[10-Q] Turtle Beach Corporation Quarterly Earnings Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
(Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbols |
Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes
The number of shares of the registrant’s Common Stock, par value $0.001 per share, outstanding on July 31, 2025 was
INDEX
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PART I. FINANCIAL INFORMATION |
2 |
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Item 1. |
Financial Statements (unaudited) |
2 |
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Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2025 and 2024 |
2 |
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Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2025 and 2024 |
3 |
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Condensed Consolidated Balance Sheets as of June 30, 2025 and December 31, 2024 |
4 |
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Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2025 and 2024 |
5 |
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Condensed Consolidated Statement of Stockholders' Equity for the Three and Six Months Ended June 30, 2025 and 2024 |
6 |
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Notes to Condensed Consolidated Financial Statements |
7 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
21 |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
28 |
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Item 4. |
Controls and Procedures |
29 |
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PART II. OTHER INFORMATION |
30 |
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Item 1. |
Legal Proceedings |
30 |
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Item 1A. |
Risk Factors |
30 |
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
31 |
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Item 5. |
Other Information |
31 |
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Item 6. |
Exhibits |
32 |
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SIGNATURES |
33 |
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1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Turtle Beach Corporation
Condensed Consolidated Statements of Operations
(unaudited, in thousands, except per-share data)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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June 30, |
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June 30, |
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2025 |
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2024 |
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2025 |
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2024 |
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Net revenue |
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$ |
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$ |
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$ |
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$ |
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Cost of revenue |
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Gross profit |
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Operating expenses: |
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Selling and marketing |
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Research and development |
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General and administrative |
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Insurance recovery, net |
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( |
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- |
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( |
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- |
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Acquisition-related cost |
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- |
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Total operating expenses |
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Operating (loss) income |
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( |
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( |
) |
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( |
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Interest expense |
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Other expense, net |
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Loss before income tax |
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( |
) |
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( |
) |
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( |
) |
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( |
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Income tax (benefit) expense |
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( |
) |
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( |
) |
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( |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
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( |
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$ |
( |
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Net loss per share |
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Basic |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
) |
Diluted |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Weighted average number of shares: |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Turtle Beach Corporation
Condensed Consolidated Statements of Comprehensive Loss
(unaudited, in thousands)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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June 30, |
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June 30, |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Other comprehensive income (loss) |
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Foreign currency translation adjustment |
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( |
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Other comprehensive income (loss) |
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( |
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Comprehensive loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Turtle Beach Corporation
Condensed Consolidated Balance Sheets
(in thousands, except par value and share amounts)
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June 30, |
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December 31, |
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2025 |
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2024 |
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(unaudited) |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Inventories |
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Prepaid expenses and other current assets |
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Total Current Assets |
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Property and equipment, net |
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Goodwill |
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Intangible assets, net |
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Other assets |
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Total Assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current Liabilities: |
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Revolving credit facility |
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$ |
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$ |
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Accounts payable |
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Other current liabilities |
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Total Current Liabilities |
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Debt, non-current |
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Income tax payable |
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Other liabilities |
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Total Liabilities |
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Stockholders’ Equity |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
) |
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( |
) |
Accumulated other comprehensive income (loss) |
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( |
) |
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Total Stockholders’ Equity |
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Total Liabilities and Stockholders’ Equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Turtle Beach Corporation
Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands)
|
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Six Months Ended |
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June 30, 2025 |
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June 30, 2024 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
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Depreciation and amortization |
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Fair value step-up adjustment to acquired inventory |
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— |
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Amortization of intangible assets |
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Amortization of debt financing costs |
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Stock-based compensation |
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Deferred income taxes |
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( |
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Change in sales returns reserve |
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( |
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Provision for obsolete inventory |
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Changes in operating assets and liabilities, net of acquisitions: |
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Accounts receivable |
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Inventories |
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( |
) |
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( |
) |
Accounts payable |
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( |
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Prepaid expenses and other assets |
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( |
) |
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( |
) |
Income taxes payable |
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( |
) |
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Other liabilities |
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( |
) |
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( |
) |
Net cash provided by operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Purchases of property and equipment |
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( |
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( |
) |
Acquisition of a business, net of cash acquired |
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( |
) |
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Net cash provided by (used for) investing activities |
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( |
) |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Borrowings on revolving credit facilities |
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Repayment of revolving credit facilities |
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( |
) |
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( |
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Proceeds from term loan |
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— |
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Repayment of term loan |
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( |
) |
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( |
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Proceeds from exercise of stock options |
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Repurchase of common stock |
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( |
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( |
) |
Debt financing costs |
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— |
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( |
) |
Net cash (used for) provided by financing activities |
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( |
) |
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Effect of exchange rate changes on cash and cash equivalents |
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Net decrease in cash and cash equivalents |
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( |
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( |
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Cash and cash equivalents - beginning of period |
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Cash and cash equivalents - end of period |
|
$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Turtle Beach Corporation
Condensed Consolidated Statement of Stockholders’ Equity
(unaudited, in thousands)
|
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Shares |
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Amount |
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Capital |
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Deficit |
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(Loss) Income |
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Total |
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Balance at December 31, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Net loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Other comprehensive income, net of tax |
|
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— |
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— |
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— |
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— |
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Issuance of restricted stock |
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— |
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— |
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— |
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— |
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— |
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Stock options exercised |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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||
Repurchase of common stock |
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( |
) |
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— |
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( |
) |
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— |
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— |
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( |
) |
Balance at March 31, 2025 |
|
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|
$ |
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$ |
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$ |
( |
) |
|
$ |
( |
) |
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$ |
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||||
Net loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Other comprehensive income, net of tax |
|
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— |
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— |
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— |
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— |
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||
Issuance of restricted stock |
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— |
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— |
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— |
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— |
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— |
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Stock options exercised |
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— |
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— |
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— |
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|||
Stock-based compensation |
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— |
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— |
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— |
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— |
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||
Repurchase of common stock |
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|
( |
) |
|
|
— |
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( |
) |
|
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— |
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|
— |
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|
( |
) |
Balance at June 30, 2025 |
|
|
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|
$ |
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$ |
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|
$ |
( |
) |
|
$ |
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$ |
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|||||
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Shares |
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Amount |
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Capital |
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Deficit |
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Loss |
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Total |
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||||||
Balance at December 31, 2023 |
|
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|
$ |
|
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$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
Net income |
|
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— |
|
|
|
— |
|
|
|
— |
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|
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|
|
— |
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||
Other comprehensive loss, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Issuance of acquisition-related stock |
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— |
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— |
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||||
Issuance of restricted stock |
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— |
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— |
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— |
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|
|
— |
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— |
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|
Stock options exercised |
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— |
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|
|
— |
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|
|
— |
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|||
Stock-based compensation |
|
|
— |
|
|
|
— |
|
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|
|
|
|
— |
|
|
|
— |
|
|
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|
||
Balance at March 31, 2024 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Other comprehensive income, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
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||
Issuance of restricted stock |
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— |
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|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock options exercised |
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|
|
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|
|
|
|
— |
|
|
|
— |
|
|
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|
||||
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Repurchase of common stock |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Balance at June 30, 2024 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Turtle Beach Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 1. Description of Business
Organization
Turtle Beach Corporation (“Turtle Beach” or the “Company”), headquartered in San Diego, California and incorporated in the state of Nevada in 2010, is a premier audio and gaming technology company with expertise and experience in developing, commercializing, and marketing innovative products across a range of large addressable markets under the Turtle Beach® brand. Turtle Beach, a worldwide leader of feature-rich headset solutions for use across multiple platforms, including video game and entertainment consoles, handheld consoles, personal computers (“PC”), tablets and mobile devices, expanded its brand beyond gaming headsets and launched its gaming controller product line, as well as gaming flight simulation and racing simulation accessories, and strengthened its gaming PC keyboards and mice product lines. In March 2024, Turtle Beach acquired Performance Designed Products LLC (“PDP”), another leading gaming accessory brand with a robust slate of products, including gaming controllers, gamepads for all platforms and licensing deals with popular gaming and entertainment properties.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, reflect all adjustments (which include normal recurring adjustments) considered necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented.
All intercompany accounts and transactions have been eliminated in consolidation. Certain information and footnote disclosures, normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), have been condensed or omitted pursuant to those rules and regulations. The Company believes that the disclosures made are adequate to make the information presented not misleading. The results of operations for the interim periods are not necessarily indicative of the results of operations for the entire fiscal year.
The December 31, 2024 Condensed Consolidated Balance Sheet has been derived from the Company’s audited financial statements included in its Annual Report on Form 10-K filed with the SEC on March 17, 2025 (“Annual Report”).
These financial statements should be read in conjunction with the annual financial statements and the notes thereto included in the Annual Report that contains information useful to understanding the Company’s businesses and financial statement presentations.
Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to use estimates and assumptions that affect the reported amount of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. The significant estimates and assumptions used by management affect: sales return reserve, allowances for cash-based incentive programs, warranty reserve, valuation of inventory, valuation of long-lived assets, goodwill and other intangible assets, depreciation and amortization of long-lived assets, valuation of deferred tax assets, probability of performance shares vesting and forfeiture rates utilized in issuing stock-based compensation awards. The Company evaluates estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ from these estimates, and those differences could be material to the consolidated financial statements.
There have been no material changes to the significant accounting policies and estimates from the information provided in Note 1 of the notes to our consolidated financial statements in our Annual Report.
Recently Issued Accounting Pronouncements Not Yet Adopted
The Company considers the applicability and impact of all Accounting Standards Update (“ASUs"). ASUs not referenced below were assessed and determined to be either not applicable or are not expected to have a material impact on the Company's unaudited condensed consolidated financial statements.
7
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. This ASU is effective for fiscal years beginning after December 15, 2024 and allows for adoption on a prospective basis, with early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard to determine its impact on the Company's disclosures.
In November 2024, the FASB issued ASU 2024-03, Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which is intended to improve disclosures related to certain income statement expenses of the Company. This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard to determine its impact on the Company's disclosures.
Note 3. Business Combinations
Performance Designed Products LLC Acquisition
On March 13, 2024, the Company acquired all the issued and outstanding equity of PDP for consideration that included cash and common stock. PDP was a privately held gaming accessories leader that designs and distributes video game accessories, including controllers, headsets, power supplies, cases, and other accessories. As a result of the acquisition, the Company strengthened its leadership position in hardware gaming accessories and expanded its product portfolio.
Consideration for the transaction consisted of the issuance of
The following table summarizes the allocation of the consideration transferred to the assets acquired and liabilities assumed at the acquisition date:
(In thousands) |
|
Amount |
|
|
Cash |
|
|
|
|
Accounts Receivable |
|
|
|
|
Inventory |
|
|
|
|
Prepaid and Other Current Assets |
|
|
|
|
Property, Plant & Equipment |
|
|
|
|
Other Assets |
|
|
|
|
Intangible Assets |
|
|
|
|
Accounts Payable |
|
|
( |
) |
Accrued Liabilities |
|
|
( |
) |
Lease Payable |
|
|
( |
) |
Deferred Tax Liability |
|
|
( |
) |
Total identifiable net assets |
|
|
|
|
Goodwill |
|
|
|
|
Total consideration |
|
$ |
|
|
On January 28, 2025, the Company finalized the post-closing adjustments related to the acquisition of PDP, resulting in a $
The goodwill from the acquisition, which is fully deductible for tax purposes, consists largely of synergies and economies of scale expected from adding the operations of PDP's and the Company’s existing business and supply channels.
8
PDP's net revenue has been integrated in the Company's unaudited condensed consolidated financial statements in the six months ended June 30, 2025. PDP's net revenue included in the Company’s consolidated results was $
Note 4. Fair Value Measurement
The Company follows a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and the revolving line of credit. As of June 30, 2025 and December 31, 2024, the Company has not elected the fair value option for any financial assets and liabilities for which such an election would have been permitted.
The following is a summary of the carrying amounts and estimated fair values of the Company's financial instruments as of June 30, 2025 and December 31, 2024:
|
|
June 30, 2025 |
|
|
December 31, 2024 |
|
||||||||||
|
|
Reported |
|
|
Fair Value |
|
|
Reported |
|
|
Fair Value |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Financial Assets and Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Term Loan |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Revolving credit facility |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Cash equivalents are stated at amortized cost, which approximates fair value as of the consolidated balance sheet dates, due to the short period of time to maturity; and accounts receivable and accounts payable are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment. The carrying value of the Credit Facility and Term Loan due 2027 equals fair value as the stated interest rate approximates market rates currently available to the Company. The carrying value of the Credit Facility approximates fair value, due to the variable rate nature of the debt, as of June 30, 2025 and December 31, 2024.
Note 5. Balance Sheet Components
Inventories
Inventories consist of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
|
|
|||||
Finished goods |
|
$ |
|
|
$ |
|
||
Raw materials |
|
|
|
|
|
|
||
Total inventories |
|
$ |
|
|
$ |
|
||
9
Property and Equipment, net
Property and equipment, net, consists of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
|
|
|||||
Machinery and equipment |
|
$ |
|
|
$ |
|
||
Software and software development |
|
|
|
|
|
|
||
Furniture and fixtures |
|
|
|
|
|
|
||
Tooling (1) |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Demonstration units and convention booths (1) |
|
|
|
|
|
|
||
Total property and equipment, gross |
|
|
|
|
|
|
||
Less: accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Total property and equipment, net |
|
$ |
|
|
$ |
|
||
(1) In March 2025, the Company wrote off certain fully depreciated demonstration units and tooling totaling $
Depreciation and amortization expense on property and equipment was $
Other Current Liabilities
Other current liabilities consist of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
|
|
|
|
|
||
Accrued employee expenses |
|
$ |
|
|
$ |
|
||
Accrued royalty |
|
|
|
|
|
|
||
Accrued tax-related payables |
|
|
|
|
|
|
||
Accrued freight |
|
|
|
|
|
|
||
Accrued marketing |
|
|
|
|
|
|
||
Accrued expenses |
|
|
|
|
|
|
||
Term loan, short term |
|
|
|
|
|
|
||
Total other current liabilities |
|
$ |
|
|
$ |
|
||
Note 6. Goodwill and Intangible Assets
Goodwill
The Company conducts its goodwill impairment analysis annually or more frequently if changes in facts and circumstances indicate that it is more likely than not that the fair value of a reporting unit may be less than its carrying value. There were
10
Company's market capitalization continues to exceed the net carrying value of the business. As such, the Company did not perform any further qualitative or quantitative testing.
The following table summarizes the changes in the carrying amount of goodwill (in thousands):
|
|
|
|
|
Balance as of January 1, 2025 |
|
$ |
|
|
Purchase price adjustment |
|
|
( |
) |
Balance as of June 30, 2025 |
|
$ |
|
|
Intangible Assets, net
Acquired identifiable intangible assets, and related accumulated amortization, as of June 30, 2025 and December 31, 2024 consisted of (in thousands):
|
|
June 30, 2025 |
|
|||||||||
|
|
Gross |
|
|
Accumulated |
|
|
Net Book |
|
|||
|
|
|
|
|||||||||
Customer relationships |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Tradenames |
|
|
|
|
|
|
|
|
|
|||
Developed technology |
|
|
|
|
|
|
|
|
|
|||
Patent and trademarks |
|
|
|
|
|
|
|
|
|
|||
Total Intangible Assets |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
December 31, 2024 |
|
|||||||||
|
|
Gross |
|
|
Accumulated |
|
|
Net Book |
|
|||
|
|
|
|
|||||||||
Customer relationships |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Tradenames |
|
|
|
|
|
|
|
|
|
|||
Developed technology |
|
|
|
|
|
|
|
|
|
|||
Patent and trademarks |
|
|
|
|
|
|
|
|
|
|||
Total Intangible Assets |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Amortization expense related to definite lived intangible assets of $
As of June 30, 2025, estimated annual amortization expense related to definite lived intangible assets in future periods was as follows (in thousands):
2025 |
|
$ |
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
Note 7. Credit Facility and Long-Term Debt
11
The following table presents the carrying value of the Revolving Credit Facility and Term Loan (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
Revolving credit facility, maturing |
|
$ |
|
|
$ |
|
||
Term loan due March 2027 |
|
$ |
|
|
$ |
|
||
Total interest expense, inclusive of amortization of deferred financing costs, on long-term debt obligations was $
Amortization of deferred financing costs were $
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
On March 13, 2024, the Company entered into a Fourth Amendment, dated as of March 13, 2024 (the “Fourth Amendment”), by and among the Company, Voyetra Turtle Beach, Inc., TBC Holding Company LLC, Turtle Beach Europe Limited, VTB Holdings, Inc., the financial institutions party thereto from time to time and Bank of America, as administrative agent, collateral agent and security trustee for the lenders.
Among other things, the Fourth Amendment provided for: (i) the acquisition of PDP; (ii) the revision of the calculation of the U.S. Borrowing Base to include certain acquired assets of PDP equal to the lesser of (a) the sum of the accounts formula amount and the inventory formula amount (each as defined in the Fourth Amendment), (b) $
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, and (iii) the EUIBOR for loans denominated in Euros, plus in each case, an applicable margin, which is between
The Company is subject to quarterly financial covenant testing if certain availability thresholds are not met or certain other events occur (as defined in the Credit Facility). The Credit Facility requires the Company and its restricted subsidiaries to maintain a fixed charge coverage ratio of at least
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 $
12
Term Loan
On March 13, 2024, Turtle Beach and certain of its subsidiaries entered into a new financing agreement with Blue Torch Finance, LLC, (“Blue Torch”), pursuant to which Blue Torch for an aggregate amount of $
The Term Loan Facility (a) matures on
As of June 30, 2025, the Company was in compliance with all the financial covenants under the Term Loan Facility.
Maturities of Term Loan Debt
As of June 30, 2025, maturities of debt, assuming no prepayments, are as follows (in thousands):
|
|
|
|
|
2025 |
|
$ |
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Total |
|
$ |
|
|
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. The Credit Agreement, matures on
Borrowings will bear interest at a rate that varies depending on the type of loan 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. The margin will range from
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 $
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.
13
Note 8. Commitments and Contingencies
Litigation
The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business. Although the amount of any liability that could arise with respect to these actions cannot be determined with certainty, in the Company’s opinion, any such liability will not have a material adverse effect on its consolidated financial position, consolidated results of operations or liquidity.
Shareholders Class Action: On August 5, 2013, VTB Holdings, Inc. (“VTBH”) and the Company (f/k/a Parametric Sound Corporation) announced that they had entered into the Merger Agreement pursuant to which VTBH would acquire an approximately
On May 22, 2020, PAMTP LLC, which purports to hold the claims of
Insolvency Dispute in Germany: On February 15, 2024, TBC Holding Company LLC (“TBCH”), a wholly owned subsidiary of Turtle Beach Corporation, was served with a lawsuit that was brought to the German Higher Regional Court in Stade by the insolvency administrator of KJE Europe GmbH (“KJE”), a company registered and existing under the laws of Germany. In his complaint, the insolvency administrator claims that TBCH is liable to reimburse any payments received by the TBCH under a certain settlement agreement with KJE dated June 30, 2020. On February 28, 2025, the Court ruled in favor of the insolvency administrator holding that TBCH was liable for EUR
Intellectual Property Dispute: On May 28, 2025, PDP filed an action for declaratory judgment of non-infringement of four patents purportedly owned by OKYN Holdings, Inc., d/b/a Nyko Technologies (“Nyko”) in the United States District Court for the Southern District of California. Nyko had written to PDP on October 31, 2024 asserting that PDP’s Ultra Slim Charge System for PlayStation 4 (“Ultra Slim”) infringed those patents. Nyko has responded to PDP’s complaint and filed counterclaims for patent infringement by the Ultra Slim. On June 12, 2025, Nyko filed a lawsuit in the Southern District of California asserting that PDP and Turtle Beach Corporation infringed the same four
14
patents at issue in the declaratory judgment action filed by PDP. On July 8, 2025, PDP and Turtle Beach moved to dismiss Nyko’s complaint and that motion is pending.
Intellectual Property Dispute: On July 18, 2025, Gametronics LLC filed a patent infringement lawsuit against Voyetra Turtle Beach, Inc., (“VTB”) a wholly owned subsidiary of Turtle Beach Corporation, in the United States District Court for the District of Delaware, asserting infringement of three patents by the Victrix™ Pro BFG™ Wireless Controller. VTB is investigating Gametronics’ allegations.
The Company will continue to vigorously defend itself in the foregoing unresolved matters. However, litigation and investigations are inherently uncertain. Accordingly, the Company cannot predict the outcome of these matters. The Company has not recorded any accrual at June 30, 2025 for contingent losses associated with these matters unless otherwise disclosed above based on its belief that losses, while possible, are not probable. Further, any possible range of loss cannot be reasonably estimated at this time. The unfavorable resolution of these matters could have a material adverse effect on the Company’s business, results of operations, financial condition, or cash flows. The Company is engaged in other legal actions, not described above, arising in the ordinary course of its business and, while there can be no assurance, believes that the ultimate outcome of these other legal actions will not have a material adverse effect on its business, results of operations, financial condition, or cash flows.
Product Warranties
The Company warrants its products against certain manufacturing and other defects. These product warranties are provided for specific periods of time depending on the nature of the product. Warranties are generally fulfilled by replacing defective products with new products.
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
2025 |
|
|
2024 |
|
|
2025 |
|
|
2024 |
|
||||
|
|
|
|
|||||||||||||
Warranty, beginning of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Warranty costs accrued |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Settlements of warranty claims |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Warranty, end of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Indemnifications
The Company indemnifies certain suppliers and customers for losses arising from matters such as intellectual property disputes and
product safety defects, subject to certain restrictions. The scope of these indemnities varies, but in some instances includes indemnification for
damages and expenses, including reasonable attorneys’ fees. As of June 30, 2025, no material amounts have been accrued for indemnification
provisions. The Company does not believe, based on historical experience and information currently available, that it is probable that any
material amounts will be required to be paid under its indemnification arrangements.
The Company also indemnifies its current and former directors and certain current and former officers. Certain costs incurred for providing
such indemnification may be recoverable under various insurance policies. The Company is unable to reasonably estimate the maximum
amount that could be payable under these arrangements because these exposures are not capped, the obligations are conditional in nature, and
the facts and circumstances involved in any situation that might arise are variable.
Note 9. Income Taxes
The following table presents the Company’s income tax expense (in thousands) and effective income tax rate:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
2025 |
|
|
2024 |
|
|
2025 |
|
|
2024 |
|
||||
|
|
|
|
|||||||||||||
Income tax benefit |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Effective income tax rate |
|
|
% |
|
|
( |
%) |
|
|
% |
|
|
% |
|||
15
The effective tax rate for the three and 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. The effective tax rate for the three and six months ended June 30, 2024 was primarily impacted by the release of U.S. valuation allowance for PDP acquired net deferred tax liabilities.
The Company recognizes only those tax positions that meet the more-likely-than-not recognition threshold and establishes tax reserves for uncertain tax positions that do not meet this threshold. Interest and penalties associated with income tax matters are included in the provision for income taxes in the condensed consolidated statements of operations. As of June 30, 2025, the Company had uncertain tax positions of $
As required by the authoritative guidance on accounting for income taxes, the Company evaluates the realizability of deferred tax assets on a jurisdictional basis at each reporting date. Accounting for income taxes requires that a valuation allowance be established when it is more likely than not that all or a portion of the deferred taxes will not be realized. The Company considers all positive and negative evidence in determining if, based on the weight of such evidence, a valuation allowance is required. In circumstances where there is sufficient negative evidence indicating that the deferred tax assets are not more likely than not realizable, the Company establishes a valuation allowance. Due to the significant 2022 pre-tax loss, coupled with cumulative book losses projected in early future years, the Company recorded a valuation allowance on its net U.S. deferred tax assets as of December 31, 2022. The Company continues to maintain this valuation allowance for the three and six months ended June 30, 2025. For the six months ended June 30, 2024, the Company recorded a $
The Company is subject to income taxes domestically and in various foreign jurisdictions. The Company files U.S., state and foreign income tax returns in jurisdictions with various statutes of limitations. The federal tax years open under the statute of limitations are 2021 through 2023, and the state tax years open under the statute of limitations are 2020 through 2023, and the foreign tax years open under the statute of limitations are 2021 through 2023.
On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (“OBBBA”). The OBBBA makes permanent key elements of the Tax Cuts and Jobs Act, including
Note 10. Equity Incentive Plans and Stock-Based Compensation
Stock Repurchase Activity
On May 7, 2025, The Company' Board of Directors authorized a stock repurchase program to acquire up to $
The Company repurchased
16
Stock-Based Compensation
Total estimated stock-based compensation expense for employees and non-employees, related to all of the Company’s stock-based awards, was as follows (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
2025 |
|
|
2024 |
|
|
2025 |
|
|
2024 |
|
||||
|
|
|
|
|||||||||||||
Cost of revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Selling and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total stock-based compensation |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following table presents the stock activity and the total number of shares available for grant as of June 30, 2025:
|
|
|
|
|
Balance at December 31, 2024 |
|
|
|
|
Plan Amendment |
|
|
|
|
Options Cancelled |
|
|
|
|
Restricted Stock Cancelled |
|
|
|
|
Restricted Stock Granted |
|
|
( |
) |
Performance Shares Issued |
|
|
( |
) |
Balance at June 30, 2025 |
|
|
|
|
Stock Option Activity
|
|
Options Outstanding |
|
|||||||||||||
|
|
Number of |
|
|
Weighted- |
|
|
Weighted- |
|
|
Aggregate |
|
||||
|
|
|
|
|
|
|
|
(in years) |
|
|
|
|
||||
Outstanding at December 31, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Options Granted |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Options Exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Options Forfeited |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Outstanding at June 30, 2025 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Vested and expected to vest at June 30, 2025 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable at June 30, 2025 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Stock options are time-based and the majority are exercisable within
17
There have been
Restricted Stock Activity
|
|
Shares |
|
|
Weighted |
|
||
Nonvested restricted stock at December 31, 2024 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Shares forfeited |
|
|
( |
) |
|
|
|
|
Nonvested restricted stock at June 30, 2025 |
|
|
|
|
$ |
|
||
As of June 30, 2025, total unrecognized compensation cost related to the nonvested restricted stock granted was $
Warrants
As of June 30, 2025, the Company had
Note 11. Net Loss Per Share
The following table sets forth the computation of basic and diluted net loss per share of common stock attributable to common stockholders (in thousands, except per-share data):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
2025 |
|
|
2024 |
|
|
2025 |
|
|
2024 |
|
||||
|
|
|
|
|||||||||||||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding — Basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Plus incremental shares from assumed conversions: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Effect of dilutive securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Weighted average common shares outstanding — Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
18
Incremental shares from stock options and restricted stock are computed by the treasury stock method. The treasury stock method calculates dilution assuming the exercise of all in-the-money options and vesting of restricted stock, reduced by the repurchase of shares with the proceeds from the assumed exercises and unrecognized compensation expense for outstanding awards and the estimated tax benefit of the assumed exercises.
The weighted average shares listed below were not included in the computation of diluted earnings per common share because to do so would have been anti-dilutive for the periods presented or were otherwise excluded under the treasury stock method.
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
2025 |
|
|
2024 |
|
|
2025 |
|
|
2024 |
|
||||
|
|
|
|
|||||||||||||
Stock options |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restricted stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Note 12. Segment Information
The Company operates in a reportable segment. The entire business is managed by a single management team whose chief operating decision maker is
The following table represents total net revenue based on where customers are physically located (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
2025 |
|
|
2024 |
|
|
2025 |
|
|
2024 |
|
||||
|
|
|
|
|||||||||||||
North America |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Europe and Middle East |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asia Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following table reflects the significant expenses of the Company's reportable segment for the following periods (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
2025 |
|
|
2024 |
|
|
2025 |
|
|
2024 |
|
||||
|
|
|
|
|||||||||||||
Net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Significant segment expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Marketing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other (recovery) costs (1) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Operating (loss) income |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income tax benefit |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
19
(1) Other costs in the three and six months ended June 30, 2025 include acquisition-related costs and an insurance recovery. Other costs in the three and six months ended June 30, 2024 include acquisition-related costs.
20
Item 2. 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.”)
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
Turtle Beach Corporation (“Turtle Beach” or the “Company”), headquartered in San Diego, California, and incorporated in the state of Nevada in 2010, is a premier audio and gaming technology company with expertise and experience in developing, commercializing, and marketing innovative products across a range of large addressable markets under the Turtle Beach brand. The Turtle Beach® brand is a market share leader in console gaming headsets with a vast portfolio of headsets designed to be compatible with the latest Xbox, PlayStation, and Nintendo consoles, as well as for personal computers (“PCs”) and mobile/tablet devices. Turtle Beach Corporation’s PC product portfolio includes headsets, gaming keyboards, mice and other gaming accessories focused on the PC gaming platform and it has recently expanded its brand beyond gaming headsets and launched its gaming controller product line, as well as, gaming flight simulation and racing simulation accessories. In March 2024, Turtle Beach acquired Performance Designed Products LLC (“PDP”), another leading gaming accessory brand with a robust slate of products, including gaming controllers/gamepads for all platforms and licensing deals with popular gaming and entertainment properties. The Company has transitioned all gaming accessories under its best-selling Turtle Beach brand, with products for consoles and PC, including multiplatform gaming headsets, controllers, mice, keyboards, microphones, and flight/racing simulation accessories under one of the industry’s most recognized and trusted brand names.
Business Trends
Turtle Beach operates in the approximately $200 billion global games and accessories market. The global gaming audience now exceeds global cinema and music markets with over 3.4 billion active gamers worldwide. Gaming peripherals, such as headsets, controllers, keyboards, mice, microphones, and flight and racing simulation controls are estimated to be an $11 billion business globally.
The console and PC gaming accessory markets are driven by major game launches and long-running franchises that encourage players to continually buy equipment and accessories. On Xbox, PlayStation, Nintendo Switch and PC, flagship games like Call of Duty, Destiny, Star Wars: Battlefront, Grand Theft Auto, Battlefield, and battle royale games like Fortnite, Call of Duty Warzone, Apex Legends, and PlayerUnknown’s Battlegrounds, are examples of major franchises that prominently feature online multiplayer modes that encourage player-to-player communication and drive increased demand for gaming headsets, controllers, and more. Many of these established franchises launch new titles annually, leading into the holidays and beyond, and as a result can cause an additional boost to the normally strong holiday sales for gaming accessories.
Additionally, some larger franchise games, for example Call of Duty and Fortnite, follow-up with 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.
21
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, |
|
||||||||||
|
|
2025 |
|
|
2024 |
|
|
2025 |
|
|
2024 |
|
||||
|
|
|
|
|||||||||||||
Net revenue |
|
$ |
56,777 |
|
|
$ |
76,478 |
|
|
$ |
120,678 |
|
|
$ |
132,326 |
|
Cost of revenue |
|
|
38,515 |
|
|
|
53,402 |
|
|
|
79,049 |
|
|
|
91,464 |
|
Gross profit |
|
|
18,262 |
|
|
|
23,076 |
|
|
|
41,629 |
|
|
|
40,862 |
|
Operating expenses |
|
|
18,591 |
|
|
|
27,187 |
|
|
|
40,422 |
|
|
|
50,686 |
|
Operating (loss) income |
|
|
(329 |
) |
|
|
(4,111 |
) |
|
|
1,207 |
|
|
|
(9,824 |
) |
Interest expense |
|
|
2,049 |
|
|
|
2,220 |
|
|
|
4,055 |
|
|
|
2,370 |
|
Other expense, net |
|
|
799 |
|
|
|
352 |
|
|
|
1,102 |
|
|
|
722 |
|
Loss before income tax |
|
|
(3,177 |
) |
|
|
(6,683 |
) |
|
|
(3,950 |
) |
|
|
(12,916 |
) |
Income tax (benefit) expense |
|
|
(246 |
) |
|
|
841 |
|
|
|
(355 |
) |
|
|
(5,547 |
) |
Net loss |
|
$ |
(2,931 |
) |
|
$ |
(7,524 |
) |
|
$ |
(3,595 |
) |
|
$ |
(7,369 |
) |
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, |
|
||||||||||
|
|
2025 |
|
|
2024 |
|
|
2025 |
|
|
2024 |
|
||||
|
|
|
|
|||||||||||||
Net Revenue |
|
$ |
56,777 |
|
|
$ |
76,478 |
|
|
$ |
120,678 |
|
|
$ |
132,326 |
|
Gross Profit |
|
$ |
18,262 |
|
|
$ |
23,076 |
|
|
$ |
41,629 |
|
|
$ |
40,862 |
|
Gross Margin |
|
|
32.2 |
% |
|
|
30.2 |
% |
|
|
34.5 |
% |
|
|
30.9 |
% |
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.
22
Operating Expenses
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
2025 |
|
|
2024 |
|
|
2025 |
|
|
2024 |
|
||||
(in thousands) |
|
|
|
|||||||||||||
Selling and marketing |
|
$ |
12,731 |
|
|
$ |
13,741 |
|
|
$ |
25,184 |
|
|
$ |
22,754 |
|
Research and development |
|
|
4,471 |
|
|
|
4,589 |
|
|
|
8,464 |
|
|
|
8,491 |
|
General and administrative |
|
|
7,354 |
|
|
|
7,463 |
|
|
|
15,570 |
|
|
|
13,137 |
|
Subtotal operating expenses |
|
|
24,556 |
|
|
|
25,793 |
|
|
|
49,218 |
|
|
|
44,382 |
|
Insurance recovery |
|
|
(5,965 |
) |
|
|
— |
|
|
|
(9,404 |
) |
|
|
— |
|
Acquisition-related cost |
|
|
— |
|
|
|
1,394 |
|
|
|
608 |
|
|
|
6,304 |
|
Total operating expenses |
|
$ |
18,591 |
|
|
$ |
27,187 |
|
|
$ |
40,422 |
|
|
$ |
50,686 |
|
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.
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.
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.
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
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 Taxes
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. 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.
Key Performance Indicators and Non-GAAP Measures
23
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 of Directors 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, 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):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
2025 |
|
|
2024 |
|
|
2025 |
|
|
2024 |
|
||||
|
|
|
|
|||||||||||||
Net loss |
|
$ |
(2,931 |
) |
|
$ |
(7,524 |
) |
|
$ |
(3,595 |
) |
|
$ |
(7,369 |
) |
Interest expense |
|
|
2,049 |
|
|
|
2,220 |
|
|
|
4,055 |
|
|
|
2,370 |
|
Depreciation and amortization |
|
|
3,098 |
|
|
|
3,306 |
|
|
|
6,224 |
|
|
|
4,782 |
|
Stock-based compensation |
|
|
1,008 |
|
|
|
846 |
|
|
|
2,920 |
|
|
|
1,951 |
|
Income tax provision (1) |
|
|
(246 |
) |
|
|
841 |
|
|
|
(355 |
) |
|
|
(5,547 |
) |
Restructuring expense (2) |
|
|
125 |
|
|
|
706 |
|
|
|
130 |
|
|
|
747 |
|
Acquisition-related cost (3) |
|
|
— |
|
|
|
1,394 |
|
|
|
608 |
|
|
|
6,304 |
|
Fair value step-up adjustment to acquired inventory (4) |
|
|
— |
|
|
|
1,251 |
|
|
|
— |
|
|
|
1,251 |
|
Insurance recovery (5) |
|
|
(5,965 |
) |
|
|
— |
|
|
|
(9,404 |
) |
|
|
— |
|
Loss on inventory in transit and other costs (6) |
|
|
— |
|
|
|
— |
|
|
|
605 |
|
|
|
— |
|
Litigation proceedings and other (7) |
|
|
(182 |
) |
|
|
4 |
|
|
|
(182 |
) |
|
|
4 |
|
Adjusted EBITDA |
|
$ |
(3,044 |
) |
|
$ |
3,044 |
|
|
$ |
1,006 |
|
|
$ |
4,493 |
|
portion of the Company’s deferred tax asset valuation allowance.
step up in value over original cost is recorded as a charge to cost of revenue as such inventory is sold.
24
25
Liquidity and Capital Resources
Our primary sources of working capital are cash flow from operations and availability of capital under our Revolving Credit Facility. 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, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
|
|
|
|
|||||
Cash and cash equivalents at beginning of period |
|
$ |
12,995 |
|
|
$ |
18,726 |
|
Net cash provided by operating activities |
|
|
37,303 |
|
|
|
14,613 |
|
Net cash provided by (used for) investing activities |
|
|
2,019 |
|
|
|
(79,261 |
) |
Net cash (used for) provided by financing activities |
|
|
(41,746 |
) |
|
|
58,176 |
|
Effect of foreign exchange on cash |
|
|
1,134 |
|
|
|
208 |
|
Cash and cash equivalents at end of period |
|
$ |
11,705 |
|
|
$ |
12,462 |
|
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. 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.
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 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, 2025 and December 31, 2024 were $4.7 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.
26
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. 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.
Term Loan
On March 13, 2024, Turtle Beach and certain of its subsidiaries entered into a new financing agreement with Blue Torch Finance, LLC, (“Blue Torch”), for an aggregate amount of $50 million (the “Term Loan Facility”), the proceeds of which were used to (i) fund a portion of the PDP acquisition purchase price; (ii) repay certain existing indebtedness of the acquired business; (iii) to pay fees and expenses related to such transactions and (iv) for general corporate purposes. The Term Loan Facility 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.
27
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. 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. 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 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. 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. The margin will range 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 Credit Agreement also provides for an unused line fee, letter of credit fees, and agent fees.
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.
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.
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.
Item 3 - Qualitative and Quantitative Disclosures About Market Risk
Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. The Company’s market risk exposure is primarily a result of fluctuations in interest rates, foreign currency exchange rates and inflation.
The Company has used derivative financial instruments, specifically foreign currency forward and option contracts, to manage exposure to foreign currency risks, by hedging a portion of its forecasted expenses denominated in British Pounds expected to occur within a year. The effect of exchange rate changes on foreign currency forward and option contracts is expected to offset the effect of exchange rate changes on the underlying hedged item. 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.
28
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. 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.
Inflation Risk
The Company is exposed to market risk due to inflationary pressures affecting our costs and demand for the products we sell. In recent years, our business has been affected by global supply chain constraints and unfavorable changes in economic or political conditions in the countries and markets where we operate. In 2025, the United States introduced trade policy actions that have increased import tariffs across a wide range of countries. The incremental tariffs have had and may continue to have an adverse impact on the Company's result of operations.
Inflationary pressures can also have a negative impact on demand for the products we sell. Reduced or delayed discretionary spending by consumers in response to inflationary pressures has reduced consumer demand for our products, and may result in reduced sales.
The global and regional economic and political conditions, as well as changes in trade policies, have caused and may continue to cause volatility in demand for the Company's products as well as the cost of tariffs, materials and logistics, and transportation delays, and as a result have impacted and may continue to impact the pricing of the Company's products, product availability and the Company's results of operations.
We continue to experience the on-going impacts of a higher interest rate environment, as compared to prior years, which resulted in higher cost of goods, selling expenses, and general and administrative expenses. Such increases have had and may continue to have a negative impact on the Company’s profit margins if selling prices of products do not increase with the increased costs.
Item 4 - Controls and Procedures
Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), are designed to ensure that (1) information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms; and (2) that such information is accumulated and communicated to management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosures.
At the conclusion of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision of our Principal Executive Officer (or PEO) and our Principal Financial Officer (or PFO), of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our PEO and PFO concluded that our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, were ineffective as of June 30, 2025.
Changes in Internal Control over Financial Reporting
The Company is in process of remediating the material weaknesses identified and discussed in Part II, Item 9A. Controls Procedures of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. There have been no changes in our internal control over financial reporting during the period covered that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Our process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies, which may be identified during this process.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
29
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
Please refer to Note 8, “Commitments and Contingencies” in the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated into this item by reference.
Item 1A - Risk Factors
We depend upon the success and availability of third-party gaming platforms and the release and availability of successful game titles to drive sales of our gaming accessories.
The performance of our gaming accessories business is affected by the continued success of the PC gaming market and third-party gaming platforms, such as Microsoft’s Xbox consoles, Sony’s PlayStation consoles and Nintendo’s Switch consoles. Our business could suffer if any of these parties fail to continue to drive the success of these platforms, develop new or enhanced video game platforms, or produce and timely release sufficient quantities of such consoles. Further, if a platform is withdrawn from the market or fails to sell, we may be forced to liquidate inventories relating to that platform or accept returns resulting in significant losses.
Our business is also affected by the continued success of third-party publishers developing and releasing game titles for current or future generation platforms. The timely release of flagship titles like Grand Theft Auto VI and others helps drive increased demand for our products. If such flagship titles are not released or are delayed, our results of operation may vary from past or anticipated future results of operation.
Changes in U.S. or foreign trade policies, including the imposition of tariffs on imported goods and other trade restrictions, as well as uncertainty over such actions, may adversely impact our business and financial performance.
We obtain components and products from numerous suppliers throughout the world. Changes in laws or policies governing the terms of foreign trade, and in particular increased trade restrictions, tariffs or taxes on imports from countries where we manufacture our products could have an impact on our competitive position, business operations and financial performance.
Recently, the U.S. government announced substantial changes in U.S. trade policy and U.S. trade agreements, including the initiation of tariffs and trade restrictions on certain foreign goods. In response to these tariffs, certain foreign governments subject to such tariffs, including China, have retaliated by imposing tariffs on certain U.S. goods, which could represent near-term challenges to our industry. Increased retaliatory tariffs imposed by other countries on U.S. exports, further increases in U.S. tariffs, and the uncertainties surrounding domestic and foreign tariffs could require us to increase our prices, which could decrease demand for our products, and in certain cases, the Company may be unable to pass along such increased costs to our customers.
We are actively monitoring and evaluating the development and potential impacts of tariffs on our supply chain and results of operations. We are also taking steps to mitigate the effects of current and potential tariffs on our business. However, we may not be able to fully mitigate the effects of any prolonged tariffs or trade disputes. Further, additional trade restrictions could be adopted with little to no advanced notice, and we may not be able to effectively mitigate the adverse impacts from such measures.
Other than noted above, there have been no material changes in the risk factors set forth in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
30
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
On May 7, 2025, The Company' Board of Directors authorized a stock repurchase program to acquire up to $75 million of Company common stock. The amount and timing of specific repurchases are subject to market conditions, applicable legal requirements, restrictions in the Company’s debt agreements and other factors. The Company intends to fund the share repurchases using cash from operations or short-term borrowings and may suspend or discontinue repurchases at any time. The share repurchase program is scheduled to expire on May 6, 2027.
|
|
Issuer Purchases of Equity Securities |
|
|||||||||||||
|
|
Total |
|
|
Average |
|
|
Total Number |
|
|
Approximate |
|
||||
Period |
|
|
|
|
|
|
|
|
|
|
|
|
||||
April 1-30, 2025 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
|
|
May 1-31, 2025 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
|
|
June 1-30, 2025 |
|
|
372,198 |
|
|
$ |
13.47 |
|
|
|
372,198 |
|
|
$ |
69,988,244 |
|
Total |
|
|
372,198 |
|
|
$ |
13.47 |
|
|
|
372,198 |
|
|
|
|
|
Item 5 - Other Information
None of our directors or executive officers
31
Item 6. Exhibits
3.1 |
|
|
Articles of Incorporation of Turtle Beach Corporation, as amended (Incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed August 6, 2018). |
|
|
|
|
3.2 |
|
|
Amended and Restated Bylaws of Turtle Beach Corporation, amended and restated as of April 22, 2024 (Incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed April 23, 2024). |
|
|
|
|
3.3
|
|
|
Certificate of Designation of Series B Junior Participating Preferred Stock of Turtle Beach Corporation (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed June 9, 2025). |
|
|
|
|
4.1
|
|
|
Rights Agreement, dated as of June 9, 2025, by and between Turtle Beach Corporation and Direct Transfer LLC, as rights agent (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed June 9, 2025). |
|
|
|
|
10.1† |
|
|
Amendment No. 2025-1 to Turtle Beach Corporation 2023 Stock-Based Incentive Compensation Plan (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 5, 2025). |
|
|
|
|
10.2†
|
|
|
Amendment No. 2 to Financing Agreement, dated June 11, 2025, by and among Turtle Beach Corporation, Voyetra Turtle Beach, Inc., VTB Holdings, Inc., each other loan party, the lenders from time to time party thereto, and Blue Torch Finance, LLC, as collateral agent and administrative agent (Incorporated by reference to the Company’s Current Report on Form 8-K filed June 16, 2025). |
|
|
|
|
31.1 ** |
|
Certification of Cris Keirn, Principal Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
31.2 ** |
|
Certification of Mark Weinswig, Principal Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
32.1 ** |
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Cris Keirn, Principal Executive Officer and Mark Weinswig, Principal Financial Officer. |
|
|
|
|
|
|
|
|
Extensible Business Reporting Language (XBRL) Exhibits |
|
|
|
|
101.INS |
|
Inline XBRL Instance Document |
|
|
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
|
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
|
|
|
|
|
|
|
|
|
** Filed herewith.
† Management contract or compensatory plan.
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|||
|
|
|
|
TURTLE BEACH CORPORATION |
|
|
|
|
|
Date: |
August 7, 2025 |
|
By: |
/s/ MARK WEINSWIG |
|
|
|
|
Mark Weinswig Chief Financial Officer |
|
|
|
|
(Principal Financial and Accounting Officer) |
33
Source:
