What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-08 compared with 2024-11-07 · 68 added, 140 removed, 115 unchanged (64% of the section changed)

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In addition, forward-looking statements are subject to certain risks and uncertainties, including those described elsewhere in this Quarterly Report on Form 10-Q that could cause actual results to differ materially from the Company's historical experience and its present expectations or projections.

Business Overview

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 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 brand.

The Turtle Beach® brand is a market share leader in console gaming headsets with a vast portfolio of headsets designed to be compatible with the latest Xbox, PlayStation, and Nintendo consoles, as well as for personal computers (“PCs”) and mobile/tablet devices.

Turtle Beach Corporation’s PC product portfolio includes headsets, gaming keyboards, mice and other gaming accessories focused on the PC gaming platform.

Recently, Turtle Beach expanded its brand beyond gaming headsets and began making game controllers, gaming flight simulation and racing simulation accessories.

Acquired in March 2024, PDP is a gaming accessories leader that designs and distributes video game accessories, including controllers, headsets, power supplies, cases, and other accessories.

Turtle Beach Corporation’s PC product portfolio includes headsets, gaming keyboards, mice and other gaming accessories focused on the PC gaming platform and it has recently expanded its brand beyond gaming headsets and launched its gaming controller product line, as well as, gaming flight simulation and racing simulation accessories.

In March 2024, Turtle Beach acquired Performance Designed Products (“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, including Call of Duty and Fortnite among others.

The Company has started the process of transitioning all gaming accessories under its best-selling Turtle Beach brand, with products for consoles and PC, including multiplatform gaming headsets, controllers, mice, keyboards, microphones, and flight/racing simulation accessories under one of the industry’s most recognized and trusted brand names.

Business Trends

Turtle Beach operates in an overall $200 billion global games and accessories market.

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

Gaming peripherals, such as headsets, keyboards, mice, microphones, controllers, and simulation controls are estimated to be an $11.0 billion business globally.

Turtle Beach operates in nearly $200 billion global games and accessories market.

The global gaming audience now exceeds global cinema and music markets with over 3.4 billion active gamers worldwide.

Gaming peripherals, such as headsets, controllers, keyboards, mice, microphones, and flight and racing simulation controls are estimated to be an $11.0 billion business globally.

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

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

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

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

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

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

Additionally, some larger franchise games, for example Call of Duty and Fortnite, follow-up with multiple post-launch downloadable content or new content update packs, to keep interest and fan engagement/momentum going for months following a game’s initial release.

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

Console Headset Market

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

and other major console markets.

Turtle Beach has achieved these global market shares by delivering high-quality products that often include first-to-market innovations, robust features, superior sound, unmatched comfort, and top customer support – all key factors that consumers seek when shopping for a gaming headset.

The global market for console gaming headsets, in which Turtle Beach has been the market leader for the past 14 years, is estimated to be approximately $1.5 billion.

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

Consistent with a historical pattern of major new console launches every 7-8 years, Microsoft and Sony launched their latest consoles, Xbox Series X|S and PlayStation 5, ahead of the 2020 holiday season.

Nintendo has sold over 140 million units of its highly popular Nintendo Switch since the platform's release in early 2017.

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

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

PC Accessories Market

The market for PC gaming headsets, mice, and keyboards is estimated to be approximately $3.3 billion.

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

and internationally, similarly driven by popular AAA game launches, by popular PC-specific esports leagues, teams, and players, content creators, and influencers, and with the introduction of cross-platform play – where PC gamers can play online against other gamers playing the same game on an Xbox, PlayStation, or Nintendo Switch.

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

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

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

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

Gamepad/Controllers Market

The market for gamepad controllers is estimated to be approximately $0.7 billion, and shares the same retail footprint and consumer base that Turtle Beach gaming headsets compete in.

Controllers now come in various ergonomic shapes, sizes, and colors.

Gamers can even further customize their controllers with unique thumbsticks and better grips/textures, weights, and more.

Game controllers also range in price from ~$40 to more than $300 for ultra premium options, with premium controllers featuring improved materials, cooling, swappable parts and more.

Turtle Beach entered the controllers market in 2021 with the introduction of its wired Recon Controller for Xbox and PC.

Turtle Beach then launched the lower-cost wired REACT-R Controller in 2022, as well as introduced the mobile focused Recon Cloud and Atom controllers.

In 2023, Turtle Beach launched its first wireless controller for Xbox and PC, the premium Stealth Ultra controller.

Turtle Beach’s controllers not only provide the same responsive, quality controls as first party controllers, but also offer Turtle Beach’s signature gaming audio experience when gamers connect a wired headset to the controller.

Gaming Simulation Accessories Market

The market for gaming simulation accessories is estimated to be approximately $1.2 billion.

Flight and racing simulation gaming are more popular on higher-end PCs able to deliver the most realistic visuals.

However, jumps in visual quality made possible in the latest consoles/games have made flight simulation gaming on Xbox more accessible.

In 2020, Microsoft redefined the graphics flight sim gamers can expect while playing with the launch of the latest generation of its Flight Sim games and, in subsequent years, Microsoft expanded the game to Xbox Series X|S1, Xbox One, lower-end gaming PCs, and mobile via Xbox Cloud.

Long-running popular flight sim games like Flight Simulator 2024, X-Plane, and others allow pilots to learn to fly and pilot various aircraft through picture-perfect skies and scenery, with typical flight sim accessories including yokes and pedals, combat flightsticks, and HOTAS (Hands-On Throttle And Stick) controllers.

The flight sim market is niche, but is supported by a dedicated, older fanbase willing to spend more on accessories to create the ultimate flight simulation setups, with a variety of expert pilots and creators showcasing their latest content on YouTube and other mediums.

Turtle Beach launched the original VelocityOne Flight universal control system in 2021, followed by the VelocityOne Rudder and VelocityOne Stand in 2022, the VelocityOne Flightstick in 2023, and the VelocityOne Flightdeck HOTAS controller in 2024.

Racing simulation gaming follows a similar trajectory as flight simulation gaming.

The audience of racing sim gamers is also niche, dedicated, slightly older and willing to spend more on creating high-end racing simulation setups predominantly on PC, but also on gaming consoles.

There are also a variety of long-running, successful racing game franchises including Forza, Assetto Corsa, and more that allow drivers to get behind the wheel and experience the rush of racing.

Typical racing simulation accessories include wheel and pedal setups, swappable steering wheels, shifters, handbrakes and more, ranging in price from a few hundred dollars to thousands of dollars for the most involved simulators.

Racing simulation fans also regularly create content and share with the community.

Turtle Beach introduced its first VelocityOne Race racing simulation wheel and pedals setup in 2024, with additional racing sim accessory launches planned for the future.

Supply Chain and Operations

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

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

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

While semiconductor availability and freight costs have significantly improved compared to 2022, we continue to closely monitor component availability and freight cost including global supply chain threats within the post-pandemic business environment.

Results of Operations

The following table sets forth the Company’s statements of operations for the periods presented:

The following table sets forth the Company’s statements of operations for the periods presented (in thousands):

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Cost of revenue

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Other non-operating expense, net

Income (loss) before income tax

Income tax expense (benefit)

Net income (loss)

Loss before income tax

Income tax benefit

Net (loss) income

Net Revenue and Gross Profit

The following table summarizes net revenue and gross profit for the periods presented:

The following table summarizes net revenue and gross profit for the periods presented (in thousands):

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Comparison of the Three Months Ended September 30, 2024 to the Three Months Ended September 30, 2023

Net revenue for the three months ended September 30, 2024 was $94.4 million, a $35.2 million increase from $59.2 million driven by incremental revenue from the PDP acquisition and growth in our product markets.

For the three months ended September 30, 2024, gross margin increased to 36.2%, inclusive of a $0.8 million purchase accounting driven charge to step-up the value of PDP inventory at the time of acquisition and a $1.2 million reserve for ROCCAT inventory on-hand as part of the PC product brand transition to Turtle Beach, from 29.9% in the comparable prior year period.

Excluding these two charges, gross margins improved to 38.3% as a result of lower promotional spend and freight costs.

Comparison of the Nine Months Ended September 30, 2024 to the Nine Months Ended September 30, 2023

Net revenue for the nine months ended September 30, 2024 was $226.7 million, a $68.1 million increase from $158.6 million driven by incremental revenue from the PDP acquisition and growth in our product markets.

For the nine months ended September 30, 2024, gross margin increased to 33.1%, inclusive of a $2.1 million purchase accounting driven charge to step-up the value of PDP inventory at the time of acquisition and a $2.8 million reserve for ROCCAT inventory on-hand as part of

the PC product brand transition to Turtle Beach, from 27.6% in the comparable prior year period.

Excluding these two charges, gross margins improved to 35.2% as a result of lower promotional spend and freight costs

Comparison of the Three Months Ended March 31, 2025 to the Three Months Ended March 31, 2024

Net revenue for the three months ended March 31, 2025 was $63.9 million, a $8.1 million increase from $55.8 million driven by incremental revenue from the PDP acquisition.

For the three months ended March 31, 2025, gross margin increased to 36.6% from 31.8% in the comparable prior year period primarily due to operating leverage from higher revenue from the PDP acquisition and lower promotional spend and freight costs.

Operating Expenses

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

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Subtotal operating expenses

Insurance recovery

Acquisition-related cost

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Selling and Marketing

Selling and marketing expenses for the three and nine months ended September 30, 2024 totaled $13.5 million and $36.3 million, respectively, compared to $10.6 million and $30.5 million for the three and nine months ended September 30, 2023, respectively, due to incremental intangible assets amortization and operating expenses related to the PDP acquisition, and integration related severance costs.

Selling and marketing expenses for the three months ended March 31, 2025 totaled $12.5 million, compared to $9.0 million for the three months ended March 31, 2024, primarily due to increased direct media marketing and incremental intangible assets amortization expenses related to the PDP acquisition.

Research and Development

Research and development costs for the three and nine months ended September 30, 2024 was $4.3 million and $12.8 million, respectively, compared to $4.4 million and $12.7 million for the three and nine months ended September 30, 2023, respectively, which reflects incremental expense related to the PDP acquisition and certain integration related severance partially offset by lower headcount and costs associated with our product portfolio rationalization initiatives.

Research and development costs for the three months ended March 31, 2025 was $4.0 million, compared to $3.9 million for the three months ended March 31, 2024, due to incremental expenses related to the PDP acquisition.

General and Administrative

General and administrative expenses for the three months ended September 30, 2024 totaled $6.4 million compared to $5.2 million for the three months ended September 30, 2023 reflective of incremental costs from PDP operations and certain professional service costs.

General and administrative expenses for the nine months ended September 30, 2024 totaled $19.5 million compared to $25.4 million for the nine months ended September 30, 2023.

Excluding $2.5 million of activism related costs, but inclusive of incremental costs from PDP operations, expenses decreased $3.4 million primarily due to lower severance and non-cash stock-based compensation.

General and administrative expenses for the three months ended March 31, 2025 totaled $8.2 million compared to $5.7 million for the three months ended March 31, 2024 due to professional service costs and incremental expenses related to the PDP acquisition.

Insurance recovery

Insurance recovery relates to the recognition of certain initial insurance claim receivables from the previously disclosed loss of inventory while in transit that occurred in the fourth quarter of 2024.

Acquisition-related cost

Acquisition-related costs included costs incurred in connection with acquisitions including professional fees such as legal and accounting along with other certain integration related costs of the acquisition.

Income tax benefit for the nine months ended September 30, 2024 was ($5.5) million at an effective tax rate of 58.2% compared to income tax benefit for the nine months ended September 30, 2023 of $0.4 million at an effective tax rate of (1.5%).

The effective tax rate for the nine months ended September 30, 2024 was primarily impacted the by the reversal of a portion of the Company’s deferred tax asset valuation allowance.

Acquisition-related costs include one-time costs incurred in connection with the PDP acquisition including professional fees such as legal and accounting along with other certain integration related costs.

Income tax benefit for the three months ended March 31, 2025 was $0.1 million at an effective tax rate of 14.1% compared to income tax benefit for the three months ended March 31, 2024 of $6.4 million at an effective tax rate of 102.5%.

The effective tax rate for the three months ended March 31, 2025 was primarily impacted the by the reversal of a portion of the Company’s deferred tax asset valuation allowance.

Key Performance Indicators and Non-GAAP Measures

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

(affecting relative interest expense), and the age and book value of facilities and equipment (affecting relative depreciation and amortization expense).

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

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

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

Adjusted EBITDA (and a reconciliation to Net income (loss), the nearest GAAP financial measure) for the three and nine months ended September 30, 2024 and September 30, 2023, are as follows:

Adjusted EBITDA (and a reconciliation to Net income (loss), the nearest GAAP financial measure) for the three months ended March 31, 2025 and March 31, 2024, are as follows (in thousands):

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Net income (loss)

Interest expense (income)

Net (loss) income

Interest expense

Depreciation and amortization

Stock-based compensation

Income tax benefit (1)

Income tax provision (1)

Restructuring expense (2)

CEO transition related costs (3)

Acquisition-related cost (3)

Incremental costs on acquired inventory (5)

Proxy contest and other (6)

Insurance recovery (4)

Loss on inventory in transit and other costs (5)

Adjusted EBITDA

(1) An income tax benefit of $6.9 million was recorded as a result of the reversal of a portion of the Company’s deferred tax asset valuation allowance.

(2) Restructuring charges are expenses that are paid in connection with reorganization of our operations.

(1) An income tax benefit of $7.0 million in the three months ended March 31, 2024 was recorded as a result of the reversal of a portion of the Company’s deferred tax asset valuation allowance.

(2) Restructuring charges are expenses that are paid in connection with reorganization of operations.

These costs primarily include severance and related benefits.

(3) CEO transition related expense includes one-time costs associated with the separation of its former CEO.

Such costs included severance, bonus, medical benefits and the tax impact of accelerated vesting of stock-based compensation.

(4) Business transaction expense includes one-time costs we incurred in connection with acquisitions including warehouse lease impairment, professional fees such as legal and accounting along with other certain integration related costs.

(5) Costs relate to the step up of acquired finished goods inventory to fair market value as required under purchase accounting.

This step up in value over original cost is recorded as a charge to cost of revenue as such inventory is sold.

(6) Proxy contest and other primarily includes one-time legal and other professional fees associated with proxy challenges presented by certain shareholder activists in 2023.

(3) Acquisition-related cost includes one-time costs we incurred in connection with acquisitions including warehouse lease impairment, professional fees such as legal and accounting along with other integration related costs.

(4) Insurance proceeds from claims related to a loss of inventory while in transit that occurred in the fourth quarter of 2024.

(5) Certain professional fees related to recovery initiatives in connection with a loss of inventory while in transit that occurred in the fourth quarter of 2024.

Liquidity and Capital Resources

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We have funded operations and acquisitions in recent periods with operating cash flows and proceeds from debt and equity financings.

The following table summarizes our sources and uses of cash:

Nine Months Ended

September 30,

(in thousands)

The following table summarizes our sources and uses of cash (in thousands):

Three Months Ended

Cash and cash equivalents at beginning of period

Net cash provided (used for) by operating activities

Net cash used for investing activities

Net cash provided by (used for) financing activities

Net cash provided by operating activities

Net cash provided by (used for) investing activities

Net cash (used for) provided by financing activities

Effect of foreign exchange on cash

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Operating activities

Cash used for operating activities for the nine months ended September 30, 2024 was $8.6 million, a decrease of $16.5 million as compared to $7.9 million for the nine months ended September 30, 2023.

The decrease is primarily the result of certain acquisition-related business costs.

Cash provided by operating activities for the three months ended March 31, 2025 was $40.5 million, an increase of $13.2 million as compared to $27.3 million for the three months ended March 31, 2024.

The increase is primarily due to higher gross receipts as a result of incremental PDP revenue.

Investing activities

Cash used for investing activities was $80.7 million for the nine months ended September 30, 2024, which was primarily related to the acquisition of the Performance Designed Products business, compared to $1.9 million for the nine months ended September 30, 2023 related to certain capital investments.

Cash provided by investing activities was $2.3 million for the three months ended March 31, 2025, which was primarily related to a $2.5 million working capital adjustment payment, compared to $76.2 million used for the three months ended March 31, 2024 primarily related to the acquisition of the PDP business.

Financing activities

Net cash provided by financing activities was $82.7 million during the nine months ended September 30, 2024 compared to net cash used for financing activities of $5.1 million during the nine months ended September 30, 2023.

Financing activities during the nine months ended September 30, 2024 consisted primarily of $58.6 million net borrowings, the $50 million term loan and $3.0 million of stock option exercise proceeds, partially offset by $25.3 million of share repurchases, $2.9 million of debt issuance costs and $0.7 million of term loan repayments.

Net cash used for financing activities was $44.9 million during the three months ended March 31, 2025 compared to net cash provided by financing activities of $48.0 million during the three months ended March 31, 2024.

Financing activities during the three months ended March 31, 2025 consisted primarily of $42.8 million revolving credit facility net repayments, $1.8 million of share repurchases, and $0.3 million of term loan repayments.

Management assessment of liquidity

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

Foreign cash balances at September 30, 2024 and December 31, 2023 were $3.8 million and $8.0 million, respectively.

Foreign cash balances at March 31, 2025 and December 31, 2024 were $2.7 million and $4.5 million, 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, PDP, 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) 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, (iii) and 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 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 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, 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.

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;

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”), 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 amortizes in a monthly amount equal to 0.208333% during the first two years and 0.416667% 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.

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

Critical Accounting Estimates

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

As of September 30, 2024 and December 31, 2023, we did not have any derivative financial instruments.

As of March 31, 2025 and December 31, 2024, we did not have any derivative financial instruments.

Foreign Currency Exchange Risk

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

As of September 30, 2024 and December 31, 2023, our monetary assets and liabilities that are subject to this exposure are immaterial, therefore the potential immediate loss to us that would result from a hypothetical 10% change in foreign currency exchange rates would not be expected to have a material impact on our earnings or cash flows.

As of March 31, 2025 and December 31, 2024, our monetary assets and liabilities that are subject to this exposure are immaterial, therefore the potential immediate loss to us that would result from a hypothetical 10% change in foreign currency exchange rates would not be expected to have a material impact on our earnings or cash flows.

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

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

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

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

We continue to experience the on-going impacts of a higher interest rate environment, as compared to prior years, which resulted in higher cost of goods, selling expenses, and general and administrative expenses.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis