Turtle Beach Corp 10-Q

Item 1. Financial Statements. Turtle Beach Corporation Condensed Consolidated Statements of Operations ( unaudited, in thousands, except per-share data) Three Months Ended March 31, March 31, 2025 2024 Net revenue $ 63,901 $ 55,848 Cost of revenue 40,534 38,062 Gross profit 23,367 17,786 Operating expenses: Selling and marketing 12,453 9,013 Research and development 3,993 3,902 General and administrative 8,216 5,674 Insurance recovery ( 3,439 ) — Acquisition-related cost 608 4,910 Total operating expenses 21,831 23,499 Operating income (loss) 1,536 ( 5,713 ) Interest expense 2,006 150 Other non-operating expense, net 303 370 Loss before income tax ( 773 ) ( 6,233 ) Income tax benefit ( 109 ) ( 6,388 ) Net (loss) income $ ( 664 ) $ 155 Net (loss) income per share Basic $ ( 0.03 ) $ 0.01 Diluted $ ( 0.03 ) $ 0.01 Weighted average number of shares: Basic 20,506 18,321 Diluted 20,506 19,389 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 Turtle Beach Corporation Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited, in thousands) Three Months Ended March 31, 2025 March 31, 2024 Net (loss) income $ ( 664 ) $ 155 Other comprehensive income (loss): Foreign currency translation adjustment 767 ( 418 ) Other comprehensive income (loss) 767 ( 418 ) Comprehensive income (loss) $ 103 $ ( 263 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Turtle Beach Corporation Condensed Consolida ted Balance Sheets (in thousands, except par value and share amounts) March 31, December 31, 2025 2024 (unaudited) ASSETS Current Assets: Cash and cash equivalents $ 11,684 $ 12,995 Accounts receivable, net 42,354 93,118 Inventories 73,664 71,251 Prepaid expenses and other current assets 14,533 11,007 Total Current Assets 142,235 188,371 Property and equipment, net 4,884 5,844 Goodwill 50,428 52,942 Intangible assets, net 40,382 42,398 Other assets 9,095 9,306 Total Assets $ 247,024 $ 298,861 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Revolving credit facility $ 6,592 $ 49,412 Accounts payable 39,539 34,839 Other current liabilities 26,294 39,421 Total Current Liabilities 72,425 123,672 Debt, non-current 45,544 45,620 Income tax payable 1,367 1,362 Other liabilities 6,814 7,603 Total Liabilities 126,150 178,257 Commitments and Contingencies Stockholders’ Equity Common stock, $ 0.001 par value - 25,000,000 shares authorized; 19,850,436 and 19,961,696 shares issued and outstanding as of March 31, 2025 and December 31, 2024, respectively 20 20 Additional paid-in capital 240,150 239,983 Accumulated deficit ( 118,758 ) ( 118,094 ) Accumulated other comprehensive loss ( 538 ) ( 1,305 ) Total Stockholders’ Equity 120,874 120,604 Total Liabilities and Stockholders’ Equity $ 247,024 $ 298,861 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Turtle Beach Corporation Condensed Consolidated S tatements of Cash Flows (unaudited, in thousands) Three Months Ended March 31, 2025 March 31, 2024 CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) income $ ( 664 ) $ 155 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 1,110 916 Amortization of intangible assets 2,016 560 Amortization of debt financing costs 276 70 Stock-based compensation 1,912 1,105 Deferred income taxes ( 445 ) ( 6,716 ) Change in sales returns reserve 1,873 ( 2,410 ) Provision for obsolete inventory 486 794 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable 48,891 35,918 Inventories ( 2,899 ) ( 3,063 ) Accounts payable 4,716 8,065 Prepaid expenses and other assets ( 3,473 ) ( 357 ) Income taxes payable ( 1,401 ) 2 Other liabilities ( 11,946 ) ( 7,782 ) Net cash provided by operating activities 40,452 27,257 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment ( 166 ) ( 731 ) Acquisition of a business, net of cash acquired 2,515 ( 75,494 ) Net cash provided by (used for) investing activities 2,349 ( 76,225 ) CASH FLOWS FROM FINANCING ACTIVITIES Borrowings on revolving credit facilities 65,276 80,288 Repayment of revolving credit facilities ( 108,096 ) ( 80,288 ) Proceeds of term loan — 50,000 Repayment of term loan ( 312 ) ( 104 ) Proceeds from exercise of stock options 5 1,257 Repurchase of common stock ( 1,750 ) — Debt financing costs — ( 3,170 ) Net cash (used for) provided by financing activities ( 44,877 ) 47,983 Effect of exchange rate changes on cash and cash equivalents 765 75 Net decrease in cash and cash equivalents ( 1,311 ) ( 910 ) Cash and cash equivalents - beginning of period 12,995 18,726 Cash and cash equivalents - end of period $ 11,684 $ 17,816 SUPPLEMENTAL DISCLOSURE OF INFORMATION Cash paid for interest $ 1,930 $ 370 Cash paid for income taxes $ 173 $ — The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Turtle Beach Corporation Condensed Consolidated Statement o f Stockholders ’ Equity (unaudited, in thousands) Common Stock Additional Paid-In Accumulated Accumulated Other Comprehensive Shares Amount Capital Deficit (Loss) Income Total Balance at December 31, 2024 19,962 $ 20 $ 239,983 $ ( 118,094 ) $ ( 1,305 ) $ 120,604 Net loss — — — ( 664 ) — ( 664 ) Other comprehensive income — — — — 767 767 Issuance of restricted stock 9 — — — — — Stock options exercised — — 5 — — 5 Stock-based compensation — — 1,912 — — 1,912 Repurchase of common stock ( 121 ) — ( 1,750 ) — — ( 1,750 ) Balance at March 31, 2025 19,850 $ 20 $ 240,150 $ ( 118,758 ) $ ( 538 ) $ 120,874 Common Stock Additional Paid-In Accumulated Accumulated Other Comprehensive Shares Amount Capital Deficit Loss Total Balance at December 31, 2023 17,532 $ 18 $ 220,185 $ ( 134,277 ) $ ( 849 ) $ 85,077 Net income — — — 155 — 155 Other comprehensive loss — — — — ( 418 ) ( 418 ) Issuance of acquisition-related stock 3,450 3 38,047 — — 38,050 Issuance of restricted stock 12 — — — — — Stock options exercised 171 — 1,257 — — 1,257 Stock-based compensation — — 1,105 — — 1,105 Balance at March 31, 2024 21,165 $ 21 $ 260,594 $ ( 134,122 ) $ ( 1,267 ) $ 125,226 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Turtle Beach Corporation Notes to Condensed Consolidated Financial Statements (unaudited) Note 1. Description of Business Organization 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. Note 2. 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. All intercompany accounts and transactions have been eliminated in consolidation. Certain information and footnote disclosures, normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), have been condensed or omitted pursuant to those rules and regulations. The Company believes that the disclosures made are adequate to make the information presented not misleading. The results of operations for the interim periods are not necessarily indicative of the results of operations for the entire fiscal year. The December 31, 2024 Condensed Consolidated Balance Sheet has been derived from the Company’s audited financial statements included in its Annual Report on Form 10-K filed with the SEC on March 17, 2025 (“Annual Report”). These financial statements should be read in conjunction with the annual financial statements and the notes thereto included in the Annual Report that contains information useful to understanding the Company’s businesses and financial statement presentations. Use of estimates : The preparation of financial statements in conformity with generally accepted accounting principles requires management to use estimates and assumptions that affect the reported amount of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. The significant estimates and assumptions used by management affect: sales return reserve, allowances for cash-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. 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. 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. 7 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. Note 3. 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 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. On a fully-diluted basis, issued stock represented approximately 16.4 % of the total issued and outstanding shares of the Company as of the closing date. The fair value of the 3.45 million common shares issued as part of the consideration was determined on the basis of the closing market price of the Company’s common shares on the acquisition date, or $ 11.03 per share. As a result, the total 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) Amount Cash 1,562 Accounts Receivable 23,888 Inventory 22,721 Prepaid and Other Current Assets 3,195 Property, Plant & Equipment 1,161 Other Assets 3,478 Intangible Assets 47,769 Accounts Payable ( 12,535 ) Accrued Liabilities ( 6,268 ) Lease Payable ( 2,726 ) Deferred Tax Liability ( 7,592 ) Total identifiable net assets 74,653 Goodwill 39,741 Total consideration $ 114,394 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. 8 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 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 March 31, 2024 (in thousands) Net revenue $ 77,832 Net (loss) $ ( 2,516 ) 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. Note 4. Fair Value Measurement The Company follows a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows: • Level 1 — Quoted prices in active markets for identical assets or liabilities. • Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for markets that are not active, or other inputs that are observable or can be corroborated by observable market data. • Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. 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 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 Reported Fair Value Reported Fair Value (in thousands) Financial Assets and Liabilities: Cash and cash equivalents $ 11,684 $ 11,684 $ 12,995 $ 12,995 Term Loan $ 48,646 $ 48,646 $ 48,958 $ 48,958 Revolving credit facility $ 6,592 $ 6,592 $ 49,412 $ 49,412 Cash equivalents are stated at amortized cost, which approximates fair value as of the consolidated balance sheet dates, due to the short period of time to maturity; 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 9 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 . Note 5. Balance Sheet Components Inventories Inventories consist of the following (in thousands): March 31, 2025 December 31, 2024 Finished goods $ 71,409 $ 67,145 Raw materials 2,255 4,106 Total inventories $ 73,664 $ 71,251 Property and Equipment, net Property and equipment, net, consists of the following (in thousands): March 31, 2025 December 31, 2024 Machinery and equipment $ 2,711 $ 2,761 Software and software development 2,813 2,858 Furniture and fixtures 1,693 1,679 Tooling (1) 12,953 14,062 Leasehold improvements 2,333 2,323 Demonstration units and convention booths (1) 4,309 17,818 Total property and equipment, gross 26,812 41,501 Less: accumulated depreciation and amortization ( 21,928 ) ( 35,657 ) Total property and equipment, net $ 4,884 $ 5,844 (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 (in thousands): March 31, 2025 December 31, 2024 Accrued employee expenses $ 4,253 $ 3,714 Accrued royalty 4,544 11,326 Accrued tax-related payables 2,448 7,123 Accrued freight 1,663 1,635 Accrued marketing 1,801 3,045 Accrued expenses 10,335 11,328 Term loan, short term 1,250 1,250 Total other current liabilities $ 26,294 $ 39,421 10 Note 6. Goodwill and Intangible Assets Goodwill 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 $ 52,942 Purchase price adjustment ( 2,514 ) Balance as of March 31, 2025 $ 50,428 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 Gross Carrying Value Accumulated Amortization Net Book Value Customer relationships $ 10,938 $ 6,868 $ 4,070 Tradenames 18,293 5,008 13,285 Developed technology 27,706 4,810 22,896 Patent and trademarks 784 653 131 Total Intangible Assets $ 57,721 $ 17,339 $ 40,382 December 31, 2024 Gross Carrying Value Accumulated Amortization Net Book Value Customer relationships $ 10,880 $ 6,533 $ 4,347 Tradenames 18,293 4,451 13,842 Developed technology 27,706 3,656 24,050 Patent and trademarks 784 625 159 Total Intangible Assets $ 57,663 $ 15,265 $ 42,398 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. 11 As of March 31, 2025, estimated annual amortization expense related to definite lived intangible assets in future periods was as follows (in thousands): 2025 $ 6,039 2026 7,763 2027 7,590 2028 7,590 2029 7,590 Thereafter 3,810 Total $ 40,382 Note 7. Credit Facility and Long-Term Debt The following table presents the carrying value of the Revolving Credit Facility and Term Loan (in thousands): March 31, 2025 December 31, 2024 Revolving credit facility, maturing March 2027 $ 6,592 $ 49,412 Term loan Due 2027 $ 48,646 $ 48,958 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 On March 5, 2018, Turtle Beach and certain of its subsidiaries entered into an amended and restated loan, guaranty and security agreement (the “Credit Facility”) with Bank of America, N.A. (“Bank of America”), as administrative agent, collateral agent and security trustee for Lenders (as defined therein), which replaced the then existing asset-based revolving loan agreement. The Credit Facility was amended on each of December 17, 2018, May 31, 2019, and March 10, 2023. The Credit Facility, as amended, expires on 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, 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) 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) 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. The maximum credit availability for loans and letters of credit under the Credit Facility is governed by a borrowing base determined by the application of specified percentages to certain eligible assets, primarily eligible trade accounts receivable and inventories, and is subject to discretionary reserves and revaluation adjustments. The Credit Facility may be used for working capital, the issuance of bank guarantees, letters of credit and other corporate purposes. 12 Amounts outstanding under the Credit Facility bear interest at a rate equal to (i) a rate published by Bank of America or the U.S. Bloomberg Short-Term Bank Yield Index (“BSBY”) rate for loans denominated in U.S. Dollars, (ii) the Sterling Overnight Index Average Reference Rate (“SONIA”) for loans denominated in Sterling, 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. BSBY daily floating rate loans and UK alternative currency loans. In addition, Turtle Beach is required to pay a commitment fee on the unused revolving loan commitment at a rate ranging from 0.375 % to 0.50 % , and letter of credit fees and agent fees. As of 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 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. Term Loan On March 13, 2024, Turtle Beach and certain of its subsidiaries entered into a new financing agreement with Blue Torch Finance, LLC, (“Blue Torch”), pursuant to which Blue Torch for an aggregate amount of $ 50 million (the “Term Loan Facility”), the proceeds of which were used to (i) fund a portion of the PDP acquisition purchase price; (ii) repay certain existing indebtedness of the acquired business; (iii) to pay fees and expenses related to such transactions and (iv) for general corporate purposes. The Term Loan Facility will amortize in a monthly amount equal to 0.21 % 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. The Term Loan Facility (a) matures on March 13, 2027 ; (b) bears interest at a rate equal to (i) a base rate plus 7.25 % per annum for Reference Rate Loans and Secured Overnight Financing Rate (“SOFR”) plus 8.25 % per annum for SOFR Loans if the total net leverage ratio is greater than or equal to 2.25 x and (ii) a base rate plus 6.75 % per annum for Reference Rate Loans and SOFR plus 7.75 % per annum for SOFR Loans if the total net leverage ratio is less than 2.25 x; and (c) is subject to certain affirmative, negative and financial covenants, including a minimum liquidity covenant and a quarterly total net leverage ratio covenant. As of March 31, 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 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): 2025 $ 938 2026 2,292 2027 45,416 Total $ 48,646 Note 8. Commitments and Contingencies Litigation 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. 13 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. 14 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 March 31, 2025 2024 Warranty, beginning of period $ 815 $ 670 Warranty costs accrued 192 220 Settlements of warranty claims ( 198 ) ( 203 ) Warranty, end of period $ 809 $ 687 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 provisions. 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. Note 9. Income Taxes The following table presents the Company’s income tax expense (in thousands) and effective income tax rate: Three Months Ended March 31, 2025 2024 Income tax benefit $ ( 109 ) $ ( 6,388 ) Effective income tax rate 14.1 % 102.5 % 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 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. Accounting for income taxes requires that a valuation allowance be established when it is more likely than not that all or a portion of the deferred taxes will not be realized. The Company considers all positive and negative evidence in determining if, based on the weight of such evidence, a valuation allowance is required. In circumstances where there is sufficient negative evidence indicating that the deferred tax assets are not more likely than not realizable, the Company establishes a valuation allowance. Due to the significant 2022 pre-tax loss, coupled with cumulative book losses projected in early future years, the Company recorded a valuation allowance on its net U.S. deferred tax assets as of December 31, 2022. 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. 15 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 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. Note 10. Equity Incentive Plans and Stock-Based Compensation Stock Repurchase Activity On April 9, 2019, the Company’s Board of Directors authorized a stock repurchase program to acquire up to $ 15.0 million of its common stock. Any repurchases under the program will be made from time to time on the open market at prevailing market prices. On April 1, 2021, the Board of Directors approved an extension and expansion of this stock repurchase program up to $ 25.0 million of its common shares, expiring April 9, 2023 . 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 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 (in thousands): Three Months Ended March 31, 2025 2024 Cost of revenue $ 175 $ 131 Selling and marketing 868 487 Research and development 469 224 General and administrative 400 263 Total stock-based compensation $ 1,912 $ 1,105 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 727 Options Cancelled 2 Restricted Stock Granted ( 110 ) Balance at March 31, 2025 619 16 Stock Option Activity Options Outstanding Number of Shares Underlying Outstanding Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term Aggregate Intrinsic Value (in years) Outstanding at December 31, 2024 637,916 $ 9.38 4.55 $ 5,483,767 Options Granted — — Options Exercised ( 640 ) 8.03 Options Forfeited ( 2,372 ) 13.55 Outstanding at March 31, 2025 634,904 $ 9.37 4.32 $ 3,703,702 Vested and expected to vest at March 31, 2025 634,904 $ 9.45 4.32 $ 3,703,702 Exercisable at March 31, 2025 634,904 $ 9.45 4.32 $ 3,703,702 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. The options generally vest as specified in the option agreements subject to acceleration in certain circumstances. In the event participants in the plan cease to be employed or engaged by the Company, all vested options would be forfeited if they are not exercised within 90 days. Forfeitures on option grants are estimated at 10 % for non-executives and 0 % for executives based on evaluation of historical and expected future turnover. Stock-based compensation expense was recorded net of estimated forfeitures, such that expense was recorded only for those stock-based awards expected to vest. The Company reviews this assumption periodically and will adjust it if it is not representative of future forfeiture data and trends within employee types (executive vs. non-executive). There have been no options granted since the fiscal year 2021. Restricted Stock Activity Shares Weighted Average Grant Date Fair Value Per Share Nonvested restricted stock at December 31, 2024 605,356 $ 15.92 Granted 109,716 16.87 Vested ( 10,433 ) 21.65 Shares forfeited — — Nonvested restricted stock at March 31, 2025 704,639 $ 15.99 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. Warrants 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. 17 Note 11. 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 March 31, 2025 2024 Net (loss) income $ ( 664 ) $ 155 Weighted average common shares outstanding — Basic 20,506 18,321 Plus incremental shares from assumed conversions: Dilutive effect of restricted stock — 224 Dilutive effect of stock options — 294 Dilutive effect of warrants — 550 Weighted average common shares outstanding — Diluted 20,506 19,389 Net (loss) income per share: Basic $ ( 0.03 ) $ 0.01 Diluted $ ( 0.03 ) $ 0.01 Incremental shares from stock options and restricted stock are computed by 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 and the estimated tax benefit of the assumed exercises. 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 March 31, 2025 2024 Stock options 638 69 Restricted stock 669 279 Total 1,307 348 Note 12. Segment Information 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 March 31, 2025 2024 North America $ 46,984 $ 42,159 Europe and Middle East 13,618 10,961 Asia Pacific 3,299 2,728 Total net revenues $ 63,901 $ 55,848 The following table reflects the incremental disclosure requirements related to our adoption of ASU 2023-07 for the following periods (in thousands): 18 Three Months Ended March 31, 2025 2024 Net revenue $ 63,901 $ 55,848 Significant segment expenses: Cost of revenue 40,534 38,062 Sales 6,024 4,077 Marketing 6,429 4,936 Research and development 3,993 3,902 General and administrative 8,216 5,674 Other costs (1) ( 2,831 ) 4,910 Operating income (loss) 1,536 ( 5,713 ) Reconciliation of segment operating income to net (loss) income: Interest expense, net 2,006 150 Other non-operating expense, net 303 370 Income tax benefit ( 109 ) ( 6,388 ) Net (loss) income $ ( 664 ) $ 155 (1) Other costs in the three months ended March 31, 2025 include acquisition-related costs and an insurance recovery. Other costs in the three months ended March 31, 2024 include acquisition-related costs. 19