have a material adverse effect on our business or results of operations.

We could be negatively affected if we are not able to engage third parties with the necessary capabilities or capacity on reasonable terms, or if those we engage with fail to meet their obligations (whether due to financial difficulties, manufacturing constraints, or other reasons).

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In particular, certain of our products have a number of components and subassemblies produced by outside suppliers.

In addition, for certain of these items, we qualify only a single source of supply with long lead times, which can magnify the risk of shortages or result in excess supply and also decreases our ability to negotiate price with our suppliers.

Also, if we experience quality problems with suppliers, then our production schedules could be significantly delayed or costs significantly increased, which could have an adverse effect on our business, liquidity, results of operation and financial position.

In addition, for certain of these items, we qualify only a single source of supply with long lead times, which can magnify the risk of shortages or result in excess supply or decrease our ability to negotiate price with our suppliers.

Also, if we experience quality problems with suppliers, then our production schedules could be significantly delayed or costs significantly increased.

Each of these factors could have an adverse effect on our business, liquidity, results of operations and financial position.

In addition, the ongoing effectiveness of our supply chain is dependent on the timely performance of services by third parties shipping products and materials to and from our warehouse facilities and other locations.

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We have experienced some of these problems in the past and we cannot assure you that we will not experience similar problems in the future.

The effects of the COVID-19 pandemic could adversely affect our business, results of operations, and financial condition.

The effects of the public health crisis caused by the COVID-19 pandemic, its variant strains, and the measures taken in response thereto are uncertain and difficult to predict, but may include a decrease in the demand and/or pricing for our products, disruptions to our supply chain, and a general deterioration of the global economy, among others.

Additionally, retailers have experienced, and may continue to experience, liquidity constraints or other financial difficulties due to COVID-19, which could lead to a reduction in the amount of merchandise purchased from us, an increase in order cancellations or the need to extend payment terms.

Any or all of these measures could substantially reduce revenue or have a material adverse effect on our results of operations.

At the beginning of the COVID-19 pandemic, we saw an increase in demand for our products due to increased gaming, work-from-home, and school-learn-from-home, however, such increased demand for our products has subsided as restrictions imposed for the pandemic have been lifted and social functions and activities continue to return to pre-pandemic levels.

This decrease in demand may continue as further pandemic restrictions are lifted and social functions not involving the use of our products continue to return.

These effects, alone or taken together, could have a material adverse effect on our business, results of operations or financial condition.

An extended period of global supply chain and economic disruption resulting from the COVID-19 pandemic and the government measures adopted in response thereto could exacerbate the foregoing effects.

In addition, the potential impacts of COVID-19 also could affect many of our risk factors included in Item 1A.

of this Quarterly Report on Form 10-Q.

However, as the COVID-19 situation is unprecedented and continuously evolving, the potential impacts to such risk factors remain uncertain.

We depend upon the success and availability of third-party gaming platforms and release of certain game titles to drive sales of our headset products.

The performance of our headset business is affected by the continued success of third-party gaming platforms, such as Microsoft’s Xbox ® consoles and Sony’s PlayStation® consoles, as well as video games developed by such manufacturers and other third-party publishers.

The widespread outbreak of an illness, communicable disease, or any other public health crisis could adversely affect our business, results of operations, and financial condition.

We could be negatively impacted by the widespread outbreak of an illness, communicable disease, or any other public health crisis that results in economic or trade disruptions, including the disruption of global supply chains.

The COVID-19 pandemic negatively impacted the economy on a global, national, and local level, disrupted global supply chains, and created volatility and disruption of financial markets.

Responses from U.S.

and international governmental authorities and companies to reduce the spread of COVID-19 affected economic activity through various containment measures including, among others, restrictions on retail outlets, business closures, work stoppages, quarantine and work-from-home guidelines, limiting capacity at public spaces and events, vaccination requirements, or restrictions of global and regional travel.

Another outbreak of an illness, a communicable disease, or any other public health crisis, and any resulting impacts, such as an extended period of global supply chain and/or economic disruption, labor shortages, or government-mandated actions in response to such public health crisis could materially affect our business, results of operations, access to sources of liquidity, and financial condition.

We depend upon the success and availability of third-party gaming platforms and the release of certain game titles to drive sales of our headset products.

The performance of our gaming accessories business is affected by the continued success of the PC gaming market and third-party gaming platforms, such as Microsoft’s Xbox consoles and Sony’s PlayStation consoles, as well as video games developed by such manufacturers and other third-party publishers.

Our business could suffer if any of these parties fail to continue to drive the success of these platforms, develop new or enhanced video game platforms, develop popular game and entertainment titles for current or future generation platforms or produce and timely release sufficient quantities of such consoles.

Further, if a platform is withdrawn from the market or fails to sell, we may be forced to liquidate inventories relating to that platform or accept returns resulting in significant losses.

Our brands face significant competition from other consumer electronics companies and this competition could have a material adverse effect on our financial condition and results of operations.

We compete with other producers of gaming accessories, including the video game console manufacturers.

more popular products.

In the event that a competitor reduces prices, we could be forced to respond by lowering our prices to remain competitive.

If we are forced to lower prices, we may be required to “price protect”

products that remain unsold in our customers’

inventories at the time of the price reduction.

Price protection results in our issuing a credit to our customers in the amount of the price reduction for each unsold unit in that customer’s inventory.

Our price protection policies, which are customary in the industry, can have a major impact on our profitability.

Also, any actions we undertake to increase prices in response to rising inflation or other considerations may reduce demand for our product and have a material adverse effect on our business or results of operations.

Conversely, any actions we undertake to increase prices in response to rising costs due to higher inflation levels or other considerations may reduce demand for our products if our competitors do not follow with similar pricing actions.

This may have a material adverse effect on our business or results of operations.

The industries in which we operate are subject to competition in an environment of rapid technological change, and if we do not adapt to, and appropriately allocate our resources among, emerging technologies, our revenues could be negatively affected.

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When we choose to incorporate a new technology into our products or to develop a product for a new platform or operating system, we are often required to make a substantial investment prior to the introduction of the product.

If we invest in the development of a new technology or for a new platform that does not achieve significant commercial success, our revenues from those products likely will be lower than anticipated and may not cover our costs.

If we invest in the development of a new technology or a product for a new platform that does not achieve significant commercial success, our revenues from those products likely will be lower than anticipated and may not cover our costs.

Further, our competitors may develop or adapt to an emerging technology more quickly or effectively than we do, creating products that are technologically superior to ours, more appealing to consumers, or both.

New and emerging technologies and alternate platforms for gaming, such as mobile devices and virtual reality devices, could make the consoles for which our headsets are designed less attractive or, in time, obsolete, which could require us to transition our business model such as develop products for other gaming platforms.

New and emerging technologies and alternate platforms for gaming, such as mobile devices and virtual reality devices, could make our products, generally designed for existing console and PC gaming platforms less attractive or, in time, obsolete, which could require us to transition our business model, such as by developing products for other gaming platforms.

There are numerous steps required to develop a product from conception to commercial introduction and to ensure timely shipment to retail customers, including designing, sourcing and testing the electronic components, receiving approval of hardware and other third-party licensors, factory availability and manufacturing and designing the graphics and packaging.

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A significant portion of our revenue is derived from a few large customers, and the loss of any such customer, or a significant reduction in purchases by such customer, could have a material adverse effect on our business, financial condition and results of operations.

During 2021, our three largest individual customers accounted for approximately 41% of our gross sales in the aggregate.

During 2022, our three largest retail customers accounted for approximately 51% of our gross sales in the aggregate.

The loss of, or financial difficulties experienced by, any of these or any of our other significant customers, including as a result of the bankruptcy of a customer, could have a material adverse effect on our business, results of operations, financial condition and liquidity.

We do not have long-term agreements with these or other significant customers and our agreements with these customers do not require them to purchase any

specific amount of products.

All of our customers generally purchase from us on a purchase order basis.

We do not have long-term agreements with these or other significant customers and our agreements with these customers do not require them to purchase any specific amount of products.

Many of our customers generally purchase from us on a purchase order basis.

As a result, agreements with respect to pricing, returns, cooperative advertising or special promotions, among other things, are subject to periodic negotiation with each customer.

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In addition, the uncertainty of product orders can make it difficult to forecast our sales and allocate our resources in a manner consistent with actual sales, and our expense levels are based in part on our expectations of future sales.

If our expectations regarding future sales are inaccurate, we may be unable to reduce costs in a timely manner to adjust for sales shortfalls.

If our expectations regarding future sales are inaccurate, we may be unable to reduce costs in a timely manner to adjust for sales shortfalls or ensure adequate product supply to meet customer demand.

In addition, financial difficulties experienced by a significant customer could increase our exposure to uncollectible receivables and the risk that losses from uncollected receivables exceed the reserves we have set aside in anticipation of this risk or limit our ability to continue to do business with such customers.

Turtle Beach relies on its partnerships with influencers, athletes and esports teams to expand our market and promote our products, which may not perform to our expectations.

We believe that our ability to extend the recognition and favorable perception of our Turtle Beach brand, and the ROCCAT and Neat Microphones brands, is critical to implement our gaming accessory growth strategy, which includes maintaining our strong position in console gaming headsets and building our brand recognition and product appeal in PC gaming headsets, keyboards, and mice as well as in additional new categories over time.

These efforts incur significant costs in marketing and these expenditures, however, may not result in a sufficient increase in net sales to cover such costs.

If our marketing efforts do not effectively raise the recognition and reputation of our brands, we may not be able to successfully implement our gaming accessory growth strategy.

Relationships with new and established influencers, athletes and esports teams have been, and will continue to be, important to our future success.

We believe that our ability to extend the recognition and favorable perception of our Turtle Beach and ROCCAT brands is critical to implement our gaming accessory growth strategy, which includes maintaining our strong position in console gaming headsets and building our brand recognition and product appeal in PC gaming headsets, keyboards, and mice as well as in additional new categories over time.

These efforts cause us to incur significant costs in marketing;

however, these expenditures may not result in an increase in net sales that is sufficient to cover such costs.

If we fail to build and maintain our brands, or if we incur significant expenses in an unsuccessful attempt to build and maintain our brands, our business and ability to implement our growth strategy may be harmed.

Turtle Beach relies on its partnerships with influencers, athletes and esports teams to expand our market and promote our products, and our marketing and promotion partners may not perform to our expectations.

Relationships with new and established influencers, athletes and esports teams have been, and will continue to be, important to our success.

We rely on these partners to assist us in generating increased acceptance and use of our product offerings.

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We cannot guarantee that any partner will perform their obligations as agreed or that we would be able to specifically enforce any agreement with them.

If any partner does not perform consistent with our agreements, we may be subject to reputational or social media risks.

If any partner does not perform consistent with our agreements, we may be subject to negative or adverse publicity and other reputational risks, including the risk of unfavorable perception on social media or other platforms.

Additionally, our failure to maintain and expand these relationships may adversely impact our future revenue.

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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 transition to new console platforms increases the likelihood that we could fail to accurately forecast demand for headsets and other accessories for these platforms.

The on-going transition to new console platforms increases the likelihood that we could fail to accurately forecast demand for headsets, microphones, simulation hardware, and other gaming accessories for these platforms.

Our results of operations and financial condition may be adversely affected by global business, political, operational, financial and economic conditions.

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higher product component costs and higher transportation and logistics costs driven by increasing rates of inflation globally;

changing consumer spending and preferences driven by increasing rates of inflation;

changes in consumer discretionary spending and preferences driven by increasing rates of inflation;

trade restrictions, higher tariffs, currency fluctuations or the imposition of additional regulations relating to import or export of our products, especially in China, where many of our Turtle Beach products are manufactured, which could force us to seek alternate manufacturing sources or increase our costs;

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Foreign Corrupt Practices Act of 1977, the U.K.

Bribery Act 2010, the European Union Anti-Corruption Act and other similar laws, or non-compliance that could subject us to trade sanctions administered by the Office of Foreign Assets Control, the U.S.

Bribery Act 2010, the European Union Anti-Corruption Act and other similar laws, or non-compliance with such laws, which could subject us to trade sanctions administered by the Office of Foreign Assets Control, the U.S.

Department of Commerce and equivalent foreign entities;

difficulties encountered by our international distributors or us in staffing and managing foreign operations or international sales, including higher labor costs and tightening of the overall labor markets;

compliance by third-party suppliers, manufacturers and their subcontractors with our Manufacturer Code of Conduct and other applicable compliance policies;

transportation delays and difficulties of managing international distribution channels;

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political and economic instability, including wars (such as the ongoing conflict in Ukraine), 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;

public health issues (for example, an outbreak of a contagious disease such as COVID-19);

natural disasters.

public health issues (such as a pandemic);

natural disasters or adverse or extreme weather conditions.

Any of these factors could reduce our net sales, decrease our gross margins, increase our expenses or reduce our profitability.

Should we establish our own operations in international territories where we currently utilize a distributor, we will become subject to greater risks associated with operating outside of the United States.

Should we establish our own operations in international territories where we currently utilize distributors, we will become subject to greater risks associated with operating outside of the United States.

The electronics industry in general has historically been characterized by a high degree of volatility and is subject to substantial and unpredictable variations resulting from changing business cycles.

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Downturns in the worldwide economy could adversely affect our business.

We could experience a reduction in demand for our products or a lengthening of consumer replacement schedules for our products.

Reduced demand for these products could result in decreases in our average selling prices and product sales.

We have and could continue to experience a reduction in demand for our products or a lengthening of consumer replacement schedules for our products.

Sustained reduced demand for these products could result in further decreases in our average selling prices and product sales.

A deterioration of current conditions in worldwide credit markets could limit our ability to obtain financing.

A lack of available credit in financial markets may adversely affect the ability of our commercial customers to finance purchases and operations and could result in an absence of orders or spending for our products as well as create supplier disruptions.

A lack of available credit in financial markets may adversely affect the ability of our commercial customers to finance purchases and operations and could result in a decrease in orders or spending for our products as well as create supplier disruptions.

We are unable to predict the likely duration and severity of any adverse economic conditions and disruptions in financial markets and the effects they will have on our business and its financial condition.

Difficult economic conditions may also result in a higher rate of losses on our accounts receivables due to defaults or bankruptcies.

Difficult economic conditions may also result in a higher rate of losses on our accounts receivable due to defaults or bankruptcies.

As a result, a downturn in the worldwide economy could have a material adverse effect on our business, results of operations or financial condition.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report financial results or prevent fraud, which could have an adverse effect on our business and financial condition.

Effective internal controls are necessary to provide reliable financial reports and to assist in the effective prevention of fraud.

inability to provide reliable financial reports or prevent fraud could harm our business.

The Sarbanes-Oxley Act of 2002 requires, among other things, that we evaluate our systems and processes and test our internal controls over financial reporting to allow management and our independent registered public accounting firm, as applicable, to report on the effectiveness of our internal control over financial reporting.

If we are not able to remediate any identified material weakness or otherwise comply with the requirements of Section 404 of the Sarbanes-Oxley Act, or if we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, investors could lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline and we could be subject to sanctions, investigations by the Nasdaq Stock Market, LLC, the SEC or other regulatory authorities, or shareholder litigation.

In addition, failure to maintain effective internal controls could result in financial statements that do not accurately reflect our financial condition or results of operations.

There can be no assurance that we will be able to maintain a system of internal controls that fully complies with the requirements of the Sarbanes-Oxley Act of 2002 or that our management and independent registered public accounting firm will continue to conclude that our internal controls are effective.

Our business could be negatively affected as a result of any future proxy contest or the actions of activist shareholders.

Although our engagement with certain entities affiliated with The Donerail Group LP (“Donerail”) was settled as a result of our entry into a cooperation agreement, future proxy contests or related activist activities could adversely affect our business for a number of reasons, including the fact that responding to proxy contests and other actions by activist shareholders can be disruptive, costly and time-consuming;

can divert the attention of our management, Board of Directors and employees;

and can create perceived uncertainties as to our future direction and governance that may result in the loss of potential business opportunities and may make it more difficult to attract and retain qualified personnel, business partners, customers and other stakeholders important to our success.

Any future proxy contest or activist activities could also cause our stock price to experience periods of volatility.

Further, we have incurred and may incur in the future additional expenses by retaining the services of various professionals to advise us in engagement with activist shareholders.

If a future proxy contest or a related

settlement results in additional changes in the composition of our Board of Directors, it may adversely affect our ability to continue to effectively implement our business strategy and could, in certain circumstances, give third parties certain rights under our existing contractual obligations, which could adversely affect our business.

A material weakness is a deficiency or combination of deficiencies in our internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our consolidated financial statements would not be prevented or detected on a timely basis.

If we experience a material weakness or otherwise fail to maintain an effective system of internal controls in the future, we may not be able to accurately or timely report our financial condition or results of operations.

Any failure to maintain effective disclosure controls and internal control over financial reporting could have an adverse effect on our business, financial condition, and results of operations.

In connection with preparing the financial statements as of and for the year ended December 31, 2022, we identified a material weakness in our internal control related to the proper design and implementation of certain controls over our income tax provision and management’s review of the income tax provision.

The material weakness in internal controls over the tax provision did not result in any material misstatements in these financial statements or omissions in our previously reported financial statements.

Although we intend to take remedial actions in response to this control deficiency, there is no assurance that we will be able to prevent a material error or future control deficiencies (including material weaknesses) from occurring.

Our inability to assert that our internal control over financial reporting is effective could result in a loss of investor confidence in the accuracy and completeness of our financial reports, which could cause the price of our common stock to decline, and we may be subject to investigation, litigation, increases in insurance premiums or regulatory fines and sanctions.

Our business could be negatively affected as a result of actions of activist stockholders.

Immersion Corporation (Nasdaq:

IMMR, “Immersion”), through a subsidiary that owns approximately 8.4% of our outstanding common stock, has notified the Company of its intent to nominate three directors for election at the Company’s 2023 annual meeting of stockholders

(the “Notice”).

To avoid a costly and distracting proxy contest, the Company has engaged in good faith with Immersion numerous times but was unable to reach an amicable resolution that, in our view, would be aligned with the best interests of our stockholders.

Responding to Immersion’s proxy contest and any future campaigns by Immersion or other activist stockholders can be disruptive, costly and time-consuming, and can divert the attention of our Board, management and employees.

Perceived uncertainties as to the future direction or governance of the Company may cause concern to our current or potential regulators, vendors or strategic partners, or make it more difficult to execute on our strategy or to attract and retain qualified personnel, which may have a material impact on our business and operating results.

In addition, in the event of shareholder activism, particularly with respect to matters which our Board, in exercising their fiduciary duties, disagree with or have determined not to pursue, our business could be adversely affected.

The Company could also face difficulty in attracting and retaining qualified directors to serve on our Board due to the perceived instability in the organization or lack of continuity if an activism campaign results in the appointment of an activist shareholder on the Board.

Activist campaigns such as the proxy contest launched by Immersion may also cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business, all of which could have a material adverse effect on the Company.

Moreover, if any of Immersion’s (or other activists’) nominees are elected with a specific agenda, it may adversely affect our ability to effectively and timely implement our long-term strategies, and this could in turn have an adverse effect on our business.

We have adopted a stockholder rights plan, which, together with provisions in our Articles of Incorporation and Nevada law, could discourage or prevent a potential takeover of our Company that might otherwise result in you receiving a premium over the market price for your common stock.

We adopted a stockholder rights plan pursuant to which we distributed one right for each outstanding share of common stock held by stockholders of record as of April 10, 2023.

Subject to certain exceptions, the rights generally would become exercisable upon any person or group acquiring beneficial ownership of twelve percent (12%) or more of the then-outstanding shares of our common stock without the approval of the Board of Directors.

Because the triggering of the rights may substantially dilute the stock ownership of a person or group attempting a take-over of us without the approval of our Board of Directors, even if such a change in control would result in our stockholders receiving a premium for their shares, the plan could make it more difficult for a third party to acquire us, or a significant percentage of our outstanding capital stock, without first negotiating with our Board of Directors.

Additionally, our Articles of Incorporation permit our Board of Directors to issue special shares from time to time, with such rights and preferences as they consider appropriate.

Our Board of Directors could authorize the issuance of special shares with terms and conditions and under circumstances that could have an effect of discouraging a takeover or other transaction.

As a Nevada corporation, we are also subject to certain provisions of the Nevada General Corporation Law that have anti-takeover effects and may inhibit a non-negotiated merger or other business combination.

These provisions are intended to encourage any person interested in acquiring us to negotiate with, and to obtain the approval of, our Board of Directors in connection with such a transaction.

However, certain of these provisions may discourage a future acquisition of the Company, including an acquisition in which the stockholders might otherwise receive a premium for their shares.

As a result, stockholders who might desire to participate in such a transaction may not have the opportunity to do so.

Risks Related to our Intellectual Property

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These laws may not protect intellectual property rights to the same extent or in the same manner as the laws of the United States.

Further, we are party to licenses that grant us rights to intellectual property, including trademarks, which are necessary or useful to our Turtle Beach business.

Further, we are party to licenses that grant us rights to intellectual property, including trademarks, which are necessary or useful to our business.

One or more of our licensors may allege that we have breached our license agreement with them and seek to terminate our license.

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Our success also depends in part on our ability to obtain and enforce intellectual property protection of our technology, particularly our patents.

There is no guarantee any patent be granted on any patent application that we have filed or may file.

There is no guarantee any patent will be granted on any patent application that we have filed or may file.

Claims allowed from existing or pending patents may not be of sufficient scope or strength to protect the economic value of our technologies.

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As a result, with respect to our products designed for the Xbox ® platforms, we are currently reliant on Microsoft or their designated supplier to provide us with sufficient quantities of such chips and/or modules.

If we are unable to obtain sufficient quantities of these chips and/or modules, sales of such Xbox ® platform headsets and consequently our revenues would be adversely affected.

If we are unable to obtain sufficient quantities of these chips and/or modules, sales of such Xbox ® platform compatible headsets and consequently our revenues would be adversely affected.

We are licensed and approved by Microsoft to develop and sell Xbox ® platform compatible audio products pursuant to a license agreement under which we have the right to manufacture (including through third-party manufacturers), market and sell audio products for the Xbox ® platform video game console.

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If we are unable to comply with the financial and other covenants contained in the Credit Facility and are unable to obtain a waiver under the Credit Facility, Bank of America may declare any outstanding borrowings under the Credit Facility immediately due and payable.

If we had outstanding borrowings under the Credit Facility, as we currently do, such an event would have an immediate and material adverse impact on our business, results of operations, and financial condition.

If we had outstanding borrowings under the Credit Facility, such an event would have an immediate and material adverse impact on our business, results of operations, and financial condition.

We could be required to obtain additional financing from other sources, and we cannot predict whether or on what terms, if any, additional financing might be available.

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General Risk Factors

If we are unable to protect our information systems against service interruption, misappropriation of data or breaches of security, our operations could be disrupted, our reputation may be damaged, and we may be financially liable for damages.

We rely heavily on information systems to manage our operations, including a full range of retail, financial, sourcing and merchandising systems.

We regularly make investments to upgrade, enhance or replace these systems, as well as leverage new technologies to support our growth strategies.

In addition, we have implemented enterprise-wide initiatives that are intended to standardize business processes and optimize performance.

Further, while many of our employees and certain suppliers with whom we do business operate in a remote working environment during the COVID-19 pandemic, the risk of cybersecurity attacks and data breaches, particularly through phishing attempts, may be increased as we and third-parties with whom we interact leverage our IT infrastructure in previously unanticipated ways during the ongoing COVID-19 pandemic.

Any delays or difficulties in transitioning to new systems or integrating them with current systems or the failure to implement our initiatives in an orderly and timely fashion could result in additional investment of time and resources, which could impair our ability to improve existing operations and support future growth, and ultimately have a material adverse effect on our business.

The reliability and capacity of our information systems are critical.

Despite preventative efforts, our systems are vulnerable to damage or interruption from, among other things, natural disasters, technical malfunctions, inadequate systems capacity, human error, power outages, computer viruses and security breaches.

Any disruptions affecting our information systems could have a material adverse impact on our business.

In addition, any failure to maintain adequate system security controls to protect our computer assets and sensitive data, including associate and client data, from unauthorized access, disclosure or use could damage our reputation with our associates and our clients, exposing us to financial liability, legal proceedings (such as class action lawsuits), and/or regulatory action.

While we have implemented measures to prevent security breaches and cyber incidents, our preventative measures and incident response efforts may not be entirely effective.

As a result, we may not be able to immediately detect any security breaches, which may increase the losses that we would suffer.

Finally, our ability to continue to operate our business without significant interruption in the event of a disaster or other disruption depends, in part, on the ability of our information systems to operate in accordance with our disaster recovery and business continuity plans.

Our reliance on information systems and other technology also gives rise to cybersecurity risks, including security breach, espionage, system disruption, theft and inadvertent release of information.

The occurrence of any of these events could compromise our networks, and the information stored there could be accessed, publicly disclosed, lost or stolen.

Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disrupt operations, and damage our reputation, which could adversely affect our business.

In addition, as security threats continue to evolve, we may need to invest additional resources to protect the security of our systems.

The United Kingdom’s exit of the European Union may negatively impact our operations.

The changes to the trading relationship between the United Kingdom (UK) and European Union resulting from the UK’s exit from the European Union on January 31, 2020 (“Brexit”) have created uncertainty around possible increased cost of goods imported into and exported from the UK and may decrease the profitability of our UK and other European operations.

Additional currency volatility could drive a weaker British pound, which increases the cost of goods imported into our UK operations and may decrease the profitability of our UK operations.

A weaker British pound versus the Euro and U.S.

dollar also causes local currency results of our UK operations to be translated into fewer U.S.

dollars during a reporting period.

On December 24, 2020, the UK and the EU entered into a trade and cooperation agreement (the “Trade and Cooperation Agreement”), which was applied on a provisional basis from January 1, 2021, and entered into force on May 1, 2021.

The economic integration contemplated by the Trade and Cooperation Agreement does not reach the level that existed during the time the UK was a member state of the EU, and further, while the Trade and Cooperation Agreement sets out preferential arrangements in areas such as trade in goods and in services, digital trade and intellectual property, there is still uncertainty on the application and interpretation of many of its provisions.

Negotiations between the UK and the EU are expected to continue in relation to the relationship between the UK and the EU in certain other areas which are not covered by the Trade and Cooperation Agreement.

The long-term effects of Brexit will depend on the effects of the implementation and application of the Trade and Cooperation Agreement and any other relevant agreements between the UK and the EU.

The market price of our common stock may fluctuate significantly.

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the operating and stock price performance of other comparable companies;

actions of, or our engagement with, activist stockholders;

comments by securities analysts or other third parties, including in articles, letters and other media;

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We cannot predict the actions of market participants and, therefore, can offer no assurances that the market for our common stock will be stable or appreciate over time.

We have adopted a shareholder rights plan, which, together with provisions in our articles of incorporation and Nevada law, could discourage or prevent a potential takeover of our Company that might otherwise result in you receiving a premium over the market price for your common stock.

We adopted a shareholder right plan pursuant to which we will distribute one right for each outstanding share of common stock held by stockholders of record as of April 10, 2023.

Because the rights may substantially dilute the stock ownership of a person or group attempting a take-over of us without the approval of our Board of Directors, even if such a change in control would result in our shareholders receiving a premium for their shares, the plan could make it more difficult for a third party to acquire us, or a significant percentage of our outstanding capital stock, without first negotiating with our Board of Directors.

Additionally, our articles of incorporation permit our Board of Directors to issue special shares from time to time, with such rights and preferences as they consider appropriate.

Our Board of Directors could authorize the issuance of special shares with terms and conditions and under circumstances that could have an effect of discouraging a takeover or other transaction.

These provisions are intended to encourage any person interested in acquiring us to negotiate with, and to obtain the approval of, our Board of Directors in connection with such a transaction.

However, certain of these provisions may discourage a future acquisition of the Company, including an acquisition in which the stockholders might otherwise receive a premium for their shares.

As a result, stockholders who might desire to participate in such a transaction may not have the opportunity to do so.

If we are unable to protect our information systems against service interruption, misappropriation of data, cyber-attacks or other breaches of security, our operations could be disrupted, our reputation may be damaged, and we may be financially liable for damages.

We rely heavily on information systems, including a full range of retail, financial, sourcing and merchandising systems, to manage our operations.

We regularly make investments to upgrade, enhance or replace these systems, as well as leverage new technologies to support our growth strategies.

In addition, we have implemented enterprise-wide initiatives that are intended to standardize business processes and optimize performance.

The reliability and capacity of our information systems are critical.

Any disruptions affecting our information systems could have a material adverse impact on our business.

While we have implemented measures to prevent security breaches and cyber incidents, our preventative measures and incident response efforts may not be entirely effective.

As a result, we may not be able to immediately detect any security breaches, which may increase the losses that we would suffer.

Further, remote working arrangements increase the risk of cybersecurity attacks and data breaches, particularly through phishing attempts, as our employees and third parties with whom we interact leverage our IT infrastructure in previously unanticipated ways.

Our reliance on information systems and other technology also gives rise to cybersecurity risks, including security breach, espionage, system disruption, theft and inadvertent release of information.

The occurrence of any of these events could compromise our networks, and the information stored there could be accessed, publicly disclosed, lost or stolen.

operations, and damage our reputation, which could adversely affect our business.

In addition, as security threats continue to evolve, we may need to invest additional resources to protect the security of our systems.

We are subject to laws and regulations relating to data privacy, data protection, and other related matters, which are subject to change, and our failure to comply could negatively affect our business and reputation.

We are subject to a variety of laws and regulations with respect to data privacy, data protection and other related matters, including the California Consumer Privacy Act, as amended by the California Privacy Rights Act, and the European Union General Data Protection Regulation.

These laws and the regulations associated therewith have evolved significantly in recent years, and future laws and regulations in other jurisdictions in which our business operates may be enacted.

In addition, the application and interpretation of these laws and regulations are often unpredictable and uncertain.

Compliance with existing and emerging data privacy laws, regulations and industry standards could result in increased compliance costs and/or lead to changes in our business practices and policies, and any failure to abide by these laws, regulations and industry standards could adversely affect our reputation, lead to public enforcement actions or private litigation against us, require additional investment in resources or personnel, and reduce the availability of previously useful data, any of which could materially and adversely affect our business, operating results and financial condition

We have been party to stockholder litigation, and in the future could be party to additional stockholder litigation, which could harm our business, financial condition and operating results.

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Our business could be adversely affected by significant movements in foreign currency exchange rates.

We are exposed to fluctuations in foreign currency transaction exchange rates, particularly with respect to the Euro and British Pound.

We are exposed to fluctuations in foreign currency transaction exchange rates, particularly with respect to the Euro and the British Pound.

Any significant change in the value of currencies of the countries in which we do business relative to the value of the U.S.

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unanticipated costs;

diversion of management’s attention from existing operations;

risks of entering markets in which we have limited or no prior experience;

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and potential loss of key employees from either our existing business or the acquired organization.

Acquisitions may result in accounting charges for restructuring and other expenses, amortization of purchased technology and intangible assets and stock-based compensation expense, any of which could materially and

adversely affect our operating results.

We may not be able to realize the anticipated synergies, innovation, operational efficiencies, benefits of or successfully integrate with our existing business the businesses, products, technologies or personnel that we acquire, and our failure to do so could harm our business and operating results.

We may not be able to realize the anticipated synergies, innovation, operational efficiencies, and benefits of the acquisition or successfully integrate with our existing business the businesses, products, technologies or personnel that we acquire, and our failure to do so could harm our business and operating results.

Our products may be subject to warranty claims, product liability and product recalls.

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Changes in laws or regulations or the manner of their interpretation or enforcement could adversely impact our financial performance and restrict our ability to operate our business or execute our strategies.

New laws or regulations, changes in existing laws or regulations or the manner of their interpretation or enforcement, may create uncertainty for public companies, increase our cost of doing business and restrict our ability to operate our business or execute our strategies.

This could include, among other things, compliance costs and enforcement under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

We continually evaluate and monitor developments with respect to new and proposed laws, regulations, standards and rules and cannot predict or estimate the amount of the additional costs we may incur or the timing of such costs.

Any such new or changed laws, regulations, standards and rules may be subject to varying interpretations and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies.

We are subject to numerous domestic and foreign laws and regulations, including those related to customs, securities, consumer protection, data privacy, general employment and employee health and safety.

New laws or regulations, changes in existing laws or regulations or the manner of their interpretation or enforcement, may create uncertainty, increase our cost of doing business and restrict our ability to operate our business or execute our strategies.

This could include, among other things, compliance costs and enforcement under the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act related to disclosure and reporting requirements for companies that use “conflict”

minerals originating from the Democratic Republic of Congo or adjoining countries.

Additionally, the California Consumer Privacy Act and EU General Data Protection Regulation have significantly affected how we are able to market our products.

The SEC has also enacted or proposed significant changes to its regulations in recent years that impact our operations associated with being a public company.

This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

We are committed to maintaining high standards of corporate governance and public disclosure.

If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and we may be harmed.

If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory authorities or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and we may be harmed.

We are subject to various environmental laws and regulations that could impose substantial costs on us and may adversely affect our business, operating results and financial condition.

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Investor advocacy groups, institutional investors, investment funds, proxy advisory services, stockholders, and customers are increasingly focused on the ESG goals and practices of companies.

We are frequently asked by investors and other stakeholders to set ambitious ESG goals and provide new and more robust disclosure of ESG goals, progress toward ESG goals and other matters of interest to ESG stakeholders.

We are moving towards setting ESG goals and enhancing related disclosure of goals, progress, and other matters relating to ESG.

We are frequently asked by these groups to set ambitious ESG goals and provide new and more robust disclosure of ESG goals, progress toward ESG goals and other matters of interest to ESG stakeholders.

We have set ESG goals and are enhancing related disclosure of goals, progress, and other matters relating to ESG.

Our efforts to accomplish and accurately disclose ESG-related goals and objectives present numerous operational, reputational, financial, legal, and other risks, any of which could have a negative impact on our business, reputation, and stock price.

Our ability to set and achieve ESG goals and initiatives is subject to numerous risks including, among others:

(1) the availability and cost of limiting or eliminating our use of carbon-based energy sources and technologies, (2) evolving regulatory requirements affecting ESG standards or disclosures, (3) our ability to partner with providers that can meet our sustainability, diversity, and other standards, (4) our ability to recruit, develop, and retain diverse talent, (5) the impact of our organic growth and acquisitions or dispositions of businesses or operations on our ESG goals, and (6) customers’

(1) the availability and cost of limiting, eliminating or tracking our use of carbon-based energy sources and technologies, (2) evolving regulatory requirements affecting ESG standards or disclosures, including those related to greenhouse gas emissions tracking and disclosure, (3) our ability to partner with providers that can meet our sustainability, diversity, and other standards, (4) our ability to recruit, develop, and retain diverse talent, (5) the impact of our organic growth and acquisitions or dispositions of businesses or operations on our ESG goals, and (6) customers’

actual demand for ESG-oriented product offerings, which may be more expensive and less available than other options.

The standards for tracking and reporting on ESG matters are relatively new, have not been harmonized and continue to evolve.

Our selection of disclosure frameworks that seek to align with various reporting standards may change from time to time and may result in a lack of consistent or meaningful comparative data from period to period.

Standards for tracking and reporting on ESG matters are relatively new, have not been harmonized and continue to be promulgated and evolve.

Our selection of disclosure frameworks that seek to align with various reporting standards may change from time to time, including in response to new disclosure requirements, and may result in a lack of consistent or meaningful comparative data from period to period.

In addition, our processes and controls may not always comply with evolving standards for identifying, measuring and reporting ESG metrics, our interpretation of reporting standards may differ from those of others and such standards may change over time, any of which could result in significant revisions to our ESG goals or reported progress in achieving such goals.

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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 2. Management’s Discussion and Analysis