What changed in this filing

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Item 1. Financial Statements

2021-05-05 compared with 2020-11-05 · 125 added, 225 removed, 354 unchanged (50% of the section changed)

1 unchanged sentence

Turtle Beach Corporation

Condensed Consolidated Statements of Operations

Three Months Ended

(in thousands, except per-share data)

Cost of revenue

Operating expenses:

Selling and marketing

Research and development

General and administrative

Total operating expenses

Operating income (loss)

Interest expense

Other non-operating expense, net

Income (loss) before income tax

Income tax expense (benefit)

Net income (loss)

Net income (loss) per share

Weighted average number of shares:

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

Turtle Beach Corporation

Condensed Consolidated Statements of Comprehensive Income (Loss)

Three Months Ended

(in thousands)

Net income (loss)

Other comprehensive income (loss):

Foreign currency translation adjustment

Other comprehensive income (loss)

Comprehensive income (loss)

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

Turtle Beach Corporation

Condensed Consolidated Balance Sheets

September 30,

(in thousands, except par value and share amounts)

13 unchanged sentences

Total Current Liabilities

Deferred income taxes

Income tax payable

Other liabilities

3 unchanged sentences

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

15,186,990 and 14,488,182 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

15,653,644 and 15,475,504 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively

Additional paid-in capital

5 unchanged sentences

Turtle Beach Corporation

Condensed Consolidated Statements of Operations

Three Months Ended

Nine Months Ended

September 30,

(in thousands, except per-share data)

Cost of revenue

Operating expenses:

Selling and marketing

Research and development

General and administrative

Total operating expenses

Operating income (loss)

Interest expense

Other non-operating expense (income), net

Income (loss) before income tax

Income tax expense

Net income (loss)

Net income (loss) per share

Weighted average number of shares:

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

Turtle Beach Corporation

Condensed Consolidated Statements of Comprehensive Income (Loss)

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Net income (loss)

Other comprehensive income (loss):

Foreign currency translation adjustment

Other comprehensive income (loss)

Comprehensive income (loss)

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

Turtle Beach Corporation

Condensed Consolidated Statements of Cash Flows

Nine Months Ended

September 30, 2020

September 30, 2019

Three Months Ended

March 31, 2021

March 31, 2020

(in thousands)

9 unchanged sentences

Provision for obsolete inventory

Provision for doubtful accounts

Unrealized gain on financial instrument obligation

Increase in fair value of contingent consideration

13 unchanged sentences

Repayment of revolving credit facilities

Proceeds from sale of equity securities

Proceeds from exercise of stock options and warrants

Repurchase of common stock

Repurchase of common stock to satisfy employee tax withholding obligations

Net cash used for financing activities

Net cash provided by (cash used for) financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents - beginning of period

3 unchanged sentences

Cash paid for income taxes

Reclassification of financial instrument obligation

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

11 unchanged sentences

Balance at March 31, 2021

Other comprehensive income, net of tax

Issuance of restricted stock

Repurchase of common stock and retirement of related treasury shares

Stock options exercised

Stock-based compensation

Balance at June 30, 2020

Other comprehensive income, net of tax

Issuance of restricted stock

Repurchase of common stock and retirement of related treasury shares

Stock options exercised

Proceeds of sales of equity securities

Stock-based compensation

Balance at September 30, 2020

Turtle Beach Corporation

Condensed Consolidated Statement of Stockholders ’ Equity (Deficit)

Comprehensive

2 unchanged sentences

Balance at December 31, 2019

Other comprehensive income, net of tax

Reclassification of financial instrument obligation

Other comprehensive loss, net of tax

Issuance of restricted stock

Repurchase of common stock and retirement of related treasury shares

Issuance of common stock upon exercise of warrants

Stock options exercised

1 unchanged sentence

Balance at March 31, 2020

Other comprehensive income, net of tax

Issuance of restricted stock

Repurchase of common stock and retirement of related treasury shares

Common stock buyback

Stock options exercised

Stock-based compensation

Balance at June 30, 2019

Other comprehensive income, net of tax

Issuance of restricted stock

Repurchase of common stock and retirement of related treasury shares

Common stock buyback

Stock options exercised

Stock-based compensation

Balance at September 30, 2019

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

Turt le Beach Corporation

Turtle Beach Corporation

Notes to Condensed Consolidated Financial Statements

Background and Basis of Presentation

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

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

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

Under the ROCCAT brand, the Company creates award-winning keyboards, mice, headsets, mousepads, and other computer accessories.

The recently acquired, Neat Microphones® brand creates high-quality USB and analog microphones for gamers, streamers, and professionals that embrace cutting-edge technology and design.

VTB Holdings, Inc.

1 unchanged sentence

(“VTB”), was incorporated in the state of Delaware in 2010.

VTB, the owner of Turtle Beach Europe Limited (“TB Europe”), was incorporated in the state of Delaware in 1975 with operations principally located in White Plains, New York.

VTB, the owner of TBC Holding Company LLC and Turtle Beach Europe Limited (“TB Europe”), was incorporated in the state of Delaware in 1975 with operations principally located in White Plains, New York.

TB Europe, the owner of TB Germany GmbH, was incorporated in the United Kingdom in 1999.

Basis of Presentation

8 unchanged sentences

Use of estimates :

The preparation of accompanying unaudited consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions about future events.

The preparation of accompanying unaudited consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events.

These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and reported amounts of revenues and expenses during the reporting period.

2 unchanged sentences

The novel coronavirus (“COVID-19”) pandemic has disrupted worldwide economic markets and the extent to which COVID-19 continues to affect the Company’s business, results of operations and financial condition will depend on future developments, which are highly uncertain and difficult to predict.

During the first nine months of 2020, we experienced a significant increase in demand for our products due to the COVID-19-related stay-at-home orders, which resulted in increased revenue.

Nonetheless, we continue to actively monitor and assess the impact of the pandemic on our business, operations, and financial condition.

We continue to actively monitor and assess the impact of the pandemic on our business, operations, and financial condition.

Summary of Significant Accounting Policies

The preparation of consolidated annual and quarterly financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the Company’s consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods.

The preparation of consolidated annual and quarterly financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the Company’s consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods.

The Company can give no assurance that actual results will not differ from those estimates.

There have been no material changes to the critical accounting policies and estimates from the information provided in Note 1 of the notes to our consolidated financial statements in our Annual Report.

Recent Accounting Pronouncements

In January 2017, the FASB issued ASU No.

2017-04, Intangibles-Goodwill and Other:

Simplifying the Test for Goodwill Impairment , which simplifies how an entity is required to test goodwill for impairment.

A goodwill impairment will be measured by the amount by which a reporting unit’s carrying value exceeds its fair value, with the amount of impairment not to exceed the carrying amount of goodwill.

ASU 2017-04 is effective for goodwill impairment tests in fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years, and must be adopted on a prospective basis.

The Company adopted the ASU prospectively on January 1, 2020 , which did not have a material impact on the consolidated financial statements.

In December 2019, the FASB issued ASU No.

2019-12, Simplifying the Accounting for Income Taxes, which amends ASC Topic 740 by removing certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

It also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.

The pronouncement is effective for fiscal years beginning after December 15, 2020, or for any interim periods within those fiscal years, with early adoption permitted.

The Company adopted ASU 2019-12 on January 1, 2020 , which did not have a material impact on the consolidated financial statements.

On May 31, 2019, the Company completed its acquisition of the business and assets of ROCCAT, a provider of gaming keyboards, mice and other accessories for a purchase price of approximately $ 12.7 million at the closing and up to $ 3.4 million in potential earn-outs based on revenues for the years ending December 31, 2019 and 2020, as provided in the asset purchase agreement .

The purchase price was paid in cash at closing and was funded by the Company’s cash reserves and additional borrowings under its credit facility.

In addition, business transaction costs incurred in connection with the acquisition totaled $ 3.9 million, of which there were no expenses for the three months ended September 30, 2020, and $ 0.4 million recorded as a component of “General and administrative” expenses in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2020, respectively.

The ROCCAT purchase price allocation is shown in the following table:

(In thousands)

Property and equipment

Intangible assets

Other long-term assets

Accounts payable

Accrued and other current liabilities

Contingent consideration

Other non-current liabilities

Total identifiable net assets

Total consideration

The fair value of ROCCAT’s assets and liabilities was determined based on estimates and assumptions that management believes are reasonable.

These adjustments primarily relate to certain short-term assets, intangible assets, and certain liabilities including contingent consideration.

The Company and the sellers of ROCCAT have agreed to settle an amount related to sales returns and allowances for approximately $ 1.8 million, which is included in “Accrued and other current liabilities” in the table above.

The goodwill from the acquisition of ROCCAT, which is fully deductible for tax purposes, consists largely of synergies and economies of scale expected from combining the operations of ROCCAT and the Company’s existing business.

The fair value of ROCCAT’s identifiable intangible assets was determined using the “income approach,” which requires a forecast of all of the expected future cash flows either through the use of the multi-period excess earnings method or the relief-from-royalty method.

Neat Microphones

On January 12, 2021, the Company acquired certain assets related to the Neat Microphones business of Stray Electrons LLC, a California limited liability company (“Neat Microphones”) for a purchase price of $ 2.5 million and up to $ 2.3 million in potential earn-outs based on revenues and earnings targets for the year ended December 31, 2021, as provided in the asset purchase agreement.

The closing payment was funded from cash on the Company’s balance sheet.

In addition, business transaction costs incurred in connection with the acquisition of $ 0.2 million for the three months ended March 31, 2021, were recorded as a component of “General and administrative” expenses in the Condensed Consolidated Statements of Operations.

Neat Microphones creates, manufactures, and sells high-quality digital USB and analog microphones that embrace cutting-edge technology and design.

The fair values of Neat Microphone’s assets and liabilities are provisional and were determined based on preliminary estimates and assumptions that management believes are reasonable.

The preliminary purchase price allocation is subject to further refinement and may require significant adjustments to arrive at the final purchase price allocation.

These adjustments will primarily relate to certain intangible assets and certain liabilities including contingent consideration.

The final determination of the fair value of certain assets and liabilities will be completed as soon as the necessary information is available, including the completion of a valuation of the intangible assets and the contingent consideration, but no later than one year from the acquisition date.

The goodwill from the acquisition of Neat Microphones, which is fully deductible for tax purposes, consists largely of synergies and economies of scale expected from adding the operations of Neat Microphones’ and the Company’s existing business and supply channels.

The preliminary estimate of fair value of Neat Microphone’s identifiable intangible assets was determined primarily using the “income approach,” which requires a forecast of all expected future cash flows either through the use of the multi-period excess earnings method or the relief-from-royalty method.

Some of the more significant assumptions inherent in the development of intangible asset values include:

the amount and timing of projected future cash flows, the discount rate selected to measure the risks inherent in the future cash flows, the assessment of the intangible asset’s life cycle, as well as other factors.

The following table summarizes key information underlying intangible assets related to the ROCCAT acquisition:

The following table summarizes key information underlying intangible assets related to the Neat Microphones acquisition:

(In thousands)

Customer relationships

Developed technology

For the three and nine months ended September 30, 2020, revenue related to ROCCAT products was $ 9.6 million and $ 22.0 million, respectively.

The Company is unable to provide the results of operations attributable to ROCCAT as those operations were substantially integrated into our legacy business.

The Company has not presented combined pro forma financial information of the Company and the pre-acquisition ROCCAT business because the results of operations of the acquired business are considered immaterial.

In connection with the $ 1.6 million fair value of the potential $ 3.4 million earn-outs, for the year ended December 31, 2019, the fair value of the contingent consideration has increased as a result of current year revenue performance.

Customer relationships

In addition, the Company recorded $ 1.9 million fair value of contingent consideration associated with the potential $ 2.3 million earn-outs as a component of “Other Current Liabilities” within the Condensed Consolidated Balance Sheet.

Fair Value Measurement

7 unchanged sentences

Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, debt instruments and certain warrants.

As of September 30, 2020 and December 31, 2019, the Company had not elected the fair value option for any financial assets and liabilities for which such an election would have been permitted .

The following is a summary of the carrying amounts and estimated fair values of our financial instruments at September 30, 2020 and December 31, 2019 .

September 30, 2020

As of March 31, 2021 and December 31, 2020 , the Company had not elected the fair value option for any financial assets and liabilities for which such an election would have been permitted .

The following is a summary of the carrying amounts and estimated fair values of our financial instruments at March 31, 2021 and December 31, 2020 .

March 31, 2021

December 31, 2020

2 unchanged sentences

Cash and cash equivalents

Revolving credit facility

Contingent consideration liabilities

1 unchanged sentence

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 equals fair value as the stated interest rate approximates market rates currently available to the Company, which is considered a Level 2 input.

The Company values contingent consideration related to business combinations using a weighted probability calculation of potential payment scenarios discounted at rates reflective of the risks associated with the expected future cash flows.

2 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

5 unchanged sentences

Inventories consist of the following:

September 30,

(in thousands)

Raw materials

Finished goods

Raw materials

Total inventories

1 unchanged sentence

Property and equipment, net, consists of the following:

September 30,

(in thousands)

9 unchanged sentences

Other current liabilities consist of the following:

September 30,

(in thousands)

Accrued tax-related payables

Accrued royalty

Accrued freight

Accrued employee expenses

Accrued freight

Accrued marketing

Contingent consideration

Accrued expenses

Total other current liabilities

Other non-operating expense (income), net

Other non-operating expense (income), net consists of the following:

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Unrealized gain on financial instrument obligation

Acquisition-related settlement

Other non-operating expense (income)

Change in fair value of contingent consideration

Total other non-operating expense (income),net

In the nine months ended September 30, 2020, the Company recorded income of approximately $ 1.7 million for a settlement of claims unrelated to purchase price pursuant to a previously closed acquisition.

Goodwill and Other Intangible Assets

Acquired Intangible Assets

Acquired identifiable intangible assets, and related accumulated amortization, as of September 30, 2020 and December 31, 2019 consist of:

September 30, 2020

Acquired identifiable intangible assets, and related accumulated amortization, as of March 31, 2021 and December 31, 2020 consist of:

March 31, 2021

(in thousands)

10 unchanged sentences

In connection with the October 2012 acquisition of TB Europe, the acquired intangible assets related to customer relationships is being amortized over an estimated useful life of thirteen years with the amortization being included within sales and marketing expense.

In May 2019, the Company completed its acquisition of the business and assets of ROCCAT.

The acquired intangible assets relating to developed technology, customer relationships and trade name are subject to amortization.

Refer to Note 3, “Acquisitions” for additional information related to ROCCAT’s identifiable intangible assets.

Amortization expense related to definite lived intangible assets of $ 0.2 million and $ 0.7 million was recognized for the three and nine months ended September 30, 2020, respectively, and $ 0.2 million and $ 0.4 million for the three and nine months ended September 30, 2019, respectively.

As of September 30, 2020, estimated annual amortization expense related to definite lived intangible assets in future periods is as follows:

In May 2019, the Company acquired the business and assets of ROCCAT.

The acquired intangible assets of ROCCAT relating to developed technology, customer relationships and trade name are subject to amortization.

In January 2021, the Company acquired the business and assets of Neat Microphones.

The acquired intangible assets of Neat Microphones related to developed technology, customer relationships and trade name are subject to amortization.

Refer to Note 3, “Acquisitions” for additional information related to Neat Microphone’s identifiable intangible assets.

Amortization expense related to definite lived intangible assets of $ 0.3 million was recognized for the three months ended March 31, 2021, and $ 0.2 million for the three months ended March 31, 2020.

As of March 31, 2021, estimated annual amortization expense related to definite lived intangible assets in future periods is as follows:

(in thousands)

Changes in the carrying values of goodwill for the nine months ended September 30, 2020 are as follows:

Changes in the carrying values of goodwill for the three months ended March 31, 2021 are as follows:

(in thousands)

Balance as of January 1, 2021

ROCCAT acquisition opening balance adjustment

Balance as of September 30, 2020

Neat Microphones acquisition

Balance as of March 31, 2021

Revolving Credit Facility and Long-Term Debt

September 30,

(in thousands)

Revolving credit facility, maturing March 2024

Total interest expense, inclusive of amortization of deferred financing costs, on long-term debt obligations was $ 0.1 million and $ 0.4 million for the three and nine months ended September 30, 2020, respectively, and $ 0.2 million and $ 0.6 million for the three and nine months ended September 30, 2019, respectively.

Amortization of deferred financing costs was $ 47,000 and $ 0.1 million for the three and nine months ended September 30, 2020, respectively, and $ 47,000 and $ 0.1 million for the three and nine months ended September 30, 2019, respectively.

The Company had no outstanding balance related to its revolving credit facility as of March 31, 2021 and December 31, 2020.

Total interest expense, inclusive of amortization of deferred financing costs, on long-term debt obligations was $ 0.1 million for the three months ended March 31, 2021, and $ 0.2 million for the three months ended March 31, 2020.

Amortization of deferred financing costs was $ 47,000 for the three months ended March 31, 2021 and 2020.

Revolving Credit Facility

3 unchanged sentences

In addition, the Credit Facility provides for a $ 40 million accordion feature and the ability to increase the borrowing base with a FILO Loan of up to $ 6.8 million.

On May 31, 2019, the Company amended the Credit Facility to provide for, amongst other items, (i) the addition of TBC Holding Company LLC, a wholly-owned subsidiary of VTB, as an obligor and (ii) the ability to make investments in TB Germany GmbH, a wholly-owned subsidiary of TB Europe, of up to $ 4 million in connection with the acquisition of the business and assets of ROCCAT and up to an additional $ 4 million annually.

On May 31, 2019, the Company amended the Credit Facility to provide for, amongst other items, (i) the addition of TBC Holding Company LLC, a wholly-owned subsidiary of VTB, as an obligor and (ii) the ability to make investments in TB Germany GmbH, a wholly-owned subsidiary of TB Europe, of up to $ 4 million in connection with the acquisition of the business of ROCCAT and up to an additional $ 4 million annually.

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.

4 unchanged sentences

In addition, Turtle Beach is required to pay a commitment fee on the unused revolving loan commitment at a rate ranging from 0.25 % to 0.50 % and letter of credit fees and agent fees.

As of September 30, 2020, interest rates for outstanding borrowings were 3.75 % for base rate loans and 3.00 % for LIBOR rate loans.

As of September 30, 2020, there were no outstanding borrowings under the Credit Facility.

As of March 31, 2021, interest rates for outstanding borrowings were 3.75 % for base rate loans and 3.00 % for LIBOR rate loans.

As of March 31, 2021, there were no outstanding borrowings under the Credit Facility.

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).

2 unchanged sentences

Obligations under the Credit Facility are secured by a security interest and lien upon substantially all of the Company’s assets.

As of September 30, 2020, the Company was in compliance with all financial covenants under the Credit Facility, as amended, and excess borrowing availability was approximately $ 79.8 million.

As of March 31, 2021, the Company was in compliance with all financial covenants under the Credit Facility, as amended, and excess borrowing availability was approximately $ 49.7 million.

In order to determine the quarterly provision for income taxes, the Company uses an estimated annual effective tax rate (“ETR”), which is based on expected annual income and statutory tax rates in the various jurisdictions.

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Income tax expense

Income tax expense (benefit)

Effective income tax rate

Income tax expense for the three and nine months ended September 30, 2020 was $ 6.4 million at an effective tax rate of 26.5 % and $ 7.9 million at an effective tax rate of 26.0 %, respectively.

Income tax expense for the three and nine months ended September 30, 2019 was $ 63 thousand at an effective tax rate of ( 2.1 %) and $ 0.3 million at an effective tax rate of ( 11.5 %), respectively.

The effective tax rate for the three and nine months ended September 30, 2020 was primarily impacted by permanent items including global intangible low taxed income and executive compensation and, certain state tax expense.

Income tax expense for the three months ended March 31, 2021 was $ 2.8 million at an effective tax rate of 23.8 %.

Income tax benefit for the three months ended March 31, 2020 was $ 1.8 million at an effective tax rate of 33.9 %.

The effective tax rate for the three months ended March 31, 2021 was primarily impacted by the tax effect of disallowed compensation and state income tax expense, offset by benefits on stock option exercises.

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

2 unchanged sentences

Interest and penalties associated with income tax matters are included in the provision for income taxes in the condensed consolidated statements of operations.

As of September 30, 2020, the Company had uncertain tax positions of $ 2.9 million, inclusive of $ 0.7 million of interest and penalties.

As of March 31, 2021, the Company had uncertain tax positions of $ 3.9 million, inclusive of $ 0.8 million of interest and penalties.

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

7 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

4 unchanged sentences

Total stock-based compensation

The following table presents the stock activity and the total number of shares available for grant as of September 30, 2020:

The following table presents the stock activity and the total number of shares available for grant as of March 31, 2021:

(in thousands)

4 unchanged sentences

Forfeited/Expired restricted stock added back

Balance at September 30, 2020

Balance at March 31, 2021

Stock Option Activity

1 unchanged sentence

Outstanding at December 31, 2020

Outstanding at September 30, 2020

Vested and expected to vest at September 30, 2020

Exercisable at September 30, 2020

Outstanding at March 31, 2021

Vested and expected to vest at March 31, 2021

Exercisable at March 31, 2021

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, then all of the options would be forfeited if they are not exercised within 90 days.

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.

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.

1 unchanged sentence

Aggregate intrinsic value represents the difference between the estimated fair value of the underlying common stock and the exercise price of outstanding, in-the-money options.

The aggregate intrinsic value of options exercised was $ 3.9 million for the nine months ended September 30, 2020.

The aggregate intrinsic value of options exercised was $ 4.2 million for the three months ended March 31, 2021.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of options granted as of the grant date.

The following are the assumptions for options granted during the nine months ended September 30, 2020 .

The following are the assumptions for options granted during the three months ended March 31, 2021 :

Expected term (in years)

3 unchanged sentences

Each of these inputs is subjective and generally requires significant judgment to determine.

The weighted average grant date fair value of options granted during the nine months ended September 30, 2020 was $ 3.70 .

The total estimated fair value of employee options vested during the nine months ended September 30, 2020 was $ 1.4 million.

As of September 30, 2020, total unrecognized compensation cost related to nonvested stock options granted to employees was $ 5.7 million, which is expected to be recognized over a remaining weighted average vesting period of 2.8 years.

The weighted average grant date fair value of options granted during the three months ended March 31, 2021 was $ 14.89 .

The total estimated fair value of employee options vested during the three months ended March 31, 2021 was $ 0.3 million.

As of March 31, 2021, there was no unrecognized compensation cost related to nonvested stock options granted to employees.

Restricted Stock Activity

1 unchanged sentence

Shares forfeited

Nonvested restricted stock at September 30, 2020

As of September 30, 2020, total unrecognized compensation costs related to the nonvested restricted stock awards was $ 6.5 million, which will be recognized over a remaining weighted average vesting period of 2.8 years.

Nonvested restricted stock at March 31, 2021

As of March 31, 2021, total unrecognized compensation costs related to the nonvested restricted stock awards was $ 6.3 million, which will be recognized over a remaining weighted average vesting period of 2.5 years.

Stockholder’s Equity

4 unchanged sentences

The Company intends to use the net proceeds from the offering, after deducting the Sales Agent’s commissions and the Company’s offering expenses, to support its strategic growth plans, as well as for general corporate purposes.

During the three months ended September 30, 2020, the Company sold a total of 237,813 shares of its common stock under the Sales Agreement in the open market at an average gross selling price of $ 18.39 per share for net proceeds of $ 4.4 million.

During the year ended December 31, 2020, the Company sold a total of 237,813 shares of its common stock under the Sales Agreement in the open market at an average gross selling price of $ 18.39 per share for net proceeds of $ 4.4 million.

During the three months ended March 31, 2021, the Company had no sales of its common stock under the Sales Agreement.

Net Income (Loss) Per Share

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30,

(in thousands, except per-share data)

11 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

4 unchanged sentences

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.

Although the amount of any liability that could arise with respect to these actions cannot be determined with certainty, in the Company’s opinion, any such liability will not have a material adverse effect on its consolidated financial position, consolidated results of operations or liquidity.

Shareholders Class Action :

17 unchanged sentences

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 approval hearing was held on May 18, 2020, wherein the Court approved the settlement and entered final judgment.

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 CEO, 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.

14 unchanged sentences

Discovery is closed and the case was set for trial on April 6, 2020 in San Diego County Superior Court.

Due to the continued closure of the Court, the April 6, 2020 trial date was vacated and the current trial date is February 26, 2021.

Due to the continued closure of the Court, the April 6, 2020 trial date was vacated and the current trial date is July 9, 2021.

Settlement of Disputes :

On May 5, 2020, Jöllenbeck GmbH and First Wise Media GmbH, two of our distributors and affiliates of the sellers of the ROCCAT business, filed for insolvency in Germany.

On June 30, 2020, the Company entered into a Settlement Agreement with those companies and the sellers of the ROCCAT business pursuant to which, among other things, the Company received a payment for certain

outstanding claims and accounts receivable.

On July 1, 2020, the insolvency proceedings for the two companies formally commenced.

The Company has filed a claim in those proceedings for approximately € 130,000 with respect to the remaining outstanding accounts receivable.

Intellectual Property dispute:

On November 24, 2020, ABP Technology Limited (ABP) issued a claim for trade mark infringement in the High Court of England and Wales against Voyetra Turtle Beach, Inc.

(“VTB”) and Turtle Beach Europe Limited (“TBEU”) relating to the use by VTB and TBEU of the sign STEALTH on and in relation to gaming headsets in the UK.

VTB and TBEU filed and served a Defense to the claim on February 2, 2021.

On March 31, 2021, ABP filed an application for summary judgement.

If the application is unsuccessful, the next stage in the proceedings will be a Case Management Conference (date to be set) at which the Court will give directions for each stage to trial.

The trial is expected to be set for late-2022.

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

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

The Company has not recorded any accrual at September 30, 2020 for contingent losses associated with these matters based on its belief that losses, while possible, are not probable.

The Company has not recorded any accrual at March 31, 2021 for contingent losses associated with these matters based on its belief that losses, while possible, are not probable.

Further, any possible range of loss cannot be reasonably estimated at this time.

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Three Months Ended

Nine Months Ended

September 30,

(in thousands)

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Balance Sheet Classification

September 30, 2020

March 31, 2021

(in thousands)

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Weighted-average discount rate

During the nine months ended September 30, 2020, the Company recognized approximately $ 1.0 million of lease costs in operating expenses and approximately $ 0.5 million of operating cash flows from operating leases.

Approximate future minimum lease payments for the Company’s right of use assets over the remaining lease periods as of September 30, 2020, are as follows:

During the three months ended March 31, 2021, the Company recognized approximately $ 0.3 million of lease costs in operating expenses and approximately $ 0.2 million of operating cash flows from operating leases.

Approximate future minimum lease payments for the Company’s right of use assets over the remaining lease periods as of March 31, 2021, are as follows:

(in thousands)

2 unchanged sentences

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 1. Financial Statements