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Item 1. Financial Statements

2025-05-08 compared with 2024-11-07 · 241 added, 341 removed, 255 unchanged (70% of the section changed)

2 unchanged sentences

Condensed Consolidated Statements of Operations

( unaudited, in thousands, except per-share data)

Three Months Ended

Nine Months Ended

September 30,

(in thousands, except per-share data)

Cost of revenue

3 unchanged sentences

General and administrative

Insurance recovery

Acquisition-related cost

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Other non-operating expense, net

Income (loss) before income tax

Income tax expense (benefit)

Net income (loss)

Net income (loss) per share

Loss before income tax

Income tax benefit

Net (loss) income

Net (loss) income per share

Weighted average number of shares:

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

The accompanying notes are an integral part of these condensed consolidated financial statements.

Turtle Beach Corporation

Condensed Consolidated Statements of Comprehensive Income (Loss)

(unaudited, in thousands)

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Net income (loss)

Net (loss) income

Other comprehensive income (loss):

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Comprehensive income (loss)

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

The accompanying notes are an integral part of these condensed consolidated financial statements.

Turtle Beach Corporation

Condensed Consolida ted Balance Sheets

September 30,

(in thousands, except par value and share amounts)

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

20,079,323 and 17,531,702 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively

19,850,436 and 19,961,696 shares issued and outstanding as of March 31, 2025 and December 31, 2024, respectively

Additional paid-in capital

Accumulated deficit

Accumulated other comprehensive income (loss)

Accumulated other comprehensive loss

Total Stockholders’ Equity

Total Liabilities and Stockholders’ Equity

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

The accompanying notes are an integral part of these condensed consolidated financial statements.

Turtle Beach Corporation

Condensed Consolidated S tatements of Cash Flows

Nine Months Ended

September 30, 2024

September 30, 2023

(in thousands)

(unaudited, in thousands)

Three Months Ended

March 31, 2025

March 31, 2024

CASH FLOWS FROM OPERATING ACTIVITIES

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

Net (loss) income

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

Depreciation and amortization

Costs recognized on sale of acquired inventory

Amortization of intangible assets

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Provision for obsolete inventory

Loss on impairment of assets

Changes in operating assets and liabilities, net of acquisitions:

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Other liabilities

Net cash provided (used for) by operating activities

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

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Acquisition of a business, net of cash acquired

Net cash used for investing activities

Net cash provided by (used for) investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

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Repayment of term loan

Proceeds from exercise of stock options and warrants

Proceeds from exercise of stock options

Repurchase of common stock

Debt issuance costs

Net cash provided by (used for) financing activities

Debt financing costs

Net cash (used for) provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents - beginning of period

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Cash paid for interest

Cash paid (received) for income taxes

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

Cash paid for income taxes

The accompanying notes are an integral part of these condensed consolidated financial statements.

Turtle Beach Corporation

Condensed Consolidated Statement o f Stockholders ’ Equity

(unaudited, in thousands)

Comprehensive

Income (Loss)

(in thousands)

(Loss) Income

Balance at December 31, 2024

Other comprehensive loss, net of tax

Issuance of acquisition-related stock

Issuance of restricted stock

Stock options exercised

Stock-based compensation

Balance at March 31, 2024

Other comprehensive income, net of tax

Issuance of restricted stock

Stock options exercised

Stock-based compensation

Repurchase of common stock

Balance at June 30, 2024

Other comprehensive income, net of tax

Other comprehensive income

Issuance of restricted stock

2 unchanged sentences

Repurchase of common stock

Balance at September 30, 2024

Balance at March 31, 2025

Comprehensive

Income (Loss)

(in thousands)

Balance at December 31, 2023

Other comprehensive income, net of tax

Other comprehensive loss

Issuance of acquisition-related stock

Issuance of restricted stock

2 unchanged sentences

Balance at March 31, 2024

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 restricted stock

Stock options exercised

Stock-based compensation

Balance at September 30, 2023

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

The accompanying notes are an integral part of these condensed consolidated financial statements.

Turtle Beach Corporation

Notes to Condensed Consolidated Financial Statements

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®, PDP® and ROCCAT® brands.

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

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

Acquired in March 2024, Performance Designed Products, LLC (“PDP”), a wholly-owned subsidiary of Turtle Beach Corporation incorporated in the state of California in 1997, 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.

Basis of Presentation

Description of Business

Turtle Beach Corporation (“Turtle Beach” or the “Company”), headquartered in San Diego, California and incorporated in the state of Nevada in 2010, is a premier audio and gaming technology company with expertise and experience in developing, commercializing, and marketing innovative products across a range of large addressable markets under the Turtle Beach® brands.

Turtle Beach, 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, expanded its brand beyond gaming headsets and launched its gaming controller product line, as well as gaming flight simulation and racing simulation accessories, and strengthened its gaming PC keyboards and mice product lines.

In 2024, Turtle Beach acquired Performance Designed Products, LLC (“PDP”), another leading gaming accessory brand with a robust slate of products, including gaming controllers, gamepads for all platforms and licensing deals with popular gaming and entertainment properties.

Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

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.

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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.

sales return reserve, allowances for cash-based incentive programs, 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”) for consideration that included cash and common stock.

Recently Issued Accounting Pronouncements Not Yet Adopted

The Company considers the applicability and impact of all Accounting Standards Update ("ASUs").

ASUs not referenced below were assessed and determined to be either not applicable or are not expected to have a material impact on the Company's unaudited condensed consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction.

The amendments are effective for the Company’s annual periods beginning January 1, 2025, with early adoption permitted, and should be applied either prospectively or retrospectively.

The Company is currently evaluating the impact of the adoption of this standard to determine its impact on the Company's disclosures.

In November 2024, the FASB issued ASU 2024-03, Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses, which is intended to improve disclosures related to certain income statement expenses of the Company.

This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted.

The Company is currently evaluating the impact of the adoption of this standard to determine its impact on the Company's disclosures.

Business Combinations

Performance Designed Products, LLC Acquisition

On March 13, 2024, the Company acquired all the issued and outstanding equity of PDP 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.

As a result of the acquisition, the Company strengthened its leadership position in hardware gaming accessories and expanded 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.

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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 $ 9.8 million of acquisition-related costs that were expensed during the nine months ended September 30, 2024.

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

As a result, the total final purchase consideration was $ 114.4 million , partially funded by borrowing on the new term loan facility (see Note 7).

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 unaudited Condensed Consolidated Statement of Operations.

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

(In thousands)

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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.

During the three months ended September 30, 2024, the Company recognized measurement period adjustments primarily to establish preliminary values for the opening balance sheet of the net assets acquired including intangibles assets, which also resulted in a reduction in goodwill from the previously reported preliminary amount.

Total consideration

On January 28, 2025, the Company finalized the post-closing adjustments related to the acquisition of PDP, resulting in a $ 2.5 million payment from the sellers to the Company.

The payment was received by the Company in January 2025 and accounted for as a reduction of purchase consideration in the first quarter of 2025.

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 $ 26.7 million and $ 54.4 million for the three and nine months ended September 30, 2024, respectively.

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

PDP's net revenue has been integrated in the Company's unaudited condensed consolidated financial statements in the three months ended March 31, 2025 .

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

Pro Forma Financial Information (Unaudited)

The following table reflects the unaudited pro forma operating results of the Company for the three and nine months ended September 30, 2024 and 2023, which give effect to the acquisition of PDP as if it had occurred on January 1, 2023.

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

Three Months Ended

Nine Months Ended

September 30,

(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.

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

Unaudited pro forma information includes adjustments primarily related to acquisition related costs, incremental costs related to fair value adjustments on acquired inventory, amortization of acquired intangible assets, recognition of benefit related to acquired net deferred tax liabilities, interest expense on transaction financing, and accounting policy alignment.

Fair Value Measurement

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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, 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 September 30, 2024 and December 31, 2023:

September 30, 2024

Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and the revolving line of credit.

As of March 31, 2025 and December 31, 2024, the Company has 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 the Company's financial instruments as of March 31, 2025 and December 31, 2024:

March 31, 2025

December 31, 2024

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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 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 September 30, 2024 and December 31, 2023 .

Allowance for Sales Returns

The following table provides the changes in our sales return reserve, which is classified as a reduction of accounts receivable:

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Balance, beginning of period

Reserve accrual

Recoveries and deductions, net

Balance, end of period

Composition of Certain Financial Statement Items

Inventories consist of the following:

September 30,

(in thousands)

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, 2025 and December 31, 2024 .

Balance Sheet Components

Inventories consist of the following (in thousands):

Finished goods

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Property and Equipment, net

Property and equipment, net, consists of the following:

September 30,

(in thousands)

Property and equipment, net, consists of the following (in thousands):

Machinery and equipment

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Total property and equipment, net

(1) In the three months ended March 31, 2025, the Company wrote off certain fully depreciated demonstration units and tooling totaling $ 14.9 million .

There was no proceeds recognized upon disposal.

Depreciation and amortization expense on property and equipment was $ 1.1 million and $ 0.9 million for the three months ended March 31, 2025 and 2024, respectively.

Other Current Liabilities

Other current liabilities consist of the following:

September 30,

(in thousands)

Other current liabilities consist of the following (in thousands):

Accrued employee expenses

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Accrued expenses

Term loan, short term

Total other current liabilities

Goodwill and Other Intangible Assets

Acquired Intangible Assets

Acquired identifiable intangible assets, and related accumulated amortization, as of September 30, 2024 and December 31, 2023 consisted of:

September 30, 2024

(in thousands)

Goodwill and Intangible Assets

The Company conducts its goodwill impairment analysis annually or more frequently if changes in facts and circumstances indicate that it is more likely than not that the fair value of a reporting unit may be less than its carrying value.

Due to a significant decline in the Company's stock price and the potential negative impact of tariffs and other external factors on the business, management performed a quantitative and qualitative assessment and concluded that the market capitalization of $ 284.9 million exceeded the net carrying value of the business.

Accordingly, it was determined that no events or changes in circumstances indicated that the carrying value may not be recoverable.

The following table summarizes the changes in the carrying amount of goodwill (in thousands):

Balance as of January 1, 2025

Purchase price adjustment

Balance as of March 31, 2025

Intangible Assets, net

Acquired identifiable intangible assets, and related accumulated amortization, as of March 31, 2025 and December 31, 2024 consisted of (in thousands):

March 31, 2025

Customer relationships

Developed technology

Foreign currency

Patent and trademarks

Total Intangible Assets

December 31, 2024

(in thousands)

Customer relationships

Developed technology

Foreign currency

Patent and trademarks

Total Intangible Assets

(1) The accumulated amortization includes $ 1.9 million of accumulated impairment charges as of September 30, 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.

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

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 $ 2.1 million and $ 4.8 million was recognized for the three and nine months ended September 30, 2024, respectively, and $ 0.2 million and $ 0.8 million was recognized for the three and nine months ended September 30, 2023, respectively.

As of September 30, 2024, estimated annual amortization expense related to definite lived intangible assets in future periods was as follows:

(in thousands)

Changes in the carrying values of goodwill for the nine months ended September 30, 2024 from the balance as of December 31, 2023.

(in thousands)

Balance as of January 1, 2024

PDP acquisition

Balance as of September 30, 2024

Revolving Credit Facility and Long-Term Debt

September 30,

(in thousands)

Amortization expense related to definite lived intangible assets of $ 2.0 million and $ 0.6 million was recognized for the three months ended March 31, 2025 and 2024, respectively.

As of March 31, 2025, estimated annual amortization expense related to definite lived intangible assets in future periods was as follows (in thousands):

Credit Facility and Long-Term Debt

The following table presents the carrying value of the Revolving Credit Facility and Term Loan (in thousands):

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 $ 2.7 million and $ 5.4 million for the three and nine months ended September 30, 2024, respectively, and $ 0.1 million and $ 0.4 million for the three and nine months ended September 30, 2023, respectively.

Amortization of deferred financing costs was $ 0.3 million and $ 0.6 million for the three and nine months ended September 30, 2024, respectively, and $ 33 thousand and $ 0.1 million for the three and nine months ended September 30, 2023, respectively.

Total interest expense, inclusive of amortization of deferred financing costs, on long-term debt obligations was $ 2.0 million and $ 0.4 million for the three months ended March 31, 2025 and 2024, respectively.

Amortization of deferred financing costs was $ 0.3 million and $ 0.1 million for the three months ended March 31, 2025 and 2024, respectively.

Revolving Credit Facility

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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:

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, Voyetra Turtle Beach, Inc., TBC Holding Company LLC, Turtle Beach Europe Limited, VTB Holdings, Inc., the financial institutions party thereto from time to time and Bank of America, as administrative agent, collateral agent and security trustee for the lenders.

Among other things, the Fourth Amendment provided for:

(i) the acquisition of PDP;

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

(ii) the revision of 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 accounts formula amount and the 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.

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

and (iv) updates to 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.

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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 1.75 % to 3.50 % for U.S.

Dollars, (ii) the Sterling Overnight Index Average Reference Rate (“SONIA”) for loans denominated in Sterling, and (iii) the 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 1.75 % to 3.50 % for U.S.

BSBY rate loans, U.S.

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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, 2024, interest rates for outstanding borrowings were 8.60 % for base rate loans and 6.70 % for Term SOFR loans.

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.

As of March 31, 2025, interest rates for outstanding borrowings were 8.10 % for base rate loans and 6.19 % for Term SOFR loans.

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).

The Credit Facility requires the Company and its restricted subsidiaries to maintain a fixed charge coverage ratio of at least 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, 2024, the Company was in compliance with all financial covenants under the Credit Facility, as amended, and excess borrowing availability was approximately $ 21.1 million.

As of March 31, 2025, the Company was in compliance with all the financial covenants under the Credit Facility, as amended, and excess borrowing availability was approximately $ 51.2 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;

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(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 will amortize in a monthly amount equal to 0.21 % during the first two years and 0.42 % during the third year.

As the prepayment period concluded on March 13, 2025, the Term Loan Facility is no longer subject to the prepayment premium applied during the first year.

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.

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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 September 30, 2024 , interest rates for outstanding borrowings was 13.11 %.

As of March 31, 2025, the interest rate for outstanding borrowings was 12.19 % .

On August 7, 2024, the Company and Blue Torch amended the Term Loan Facility to, among other things, permit the Company to repurchase Company common stock in an aggregate amount not to exceed $ 30 million prior to March 31, 2025, subject to the satisfaction of certain conditions.

The other material terms of the Term Loan Facility were unchanged.

As of September 30, 2024 , the Company was in compliance with all financial covenants under the Term Loan Facility.

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 September 30, 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:

As of March 31, 2025, the Company was in compliance with all the financial covenants under the Term Loan Facility.

Maturities of Term Loan Debt

As of March 31, 2025, maturities of debt, assuming no prepayments, are as follows (in thousands):

Commitments and Contingencies

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.

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.

The California plaintiffs dismissed their action without prejudice, and sought to intervene in the Nevada action, which was granted.

Subsequent to the intervention, the plaintiffs filed a third amended complaint, which made essentially the same allegations as prior complaints and sought monetary damages.

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 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.

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.

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 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 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.

The defendants filed two motions to dismiss this complaint, which were heard on August 10, 2020.

The Court denied those motions by order of August 20, 2020.

The case was tried in August 2021 and all remaining defendants, including the Company, prevailed on all counts with final judgment entered in their favor on September 3, 2021.

Plaintiff appealed that judgment.

On June 6, 2024, the Nevada Supreme Court affirmed the judgment in Defendants’ favor and subsequently denied Plaintiff’s petition for rehearing on July 22, 2024.

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 th e TBCH under a certain settlement agreement with KJE Europe GmbH dated June 30, 2020.

On February 28, 2025, the Court ruled in favor of the insolvency administrator holding that TBCH was liable for EUR 1.4 million plus interest and costs.

TBCH continues to believe the claims do not have merit and has appealed the judgment.

As of March 31, 2025, the Company has accrued for the potential impact of loss contingency.

Intellectual Property Dispute :

PDP, a wholly-owned subsidiary of Turtle Beach Corporation, has received a letter from OKYN Holdings, Inc., d/b/a Nyko Technologies (“Nyko”) claiming that PDP’s Ultra Slim Charge System for PlayStation 4 (“Ultra Slim”) infringes certain patents allegedly owned by Nyko.

The Ultra Slim product is no longer being sold by PDP in the United States.

To date, Nyko has not filed a lawsuit regarding its allegations.

PDP is investigating the claims and will vigorously defend itself.

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

However, litigation and investigations are inherently uncertain.

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

The Company has not recorded any accrual at March 31, 2025 for contingent losses associated with these matters unless otherwise disclosed above 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.

Product Warranties

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

These product warranties are provided for specific periods of time depending on the nature of the product.

Warranties are generally fulfilled by replacing defective products with new products.

The following table provides the changes in our product warranties, which are included in other current liabilities (in thousands):

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Income tax expense (benefit)

Warranty, beginning of period

Warranty costs accrued

Settlements of warranty claims

Warranty, end of period

Indemnifications

The Company indemnifies certain suppliers and customers for losses arising from matters such as intellectual property disputes and

product safety defects, subject to certain restrictions.

The scope of these indemnities varies, but in some instances includes indemnification for

damages and expenses, including reasonable attorneys’ fees.

As of March 31, 2025, no material amounts have been accrued for indemnification

The Company does not believe, based on historical experience and information currently available, that it is probable that any

material amounts will be required to be paid under its indemnification arrangements.

The Company also indemnifies its current and former directors and certain current and former officers.

Certain costs incurred for providing

such indemnification may be recoverable under various insurance policies.

The Company is unable to reasonably estimate the maximum

amount that could be payable under these arrangements because these exposures are not capped, the obligations are conditional in nature, and

the facts and circumstances involved in any situation that might arise are variable.

The following table presents the Company’s income tax expense (in thousands) and effective income tax rate:

Three Months Ended

Income tax benefit

Effective income tax rate

The effective tax rate for the three and nine months ended September 30, 2024 was primarily impacted by the change in U.S.

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

The effective tax rate for the three months ended March 31, 2025 was primarily impacted by the change in U.S.

valuation allowance, foreign taxes, and Federal and State current tax.

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

valuation allowance for PDP acquired net deferred tax liabilities.

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, 2024, the Company had uncertain tax positions of $ 2.9 million , inclusive of $ 0.8 million of interest and penalties.

As of March 31, 2025, the Company had uncertain tax positions of $ 2.5 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.

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deferred tax assets as of December 31, 2022.

While the Company continues to maintain this valuation allowance for the three and nine months ended September 30, 2024 , it did release $ 6.9 million of valuation allowance for PDP acquired net deferred tax liabilities.

The Company continues to maintain this valuation allowance for the three months ended March 31, 2025.

For the three months ended March 31, 2024 , the Company recorded a $ 6.7 million of tax benefit related to the PDP acquisition, including a reversal of $ 7.0 million of valuation allowance for PDP acquired net deferred tax liabilities.

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

The Company files U.S., state and foreign income tax returns in jurisdictions with various statutes of limitations.

The federal tax years open under the statute of limitations are 2020 through 2023, and the state tax years open under the statute of limitations are 2019 through 2023.

Equity and Stock-Based Compensation

The federal tax years open under the statute of limitations are 2021 through 2023, and the state tax years open under the statute of limitations are 2020 through 2023, and the foreign tax years open under the statute of limitations are 2021 through 2023.

Equity Incentive Plans and Stock-Based Compensation

Stock Repurchase Activity

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On March 3, 2023, the Company’s Board of Directors approved a two-year extension of this stock repurchase plan.

On April 9, 2024, the Board of Directors approved an additional expansion of this stock repurchase program to up to $ 55 million of the Company’s

common shares.

During the three and nine months ended September 30, 2024 , the Company has repurchased 0.7 million and 1.6 million shares, respectively, of its common stock for a total cost of $ 25.3 million.

On April 9, 2024, the Board of Directors approved an additional expansion of this stock repurchase program to up to $ 55 million of the Company’s common shares.

During the three months ended March 31, 2025, the Company repurchased 0.1 million shares of its common stock for a total cost of $ 1.8 million .

As of March 31, 2025, the total cost of repurchased common stock was $ 29.6 million .

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:

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

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Cost of revenue

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Total stock-based compensation

The following table presents the stock activity and the total number of shares available for grant as of September 30, 2024:

(in thousands)

The following table presents the stock activity and the total number of shares available for grant as of March 31, 2025 (in thousands):

Balance at December 31, 2024

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Restricted Stock Granted

Restricted Stock Forfeited

Performance Shares Granted

Balance at September 30, 2024

Balance at March 31, 2025

Stock Option Activity

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Options Forfeited

Outstanding at September 30, 2024

Vested and expected to vest at September 30, 2024

Exercisable at September 30, 2024

Outstanding at March 31, 2025

Vested and expected to vest at March 31, 2025

Exercisable at March 31, 2025

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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non-executive).

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 $ 2.4 million for the nine months ended September 30, 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, 2024.

The total estimated fair value of employee options vested during the nine months ended September 30, 2024 was $ 1.2 million .

As of September 30, 2024 , total unrecognized compensation cost related to non-vested stock options granted to employees was less than $ 0.1 million, which is expected to be recognized over a remaining weighted average vesting period of 0.3 years.

There have been no options granted since the fiscal year 2021.

Restricted Stock Activity

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Shares forfeited

Nonvested restricted stock at September 30, 2024

As of September 30, 2024, total unrecognized compensation costs related to the nonvested restricted stock awards was $ 7.8 million , which will be recognized over a remaining weighted average vesting period of 2.3 years.

Performance-Based Restricted Share Units

As of September 30, 2024 , the Company had 253,395 performance-based restricted share units outstanding.

On April 1, 2024, the Company granted 171,393 PSUs to certain executives, of which 50 % vest based on achievement of defined Company stock price appreciation over the period of April 1, 2024 through May 9, 2025, and 50 % vest based on defined Adjusted EBITDA targets for the period commencing on the second fiscal quarter in 2024 through the first fiscal quarter of 2025.

The awards granted on April 1, 2024 are also subject to three year service-based vesting periods with the ability to earn and vest into such units ranging from 0 % to 200 % of the granted PSUs.

The remaining 82,002 PSUs outstanding were granted to executives on April 1, 2023 and 2022, and will vest over a three-year period from the respective grant dates 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 % of the granted PSUs.

As of September 30, 2024 , achievement of the performance conditions associated with the outstanding 2024, 2023 and 2022 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:

Nonvested restricted stock at March 31, 2025

As of March 31, 2025, total unrecognized compensation cost related to the nonvested restricted stock granted was $ 7.0 million , which is expected to be recognized over a remaining weighted average vesting period of 2.1 years.

As of March 31, 2025 , the Company had 550,000 wholly funded warrants related to a series of transactions pursuant to which the previously outstanding Series B Preferred Stock were retired.

The warrants do not expire.

Net (Loss) Income 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 (in thousands, except per-share data):

Three Months Ended

Nine Months Ended

September 30,

(in thousands, except per-share data)

Net income (loss)

Net (loss) income

Weighted average common shares outstanding — Basic

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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.

The weighted average shares listed below were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented or were otherwise excluded under the treasury stock method.

The treasury stock method calculates dilution assuming the exercise of all in-the-money options and vesting of restricted stock, reduced by the repurchase of shares with the proceeds from the assumed exercises and unrecognized compensation expense for outstanding awards.

Net (loss) income per share:

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

The weighted average shares listed below were not included in the computation of diluted earnings per common share because to do so would have been anti-dilutive for the periods presented or were otherwise excluded under the treasury stock method (in thousands).

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Stock options

Unvested restricted stock awards

Restricted stock

Segment Information

The following table represents total net revenues based on where customers are physically located:

The Company operates in a single reportable segment.

The entire business is managed by a single management team whose chief operating decision maker is the Chief Executive Officer , who evaluates segment performance based on operating income (loss) for purposes of allocating resources and evaluating financial performance.

The following table represents total net revenue based on where customers are physically located (in thousands):

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

North America

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Total net revenues