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☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31,
2025
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number:
001-35465
TURTLE BEACH CORPORATION
(Exact name of registrant as specified in its charter)
Nevada
27-2767540
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
15822 Bernardo Center Drive
,
Suite 105
San Diego
,
California
92127
(Address of principal executive offices)
(Zip Code)
(
914
)
345-2255
(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
Common Stock, par value $0.001
TBCH
The Nasdaq Global Market
Preferred Stock Purchase Rights
N/A
The Nasdaq Global Market
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.
☒
Yes
☐
No
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).
☒
Yes
☐
No
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
☐
Accelerated filer
☒
Non-accelerated filer
☐
Smaller reporting company
☐
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
☒
No
The number of shares of the registrant’s Common Stock, par value $0.001 per share, outstanding on April 30, 2025
was
20,146,401
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Turtle Beach Corporation
Condensed Consolidated Statements
of Comprehensive Income (Loss)
(unaudited, in thousands)
Three Months Ended
March 31,
2025
March 31,
2024
Net (loss) income
$
(
664
)
$
155
Other comprehensive income (loss):
Foreign currency translation adjustment
767
(
418
)
Other comprehensive income (loss)
767
(
418
)
Comprehensive income (loss)
$
103
$
(
263
)
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Turtle Beach Corporation
Condensed Consolida
ted Balance Sheets
(in thousands, except par value and share amounts)
March 31,
December 31,
2025
2024
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents
$
11,684
$
12,995
Accounts receivable, net
42,354
93,118
Inventories
73,664
71,251
Prepaid expenses and other current assets
14,533
11,007
Total Current Assets
142,235
188,371
Property and equipment, net
4,884
5,844
Goodwill
50,428
52,942
Intangible assets, net
40,382
42,398
Other assets
9,095
9,306
Total Assets
$
247,024
$
298,861
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Revolving credit facility
$
6,592
$
49,412
Accounts payable
39,539
34,839
Other current liabilities
26,294
39,421
Total Current Liabilities
72,425
123,672
Debt, non-current
45,544
45,620
Income tax payable
1,367
1,362
Other liabilities
6,814
7,603
Total Liabilities
126,150
178,257
Commitments and Contingencies
Stockholders’ Equity
Common stock, $
0.001
par value -
25,000,000
shares authorized;
19,850,436
and
19,961,696
shares issued and outstanding as of March 31, 2025 and December 31, 2024, respectively
20
20
Additional paid-in capital
240,150
239,983
Accumulated deficit
(
118,758
)
(
118,094
)
Accumulated other comprehensive loss
(
538
)
(
1,305
)
Total Stockholders’ Equity
120,874
120,604
Total Liabilities and Stockholders’ Equity
$
247,024
$
298,861
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Turtle Beach Corporation
Condensed Consolidated S
tatements of Cash Flows
(unaudited, in thousands)
Three Months Ended
March 31, 2025
March 31, 2024
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income
$
(
664
)
$
155
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization
1,110
916
Amortization of intangible assets
2,016
560
Amortization of debt financing costs
276
70
Stock-based compensation
1,912
1,105
Deferred income taxes
(
445
)
(
6,716
)
Change in sales returns reserve
1,873
(
2,410
)
Provision for obsolete inventory
486
794
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
48,891
35,918
Inventories
(
2,899
)
(
3,063
)
Accounts payable
4,716
8,065
Prepaid expenses and other assets
(
3,473
)
(
357
)
Income taxes payable
(
1,401
)
2
Other liabilities
(
11,946
)
(
7,782
)
Net cash provided by operating activities
40,452
27,257
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment
(
166
)
(
731
)
Acquisition of a business, net of cash acquired
2,515
(
75,494
)
Net cash provided by (used for) investing activities
2,349
(
76,225
)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on revolving credit facilities
65,276
80,288
Repayment of revolving credit facilities
(
108,096
)
(
80,288
)
Proceeds of term loan
—
50,000
Repayment of term loan
(
312
)
(
104
)
Proceeds from exercise of stock options
5
1,257
Repurchase of common stock
(
1,750
)
—
Debt financing costs
—
(
3,170
)
Net cash (used for) provided by financing activities
(
44,877
)
47,983
Effect of exchange rate changes on cash and cash equivalents
765
75
Net decrease in cash and cash equivalents
(
1,311
)
(
910
)
Cash and cash equivalents - beginning of period
12,995
18,726
Cash and cash equivalents - end of period
$
11,684
$
17,816
SUPPLEMENTAL DISCLOSURE OF INFORMATION
Cash paid for interest
$
1,930
$
370
Cash paid for income taxes
$
173
$
—
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Turtle Beach Corporation
Condensed Consolidated Statement o
f Stockholders
’
Equity
(unaudited, in thousands)
Common Stock
Additional
Paid-In
Accumulated
Accumulated
Other
Comprehensive
Shares
Amount
Capital
Deficit
(Loss) Income
Total
Balance at December 31, 2024
19,962
$
20
$
239,983
$
(
118,094
)
$
(
1,305
)
$
120,604
Net loss
—
—
—
(
664
)
—
(
664
)
Other comprehensive income
—
—
—
—
767
767
Issuance of restricted stock
9
—
—
—
—
—
Stock options exercised
—
—
5
—
—
5
Stock-based compensation
—
—
1,912
—
—
1,912
Repurchase of common stock
(
121
)
—
(
1,750
)
—
—
(
1,750
)
Balance at March 31, 2025
19,850
$
20
$
240,150
$
(
118,758
)
$
(
538
)
$
120,874
Common Stock
Additional
Paid-In
Accumulated
Accumulated
Other
Comprehensive
Shares
Amount
Capital
Deficit
Loss
Total
Balance at December 31, 2023
17,532
$
18
$
220,185
$
(
134,277
)
$
(
849
)
$
85,077
Net income
—
—
—
155
—
155
Other comprehensive loss
—
—
—
—
(
418
)
(
418
)
Issuance of acquisition-related stock
3,450
3
38,047
—
—
38,050
Issuance of restricted stock
12
—
—
—
—
—
Stock options exercised
171
—
1,257
—
—
1,257
Stock-based compensation
—
—
1,105
—
—
1,105
Balance at March 31, 2024
21,165
$
21
$
260,594
$
(
134,122
)
$
(
1,267
)
$
125,226
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Turtle Beach Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note
1. Description of Business
Organization
Turtle Beach Corporation (“Turtle Beach” or the “Company”), headquartered in San Diego, California and incorporated in the state of Nevada in 2010, is a premier audio and gaming technology company with expertise and experience in developing, commercializing, and marketing innovative products across a range of large addressable markets under the Turtle Beach® brands. Turtle Beach, a worldwide leader of feature-rich headset solutions for use across multiple platforms, including video game and entertainment consoles, handheld consoles, personal computers (“PC”), tablets and mobile devices, expanded its brand beyond gaming headsets and launched its gaming controller product line, as well as gaming flight simulation and racing simulation accessories, and strengthened its gaming PC keyboards and mice product lines. In 2024, Turtle Beach acquired Performance Designed Products, LLC (“PDP”), another leading gaming accessory brand with a robust slate of products, including gaming controllers, gamepads for all platforms and licensing deals with popular gaming and entertainment properties.
Note
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, reflect all adjustments (which include normal recurring adjustments) considered necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented.
All intercompany accounts and transactions have been eliminated in consolidation. Certain information and footnote disclosures, normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), have been condensed or omitted pursuant to those rules and regulations. The Company believes that the disclosures made are adequate to make the information presented not misleading. The results of operations for the interim periods are not necessarily indicative of the results of operations for the entire fiscal year.
The December 31, 2024 Condensed Consolidated Balance Sheet has been derived from the Company’s audited financial statements included in its Annual Report on Form 10-K filed with the SEC on March 17, 2025 (“Annual Report”).
These financial statements should be read in conjunction with the annual financial statements and the notes thereto included in the Annual Report that contains information useful to understanding the Company’s businesses and financial statement presentations.
Use of estimates
: The preparation of financial statements in conformity with generally accepted accounting principles requires management to use estimates and assumptions that affect the reported amount of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. The significant estimates and assumptions used by management affect: sales return reserve, allowances for cash-based incentive programs, warranty reserve, valuation of inventory, valuation of long-lived assets, goodwill and other intangible assets, depreciation and amortization of long-lived assets, valuation of deferred tax assets, probability of performance shares vesting and forfeiture rates utilized in issuing stock-based compensation awards. The Company evaluates estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ from these estimates, and those differences could be material to the consolidated financial statements.
There have been no material changes to the significant accounting policies and estimates from the information provided in Note 1 of the notes to our consolidated financial statements in our Annual Report.
Recently Issued Accounting Pronouncements Not Yet Adopted
The Company considers the applicability and impact of all Accounting Standards Update ("ASUs"). ASUs not referenced below were assessed and determined to be either not applicable or are not expected to have a material impact on the Company's unaudited condensed consolidated financial statements.
7
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The amendments are effective for the Company’s annual periods beginning January 1, 2025, with early adoption permitted, and should be applied either prospectively or retrospectively. The Company is currently evaluating the impact of the adoption of this standard to determine its impact on the Company's disclosures.
In November 2024, the FASB issued ASU 2024-03, Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which is intended to improve disclosures related to certain income statement expenses of the Company. This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard to determine its impact on the Company's disclosures.
Note 3. Business Combinations
Performance Designed Products, LLC Acquisition
On March 13, 2024, the Company acquired all the issued and outstanding equity of PDP for consideration that included cash and common stock. PDP was a privately held gaming accessories leader that designs and distributes video game accessories, including controllers, headsets, power supplies, cases, and other accessories. As a result of the acquisition, the Company strengthened its leadership position in hardware gaming accessories and expanded its product portfolio.
Consideration for the transaction consisted of the issuance of
3.45
million shares of Company common stock and approximately $
78.9
million in cash, subject to customary post-closing adjustments for working capital, closing cash, closing debt and closing third party expenses. On a fully-diluted basis, issued stock represented approximately
16.4
% of the total issued and outstanding shares of the Company as of the closing date. The fair value of the
3.45
million common shares issued as part of the consideration was determined on the basis of the closing market price of the Company’s common shares on the acquisition date, or $
11.03
per share. As a result, the total final purchase consideration was
$
114.4
million
, partially funded by borrowing on the new term loan facility (see Note 7). Additionally, the Company recognized $
4.9
million of acquisition-related costs that were expensed during the three months ended March 31, 2024, and are included as a component of general & administrative expenses in the unaudited Condensed Consolidated Statement of Operations.
The following table summarizes the allocation of the consideration transferred to the assets acquired and liabilities assumed at the acquisition date:
(In thousands)
Amount
Cash
1,562
Accounts Receivable
23,888
Inventory
22,721
Prepaid and Other Current Assets
3,195
Property, Plant & Equipment
1,161
Other Assets
3,478
Intangible Assets
47,769
Accounts Payable
(
12,535
)
Accrued Liabilities
(
6,268
)
Lease Payable
(
2,726
)
Deferred Tax Liability
(
7,592
)
Total identifiable net assets
74,653
Goodwill
39,741
Total consideration
$
114,394
On January 28, 2025, the Company finalized the post-closing adjustments related to the acquisition of PDP, resulting in a $
2.5
million payment from the sellers to the Company. The payment was received by the Company in January 2025 and accounted for as a reduction of purchase consideration in the first quarter of 2025.
The goodwill from the acquisition, which is fully deductible for tax purposes, consists largely of synergies and economies of scale expected from adding the operations of PDP's and the Company’s existing business and supply channels.
8
PDP's net revenue has been integrated in the Company's unaudited condensed consolidated financial statements in the three months ended March 31, 2025
. PDP's net revenue included in the Company’s consolidated results was $
5.9
million for the three months ended March 31, 2024.
Pro Forma Financial Information (Unaudited)
The following table reflects the unaudited pro forma operating results of the Company for the three months ended
March 31, 2024, which give effect to the acquisition of PDP as if it had occurred on January 1, 2023.
Three Months Ended
March 31,
2024
(in thousands)
Net revenue
$
77,832
Net (loss)
$
(
2,516
)
The unaudited pro forma results are based on assumptions that the Company believes are reasonable under the circumstances and are not necessarily indicative of the operating results that would have occurred had the acquisition been effective January 1, 2023, nor are they intended to be indicative of results that may occur in the future.
Unaudited pro forma information includes adjustments primarily related to acquisition related costs, incremental costs related to fair value adjustments on acquired inventory, amortization of acquired intangible assets, recognition of benefit related to acquired net deferred tax liabilities, interest expense on transaction financing, and accounting policy alignment.
Note 4. Fair Value Measurement
The Company follows a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
•
Level 1 — Quoted prices in active markets for identical assets or liabilities.
•
Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
•
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and the revolving line of credit. As of March 31, 2025 and December 31, 2024, the Company has not elected the fair value option for any financial assets and liabilities for which such an election would have been permitted.
The following is a summary of the carrying amounts and estimated fair values of the Company's financial instruments as of
March 31, 2025 and December 31, 2024:
March 31, 2025
December 31, 2024
Reported
Fair Value
Reported
Fair Value
(in thousands)
Financial Assets and Liabilities:
Cash and cash equivalents
$
11,684
$
11,684
$
12,995
$
12,995
Term Loan
$
48,646
$
48,646
$
48,958
$
48,958
Revolving credit facility
$
6,592
$
6,592
$
49,412
$
49,412
Cash equivalents are stated at amortized cost, which approximates fair value as of the consolidated balance sheet dates, due to the short period of time to maturity; and accounts receivable and accounts payable are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment. The carrying value of the Credit Facility and Term Loan due 2027 equals fair value as the stated
9
interest rate approximates market rates currently available to the Company. The carrying value of the Credit Facility approximates fair value, due to the variable rate nature of the debt, as of March 31, 2025 and December 31, 2024
.
Note
5. Balance Sheet Components
Inventories
Inventories consist of the following (in thousands):
March 31,
2025
December 31,
2024
Finished goods
$
71,409
$
67,145
Raw materials
2,255
4,106
Total inventories
$
73,664
$
71,251
Property and Equipment, net
Property and equipment, net, consists of the following (in thousands):
March 31,
2025
December 31,
2024
Machinery and equipment
$
2,711
$
2,761
Software and software development
2,813
2,858
Furniture and fixtures
1,693
1,679
Tooling (1)
12,953
14,062
Leasehold improvements
2,333
2,323
Demonstration units and convention booths (1)
4,309
17,818
Total property and equipment, gross
26,812
41,501
Less: accumulated depreciation and amortization
(
21,928
)
(
35,657
)
Total property and equipment, net
$
4,884
$
5,844
(1) In the three months ended March 31, 2025, the Company wrote off certain fully depreciated demonstration units and tooling totaling
$
14.9
million
. There was
no
proceeds recognized upon disposal.
Depreciation and amortization expense on property and equipment was
$
1.1
million
and
$
0.9
million
for the three months ended March 31, 2025 and 2024, respectively.
Other Current Liabilities
Other current liabilities consist of the following (in thousands):
March 31,
2025
December 31,
2024
Accrued employee expenses
$
4,253
$
3,714
Accrued royalty
4,544
11,326
Accrued tax-related payables
2,448
7,123
Accrued freight
1,663
1,635
Accrued marketing
1,801
3,045
Accrued expenses
10,335
11,328
Term loan, short term
1,250
1,250
Total other current liabilities
$
26,294
$
39,421
10
Note
6. Goodwill and Intangible Assets
Goodwill
The Company conducts its goodwill impairment analysis annually or more frequently if changes in facts and circumstances indicate that it is more likely than not that the fair value of a reporting unit may be less than its carrying value. Due to a significant decline in the Company's stock price and the potential negative impact of tariffs and other external factors on the business, management performed a quantitative and qualitative assessment and concluded that the market capitalization of $
284.9
million exceeded the net carrying value of the business. Accordingly, it was determined that no events or changes in circumstances indicated that the carrying value may not be recoverable.
The following table summarizes the changes in the carrying amount of goodwill (in thousands):
Balance as of January 1, 2025
$
52,942
Purchase price adjustment
(
2,514
)
Balance as of March 31, 2025
$
50,428
Intangible Assets, net
Acquired identifiable intangible assets, and related accumulated amortization, as of
March 31, 2025 and December 31, 2024 consisted of (in thousands):
March 31, 2025
Gross
Carrying
Value
Accumulated
Amortization
Net Book
Value
Customer relationships
$
10,938
$
6,868
$
4,070
Tradenames
18,293
5,008
13,285
Developed technology
27,706
4,810
22,896
Patent and trademarks
784
653
131
Total Intangible Assets
$
57,721
$
17,339
$
40,382
December 31, 2024
Gross
Carrying
Value
Accumulated
Amortization
Net Book
Value
Customer relationships
$
10,880
$
6,533
$
4,347
Tradenames
18,293
4,451
13,842
Developed technology
27,706
3,656
24,050
Patent and trademarks
784
625
159
Total Intangible Assets
$
57,663
$
15,265
$
42,398
Amortization expense related to definite lived intangible assets of
$
2.0
million
and
$
0.6
million
was recognized for the three months ended March 31, 2025 and 2024, respectively.
11
As of
March 31, 2025, estimated annual amortization expense related to definite lived intangible assets in future periods was as follows (in thousands):
2025
$
6,039
2026
7,763
2027
7,590
2028
7,590
2029
7,590
Thereafter
3,810
Total
$
40,382
Note
7. Credit Facility and Long-Term Debt
The following table presents the carrying value of the Revolving Credit Facility and Term Loan (in thousands):
March 31,
2025
December 31,
2024
Revolving credit facility, maturing
March 2027
$
6,592
$
49,412
Term loan Due 2027
$
48,646
$
48,958
Total interest expense, inclusive of amortization of deferred financing costs, on long-term debt obligations was
$
2.0
million
and
$
0.4
million
for the three months ended March 31, 2025 and 2024, respectively.
Amortization of deferred financing costs was
$
0.3
million
and
$
0.1
million
for the three months ended March 31, 2025 and 2024, respectively.
Revolving Credit Facility
On March 5, 2018, Turtle Beach and certain of its subsidiaries entered into an amended and restated loan, guaranty and security agreement (the “Credit Facility”) with Bank of America, N.A. (“Bank of America”), as administrative agent, collateral agent and security trustee for Lenders (as defined therein), which replaced the then existing asset-based revolving loan agreement. The Credit Facility was amended on each of December 17, 2018, May 31, 2019, and March 10, 2023. The Credit Facility, as amended, expires on
March 13, 2027
and provides for a line of credit of up to $
50
million inclusive of a sub-facility limit of $
10
million for TB Europe, a wholly owned subsidiary of Turtle Beach.
On March 13, 2024, the Company entered into a Fourth Amendment, dated as of March 13, 2024 (the “Fourth Amendment”), by and among the Company, Voyetra Turtle Beach, Inc., TBC Holding Company LLC, Turtle Beach Europe Limited, VTB Holdings, Inc., the financial institutions party thereto from time to time and Bank of America, as administrative agent, collateral agent and security trustee for the lenders.
Among other things, the Fourth Amendment provided for: (i) the acquisition of PDP; (ii) the revision of the calculation of the U.S. Borrowing Base to include certain acquired assets of PDP equal to the lesser of (a) the sum of the accounts formula amount and the inventory formula amount (each as defined in the Fourth Amendment), (b) $
15,000,000
, and (c)
30
% of the aggregate Revolver Commitments; (iii) the extension of the maturity date of the Credit Facility from
April 1, 2025
to
March 13, 2027
; and (iv) updates to the interest rate and margin terms such that the loans will bear interest at a rate equal to (1) SOFR, (2) the U.S. Base Rate, (3) the Sterling Overnight Index Average Reference Rate (“SONIA”) for loans denominated in Sterling, and (4) the Euro Interbank Offered Rate (“EUIBOR”) for loans denominated in Euros, plus in each case, an applicable margin, which is between
0.50
% and
2.50
% for Base Rate Loans and
1.75
% and
3.50
% for Term SOFR Loans, SONIA Rate Loans and EUIBOR Loans.
The maximum credit availability for loans and letters of credit under the Credit Facility is governed by a borrowing base determined by the application of specified percentages to certain eligible assets, primarily eligible trade accounts receivable and inventories, and is subject to discretionary reserves and revaluation adjustments. The Credit Facility may be used for working capital, the issuance of bank guarantees, letters of credit and other corporate purposes.
12
Amounts outstanding under the Credit Facility bear interest at a rate equal to (i) a rate published by Bank of America or the U.S. Bloomberg Short-Term Bank Yield Index (“BSBY”) rate for loans denominated in U.S. Dollars, (ii) the Sterling Overnight Index Average Reference Rate (“SONIA”) for loans denominated in Sterling, and (iii) the EUIBOR for loans denominated in Euros, plus in each case, an applicable margin, which is between
0.50
%
to
2.50
%
for base rate loans and UK base rate loans, and
1.75
%
to
3.50
%
for U.S. BSBY rate loans, U.S. BSBY daily floating rate loans and UK alternative currency loans. In addition, Turtle Beach is required to pay a commitment fee on the unused revolving loan commitment at a rate ranging from
0.375
%
to
0.50
%
, and letter of credit fees and agent fees. As of March 31, 2025, interest rates for outstanding borrowings were
8.10
%
for base rate loans and
6.19
%
for Term SOFR loans.
The Company is subject to quarterly financial covenant testing if certain availability thresholds are not met or certain other events occur (as defined in the Credit Facility). The Credit Facility requires the Company and its restricted subsidiaries to maintain a fixed charge coverage ratio of at least
1.00
as of the last day of each fiscal quarter.
The Credit Facility also contains affirmative and negative covenants that, subject to certain exceptions, limit our ability to take certain actions, including the Company’s ability to incur debt, pay dividends and repurchase stock, make certain investments and other payments, enter into certain mergers and consolidations, engage in sale leaseback transactions and transactions with affiliates, and encumber and dispose of assets. Obligations under the Credit Facility are secured by a security interest and lien upon substantially all of the Company’s assets.
As of March 31, 2025, the Company was in compliance with all the financial covenants under the Credit Facility, as amended, and excess borrowing availability was approximately
$
51.2
million.
Term Loan
On March 13, 2024, Turtle Beach and certain of its subsidiaries entered into a new financing agreement with Blue Torch Finance, LLC, (“Blue Torch”), pursuant to which Blue Torch for an aggregate amount of $
50
million (the “Term Loan Facility”), the proceeds of which were used to (i) fund a portion of the PDP acquisition purchase price; (ii) repay certain existing indebtedness of the acquired business; (iii) to pay fees and expenses related to such transactions and (iv) for general corporate purposes. The Term Loan Facility will amortize in a monthly amount equal to
0.21
% during the first two years and
0.42
% during the third year. As the prepayment period concluded on March 13, 2025, the Term Loan Facility is no longer subject to the prepayment premium applied during the first year. The Term Loan Facility is secured by substantially all of the assets of the Company and its subsidiaries which are party to the Term Loan Facility.
The Term Loan Facility (a) matures on
March 13, 2027
; (b) bears interest at a rate equal to (i) a base rate plus
7.25
% per annum for Reference Rate Loans and Secured Overnight Financing Rate (“SOFR”) plus
8.25
% per annum for SOFR Loans if the total net leverage ratio is greater than or equal to
2.25
x and (ii) a base rate plus
6.75
% per annum for Reference Rate Loans and SOFR plus
7.75
% per annum for SOFR Loans if the total net leverage ratio is less than
2.25
x; and (c) is subject to certain affirmative, negative and financial covenants, including a minimum liquidity covenant and a quarterly total net leverage ratio covenant. As of
March 31, 2025, the interest rate for outstanding borrowings was
12.19
%
.
On August 7, 2024, the Company and Blue Torch amended the Term Loan Facility to, among other things, permit the Company to repurchase Company common stock in an aggregate amount not to exceed $
30
million prior to March 31, 2025, subject to the satisfaction of certain conditions. The other material terms of the Term Loan Facility were unchanged.
As of March 31, 2025, the Company was in compliance with all the financial covenants under the Term Loan Facility.
Maturities of Term Loan Debt
As of
March 31, 2025, maturities of debt, assuming no prepayments, are as follows (in thousands):
2025
$
938
2026
2,292
2027
45,416
Total
$
48,646
Note
8. Commitments and Contingencies
Litigation
The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business. Although the amount of any liability that could arise with respect to these actions cannot be determined with certainty, in the Company’s opinion, any such liability will not have a material adverse effect on its consolidated financial position, consolidated results of operations or liquidity.
13
Shareholders Class Action
:
On August 5, 2013, VTB Holdings, Inc. (“VTBH”) and the Company (f/k/a Parametric Sound Corporation) announced that they had entered into the Merger Agreement pursuant to which VTBH would acquire an approximately
80
% ownership interest and existing shareholders would maintain an approximately
20
% ownership interest in the combined company (the “Merger”). Following the announcement, several shareholders filed class action lawsuits in California and Nevada seeking to enjoin the Merger. The plaintiffs in each case alleged that members of the Company’s Board of Directors breached their fiduciary duties to the shareholders by agreeing to a merger that allegedly undervalued the Company. VTBH and the Company were named as defendants in these lawsuits under the theory that they had aided and abetted the Company’s Board of Directors in allegedly violating their fiduciary duties. The plaintiffs in both cases sought a preliminary injunction seeking to enjoin closing of the Merger, which, by agreement, was heard by the Nevada court with the California plaintiffs invited to participate. On December 26, 2013, the court in the Nevada case denied the plaintiffs’ motion for a preliminary injunction. Following the closing of the Merger, the Nevada plaintiffs filed a second amended complaint, which made essentially the same allegations and sought monetary damages as well as an order rescinding the Merger. The California plaintiffs dismissed their action without prejudice, and sought to intervene in the Nevada action, which was granted. Subsequent to the intervention, the plaintiffs filed a third amended complaint, which made essentially the same allegations as prior complaints and sought monetary damages. On June 20, 2014, VTBH and the Company moved to dismiss the action, but that motion was denied on August 28, 2014. On September 14, 2017, a unanimous en banc panel of the Nevada Supreme Court granted defendants’ petition for writ of mandamus and ordered the trial court to dismiss the complaint but provided a limited basis upon which plaintiffs could seek to amend their complaint. Plaintiffs amended their complaint on December 1, 2017 to assert the same claims in a derivative capacity on behalf of the Company, as well as in a direct capacity, against VTBH, Stripes Group, LLC, SG VTB Holdings, LLC, and the former members of the Company’s Board of Directors. All defendants moved to dismiss this amended complaint on January 2, 2018, and those motions were denied on March 13, 2018. Defendants petitioned the Nevada Supreme Court to reverse this ruling on April 18, 2018. On June 15, 2018, the Nevada Supreme Court denied defendants’ writ petition without prejudice. The district court subsequently entered a pretrial schedule and set trial for November 2019. On January 18, 2019, the district court certified a class of shareholders of the Company as of January 15, 2014. On October 11, 2019, the parties notified the district court that they had reached a settlement that would resolve the pending action if ultimately approved by the Court. On January 13, 2020, the district court preliminarily approved the settlement between the plaintiffs and all defendants. A final hearing was held on May 18, 2020, wherein the Court approved the settlement and entered final judgment.
On May 22, 2020, PAMTP LLC, which purports to hold the claims of
eight
shareholders who opted out of the class settlement described above, brought suit against the Company, the Company’s former Chief Executive Officer, Juergen Stark, Stripes Group, LLC, SG VTB Holdings, LLC, Kenneth Fox, and former members of the Company’s Board of Directors in Nevada state court. This opt-out action asserts the same direct claims that were asserted by the class of shareholders described above. The defendants filed two motions to dismiss this complaint, which were heard on August 10, 2020. The Court denied those motions by order of August 20, 2020. The case was tried in August 2021 and all remaining defendants, including the Company, prevailed on all counts with final judgment entered in their favor on September 3, 2021. Plaintiff appealed that judgment. On June 6, 2024, the Nevada Supreme Court affirmed the judgment in Defendants’ favor and subsequently denied Plaintiff’s petition for rehearing on July 22, 2024.
Insolvency Dispute in Germany:
On February 15, 2024, TBC Holding Company LLC (“TBCH”), a wholly owned subsidiary of Turtle Beach Corporation, was served with a lawsuit that was brought to the German Higher Regional Court in Stade by the insolvency administrator of KJE Europe GmbH, a company registered and existing under the laws of Germany. In his complaint, the insolvency administrator claims that TBCH is liable to reimburse any payments received by th
e TBCH under a certain settlement agreement with KJE Europe GmbH dated June 30, 2020. On February 28, 2025, the Court ruled in favor of the insolvency administrator holding that TBCH was liable for EUR
1.4
million plus interest and costs.
TBCH continues to believe the claims do not have merit and has appealed the judgment. As of March 31, 2025, the Company has accrued for the potential impact of loss contingency.
Intellectual Property Dispute
: PDP, a wholly-owned subsidiary of Turtle Beach Corporation, has received a letter from OKYN Holdings, Inc., d/b/a Nyko Technologies (“Nyko”) claiming that PDP’s Ultra Slim Charge System for PlayStation 4 (“Ultra Slim”) infringes certain patents allegedly owned by Nyko. The Ultra Slim product is no longer being sold by PDP in the United States. To date, Nyko has not filed a lawsuit regarding its allegations. PDP is investigating the claims and will vigorously defend itself.
The Company will continue to vigorously defend itself in the foregoing unresolved matters. However, litigation and investigations are inherently uncertain. Accordingly, the Company cannot predict the outcome of these matters. The Company has not recorded any accrual at March 31, 2025 for contingent losses associated with these matters unless otherwise disclosed above based on its belief that losses, while possible, are not probable. Further, any possible range of loss cannot be reasonably estimated at this time. The unfavorable resolution of these matters could have a material adverse effect on the Company’s business, results of operations, financial condition, or cash flows. The Company is engaged in other legal actions, not described above, arising in the ordinary course of its business and, while there can be no assurance, believes that the ultimate outcome of these other legal actions will not have a material adverse effect on its business, results of operations, financial condition, or cash flows.
14
Product Warranties
The Company warrants its products against certain manufacturing and other defects. These product warranties are provided for specific periods of time depending on the nature of the product. Warranties are generally fulfilled by replacing defective products with new products.
The following table provides the changes in our product warranties, which are included in other current liabilities (in thousands):
Three Months Ended
March 31,
2025
2024
Warranty, beginning of period
$
815
$
670
Warranty costs accrued
192
220
Settlements of warranty claims
(
198
)
(
203
)
Warranty, end of period
$
809
$
687
Indemnifications
The Company indemnifies certain suppliers and customers for losses arising from matters such as intellectual property disputes and
product safety defects, subject to certain restrictions. The scope of these indemnities varies, but in some instances includes indemnification for
damages and expenses, including reasonable attorneys’ fees. As of March 31, 2025, no material amounts have been accrued for indemnification
provisions. The Company does not believe, based on historical experience and information currently available, that it is probable that any
material amounts will be required to be paid under its indemnification arrangements.
The Company also indemnifies its current and former directors and certain current and former officers. Certain costs incurred for providing
such indemnification may be recoverable under various insurance policies. The Company is unable to reasonably estimate the maximum
amount that could be payable under these arrangements because these exposures are not capped, the obligations are conditional in nature, and
the facts and circumstances involved in any situation that might arise are variable.
Note
9. Income Taxes
The following table presents the Company’s income tax expense (in thousands) and effective income tax rate:
Three Months Ended
March 31,
2025
2024
Income tax benefit
$
(
109
)
$
(
6,388
)
Effective income tax rate
14.1
%
102.5
%
The effective tax rate for the three months ended March 31, 2025 was primarily impacted by the change in U.S. valuation allowance, foreign taxes, and Federal and State current tax. The effective tax rate for the three months ended March 31, 2024 was primarily impacted by the release of U.S. valuation allowance for PDP acquired net deferred tax liabilities.
The Company recognizes only those tax positions that meet the more-likely-than-not recognition threshold and establishes tax reserves for uncertain tax positions that do not meet this threshold. Interest and penalties associated with income tax matters are included in the provision for income taxes in the condensed consolidated statements of operations. As of March 31, 2025, the Company had uncertain tax positions of
$
2.5
million
, inclusive of
$
0.6
million
of interest and penalties.
As required by the authoritative guidance on accounting for income taxes, the Company evaluates the realizability of deferred tax assets on a jurisdictional basis at each reporting date. Accounting for income taxes requires that a valuation allowance be established when it is more likely than not that all or a portion of the deferred taxes will not be realized. The Company considers all positive and negative evidence in determining if, based on the weight of such evidence, a valuation allowance is required. In circumstances where there is sufficient negative evidence indicating that the deferred tax assets are not more likely than not realizable, the Company establishes a valuation allowance. Due to the significant 2022 pre-tax loss, coupled with cumulative book losses projected in early future years, the Company recorded a valuation allowance on its net U.S. deferred tax assets as of December 31, 2022. The Company continues to maintain this valuation allowance for the three months ended March 31, 2025. For the three months ended March 31, 2024
, the Company recorded a $
6.7
million of tax benefit related to the PDP acquisition, including a reversal of $
7.0
million of valuation allowance for PDP acquired net deferred tax liabilities.
15
The Company is subject to income taxes domestically and in various foreign jurisdictions. The Company files U.S., state and foreign income tax returns in jurisdictions with various statutes of limitations. The federal tax years open under the statute of limitations are 2021 through 2023, and the state tax years open under the statute of limitations are 2020 through 2023, and the foreign tax years open under the statute of limitations are 2021 through 2023.
Note
10. Equity Incentive Plans and Stock-Based Compensation
Stock Repurchase Activity
On April 9, 2019, the Company’s Board of Directors authorized a stock repurchase program to acquire up to $
15.0
million of its common stock. Any repurchases under the program will be made from time to time on the open market at prevailing market prices. On April 1, 2021, the Board of Directors approved an extension and expansion of this stock repurchase program up to $
25.0
million of its common shares, expiring
April 9, 2023
. On March 3, 2023, the Company’s Board of Directors approved a
two-year
extension of this stock repurchase plan. On April 9, 2024, the Board of Directors approved an additional expansion of this stock repurchase program to up to $
55
million of the Company’s common shares. During the
three months ended March 31, 2025, the Company repurchased
0.1
million
shares of its common stock for a total cost of
$
1.8
million
. As of March 31, 2025, the total cost of repurchased common stock was
$
29.6
million
.
Stock-Based Compensation
Total estimated stock-based compensation expense for employees and non-employees, related to all of the Company’s stock-based awards, was as follows (in thousands):
Three Months Ended
March 31,
2025
2024
Cost of revenue
$
175
$
131
Selling and marketing
868
487
Research and development
469
224
General and administrative
400
263
Total stock-based compensation
$
1,912
$
1,105
The following table presents the stock activity and the total number of shares available for grant as of
March 31, 2025 (in thousands):
Balance at December 31, 2024
727
Options Cancelled
2
Restricted Stock Granted
(
110
)
Balance at March 31, 2025
619
16
Stock Option Activity
Options Outstanding
Number of
Shares
Underlying
Outstanding
Options
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
(in years)
Outstanding at December 31, 2024
637,916
$
9.38
4.55
$
5,483,767
Options Granted
—
—
Options Exercised
(
640
)
8.03
Options Forfeited
(
2,372
)
13.55
Outstanding at March 31, 2025
634,904
$
9.37
4.32
$
3,703,702
Vested and expected to vest at March 31, 2025
634,904
$
9.45
4.32
$
3,703,702
Exercisable at March 31, 2025
634,904
$
9.45
4.32
$
3,703,702
Stock options are time-based and the majority are exercisable within
10
years of the date of grant, but only to the extent they have vested. The options generally vest as specified in the option agreements subject to acceleration in certain circumstances. In the event participants in the plan cease to be employed or engaged by the Company, all vested options would be forfeited if they are not exercised within
90
days. Forfeitures on option grants are estimated at
10
% for non-executives and
0
% for executives based on evaluation of historical and expected future turnover. Stock-based compensation expense was recorded net of estimated forfeitures, such that expense was recorded only for those stock-based awards expected to vest. The Company reviews this assumption periodically and will adjust it if it is not representative of future forfeiture data and trends within employee types (executive vs. non-executive).
There have been
no
options granted since the fiscal year 2021.
Restricted Stock Activity
Shares
Weighted
Average
Grant Date
Fair Value
Per Share
Nonvested restricted stock at December 31, 2024
605,356
$
15.92
Granted
109,716
16.87
Vested
(
10,433
)
21.65
Shares forfeited
—
—
Nonvested restricted stock at March 31, 2025
704,639
$
15.99
As of March 31, 2025, total unrecognized compensation cost related to the nonvested restricted stock granted was
$
7.0
million
, which is expected to be recognized over a remaining weighted average vesting period of
2.1
years.
Warrants
As of March 31, 2025
, the Company had
550,000
wholly funded warrants related to a series of transactions pursuant to which the previously outstanding Series B Preferred Stock were retired. The warrants do not expire.
17
Note
11. Net (Loss) Income Per Share
The following table sets forth the computation of basic and diluted net income (loss) per share of common stock attributable to common stockholders (in thousands, except per-share data):
Three Months Ended
March 31,
2025
2024
Net (loss) income
$
(
664
)
$
155
Weighted average common shares outstanding — Basic
20,506
18,321
Plus incremental shares from assumed conversions:
Dilutive effect of restricted stock
—
224
Dilutive effect of stock options
—
294
Dilutive effect of warrants
—
550
Weighted average common shares outstanding — Diluted
20,506
19,389
Net (loss) income per share:
Basic
$
(
0.03
)
$
0.01
Diluted
$
(
0.03
)
$
0.01
Incremental shares from stock options and restricted stock are computed by the treasury stock method. The treasury stock method calculates dilution assuming the exercise of all in-the-money options and vesting of restricted stock, reduced by the repurchase of shares with the proceeds from the assumed exercises and unrecognized compensation expense for outstanding awards and the estimated tax benefit of the assumed exercises.
The weighted average shares listed below were not included in the computation of diluted earnings per common share because to do so would have been anti-dilutive for the periods presented or were otherwise excluded under the treasury stock method (in thousands).
Three Months Ended
March 31,
2025
2024
Stock options
638
69
Restricted stock
669
279
Total
1,307
348
Note
12. Segment Information
The Company operates in a
single
reportable segment. The entire business is managed by a single management team whose chief operating decision maker is
the
Chief Executive Officer
, who evaluates segment performance based on operating income (loss) for purposes of allocating resources and evaluating financial performance.
The following table represents total net revenue based on where customers are physically located (in thousands):
Three Months Ended
March 31,
2025
2024
North America
$
46,984
$
42,159
Europe and Middle East
13,618
10,961
Asia Pacific
3,299
2,728
Total net revenues
$
63,901
$
55,848
The following table reflects the incremental disclosure requirements related to our adoption of ASU 2023-07 for the following periods (in thousands):
18
Three Months Ended
March 31,
2025
2024
Net revenue
$
63,901
$
55,848
Significant segment expenses:
Cost of revenue
40,534
38,062
Sales
6,024
4,077
Marketing
6,429
4,936
Research and development
3,993
3,902
General and administrative
8,216
5,674
Other costs (1)
(
2,831
)
4,910
Operating income (loss)
1,536
(
5,713
)
Reconciliation of segment operating income to net (loss) income:
Interest expense, net
2,006
150
Other non-operating expense, net
303
370
Income tax benefit
(
109
)
(
6,388
)
Net (loss) income
$
(
664
)
$
155
(1) Other costs in the three months ended March 31, 2025 include acquisition-related costs and an insurance recovery. Other costs in the three months ended March 31, 2024
include acquisition-related costs.
19
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 (“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, including Call of Duty and Fortnite among others. The Company has started the process of transitioning 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 nearly $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 $11.0 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 multiple post-launch downloadable content or new content update packs, to keep interest and fan engagement/momentum going for months following a game’s initial release. Many gamers play online where a gaming headset, which includes a microphone, is required because it allows players to communicate with each other in real-time, provides a more immersive experience, and delivers a competitive advantage.
20
Results of Operations
The following table sets forth the Company’s statements of operations for the periods presented (in thousands):
Three Months Ended
March 31,
2025
2024
Net revenue
$
63,901
$
55,848
Cost of revenue
40,534
38,062
Gross profit
23,367
17,786
Operating expenses
21,831
23,499
Operating income (loss)
1,536
(5,713
)
Interest expense
2,006
150
Other non-operating expense, net
303
370
Loss before income tax
(773
)
(6,233
)
Income tax benefit
(109
)
(6,388
)
Net (loss) income
$
(664
)
$
155
Net Revenue and Gross Profit
The following table summarizes net revenue and gross profit for the periods presented (in thousands):
Three Months Ended
March 31,
2025
2024
Net Revenue
$
63,901
$
55,848
Gross Profit
$
23,367
$
17,786
Gross Margin
36.6
%
31.8
%
Comparison of the Three Months Ended March 31, 2025 to the Three Months Ended March 31, 2024
Net revenue for the three months ended March 31, 2025 was $63.9 million, a $8.1 million increase from $55.8 million driven by incremental revenue from the PDP acquisition.
For the three months ended March 31, 2025, gross margin increased to 36.6% from 31.8% in the comparable prior year period primarily due to operating leverage from higher revenue from the PDP acquisition and lower promotional spend and freight costs.
Operating Expenses
Three Months Ended
March 31,
2025
2024
(in thousands)
Selling and marketing
$
12,453
$
9,013
Research and development
3,993
3,902
General and administrative
8,216
5,674
Subtotal operating expenses
24,662
18,589
Insurance recovery
(3,439
)
—
Acquisition-related cost
608
4,910
Total operating expenses
$
21,831
$
23,499
21
Selling and Marketing
Selling and marketing expenses for the three months ended March 31, 2025 totaled $12.5 million, compared to $9.0 million for the three months ended March 31, 2024, primarily due to increased direct media marketing and incremental intangible assets amortization expenses related to the PDP acquisition.
Research and Development
Research and development costs for the three months ended March 31, 2025 was $4.0 million, compared to $3.9 million for the three months ended March 31, 2024, due to incremental expenses related to the PDP acquisition.
General and Administrative
General and administrative expenses for the three months ended March 31, 2025 totaled $8.2 million compared to $5.7 million for the three months ended March 31, 2024 due to professional service costs and incremental expenses related to the PDP acquisition.
Insurance recovery
Insurance recovery relates to the recognition of certain initial insurance claim receivables 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 benefit for the three months ended March 31, 2025 was $0.1 million at an effective tax rate of 14.1% compared to income tax benefit for the three months ended March 31, 2024 of $6.4 million at an effective tax rate of 102.5%. The effective tax rate for the three months ended March 31, 2025 was primarily impacted the by the reversal of a portion of the Company’s deferred tax asset valuation allowance.
Key Performance Indicators and Non-GAAP Measures
Management routinely reviews key performance indicators, including revenue, operating income and margins, and earnings per share, among others. In addition, we believe certain other measures provide useful information to management and investors about us and our financial condition and results of operations for the following reasons: (i) they are measures used by our Board 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.
22
Adjusted EBITDA (and a reconciliation to Net income (loss), the nearest GAAP financial measure) for the three months ended March 31, 2025 and March 31, 2024, are as follows (in thousands):
Three Months Ended
March 31,
2025
2024
Net (loss) income
$
(664
)
$
155
Interest expense
2,006
150
Depreciation and amortization
3,126
1,476
Stock-based compensation
1,912
1,105
Income tax provision
(1)
(109
)
(6,388
)
Restructuring expense
(2)
5
41
Acquisition-related cost
(3)
608
4,910
Insurance recovery
(4)
(3,439
)
—
Loss on inventory in transit and other costs
(5)
605
—
Adjusted EBITDA
$
4,050
$
1,449
(1)
An income tax benefit of $7.0 million in the three months ended March 31, 2024 was recorded as a result of the reversal of a portion of the Company’s deferred tax asset valuation allowance.
(2)
Restructuring charges are expenses that are paid in connection with reorganization of operations. These costs primarily include severance and related benefits.
(3)
Acquisition-related cost includes one-time costs we incurred in connection with acquisitions including warehouse lease impairment, professional fees such as legal and accounting along with other integration related costs.
(4)
Insurance proceeds from claims related to a loss of inventory while in transit that occurred in the fourth quarter of 2024.
(5)
Certain professional fees related to recovery initiatives in connection with a loss of inventory while in transit that occurred in the fourth quarter of 2024.
23
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):
Three Months Ended
March 31,
2025
2024
Cash and cash equivalents at beginning of period
$
12,995
$
18,726
Net cash provided by operating activities
40,452
27,257
Net cash provided by (used for) investing activities
2,349
(76,225
)
Net cash (used for) provided by financing activities
(44,877
)
47,983
Effect of foreign exchange on cash
765
75
Cash and cash equivalents at end of period
$
11,684
$
17,816
Operating activities
Cash provided by operating activities for the three months ended March 31, 2025 was $40.5 million, an increase of $13.2 million as compared to $27.3 million for the three months ended March 31, 2024. The increase is primarily due to higher gross receipts as a result of incremental PDP revenue.
Investing activities
Cash provided by investing activities was $2.3 million for the three months ended March 31, 2025, which was primarily related to a $2.5 million working capital adjustment payment, compared to $76.2 million used for the three months ended March 31, 2024 primarily related to the acquisition of the PDP business.
Financing activities
Net cash used for financing activities was $44.9 million during the three months ended March 31, 2025 compared to net cash provided by financing activities of $48.0 million during the three months ended March 31, 2024. Financing activities during the three months ended March 31, 2025 consisted primarily of $42.8 million revolving credit facility net repayments, $1.8 million of share repurchases, and $0.3 million of term loan repayments.
Management assessment of liquidity
Management believes that our current cash and cash equivalents, the amounts available under our Revolving Credit Facility and cash flows derived from operations will be sufficient to meet anticipated short-term and long-term funding for working capital and capital expenditures 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 March 31, 2025 and December 31, 2024 were $2.7 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 was amended on each of December 17, 2018, May 31, 2019, and March 10, 2023. The Credit Facility, as amended, expires on March 13, 2027 and provides for a line of credit of up to $50 million inclusive of a sub-facility limit of $10 million for TB Europe, a wholly owned subsidiary of Turtle Beach.
24
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 March 31, 2025, interest rates for outstanding borrowings were 8.10% for base rate loans and 6.19% for Term SOFR loans.
The Company is subject to 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 March 31, 2025, the Company was in compliance with all the financial covenants under the Credit Facility, as amended, and excess borrowing availability was approximately $51.2 million.
Term Loan
On March 13, 2024, Turtle Beach and certain of its subsidiaries entered into a new financing agreement with Blue Torch Finance, LLC, (“Blue Torch”), 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 March 31, 2025, the interest rate for outstanding borrowings was 12.19%.
On August 7, 2024, the Company and Blue Torch amended the Term Loan Facility to, among other things, permit the Company to repurchase Company common stock in an aggregate amount not to exceed $30 million prior to March 31, 2025, subject to the satisfaction of certain conditions. The other material terms of the Term Loan Facility were unchanged.
As of March 31, 2025, the Company was in compliance with all financial covenants under the Term Loan Facility.
25
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 March 31, 2025 and December 31, 2024, we did not have any derivative financial instruments.
Foreign Currency Exchange Risk
The Company has exchange rate exposure primarily with respect to the British Pound and Euro. As of March 31, 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. Such inflationary pressures have been and could continue to be exacerbated by higher oil prices, geopolitical turmoil, and economic policy actions and could lead to a recessionary environment. 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.
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.
26
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 March 31, 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.
27
PART II. OTHER
INFORMATION
Item 1 - Lega
l Proceedings
Please refer to Note 11, “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 - R
isk 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.
28
Item 2 -
Unregistered Sales of Equity Securities and Use of Proceeds
On April 9, 2019, the Company’s Board of Directors authorized a stock repurchase program to acquire up to $15.0 million of its common stock. Any repurchases under the program will be made from time to time on the open market at prevailing market prices. On April 1, 2021, the Board of Directors approved an extension and expansion of this stock repurchase program up to $25.0 million of its common shares, expiring April 9, 2023. On March 3, 2023, the Company’s Board of Directors approved a two-year extension of this stock repurchase plan. On April 9, 2024, the Board of Directors approved an additional expansion of this stock repurchase program to up to $55 million of the Company’s common stock.
Issuer Purchases of Equity Securities
Total
Number
of Shares
Purchased
Average
Price Paid
Per Share
Total Number
of Shares
Purchased As
Part of Publicly
Announced
Plans or
Programs
Approximate
Dollar Value
of Shares that
May Yet Be
Purchased Under
the Plans or
Programs
Period
January 1-31, 2025
—
$
—
—
—
February 1-28, 2025
—
$
—
—
—
March 1-31, 2025
121,321
$
14.43
121,321
$
17,088,682
Total
121,321
$
1.00
121,321
Item 5 - Othe
r Information
None of our directors or executive officers
adopted
or
terminated
a Rule 10b5-1 Trading Plan, or a "non-Rule 10b5-1 trading arrangement" (as each term is defined in Item 408(a) of Regulation S-K) during the three months ended
March 31, 2025.
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.
30
SIGNAT
URES
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.
Insider Ownership of Turtle Beach Corp
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