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Item 2. Management’s Discussion and Analysis

2025-11-06 compared with 2025-08-07 · 105 added, 86 removed, 126 unchanged (60% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our operations should be read together with our unaudited condensed consolidated financial statements and the related notes included in Part I of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2025 (the “ Annual Report.

The following discussion and analysis of our operations and financial condition of Turtle Beach Corporation ("we," "us," "our," the "Company," "Turtle Beach") should be read together with our unaudited condensed consolidated financial statements and the related notes included in Part I of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2025 (the “ Annual Report.

This Quarterly Report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

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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.

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.

Turtle Beach Corporation, 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.

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Gaming peripherals, such as headsets, controllers, keyboards, mice, microphones, and flight and racing simulation controls are estimated to be an $11 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.

The console and PC gaming accessories 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:

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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.

Further, June 2025 saw the launch of the highly anticipated Nintendo Switch 2 game system in the U.S., which debuted as the fastest-selling video game console launch of all time, with the largest launch month sales for any new gaming platform.

Results of Operations

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Cost of revenue

Operating expenses

Operating (loss) income

Operating income (loss)

Interest expense

Other expense, net

Loss before income tax

Income tax (benefit) expense

Other (income) expense, net

Income (loss) before income tax

Income tax expense (benefit)

Net income (loss)

Net Revenue and Gross Profit

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Three Months Ended

Six Months Ended

Comparison of the Three Months Ended June 30, 2025 to the Three Months Ended June 30, 2024

Net revenue for the three months ended June 30, 2025 was $56.8 million, a $19.7 million decrease from $76.5 million driven by a significant reduction in market demand for computer gaming accessories.

For the three months ended June 30, 2025, gross margin increased to 32.2% from 30.2% in the comparable prior year period primarily due to unfavorable impact of fair value step-up adjustment in prior period, partially offset by higher tariffs in 2025.

Comparison of the Six Months Ended June 30, 2025 to the Six Months Ended June 30, 2024

Net revenue for six months ended June 30, 2025 was $120.7 million, an $11.6 million decrease from $132.3 million that included incremental revenue from the PDP acquisition, due to lower market demand and the launch of certain wireless products in the comparable period.

For the six months ended June 30, 2025, gross margin increased to 34.5% from 30.9% in the comparable prior year period primarily due to unfavorable impact of fair value step-up adjustment and incremental warehouse costs in the prior period from the PDP acquisition.

Nine Months Ended

September 30,

Comparison of the Three Months Ended September 30, 2025 to the Three Months Ended September 30, 2024

Net revenue for the three months ended September 30, 2025 was $80.5 million, a $13.9 million decrease from $94.4 million driven by a significant reduction in market demand for computer gaming accessories.

For the three months ended September 30, 2025, gross margin increased to 37.4% from 36.2% in the comparable prior year period primarily due to the unfavorable impact of fair value step-up adjustment in the prior period relating to the PDP acquisition, partially offset by higher tariffs in 2025.

Comparison of the Nine Months Ended September 30, 2025 to the Nine Months Ended September 30, 2024

Net revenue for the nine months ended September 30, 2025 was $201.1 million, a $25.6 million decrease from $226.7 million, due to a significant reduction in market demand for computer gaming accessories.

For the nine months ended September 30, 2025, gross margin increased to 35.6% from 33.1% in the comparable prior year period primarily due to the unfavorable impact of fair value step-up adjustment in the prior period relating to the PDP acquisition, partially offset by higher tariffs in 2025.

Operating Expenses

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

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Selling and Marketing

Selling and marketing expenses decreased by approximately $1.0 million, or 7.4% for the three months ended June 30, 2025 as compared to the same period in the prior year due to lower market demand driven direct media marketing.

Selling and marketing expenses increased by $2.4 million, or 10.7% for the six months ended June 30, 2025 due to certain employee-related expenses, professional fees, certain marketing initiatives and incremental intangible assets amortization expenses related to the PDP acquisition.

Selling and marketing expenses decreased by $1.0 million, or 7.6% for the three months ended September 30, 2025 as compared to the same period in the prior year primarily due to lower market demand-driven direct media marketing.

Selling and marketing expenses increased by $1.4 million, or 3.9% for the nine months ended September 30, 2025 primarily due to certain employee-related expenses, professional fees, certain marketing initiatives and incremental intangible assets amortization expenses related to the PDP acquisition.

Research and Development

Research and development costs were consistent for the three and six months ended June 30, 2025 as compared to the same period in the prior year.

Research and development costs decreased by $0.2 million or 3.5% for the three months ended September 30, 2025 as compared to the same period in the prior year.

Research and development costs decreased by $0.2 million or 1.4% for the nine months ended September 30, 2025 as compared to the same period in the prior year.

General and Administrative

General and administrative expenses were consistent for the three months ended June 30, 2025 at $7.4 million compared to the same period in the prior year.

General and administrative expenses increased by approximately $2.4 million for the six months ended June 30, 2025 as compared to the same period in the prior year due to filing-related legal costs, professional service and certain system investments.

General and administrative expenses increased by $1.2 million or 18.7% for the three months ended September 30, 2025 as compared to the same period in the prior year primarily due to higher public company costs for professional services and consulting fees.

General and administrative expenses increased by $3.6 million or 18.6% for the nine months ended September 30, 2025 as compared to the same period in the prior year primarily due to higher public company costs for professional services, consulting fees and information technology investments.

Insurance recovery

Insurance recovery for the three and six months ended June 30, 2025 totaled $6.0 million and $9.4 million, respectively, and relates to the receipt of certain insurance claims from the previously disclosed loss of inventory while in transit that occurred in the fourth quarter of 2024.

Insurance recovery for the nine months ended September 30, 2025 was $9.4 million, and relates to the receipt of certain insurance claims from the previously disclosed loss of inventory while in transit that occurred in the fourth quarter of 2024.

There was no insurance recovery for the three months ended September 30, 2025.

Acquisition-related cost

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 expense for the three months ended June 30, 2025 was $(0.2) million at an effective tax rate of 7.7% compared to income tax expense of $0.8 million for the three months ended June 30, 2024 at an effective tax rate of (12.6%).

The effective tax rate for the three months ended June 30, 2025 was primarily impacted by the change in U.S.

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

Interest expense

Interest expense increased by $1.0 million or 37% for the three months ended September 30, 2025, as compared to the same period in the prior year primarily due to the $1.9 million loss on debt extinguishment related to the Revolving Credit Facility and Blue Torch Term Loan.

Interest expense increased by $2.7 million or 53% for the nine months ended September 30, 2025 as compared to the same period in the prior year primarily due to the $1.9 million loss on debt extinguishment related to the Revolving Credit Facility and Blue Torch Term Loan.

Income tax expense for the three months ended September 30, 2025 was $0.3 million at an effective tax rate of 12.9% compared to income tax expense of $0.05 million for the three months ended September 30, 2024 at an effective tax rate of 1.3%.

The effective tax rate for the three months ended September 30, 2025 was primarily impacted by the change in U.S.

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

Income tax expense for the six months ended June 30, 2025 was $(0.4) million at an effective tax rate of 9.0% compared to income tax benefit for the six months ended June 30, 2024 of $5.5 million at an effective tax rate of 42.9%.

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

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

valuation allowance and foreign taxes.

Income tax benefit for the nine months ended September 30, 2025 was $0.1 million at an effective tax rate of 5.1% compared to income tax benefit for the nine months ended September 30, 2024 of $5.5 million at an effective tax rate of 58.2%.

The effective tax rate for the nine months ended September 30, 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 nine months ended September 30, 2024 was primarily impacted 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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These other metrics, however, are not measures of financial performance under accounting principles generally accepted in the United States of America (“GAAP”) and given the limitations of these metrics as analytical tools, should not be considered a substitute for gross profit, gross margins, net income (loss) or other consolidated income statement data as determined in accordance with GAAP.

We believe that the presentation of Adjusted EBITDA, defined as net income (loss) before interest, taxes, depreciation and amortization, stock-based compensation (non-cash) and certain non-recurring special items that we believe are not representative of core operations, is appropriate to provide additional information to investors about our operating profitability adjusted for certain non-cash items, non-routine items that we do not expect to continue at the same level in the future, as well as other items that are not core to our operations.

We believe that the presentation of Adjusted EBITDA, defined as net income (loss) before interest, taxes, depreciation and amortization, stock-based compensation (non-cash) and certain non-recurring special items that we believe are not representative of core operations, is appropriate to provide additional information to investors about our operating profitability adjusted for certain non-cash items or non-routine items that we do not expect to continue at the same level in the future, as well as other items that are not core to our operations.

Further, we believe Adjusted EBITDA provides a meaningful measure of operating profitability because we use it for evaluating our business performance, making budgeting decisions, and comparing our performance against that of other peer companies using similar measures.

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 loss, the nearest GAAP financial measure) for the three and six months ended June 30, 2025 and June 30, 2024, are as follows (in thousands):

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 margin, net income (loss) or other consolidated income statement data as determined in accordance with GAAP.

Adjusted EBITDA (and a reconciliation to Net loss, the nearest GAAP financial measure) for the three and nine months ended September 30, 2025 and September 30, 2024, are as follows (in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Net income (loss)

Interest expense

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Stock-based compensation

Income tax provision (1)

Income tax expense (1)

Restructuring expense (2)

Acquisition-related cost (3)

Acquisition-related costs (3)

Fair value step-up adjustment to acquired inventory (4)

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These costs primarily include severance and related benefits.

(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.

(3) Acquisition-related costs include costs we incurred in connection with the PDP acquisition, including warehouse lease impairment, professional fees such as legal and accounting along with other integration-related costs.

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

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Liquidity and Capital Resources

Our primary sources of working capital are cash flow from operations and availability of capital under our Revolving Credit Facility.

Our primary sources of working capital are cash flow from operations and availability of capital under our Credit Agreement.

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 (in thousands):

Six Months Ended

Nine Months Ended

September 30,

Cash and cash equivalents at beginning of period

Net cash provided by operating activities

Net cash provided by (used for) operating activities

Net cash provided by (used for) investing activities

Net cash (used for) provided by financing activities

Effect of foreign exchange on cash

Effect of exchange rate changes on cash and cash equivalents

Cash and cash equivalents at end of period

Operating activities

Cash provided by operating activities for the six months ended June 30, 2025 was $37.3 million, an increase of $22.7 million as compared to $14.6 million for the six months ended June 30, 2024.

Cash Flows from Operating activities

Cash provided by operating activities for the nine months ended September 30, 2025 was $22.1 million, an increase of $30.7 million as compared to $8.6 million used for the nine months ended September 30, 2024.

The increase is primarily due to higher gross receipts, insurance proceeds from claims related to a loss of inventory, lower acquisition-related costs and reduced spending levels.

Investing activities

Cash provided by investing activities was $2.0 million for the six months ended June 30, 2025, which was primarily related to purchase price working capital adjustments of $2.5 million, compared to $79.3 million used for the six months ended June 30, 2024 primarily related to the acquisition of the PDP business.

Financing activities

Net cash used for financing activities was $41.7 million during the six months ended June 30, 2025 compared to net cash provided by financing activities of $58.2 million during the six months ended June 30, 2024.

Financing activities during the six months ended June 30, 2025 consisted primarily of $29.5 million revolving credit facility net repayments, $6.7 million of share repurchases and $5.6 million of term loan repayments.

Financing activities during the six months ended June 30, 2024 consisted primarily of the $50 million term loan and $2.9 million of stock option exercise proceeds, partially offset by $3.2 million of debt issuance costs.

Cash Flows from Investing activities

Cash provided by investing activities was $1.3 million for the nine months ended September 30, 2025, which was primarily related to purchase price working capital adjustments of $2.5 million, compared to $80.7 million used for the nine months ended September 30, 2024 primarily related to the acquisition of the PDP business.

Cash Flows from Financing activities

Net cash used for financing activities was $24.5 million during the nine months ended September 30, 2025 compared to net cash provided by financing activities of $82.7 million during the nine months ended September 30, 2024.

Financing activities during the nine months ended September 30, 2025 consisted primarily of $15.9 million revolving credit facility net repayments, $17.0 million of share repurchases, $2.3 million of debt financing costs and $8.9 million of term loan net proceeds.

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 June 30, 2025 and December 31, 2024 were $4.7 million and $4.5 million, respectively.

Foreign cash balances at September 30, 2025 and December 31, 2024 were $4.6 million and $4.5 million, 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, 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, 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) 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) 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.

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

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

Dollars, (ii) the Sterling Overnight Index Average Reference Rate (“SONIA”) for loans denominated in Sterling, (iii) and the 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.

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

(“Bank of America”), as administrative agent, collateral agent and security trustee for the lenders.

The Revolving Credit Facility provided for a line of credit of up to $50 million inclusive of a sub-facility limit of $10 million for TB Europe, and was secured by substantially all of the Company's assets.

The was intended for working capital, letters of credit and other corporate purposes.

On March 13, 2024, the Company entered into a Fourth Amendment, dated as of March 13, 2024 (the “Fourth Amendment”), to the Revolving Credit Facility.

The Fourth Amendment extended the maturity date to March 13, 2027, incorporated PDP acquisition assets into the U.S.

Borrowing Base ( up to $15,000,000 or 30% of the aggregate Revolver Commitments), and updated interest terms.

Loans bore interest at SOFR, U.S.

Base Rate, SONIA or EUIBOR, plus applicable margins, which was 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 June 30, 2025, interest rates for outstanding borrowings were 8.10% for base rate loans and 4.32% 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 June 30, 2025, the Company was in compliance with all the financial covenants under the Credit Facility, as amended, and excess borrowing availability was approximately $36.2 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;

In addition, Turtle Beach was 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.

The Revolving Credit Facility included customary affirmative and negative covenants and required a minimum fixed charge coverage ratio of at least 1.00 when availability thresholds were not met.

These covenants restricted the Company’s ability to incur additional debt, pay dividends, repurchase stock, make certain investments, enter into mergers, and dispose of assets.

On August 1, 2025, the Company entered into a Credit Agreement (the “Credit Agreement”), discussed below, and made a payment of $16.0 million from the Bank of America term loan facility, including $15.9 million and $0.1 million of principal and accrued interest, respectively.

The Company treated the Credit Agreement as a partial extinguishment to the Revolving Credit Facility and recognized a loss on extinguishment of debt of $0.3 million to write-off the unamortized deferred financing costs in interest expense in its condensed consolidated statements of operations.

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 provided 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 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 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.

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 2.25x 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 2.25x;

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 June 30, 2025, the interest rate for outstanding borrowings was 12.19%.

As of June 30, 2025, the Company was in compliance with all financial covenants under the Term Loan Facility.

The Term Loan Facility amortized 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 was no longer subject to the prepayment premium applied during the first year.

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

The Term Loan Facility (a) had a maturity date of March 13, 2027;

(b) bore 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 2.25x 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 2.25x;

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

On August 1, 2025, the Term Loan Facility was repaid in full from the proceeds of the Bank of America credit agreement, discussed below, for the amount of $43.2 million.

The Company treated the repayment as a debt extinguishment and recognized a loss on extinguishment of debt of $1.7 million to write-off the unamortized deferred financing costs in interest expense in the condensed consolidated statements of operations.

Credit Agreement

On August 1, 2025, the Company entered into the Credit Agreement (the “Credit Agreement”) with Bank of America, as the administrative agent, the swingline lender and the line of credit issuer, replacing the Company’s previous debt arrangements.

On August 1, 2025, the Company and certain of its subsidiaries (the "Borrowers") entered into the Credit Agreement (the “Credit Agreement”) with Bank of America, as the administrative agent, the swingline lender and the line of credit issuer.

The Credit Agreement, matures on August 1, 2028 and includes a $60 million term loan facility and a $90 million revolving credit facility with designated sub-facility limits of (i) $15 million for the U.K.

Borrower, (ii) $10 million or a swingline facility and (iii) $5 million for letters of credit.

Borrower, (ii) $10 million for a swingline facility and (iii) $5 million for letters of credit.

Actual credit availability under the revolving facility is subject to a borrowing base limitation that is calculated based on a percentage of eligible trade accounts receivable and inventories, the balances of which fluctuate, and is subject to discretionary reserves and revaluation adjustments.

The Company may utilize the facilities for borrowings as well as for the issuance of letters of credit, repaying existing indebtedness outstanding as of the effective date of the Credit Agreement and ongoing working capital and general corporate purposes as defined by the Credit Agreement.

The Borrowers may utilize the facilities for borrowings as well as for the issuance of letters of credit, repaying existing indebtedness outstanding as of the effective date of the Credit Agreement and ongoing working capital and general corporate purposes as defined by the Credit Agreement.

The facilities under the Credit Agreement replaced the Company’s previous debt arrangements.

Borrowings will bear interest at a rate that varies depending on the type of loan calculated using a floating rate plus a margin.

Borrowings will bear interest at a rate that varies depending on the type of loan and the Borrower.

The interest rate will be calculated using a floating rate plus a margin.

Depending on the type of loan, the floating rate will either be the prime rate announced by Bank of America, Term SOFR, Daily Simple SOFR, EURIBOR or SONIA.

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The Credit Agreement also provides for an unused line fee, letter of credit fees, and agent fees.

The Borrowers will be able to voluntarily prepay the principal of any advance, without penalty or premium, at any time in whole or in part, subject to certain breakage costs.

As of September 30, 2025, interest rates for the term loan and revolving credit facilities were 7.66% and 7.53%, respectively.

The Credit Agreement requires the Company and its subsidiaries to (i) maintain a fixed charge coverage ratio, defined as the ratio, determined on a consolidated basis for the Company and its subsidiaries for the applicable measurement period, of (a) EBITDA minus unfinanced capital expenditures and cash taxes paid for such period to (b) consolidated interest charges for such period plus principal payments or redemptions of outstanding debt plus certain restricted payments and (ii) maintain a consolidated leverage ratio, defined as the ratio, determined on a consolidated basis for the Company and its subsidiaries for the applicable measurement period, of (a) certain funded indebtedness minus unrestricted cash up to a maximum of $12 million to (b) EBITDA.

The Credit Agreement also contains affirmative and negative covenants that, subject to certain exceptions, limit our ability to take certain actions, including our 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.

The Credit Agreement contains customary events of default, including defaults triggered by the failure to make payments when due, breaches of covenants and representations, material impairment in the perfection of the lenders’ security interest in the collateral, and events related to bankruptcy and insolvency of the Company and its subsidiaries.

If an event of default occurs and is continuing, the lenders may terminate and/or suspend their obligations to make loans and issue letters of credit and/or accelerate amounts due under the Credit Agreement and exercise other rights and remedies.

To secure their obligations under the Credit Agreement, the Company and each of the other loan parties granted an all-assets lien with a first priority security interest in substantially all of their assets to the administrative agent.

As of September 30, 2025, the Company was in compliance with all the financial covenants under the Credit Agreement and excess borrowing availability was approximately $34.5 million.

As part of the Credit Agreement, the Company recorded deferred debt financing costs of $2.3 million.

Critical Accounting Estimates

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

As of June 30, 2025 and December 31, 2024, we did not have any derivative financial instruments.

As of September 30, 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 June 30, 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.

As of September 30, 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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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