What changed in this filing

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Item 1. Financial Statements

2024-05-07 compared with 2023-11-07 · 189 added, 191 removed, 320 unchanged (54% of the section changed)

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(in thousands, except per-share data)

4 unchanged sentences

General and administrative

Acquisition-related cost

Total operating expenses

3 unchanged sentences

Loss before income tax

Income tax expense (benefit)

Net loss per share

Income tax benefit

Net income (loss)

Net income (loss) per share

Weighted average number of shares:

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Net income (loss)

Other comprehensive income (loss):

5 unchanged sentences

Condensed Consolida ted Balance Sheets

September 30,

(in thousands, except par value and share amounts)

6 unchanged sentences

Intangible assets, net

LIABILITIES AND STOCKHOLDERS’

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

3 unchanged sentences

Total Current Liabilities

Debt, non-current

Income tax payable

2 unchanged sentences

Commitments and Contingencies

Stockholders’

Stockholders’ Equity

Common stock, $ 0.001 par value - 25,000,000 shares authorized;

17,404,013 and 16,569,173 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

21,167,504 and 17,531,702 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively

Additional paid-in capital

1 unchanged sentence

Accumulated other comprehensive income (loss)

Total Stockholders’

Total Liabilities and Stockholders’

Total Stockholders’ Equity

Total Liabilities and Stockholders’ Equity

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

1 unchanged sentence

Condensed Consolidated S tatements of Cash Flows

Nine Months Ended

September 30, 2023

September 30, 2022

Three Months Ended

March 31, 2024

March 31, 2023

(in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:

12 unchanged sentences

Other liabilities

Net cash provided by (used for) operating activities

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property and equipment

Acquisition of a business, net of cash acquired

Net cash used for investing activities

2 unchanged sentences

Repayment of revolving credit facilities

Proceeds of term loan

Repayment of term loan

Proceeds from exercise of stock options and warrants

Repurchase of common stock

Debt issuance costs

9 unchanged sentences

Turtle Beach Corporation

Condensed Consolidated Statement o f Stockholders ’

Condensed Consolidated Statement o f Stockholders ’ Equity

Comprehensive

2 unchanged sentences

Balance at December 31, 2023

Other comprehensive income, net of tax

Issuance of restricted stock

Stock options exercised

Stock-based compensation

Balance at March 31, 2023

Other comprehensive loss, net of tax

Issuance of restricted stock

Stock options exercised

Stock-based compensation

Repurchase of common stock

Balance at June 30, 2023

Other comprehensive loss, net of tax

Issuance of acquisition-related stock

Issuance of restricted stock

1 unchanged sentence

Stock-based compensation

Balance at September 30, 2023

Balance at March 31, 2024

Comprehensive

2 unchanged sentences

Balance at December 31, 2022

Other comprehensive loss, net of tax

Issuance of restricted stock

Stock options exercised

Stock-based compensation

Balance at March 31, 2022

Other comprehensive income, net of tax

2 unchanged sentences

Stock-based compensation

Balance at June 30, 2022

Other comprehensive loss, net of tax

Issuance of restricted stock

Stock options exercised

Stock-based compensation

Balance at September 30, 2022

Balance at March 31, 2023

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

2 unchanged sentences

Background and Basis of Presentation

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® and ROCCAT® brands.

Turtle Beach is a worldwide leader of feature-rich headset solutions for use across multiple platforms, including video game and entertainment consoles, handheld consoles, personal computers (“PC”), tablets and mobile devices.

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®, PDP® and ROCCAT® brands.

ROCCAT is a gaming keyboards, mice and other accessories brand focused on the PC peripherals market.

Acquired in March 2024, Performance Designed Products, LLC (“PDP”) is a gaming accessories leader that designs and distributes video game accessories, including controllers, headsets, power supplies, cases, and other accessories.

VTB Holdings, Inc.

(“VTBH”), a wholly-owned subsidiary of Turtle Beach Corporation and the owner of Voyetra Turtle Beach, Inc.

(“VTB”), was incorporated in the state of Delaware in 2010.

VTB, the owner of Turtle Beach Europe Limited (“TB Europe”), was incorporated in the state of Delaware in 1975 with operations principally located in White Plains, New York.

(“VTBH”), a wholly-owned subsidiary of Turtle Beach Corporation and the owner of Voyetra Turtle Beach, Inc.

(“VTB”), was incorporated in the state of Delaware in 2010.

VTB, the owner of Turtle Beach Europe Limited (“TB Europe”), was incorporated in the state of Delaware in 1975 with operations principally located in White Plains, New York.

Basis of Presentation

The accompanying interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, reflect all adjustments (which include normal recurring adjustments) considered necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented.

All intercompany accounts and transactions have been eliminated in consolidation.

Certain information and footnote disclosures, normally included in annual financial statements prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”), have been condensed or omitted pursuant to those rules and regulations.

The Company believes that the disclosures made are adequate to make the information presented not misleading.

The results of operations for the interim periods are not necessarily indicative of the results of operations for the entire fiscal year.

The December 31, 2022 Condensed Consolidated Balance Sheet has been derived from the Company’s audited financial statements included in its Annual Report on Form 10-K filed with the SEC on March 29, 2023 (“Annual Report”).

These financial statements should be read in conjunction with the annual financial statements and the notes thereto included in the Annual Report that contains information useful to understanding the Company’s businesses and financial statement presentations.

The December 31, 2023 Condensed Consolidated Balance Sheet has been derived from the Company’s audited financial statements included in its Annual Report on Form 10-K filed with the SEC on March 13, 2024 (“Annual Report”).

Use of estimates :

The preparation of accompanying unaudited consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions about future events.

These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and reported amounts of revenues and expenses during the reporting period.

These estimates may change, as new events occur and additional information is obtained, and will be recognized in the consolidated financial statements in the period in which such changes occur.

Future actual results could differ materially from these estimates.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to use estimates and assumptions that affect the reported amount of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period.

The significant estimates and assumptions used by management affect:

sales return reserve, allowances for cash discounts, warranty reserve, valuation of inventory, valuation of long-lived assets, goodwill and other intangible assets, depreciation and amortization of long-lived assets, valuation of deferred tax assets, probability of performance shares vesting and forfeiture rates utilized in issuing stock-based compensation awards.

The Company evaluates estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate.

As future events and their effects cannot be determined with precision, actual results could differ from these estimates, and those differences could be material to the consolidated financial statements.

Summary of Significant Accounting Policies

The preparation of consolidated annual and quarterly financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the Company’s consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods.

The Company can give no assurance that actual results will not differ from those estimates.

There have been no material changes to the significant accounting policies and estimates from the information provided in Note 1 of the notes to our consolidated financial statements in our Annual Report.

On March 13, 2024, the Company acquired all the issued and outstanding equity of Performance Designed Products, LLC (“PDP”, collectively with FSAR, “PDP Group”) for consideration that included cash and common stock.

PDP was a privately held gaming accessories leader that designs and distributes video game accessories, including controllers, headsets, power supplies, cases, and other accessories.

As a result of the acquisition, the Company will strengthen its leadership position in hardware gaming accessories and expand its product portfolio.

Consideration for the Transaction consisted of the issuance of 3.45 million shares of Company common stock and approximately $ 78.9 million in cash, subject to customary post-closing adjustments for working capital, closing cash, closing debt and closing third party expenses.

On a fully-diluted basis, issued stock represented approximately 16.4 % of the total issued and outstanding shares of the Company as of the closing date.

The fair value of the 3.45 million common shares issued as part of the consideration was determined on the basis of the closing market price of the Company’s common shares on the acquisition date, or $ 11.03 per share.

As a result, the total preliminary purchase consideration was $ 116.9 million, partially funded by borrowing on the new term loan facility (see Note 8).

Additionally, the Company recognized $ 4.9 million of acquisition-related costs that were expensed during the three months ended March 31, 2024, and are included as a component of general & administrative expenses in the Condensed Consolidated Statement of Operations.

The following table summarizes preliminary allocation of the consideration transferred to the assets acquired and liabilities assumed at the acquisition date:

(In thousands)

Accounts Receivable

Prepaid and Other Current Assets

Property, Plant & Equipment

Intangible Assets

Accounts Payable

Accrued Liabilities

Lease Payable

Deferred Tax Liability

Total identifiable net assets

Total consideration paid

The fair values assigned to PDP’s assets and liabilities are provisional and were determined based on preliminary estimates and assumptions that management believes are reasonable.

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

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

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

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

Such forecasts are based on inputs that are unobservable and significant to the overall fair value measurement, and as such, are classified as Level 3 inputs (see Note 4).

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

the amount and timing of projected future cash flows, the discount rate selected to measure the risks inherent in the future cash flows, the

assessment of the intangible asset’s life cycle, as well as other factors.

The following table summarizes the preliminary allocation of purchase consideration to identifiable intangible assets:

(In thousands)

Customer relationships

Developed technology

PDP's net revenue included in the Company’s consolidated results was $ 5.9 million for the three months ended March 31, 2024.

PDP’s net income included in the Company’s consolidated results for the same period was not material.

Pro Forma Financial Information (Unaudited)

The following table reflects the unaudited pro forma operating results of the Company for the three months ended March 31, 2024 and 2023, which give effect to the acquisition of PDP as if it had occurred on January 1, 2023.

Three Months Ended

(in thousands)

Net income (loss)

The pro forma results are based on assumptions that the Company believes are reasonable under the circumstances.

The pro forma results are not necessarily indicative of the operating results that would have occurred had the acquisition been effective January 1, 2023, nor are they intended to be indicative of results that may occur in the future.

Fair Value Measurement

2 unchanged sentences

The three levels of inputs used to measure fair value are as follows:

Level 1 —

Quoted prices in active markets for identical assets or liabilities.

Level 2 —

Observable inputs other than quoted prices included in Level 1, such as quoted prices for markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 —

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

• Level 1 — Quoted prices in active markets for identical assets or liabilities.

• Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

• Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

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

As of September 30, 2023 and December 31, 2022 , the Company had not elected the fair value option for any financial assets and liabilities for which such an election would have been permitted.

The following is a summary of the carrying amounts and estimated fair values of our financial instruments as of September 30, 2023 and December 31, 2022:

September 30, 2023

As of March 31, 2024 and December 31, 2023 , the Company had not elected the fair value option for any financial assets and liabilities for which such an election would have been permitted.

The following is a summary of the carrying amounts and estimated fair values of our financial instruments as of March 31, 2024 and December 31, 2023:

March 31, 2024

December 31, 2023

5 unchanged sentences

and accounts receivable and accounts payable are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment.

The carrying value of the Credit Facility approximates fair value, due to the variable rate nature of the debt, as of September 30, 2023 and December 31, 2022 .

The carrying value of the Credit Facility and Term Loan Due 2027 equals fair value as the stated interest rate approximates market rates currently available to the Company.

The carrying value of the Credit Facility approximates fair value, due to the variable rate nature of the debt, as of March 31, 2024 and December 31, 2023 .

Allowance for Sales Returns

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

5 unchanged sentences

Inventories consist of the following:

September 30,

(in thousands)

4 unchanged sentences

Property and equipment, net, consists of the following:

September 30,

(in thousands)

9 unchanged sentences

Other current liabilities consist of the following:

September 30,

(in thousands)

Accrued employee expenses

Accrued tax-related payables

Accrued marketing

Accrued royalty

Accrued tax-related payables

Accrued freight

Accrued marketing

Accrued expenses

2 unchanged sentences

Acquired Intangible Assets

Acquired identifiable intangible assets, and related accumulated amortization, as of September 30, 2023 and December 31, 2022 consisted of:

September 30, 2023

Acquired identifiable intangible assets, and related accumulated amortization, as of March 31, 2024 and December 31, 2023 consisted of:

March 31, 2024

(in thousands)

9 unchanged sentences

Total Intangible Assets (1)

In connection with the October 2012 acquisition of TB Europe, the acquired intangible assets related to customer relationships is being amortized over an estimated useful life of thirteen years with the amortization being included within sales and marketing expense.

(1) The accumulated amortization includes $ 1.9 million of accumulated impairment charges as of March 31, 2024 and December 31, 2023.

In May 2019, the Company completed its acquisition of the business and assets of ROCCAT.

The acquired intangible assets relating to developed technology, customer relationships, and trade name are subject to amortization.

During the fourth quarter of 2022, the Company made the decision to increasingly leverage the Turtle Beach brand across our product portfolio including PC products over time.

Due to this decision, the Company prepared an impairment calculation to determine the present value of the ROCCAT tradename asset using the relief from royalty method.

As a result of the present value calculation, in the fourth quarter 2022, the Company recorded an impairment charge of $ 0.8 million for the ROCCAT tradename intangible asset.

In January 2021, the Company completed its acquisition of the business and assets relating to the Neat Microphones business.

During the fourth quarter of 2022, as part of the 2023 annual operating and strategic plan process, the Company made the decision to transition microphone products to the Turtle Beach brand.

As a result of this decision, there was no longer a basis for carrying the remaining net intangible assets related to the Neat brand.

In the fourth quarter 2022, the Company recorded an impairment charge of $ 1.1 million related to the remaining Neat net intangible assets.

Amortization expense related to definite lived intangible assets of $ 0.2 million and $ 0.8 million was recognized for the three and nine months ended September 30, 2023, respectively, and $ 0.3 million and $ 0.9 million was recognized for the three and nine months ended September 30, 2022.

As of September 30, 2023, estimated annual amortization expense related to definite lived intangible assets in future periods was as follows:

The acquired intangible assets relating to developed technology, customer relationships, and trade name are subject to amortization.

In March 2024, the Company completed its acquisition of the business and assets of PDP.

The acquired intangible assets relating to developed technology, customer relationships, and trade name are subject to amortization.

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

Amortization expense related to definite lived intangible assets of $ 0.6 million was recognized for the three months ended March 31, 2024, respectively, and $ 0.3 million was recognized for the three months ended March 31, 2023.

As of March 31, 2024, estimated annual amortization expense related to definite lived intangible assets in future periods was as follows:

(in thousands)

There were no changes in the carrying values of goodwill for the nine months ended September 30, 2023 from the balance as of December 31, 2022 .

Changes in the carrying values of goodwill for the three months ended March 31, 2024 from the balance as of December 31, 2023.

(in thousands)

Balance as of January 1, 2024

PDP acquisition

Balance as of March 31, 2024

Revolving Credit Facility and Long-Term Debt

September 30,

(in thousands)

Revolving credit facility, maturing April 2025

Total interest expense, inclusive of amortization of deferred financing costs, on long-term debt obligations was $ 0.1 million and $ 0.4 million for the three and nine months ended September 30, 2023, respectively, and $ 0.5 million and $ 0.6 million for the three and nine months ended September 30, 2022, respectively.

Amortization of deferred financing costs was $ 33 thousand and $ 0.1 million for the three and nine months ended September 30, 2023, respectively, and $ 48 thousand and $ 0.1 million for the three and nine months ended September 30, 2022, respectively.

Revolving credit facility, maturing March 2027

Term loan Due 2027

Total interest expense, inclusive of amortization of deferred financing costs, on long-term debt obligations was $ 0.4 million for the three months ended March 31, 2024 and $ 0.2 million for the three months ended March 31, 2023.

Amortization of deferred financing costs was $ 0.1 million for the three months ended March 31, 2024 and $ 42 thousand for the three months ended March 31, 2023.

Revolving Credit Facility

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.

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 Credit Facility, as amended, expires on March 13, 2027 and provides for a line of credit of up to $ 50 million inclusive of a sub-facility limit of $ 10 million for TB Europe, a wholly-owned subsidiary of Turtle Beach.

On March 13, 2024, the Company entered into a Fourth Amendment, dated as of March 13, 2024 (the “Fourth 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 Fourth Amendment provided for, among other things:

(i) the acquisition of PDP;

(ii) revised the calculation of the U.S.

Borrowing Base to include certain acquired assets of PDP equal to the lesser of (a) the sum of the Project Tide Accounts Formula Amount and the Project Tide Inventory Formula Amount (each as defined in the Fourth Amendment), (b) $ 15,000,000 , and (c) 30 % of the aggregate Revolver Commitments;

(iii) extending the maturity date of the Credit Facility from April 1, 2025 to March 13, 2027 ;

and (iv) updated the interest rate and margin terms such that the loans will bear interest at a rate equal to (1) SOFR, (2) the U.S.

Base Rate, (3) the Sterling Overnight Index Average Reference Rate (“SONIA”) for loans denominated in Sterling, and (4) the Euro Interbank Offered Rate (“EUIBOR”) for loans denominated in Euros, plus in each case, an applicable margin, which is between 0.50 % and 2.50 % for Base Rate Loans and 1.75 % and 3.50 % for Term SOFR Loans, SONIA Rate Loans and EUIBOR Loans.

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.

1 unchanged sentence

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.

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

BSBY rate loans, U.S.

1 unchanged sentence

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, 2023, interest rates for outstanding borrowings were 11.00 % for base rate loans and 8.90 % for LIBOR rate loans, which reference interest rates were still in effect prior to the Libor Transition Amendments.

As of March 31, 2024, interest rates for outstanding borrowings were 9.00 % for base rate loans and 8.90 % 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.

The Credit Facility also contains affirmative and negative covenants that, subject to certain exceptions, limit our ability to take certain actions, including the Company’s ability to incur debt, pay dividends and repurchase stock, make certain investments and other payments, enter into certain mergers and consolidations, engage in sale leaseback transactions and transactions with affiliates, and encumber and dispose of assets.

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, 2023, the Company was in compliance with all financial covenants under the Credit Facility, as amended, and excess borrowing availability was approximately $ 49.5 million.

In order to determine the quarterly provision for income taxes, the Company uses an estimated annual effective tax rate, which is based on expected annual income and statutory tax rates in the various jurisdictions.

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

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

As of March 31, 2024, the Company was in compliance with all financial covenants under the Credit Facility, as amended, and excess borrowing availability was approximately $ 43.8 million.

On March 13, 2024, Turtle Beach and certain of its subsidiaries entered into a new financing agreement with Blue Torch Finance, LLC, (“Blue Torch”), pursuant to which Blue Torch for an aggregate amount of $ 50 million (the “Term Loan Facility”), the proceeds of which were used to (i) fund a portion of the PDP acquisition purchase price;

(ii) repay certain existing indebtedness of the acquired business;

(iii) to pay fees and expenses related to such transactions and (iv) for general corporate purposes.

The Term Loan Facility will amortize in a monthly amount equal to 0.208333 % during the first two years and 0.416667 % during the third year and may be prepaid at any time subject to a prepayment premium during the first year of the interest payments payable during the first year plus 3.00 %.

The Term Loan Facility is secured by substantially all of the assets of the Company and its subsidiaries which are party to the Term Loan Facility.

The Term Loan Facility (a) matures on March 13, 2027 ;

(b) bears interest at a rate equal to (i) a base rate plus 7.25 % per annum for Reference Rate Loans and Secured Overnight Financing Rate (“SOFR”) plus 8.25 % per annum for SOFR Loans if the total net leverage ratio is greater than or equal to 2.25 x and (ii) a base rate plus 6.75 % per annum for Reference Rate Loans and SOFR plus 7.75 % per annum for SOFR Loans if the total net leverage ratio is less than 2.25 x;

and (c) is subject to certain affirmative, negative and financial covenants, including a minimum liquidity covenant and a quarterly total net leverage ratio covenant.

As of March 31, 2024 , the Company was in compliance with all financial covenants under the Term Loan.

Generally, in order to determine the quarterly provision for income taxes, the Company uses an estimated annual effective tax rate, which is based on expected annual income and statutory tax rates in the various jurisdictions.

However, to the extent that application of the estimated annual effective tax rate is not representative of the quarterly portion of actual tax expense expected to be recorded for the year in a jurisdiction, the Company determines the provision for income taxes based on actual year-to-date income (loss) which it has done for certain jurisdictions for the quarter ended March 31, 2024.

Certain significant or unusual items are separately recognized as discrete items in the period during which they occur and can be a source of variability in the effective tax rates from quarter to quarter.

The following table presents the Company’s income tax expense and effective income tax rate:

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Income tax expense (benefit)

Income tax benefit

Effective income tax rate

The effective tax rate for the three and nine months ended September 30, 2023 was primarily impacted by the change in U.S.

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

The effective tax rate for the three months ended March 31, 2024 was primarily impacted by the change in U.S.

valuation allowance related to the acquisition of PDP, foreign taxes, state tax and interest on uncertain tax positions.

The Company recognizes only those tax positions that meet the more-likely-than-not recognition threshold and establishes tax reserves for uncertain tax positions that do not meet this threshold.

Interest and penalties associated with income tax matters are included in the provision for income taxes in the condensed consolidated statements of operations.

As of September 30, 2023, the Company had uncertain tax positions of $ 2.9 million , inclusive of $ 0.9 million of interest and penalties.

As of March 31, 2024, the Company had uncertain tax positions of $ 2.8 million , inclusive of $ 0.6 million of interest and penalties.

As required by the authoritative guidance on accounting for income taxes, the Company evaluates the realizability of deferred tax assets on a jurisdictional basis at each reporting date.

4 unchanged sentences

deferred tax assets as of December 31, 2022.

The Company’s continues to maintain this valuation allowance for the three and nine months ended September 30, 2023.

While the Company continues to maintain this valuation allowance for the three months ended March 31, 2024 , it did release $ 6.7 million of valuation allowance for PDP acquired net deferred tax liabilities.

The Company is subject to income taxes domestically and in various foreign jurisdictions.

2 unchanged sentences

Stock-Based Compensation

Total estimated stock-based compensation expense for employees and non-employees, related to all of the Company’s stock-based awards, was as follows:

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

4 unchanged sentences

Total stock-based compensation

On May 1, 2023, the Company announced that the Company and Juergen Stark, Chairman, Chief Executive Officer and President of the Company, have agreed that Mr.

Stark would not continue as Chief Executive Officer and President of the Company, with his employment to terminate effective as of the close of business on June 30, 2023.

On May 2, 2023, the Company entered into a separation agreement with Mr.

Stark, resulting in an acceleration of the total stock-based compensation associated with equity awards granted to him.

During the nine months ended September 30, 2023 , the Company recorded a total of $ 4.0 million in stock-based compensation expenses and related payroll that would not have been recognized if Mr.

Stark had not announced his retirement.

The following table presents the stock activity and the total number of shares available for grant as of September 30, 2023:

The following table presents the stock activity and the total number of shares available for grant as of March 31, 2024:

(in thousands)

Balance at December 31, 2023

Plan Amendment

Options Cancelled

Restricted Stock Granted

Restricted Stock Forfeited

Performance Shares Unearned

Performance Shares Granted

Balance at September 30, 2023

On July 6, 2023, the Company’s stockholders approved an amendment to the plan to, among other things, (i) change the name to Turtle Beach Corporation 2023 Stock-Based Incentive Compensation Plan, and (ii) increase the number of shares of the Company’s common stock, par value $ 0.001 per share, authorized for issuance by 1,049,000 .

Balance at March 31, 2024

Stock Option Activity

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Options Forfeited

Outstanding at September 30, 2023

Vested and expected to vest at September 30, 2023

Exercisable at September 30, 2023

Outstanding at March 31, 2024

Vested and expected to vest at March 31, 2024

Exercisable at March 31, 2024

Stock options are time-based and the majority are exercisable within 10 years of the date of grant, but only to the extent they have vested.

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Aggregate intrinsic value represents the difference between the estimated fair value of the underlying common stock and the exercise price of outstanding, in-the-money options.

The aggregate intrinsic value of options exercised was $ 2.8 million for the nine months ended September 30, 2023.

The aggregate intrinsic value of options exercised was $ 1.2 million for the three months ended March 31, 2024.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of options granted as of the grant date.

There were no new options granted during the nine months ended September 30, 2023.

The total estimated fair value of employee options vested during the nine months ended September 30, 2023 was $ 0.8 million .

As of September 30, 2023, total unrecognized compensation cost related to non-vested stock options granted to employees was $ 0.4 million , which is expected to be recognized over a remaining weighted average vesting period of 0.6 years.

There were no new options granted during the three months ended March 31, 2024.

The total estimated fair value of employee options vested during the three months ended March 31, 2024 was $ 1.1 million .

As of March 31, 2024, total unrecognized compensation cost related to non-vested stock options granted to employees was $ 0.1 million , which is expected to be recognized over a remaining weighted average vesting period of 0.3 years.

Restricted Stock Activity

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Shares forfeited

Nonvested restricted stock at September 30, 2023

As of September 30, 2023, total unrecognized compensation costs related to the nonvested restricted stock awards was $ 9.6 million , which will be recognized over a remaining weighted average vesting period of 2.5 years.

Nonvested restricted stock at March 31, 2024

As of March 31, 2024, total unrecognized compensation costs related to the nonvested restricted stock awards was $ 7.0 million , which will be recognized over a remaining weighted average vesting period of 3.4 years.

Performance-Based Restricted Share Units

As of September 30, 2023 , the Company had 162,672 performance-based restricted share units outstanding.

As of March 31, 2024 , the Company had 162,672 performance-based restricted share units outstanding.

The vesting of performance-based restricted share units is determined over a three-year period based on (i) the amount by which revenue growth exceeds a defined baseline market growth each year and (ii) the achievement of specified tiers of adjusted EBITDA as a percentage of net revenue each year, with the ability to earn and vest into such units ranging from 0 % to 200 %.

As of September 30, 2023 , achievement of the performance conditions associated with the 2023, 2022 and 2021 performance shares was deemed not probable.

Net Loss Per Share

The following table sets forth the computation of basic and diluted net loss per share of common stock attributable to common stockholders:

As of March 31, 2024 , achievement of the performance conditions associated with the 2023, 2022 and 2021 performance shares was deemed not probable.

Net Income (Loss) Per Share

The following table sets forth the computation of basic and diluted net income (loss) per share of common stock attributable to common stockholders:

Three Months Ended

Nine Months Ended

September 30,

(in thousands, except per-share data)

Weighted average common shares outstanding —

Net income (loss)

Weighted average common shares outstanding — Basic

Plus incremental shares from assumed conversions:

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Dilutive effect of warrants

Weighted average common shares outstanding —

Net loss per share:

Weighted average common shares outstanding — Diluted

Net income (loss) per share:

Incremental shares from stock options and restricted stock awards are computed using the treasury stock method.

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Three Months Ended

Nine Months Ended

September 30,

(in thousands)

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Three Months Ended

Nine Months Ended

September 30,

(in thousands)

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The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business.

Although the amount of any liability that could arise with respect to these actions cannot be determined with certainty, in the Company’s opinion, any such liability will not have a material adverse effect on its consolidated financial position, consolidated results of operations or liquidity.

Shareholders Class Action :

On August 5, 2013, VTB Holdings, Inc.

(“VTBH”) and the Company (f/k/a Parametric Sound Corporation) announced that they had entered into the Merger Agreement pursuant to which VTBH would acquire an approximately 80 % ownership interest and existing shareholders would maintain an approximately 20 % ownership interest in the combined company (the “Merger”).

Following the announcement, several shareholders filed class action lawsuits in California and Nevada seeking to enjoin the Merger.

The plaintiffs in each case alleged that members of the Company’s Board of Directors breached their fiduciary duties to the shareholders by agreeing to a merger that allegedly undervalued the Company.

VTBH and the Company were named as defendants in these lawsuits under the theory that they had aided and abetted the Company’s Board of Directors in allegedly violating their fiduciary duties.

The plaintiffs in both cases sought a preliminary injunction seeking to enjoin closing of the Merger, which, by agreement, was heard by the Nevada court with the California plaintiffs invited to participate.

On December 26, 2013, the court in the Nevada case denied the plaintiffs’

motion for a preliminary injunction.

On December 26, 2013, the court in the Nevada case denied the plaintiffs’ motion for a preliminary injunction.

Following the closing of the Merger, the Nevada plaintiffs filed a second amended complaint, which made essentially the same allegations and sought monetary damages as well as an order rescinding the Merger.

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On June 20, 2014, VTBH and the Company moved to dismiss the action, but that motion was denied on August 28, 2014.

On September 14, 2017, a unanimous en banc panel of the Nevada Supreme Court granted defendants’

petition for writ of mandamus and ordered the trial court to dismiss the complaint but provided a limited basis upon which plaintiffs could seek to amend their complaint.

Plaintiffs amended their complaint on December 1, 2017 to assert the same claims in a derivative capacity on behalf of the Company, as a well as in a direct capacity, against VTBH, Stripes Group, LLC, SG VTB Holdings, LLC, and the former members of the Company’s Board of Directors.

On September 14, 2017, a unanimous en banc panel of the Nevada Supreme Court granted defendants’ petition for writ of mandamus and ordered the trial court to dismiss the complaint but provided a limited basis upon which plaintiffs could seek to amend their complaint.

All defendants moved to dismiss this amended complaint on January 2, 2018, and those motions were denied on March 13, 2018.

Defendants petitioned the Nevada Supreme Court to reverse this ruling on April 18, 2018.

On June 15, 2018, the Nevada Supreme Court denied defendants’

writ petition without prejudice.

On June 15, 2018, the Nevada Supreme Court denied defendants’ writ petition without prejudice.

The district court subsequently entered a pretrial schedule and set trial for November 2019.

On January 18, 2019, the district court certified a class of shareholders of the Company as of January 15, 2014.

On October 11, 2019, the parties notified the district court that they had reached a settlement that would resolve the pending action if ultimately approved by the Court.

On October 11, 2019, the parties notified the district court that they had reached a

settlement that would resolve the pending action if ultimately approved by the Court.

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

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

On May 22, 2020, PAMTP LLC, which purports to hold the claims of eight shareholders who opted out of the class settlement described above, brought suit against the Company, the Company’s former CEO, Juergen Stark, Stripes Group, LLC, SG VTB Holdings, LLC, Kenneth Fox, and former members of the Company’s Board of Directors in Nevada state court.

On May 22, 2020, PAMTP LLC, which purports to hold the claims of eight shareholders who opted out of the class settlement described above, brought suit against the Company, the Company’s former Chief Executive Officer, Juergen Stark, Stripes Group, LLC, SG VTB Holdings, LLC, Kenneth Fox, and former members of the Company’s Board of Directors in Nevada state court.

This opt-out action asserts the same direct claims that were asserted by the class of shareholders described above.

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The complaint alleges claims including wrongful termination, retaliation and various other provisions of the California Labor Code.

The complaint seeks unspecified economic and non-economic losses, as well as allegedly unpaid wages, unreimbursed business expenses statutory penalties, interest, punitive damages and attorneys’

The complaint seeks unspecified economic and non-economic losses, as well as allegedly unpaid wages, unreimbursed business expenses statutory penalties, interest, punitive damages and attorneys’ fees.

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

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On December 20, 2021, the former employee filed a notice of appeal of the judgment.

On November 14, 2023, the court of appeal issued its opinion affirming the judgment in favor of the Company.

On the Company’s cross-complaint, the court of appeal directed the Company to elect either punitive or statutory treble damages, but otherwise affirmed.

On March 8, 2024, the Superior Court entered an amended judgment in favor of the Company and awarding the Company monetary damages, injunctive relief, attorneys’ fees and costs.

Insolvency Dispute in Germany:

On February 15, 2024, TBC Holding Company LLC (“TBCH”), a wholly-owned subsidiary of Turtle Beach Corporation, was served with a lawsuit that was brought to the German Higher Regional Court in Stade by the insolvency administrator of KJE Europe GmbH, a company registered and existing under the laws of Germany.

In his complaint, the insolvency administrator claims that TBCH is liable to reimburse any payments received by the TBCH under a certain settlement agreement with KJE Europe GmbH dated June 30, 2020.

TBCH will file its statement of defense to the complaint on April 30, 2024.

TBCH does not believe the claims have merit and intends to defend itself in this proceeding.

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

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

The Company has not recorded any accrual at September 30, 2023 for contingent losses associated with these matters based on its belief that losses, while possible, are not probable.

The Company has not recorded any accrual at March 31, 2024 for contingent losses associated with these matters based on its belief that losses, while possible, are not probable.

Further, any possible range of loss cannot be reasonably estimated at this time.

The unfavorable resolution of these matters could have a material adverse effect on the Company’s business, results of operations, financial condition, or cash flows.

The Company is engaged in other legal actions, not described above, arising in the ordinary course of its business and, while there can be no assurance, believes that the ultimate

outcome of these other legal actions will not have a material adverse effect on its business, results of operations, financial condition, or cash flows.

The unfavorable resolution of these matters could have a material adverse effect on the Company’s business, results of operations, financial condition, or cash flows.

The Company is engaged in other legal actions, not described above, arising in the ordinary course of its business and, while there can be no assurance, believes that the ultimate outcome of these other legal actions will not have a material adverse effect on its business, results of operations, financial condition, or cash flows.

The Company warrants its products against certain manufacturing and other defects.

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

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Balance Sheet Classification

September 30, 2023

March 31, 2024

(in thousands)

7 unchanged sentences

Weighted-average discount rate

During the nine months ended September 30, 2023, the Company recognized approximately $ 1.1 million of lease costs in operating expenses and approximately $ 1.0 million of operating cash flows from operating leases.

Approximate future minimum lease payments for the Company’s right of use assets over the remaining lease periods as of September 30, 2023, are as follows:

During the three months ended March 31, 2024, the Company recognized approximately $ 0.4 million of lease costs in operating expenses and approximately $ 0.3 million of operating cash flows from operating leases.

Approximate future minimum lease payments for the Company’s right of use assets over the remaining lease periods as of March 31, 2024, are as follows:

(in thousands)

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements