Turtle Beach Corp 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 12, 2026 (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. Forward-looking statements in this report are indicated by words such as “anticipates,” “expects,” “believes,” “intends,” “plans,” “estimates,” “projects,” “strategies” and similar expressions or negatives thereof. Caution should be taken not to place undue reliance on any such forward-looking statements because they involve risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such statements. Forward-looking statements are based on the beliefs, as well as assumptions made by, and information currently available to, the Company's management and are made only as of the date hereof. The Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by the federal securities laws. 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. Overview We are 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 our brand, Turtle Beach. The Turtle Beach® brand is a market share leader in console gaming headsets for over 16 years running with a vast portfolio of headsets designed to be multiplatform compatible with the latest Xbox, PlayStation, and Nintendo consoles, as well as for PCs and mobile and tablet devices. Our PC product portfolio includes PC gaming headsets, keyboards, mice, microphones and other PC gaming peripherals and in 2021 we expanded our brand beyond gaming headsets and launched our gaming controller product line, as well as, flight simulation and racing simulation accessories. In 2024, we acquired PDP, another leading gaming accessory brand with a robust slate of products, including gaming controllers for all major platforms and licensing deals with popular gaming and entertainment properties. We are headquartered in San Diego, California, and were incorporated in the State of Nevada in 2010. Business Trends We operate in a nearly $200.0 billion global games and accessories market, according to Newzoo Peripheral Market Forecast. The global gaming audience now exceeds global cinema and music markets with over 3.5 billion active gamers worldwide. Gaming peripherals, such as headsets, controllers, keyboards, mice, microphones, and flight and racing simulation controls are estimated to be an $11.2 billion business globally. The console and PC gaming accessory markets are also 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, 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 promote 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. 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. Tariffs Update Beginning in 2025, the U.S. implemented a broad-based tariff framework applicable to most imports, with higher country- and product-specific rates imposed on certain trading partners, including Mexico, Germany, and China, among others. Certain foreign jurisdictions also announced reciprocal measures. In February 2026, the U.S. Supreme Court held that the International Emergency Economic Powers Act (“IEEPA”) did 21 not authorize the President to impose the challenged tariffs. Following the Supreme Court’s decision and related proceedings, the U.S. Court of International Trade issued orders establishing processes and procedures affecting potential refunds of IEEPA-related duties. During the three months ended June 30, 2026, we received tariff refunds totaling $8.2 million from the CBP related to previously paid import duties, all of which were recorded as an increase to cash. Of the total amount received, $4.3 million related to tariffs recognized in cost of revenue during the prior fiscal year. Because our right to the refund was established and the refund was received during the current quarter, the amount was recognized as a reduction of cost of goods revenue during the three months ended June 30, 2026. An additional $3.6 million related to tariffs previously capitalized as a component of inventory and was recognized as a reduction to inventory. The remaining amount, representing statutory interest on the refunded duties of $0.3 million, was recognized in Other expense (income), net in the accompanying condensed consolidated statements of operations. Various modifications to U.S. tariff policy have been announced since the Supreme Court’s decision, and newly imposed tariffs may affect the Company’s future cost of inventory and operating results. Although the impact to the Company of ongoing changes in U.S. and international tariff policy remains uncertain, the Company continues to evaluate the extent of its exposure and actions available to mitigate any impacts. Results of Operations The following table sets forth the Company’s statements of operations for the periods presented (in thousands): Three Months Ended Six Months Ended June 30, June 30, 2026 2025 2026 2025 Net revenue $ 56,365 $ 56,777 $ 98,537 $ 120,678 Cost of revenue 34,502 38,515 65,380 79,049 Gross profit 21,863 18,262 33,157 41,629 Operating expenses 24,914 18,591 50,269 40,422 Operating (loss) income (3,051 ) (329 ) (17,112 ) 1,207 Interest expense, net 3,666 2,049 5,035 4,055 Other expense (income), net 73 799 (28 ) 1,102 Loss before income tax (6,790 ) (3,177 ) (22,119 ) (3,950 ) Income tax expense (benefit) 521 (246 ) 398 (355 ) Net loss $ (7,311 ) $ (2,931 ) $ (22,517 ) $ (3,595 ) Net Revenue and Gross Profit The following table summarizes net revenue and gross profit for the periods presented (in thousands): Three Months Ended Six Months Ended June 30, June 30, 2026 2025 2026 2025 Net Revenue $ 56,365 $ 56,777 $ 98,537 $ 120,678 Gross Profit $ 21,863 $ 18,262 $ 33,157 $ 41,629 Gross Margin 38.8 % 32.2 % 33.6 % 34.5 % Comparison of the Three Months Ended June 30, 2026 to the Three Months Ended June 30, 2025 Net revenue for the three months ended June 30, 2026 was $56.4 million, a $0.4 million or 0.7% decrease from $56.8 million for the three months ended June 30, 2025. The decrease was primarily attributable to softer market demand for gaming accessories, which was driven in part by macroeconomic challenges affecting consumer spending. For the three months ended June 30, 2026, gross margin increased to 38.8% from 32.2% in the comparable prior year period. The increase was primarily due to a $4.3 million reduction to cost of revenue related to a tariff refund recognized during the three months ended June 30, 2026, of which $3.1 million related to cost of revenue recognized in 2025. This benefit was partially offset by higher product costs and the effect of product mix compared with the prior three-month period. 22 Comparison of the Six Months Ended June 30, 2026 to the Six Months Ended June 30, 2025 Net revenue for the six months ended June 30, 2026 was $98.5 million, a decrease of $22.2 million, or 18.4%, from $120.7 million. The decrease was primarily attributable to softer market demand for gaming accessories, which was driven in part by macroeconomic challenges affecting consumer spending. For the six months ended June 30, 2026, gross margin slightly decreased to 33.6% from 34.5% in the comparable prior year period. Gross profit for the six months ended June 30, 2026 included a $4.3 million reduction to cost of revenue related to the tariff refund received during the period, of which $3.1 million related to cost of revenue recognized in 2025. The year-over-year decrease in gross margin was primarily due to higher costs from certain product mix and transition-related costs associated with the relocation of the Company’s principal third-party logistics provider, partially offset by the tariff refund benefit. Operating Expenses Three Months Ended Six Months Ended June 30, June 30, 2026 2025 2026 2025 (in thousands) Selling and marketing $ 14,700 $ 12,731 $ 26,960 $ 25,184 Research and development 4,813 4,471 9,387 8,464 General and administrative 5,401 7,354 13,922 15,570 Subtotal operating expenses 24,914 24,556 50,269 49,218 Insurance recovery — (5,965 ) — (9,404 ) Acquisition-related cost — — — 608 Total operating expenses $ 24,914 $ 18,591 $ 50,269 $ 40,422 Selling and Marketing Selling and marketing expenses increased by $2.0 million, or 15.5% for the three months ended June 30, 2026 as compared to the same period in the prior year primarily due to higher marketing initiatives and strategic brand positioning. Selling and marketing expenses increased by $1.8 million, or 7.1% for the six months ended June 30, 2026 as compared to the same period in the prior year primarily due to higher marketing initiatives and strategic brand positioning. Research and Development Research and development costs increased by $0.3 million or 7.6% for the three months ended June 30, 2026 as compared to the same period in the prior year due to engineering costs related to new products. Research and development costs increased by $0.9 million or 10.9% for the six months ended June 30, 2026 as compared to the same period in the prior year due to engineering costs related to new products. General and Administrative General and administrative expenses decreased by $2.0 million or 26.6% for the three months ended June 30, 2026 as compared to the same period in the prior year primarily due to the reduction in employee-related expense. General and administrative expenses decreased by $1.6 million or 10.6% for the six months ended June 30, 2026 as compared to the same period in the prior year primarily due to the reduction in employee-related expense. 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. Acquisition-related cost 23 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. Interest expense Interest expense increased by $1.7 million, or 85.0% to $3.7 million for three months ended June 30, 2026, from $2.0 million or for the three months ended June 30, 2025, and increased by $0.9 million, or 22.0%, to $5.0 million for the six months ended June 30, 2026 from $4.1 million for the six months ended June 30, 2025. The increases were primarily attributable to a $1.8 million loss on extinguishment of debt recognized in connection with the April 2026 refinancing. This increase was partially offset by lower recurring interest expense, primarily reflecting lower average outstanding borrowings following repayments of the Company’s prior credit facilities, partially offset by interest incurred on the 2026 Term Loan Facility, which had an interest rate of 11.17% as of June 30, 2026, and amortization of debt discount and financing costs. Income Taxes Income tax expense for the three months ended June 30, 2026 was $0.5 million at an effective tax rate of (7.7%) compared to income tax benefit of $0.2 million for the three months ended June 30, 2025 at an effective tax rate of 7.7%. The effective tax rate for the three months ended June 30, 2026 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 June 30, 2025 was primarily impacted by the change in U.S. valuation allowance and foreign taxes. Income tax expense for the six months ended June 30, 2026 was $0.4 million at an effective tax rate of (1.8%) compared to income tax benefit of $0.4 million for the six months ended June 30, 2025 at an effective tax rate of 9.0%. The effective tax rate for the six months ended June 30, 2026 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 six months ended June 30, 2025 was primarily impacted by the change in U.S. valuation allowance, foreign taxes and Federal and State current tax. Key Performance Indicators and Non-GAAP Measures Management routinely reviews key performance indicators, including revenue, operating income and margins, and earnings per share, among others. In addition, we believe certain other measures provide useful information to management and investors about us and our financial condition and results of operations for the following reasons: (i) they are measures used by our Board and management team to evaluate our operating performance; (ii) they are measures used by our management team to make day-to-day operating decisions; (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; 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. 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 margin, net income (loss) or other consolidated income statement data as determined in accordance with GAAP. 24 Adjusted EBITDA (and a reconciliation to Net loss, the nearest GAAP financial measure) for the three and six months ended June 30, 2026 and June 30, 2025, are as follows (in thousands): Three Months Ended Six Months Ended June 30, June 30, 2026 2025 2026 2025 Net loss $ (7,311 ) $ (2,931 ) $ (22,517 ) $ (3,595 ) Interest expense, net 3,666 2,049 5,035 4,055 Depreciation and amortization 2,744 3,098 5,637 6,224 Stock-based compensation 1,271 1,008 2,636 2,920 Income tax expense (benefit) 521 (246 ) 398 (355 ) Restructuring expense (1) 173 125 397 130 Acquisition-related costs (2) — — — 608 Loss on inventory in transit and other costs (3) — — — 605 Professional fees, litigation and other (4) 238 (182 ) 3,216 (182 ) Insurance recovery (5) — (5,965 ) — (9,404 ) Adjusted EBITDA $ 1,302 $ (3,044 ) $ (5,198 ) $ 1,006 (1) Restructuring expenses are costs in connection with reorganization of operations. These costs primarily include severance and related benefits. (2) Costs in connection with reorganization of operations which primarily include severance, related benefits and post-acquisition costs related to PDP acquisition. (3) Loss of inventory while in transit. (4) Professional fees related to potential acquisition opportunities, warehouse relocation and certain litigation proceedings fees. (5) Insurance proceeds from claims related to a loss of inventory while in transit that occurred primarily in the fourth quarter of 2024. 25 Liquidity and Capital Resources 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 June 30, 2026 2025 Cash and cash equivalents at beginning of period $ 16,963 $ 12,995 Net cash provided by operating activities 35,869 37,303 Net cash (used in) provided by investing activities (848 ) 2,019 Net cash used in financing activities (32,380 ) (41,746 ) Effect of exchange rate changes on cash and cash equivalents (39 ) 1,134 Cash and cash equivalents at end of period $ 19,565 $ 11,705 Cash Flows from Operating activities Cash provided by operating activities was $35.9 million for the six months ended June 30, 2026, a decrease of $1.4 million from $37.3 million of cash provided by operating activities for the six months ended June 30, 2025. The decrease was primarily attributable to an $18.9 million increase in net loss, partially offset by favorable working capital changes of $17.2 million. Working capital changes provided $44.0 million of cash during the six months ended June 30, 2026, compared with $26.8 million during the prior six-month period, an improvement of $17.2 million. The year-over-year improvement in working capital was primarily driven by an $18.7 million favorable change in inventories, a $9.3 million favorable change in other liabilities, a $3.5 million favorable change in accounts payable, a $2.6 million favorable change in income taxes payable, and a $1.3 million favorable change in prepaid expenses and other assets, partially offset by an $18.2 million unfavorable change in accounts receivable. The current six-month period operating cash flows also reflected a $3.4 million non-cash adjustment for the change in sales returns reserve and the receipt of $8.2 million of tariff refunds, of which $4.3 million reduced cost of revenue, $3.6 million reduced inventory, and $0.3 million was recognized in other expense (income), net. Cash provided by operating activities for the six months ended June 30, 2025 was $37.3 million, primarily due to higher gross receipts, insurance proceeds from claims related to a loss of inventory, lower acquisition-related costs and reduced spending levels. Cash Flows from Investing activities Cash used in investing activities was $0.8 million for the six months ended June 30, 2026, which was primarily related to purchase of property and equipment of $0.8 million. Cash provided by investing activities was $2.0 million for the six months ended June 30, 2025 primarily driven by $2.5 million of cash acquired in relation to the acquisition of the PDP business. 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. Cash Flows from Financing activities Net cash used in financing activities was $32.4 million during the six months ended June 30, 2026 compared to net cash used by financing activities of $41.7 million during the six months ended June 30, 2025. Financing activities during the six months ended June 30, 2026 consisted primarily of $29.4 million repayments of revolving credit facility, $56.8 million repayments of term loan, and $27.2 million repurchases of common stock. These repayments and repurchases were partially offset by $82.5 million of proceeds from term loan related to the 2026 Credit Agreement. Net cash used for financing activities was $41.7 million during the six months ended June 30, 2025, which 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. Management assessment of liquidity Management believes that our current cash and cash equivalents, the amounts available under our Revolving Credit Facility and cash flows derived from operations will be sufficient to meet anticipated short-term and long-term funding for working capital and capital expenditures 26 including amounts to develop new products, fund future stock repurchases and to pursue strategic opportunities. Significant assumptions underlie this belief, including, among other things, that there will be no material adverse developments in our business, liquidity or capital requirements, or strategic opportunities that require additional capital. 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, 2026 and December 31, 2025 were $5.6 million and $8.7 million, respectively. 2024 Revolving Credit Facility In 2024, we maintained a Revolving Credit Facility (the “2024 Revolving Credit Facility”) with Bank of America, N.A. (“Bank of America”) that provided up to $50.0 million in borrowing capacity, including a $10.0 million sub-facility for Turtle Beach Europe Limited, and was secured by substantially all Company assets. On March 13, 2024, the Company entered into a Fourth Amendment, dated as of March 13, 2024 (the “Fourth Amendment”), to the 2024 Revolving Credit Facility. We executed a Fourth Amendment to the facility, extending the maturity to March 13, 2027, incorporating Performance Designed Products LLC (“PDP”) acquisition assets into the U.S. Borrowing Base and updating interest rate and fee terms. The facility included customary covenants, including a minimum fixed-charge coverage ratio when availability thresholds were not met, and restrictions on additional indebtedness, dividends share repurchases, certain investments, mergers, and asset sales. On August 1, 2025, we entered into the 2025 Credit Facility, defined and discussed below, and repaid in full the amount then-outstanding under the 2024 Revolving Credit Facility. We treated the 2025 Credit Facility as a partial extinguishment of the 2024 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. 2024 Term Loan Facility In March 2024, we entered into a $50.0 million Term Loan Facility (the “2024 Term Loan Facility”) with Blue Torch Finance, LLC (“Blue Torch”) to support the PDP acquisition, repay certain indebtedness of the acquired business, cover transaction‑related fees, and provide general corporate liquidity. The facility was being amortized over its term, was secured by substantially all Company assets, and carried a prepayment premium that expired in March 2025. The 2024 Term Loan Facility was scheduled to mature on March 13, 2027 and included interest rates tied to base rate or Secured Overnight Financing Rate (“SOFR”) benchmarks with leverage‑based pricing tiers, as well as customary affirmative, negative, and financial covenants, including minimum liquidity and quarterly total net leverage requirements. On August 1, 2025, we entered into the 2025 Credit Facility and repaid in full the amount then-outstanding under the 2024 Term Loan Facility for the amount of $43.2 million. We 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. 2025 Credit Facility On August 1, 2025, we and certain of our subsidiaries entered into a Credit Agreement with Bank of America, as the administrative agent, the swingline lender and the line of credit issuer ("the 2025 Credit Facility"). The 2025 Credit Facility was to mature on August 1, 2028 and included 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 for a swingline facility and (iii) $5 million for letters of credit. Actual credit availability under the revolving facility was subject to a borrowing base limitation that was calculated based on a percentage of eligible trade accounts receivable and inventories, the balances of which fluctuate, and was subject to discretionary reserves and revaluation adjustments. The 2025 Credit Facility may have been used for borrowings as well as for the issuance of letters of credit, repaying existing indebtedness outstanding as of the effective date of the 2025 Credit Facility and ongoing working capital and general corporate purposes as defined by the Credit Agreement governing the 2025 Credit Facility. The 2025 Credit Facility replaced our previous debt arrangements at that time. Prior to its repayment and termination, borrowings under the 2025 Credit Facility bore interest at a rate that varied depending on the type of loan and the borrower. The interest rate was calculated using a floating rate plus a margin. Depending on the type of loan, the floating rate was either the prime rate announced by Bank of America, Term SOFR, Daily Simple SOFR, EURIBOR or SONIA. The margin ranged from 2.00% to 2.75% for base rate loans and SONIA based loans and from 3.00% to 3.75% for Term SOFR, Daily Simple SOFR and EURIBOR loans. The 2025 Credit Facility also provided for an unused line fee, letter of credit fees, and agent fees. The borrowers were 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. On April 30, 2026, we repaid in full the amount then-outstanding under the 2025 Credit Facility in connection with the 2026 Term Loan Facility, as defined and described below. Accordingly, the 2025 Credit Facility was no longer available to us as of June 30, 2026. As part of the 27 repayment, we recognized a loss on extinguishment of debt of $1.8 million to write-off the unamortized deferred financing costs in interest expense in our condensed consolidated statements of operations. 2026 Term Loan Facility On April 30, 2026, we entered into a new financing agreement (the "2026 Term Loan Financing Agreement") by and among us, Voyetra Turtle Beach, Inc. (“VTB"), as borrower, each of our subsidiary listed as a guarantor on the signature pages thereto, the lenders from time to time party thereto, and Blue Torch, as administrative agent and collateral agent, pursuant to which Blue Torch made a loan to VTB in the aggregate amount of $85.0 million (the "2026 Term Loan Facility"), the proceeds of which were used to or will be used to (a) refinance existing indebtedness of ours and our subsidiaries; (b) for general corporate purposes; and (c) to pay fees and expenses related to the loan transactions. The 2026 Term Loan Facility will amortize in a quarterly amount equal to 1.25% of the aggregate original principal amount of the 2026 Term Loan Facility. Any prepayment, or any acceleration or other repayment in connection with an insolvency proceeding, occurring during the first twelve months following the closing date will be subject to a prepayment premium equal to (i) the interest that would otherwise have accrued on the principal amount being repaid through the twelve-month anniversary of the closing date, plus (ii) 3.00% of the principal amount being repaid, provided that no such premium applies to regularly scheduled quarterly amortization payments or to certain prepayments specified in the 2026 Term Loan Financing Agreement. The 2026 Term Loan Facility is secured by substantially all of our assets and those of our subsidiaries which are party to the 2026 Term Loan Facility. The 2026 Term Loan Facility (a) will mature on April 30, 2029; (b) will bear interest at a rate equal to (i) a base rate plus 6.50% per annum for Reference Rate Loans and SOFR plus 7.50% per annum for SOFR Loans if the total leverage ratio is greater than or equal to 3.00x, (ii) a base rate plus 6.25% per annum for Reference Rate Loans and SOFR plus 7.25% per annum for SOFR Loans if the total leverage ratio is greater than or equal to 2.25x but less than 3.00x, and (iii) a base rate plus 5.75% per annum for Reference Rate Loans and SOFR plus 6.75% per annum for SOFR Loans if the total 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, 2026, the interest rate for outstanding borrowings was 11.17%. 2026 Revolving Credit Facility On April 30, 2026, we entered into a Loan, Guaranty and Security Agreement (the “2026 Revolving Credit Agreement"), by and among us, VTB, TBC Holding Company LLC, PDP, Turtle Beach Europe Limited, VTB Holdings, Inc., Tide Acquisition Sub II, LLC, the financial institutions party thereto and Bank of America, as agent, collateral agent and security trustee for the lenders to the credit facility (the "2026 Revolving Credit Facility"). The 2026 Revolving Credit Agreement provides for, among other things: (a) subject in each case to the applicable borrowing base, a US commitment in an amount equal to $50.0 million or $65.0 million based on the season and a UK commitment equal to $10.0 million or $15.0 million based on the season; (b) a maturity date of April 30, 2029; (c) interest rate and margin terms such that the loans will bear interest at a rate equal to (1) SOFR, (2) the US Base Rate, (3) SONIA for loans denominated in Sterling, and (4) EURIBOR for loans denominated in Euros, plus in each case, an applicable margin, which is between 0.50% and 1.00% for US Base Rate Loans and 1.50% and 2.00% for US Term SOFR Loans, UK SONIA Rate Loans and UK EURIBOR Loans; and (d) certain affirmative and negative covenants and a springing (subject to certain triggers) fixed charge coverage ratio. The obligations under the 2026 Revolving Credit Agreement are secured by substantially all of our assets and those of our subsidiaries which are party to the 2026 Revolving Credit Agreement. The respective priorities of the security interests securing the 2026 Term Loan Financing Agreement and the 2026 Revolving Credit Agreement are governed by an intercreditor agreement, dated as of April 30, 2026, between Blue Torch and Bank of America. As of June 30, 2026, we were in compliance with all the financial covenants under the Credit Facility, as amended, and excess borrowing availability was approximately $31.0 million. As part of the 2026 Credit Facility, we recorded an aggregate amount of deferred debt financing costs of $1.2 million in our condensed consolidated balance sheet. Critical Accounting Estimates Our discussion and analysis of our results of operations and capital resources are based on our consolidated financial statements, which have been prepared in conformity with GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities. Management bases its estimates, assumptions and judgments on historical experience and on various other factors that it believes to be reasonable under the circumstances. 28 Different assumptions and judgments would change the estimates used in the preparation of the condensed consolidated financial statements, which, in turn, could change the results from those reported. Management evaluates its estimates, assumptions and judgments on an ongoing basis. For a discussion of the critical estimates that affect the condensed consolidated financial statements, see “Critical Accounting Estimates” included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report. See Note 2, “Summary of Significant Accounting Policies,” to the unaudited condensed consolidated financial statements contained herein for a complete discussion of recent accounting pronouncements. We are currently evaluating the impact of certain recently issued guidance on our financial condition and results of operations in future periods.