Turtle Beach Corp
For the period ended Sep 30, 2024. Filed Nov 7, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 7, 2024
TBCH$15.19-8.8%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-08.
0000950170-24-094160
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-07.
0000950170-24-123493
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 87 previous paragraphs and 87 current paragraphs.
61 unchanged; 23 reworded; 2 added; 2 removed; 1 previous and 1 current paragraphs rearranged.
Tables are not compared: 5 previous and 5 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (2)
Current report
Comparison of the Nine Months Ended September 30, 2024 to the Nine Months Ended September 30, 2023
Current report
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.
Removed paragraphs (2)
Previous report
Comparison of the Six Months Ended June 30, 2024 to the Six Months Ended June 30, 2023
Previous report
Adjusted EBITDA for the three months ended June 30, 2024 was $3.0 million, compared to $(5.7) million for the prior year, due to higher revenue and improved margins that were positively impacted by less promotional activity, lower freight costs and operating expense control actions.
Reworded paragraphs (23)
Previous wording
Turtle Beach operates in an overall $190 billion global games and accessories market. The global gaming audience now exceeds global cinema and music markets with over three billion active gamers worldwide. Gaming peripherals, such as headsets, keyboards, mice, microphones, controllers, and simulation controls are estimated to be an $8.7 billion business globally.
Current wording
Turtle Beach operates in an overall $200 billion global games and accessories market. The global gaming audience now exceeds global cinema and music markets with over three billion active gamers worldwide. Gaming peripherals, such as headsets, keyboards, mice, microphones, controllers, and simulation controls are estimated to be an $11.0 billion business globally.
Previous wording
Net revenue for the three months ended June 30, 2024 was $76.5 million, a $28.5 million increase from $48.0 million driven by incremental revenue from the PDP acquisition and growth in our product markets.
Current wording
Net revenue for the three months ended September 30, 2024 was $94.4 million, a $35.2 million increase from $59.2 million driven by incremental revenue from the PDP acquisition and growth in our product markets.
Previous wording
For the three months ended June 30, 2024, gross margin increased to 30.2%, inclusive of a $1.3 million purchase accounting driven charge to step-up the value of PDP inventory at the time of acquisition and a $1.6 million reserve for ROCCAT inventory on-hand as part of the PC product brand transition to Turtle Beach, from 24.7% in the comparable prior year period. Excluding these two charges, gross margins improved to 34.0% as a result of lower product costs, freight costs and lower promotional spend. The lower product costs are a result of the benefit of our platforming and portfolio rationalization efforts over the past several quarters beginning to be realized in Q2 2024 with the launch of our new console wireless models.
Current wording
For the three months ended September 30, 2024, gross margin increased to 36.2%, inclusive of a $0.8 million purchase accounting driven charge to step-up the value of PDP inventory at the time of acquisition and a $1.2 million reserve for ROCCAT inventory on-hand as part of the PC product brand transition to Turtle Beach, from 29.9% in the comparable prior year period. Excluding these two charges, gross margins improved to 38.3% as a result of lower promotional spend and freight costs.
Previous wording
Net revenue for the six months ended June 30, 2024 was $132.3 million, a $32.9 million increase from $99.4 million driven by incremental revenue from the PDP acquisition and growth in our product markets.
Current wording
Net revenue for the nine months ended September 30, 2024 was $226.7 million, a $68.1 million increase from $158.6 million driven by incremental revenue from the PDP acquisition and growth in our product markets.
Previous wording
For the six months ended June 30, 2024, gross margin increased to 30.9%, inclusive of a $1.3 million purchase accounting driven charge to step-up the value of PDP inventory at the time of acquisition and a $1.6 million reserve for ROCCAT inventory on-hand as part of the PC product brand transition to Turtle Beach, from 26.2% in the comparable prior year period. Excluding these two charges, gross margins improved to 33.1% as a result of lower product costs, freight costs and lower promotional spend.
Current wording
For the nine months ended September 30, 2024, gross margin increased to 33.1%, inclusive of a $2.1 million purchase accounting driven charge to step-up the value of PDP inventory at the time of acquisition and a $2.8 million reserve for ROCCAT inventory on-hand as part of the PC product brand transition to Turtle Beach, from 27.6% in the comparable prior year period. Excluding these two charges, gross margins improved to 35.2% as a result of lower promotional spend and freight costs
Previous wording
Selling and marketing expenses for the three and six months ended June 30, 2024 totaled $13.7 million and $22.8 million, respectively, compared to $10.4 million and $19.9 million for the three and six months ended June 30, 2023, respectively, due to incremental intangible assets amortization and operating expenses related to the PDP acquisition, and integration related severance costs partially offset by spending reductions taken in second half of 2023.
Current wording
Selling and marketing expenses for the three and nine months ended September 30, 2024 totaled $13.5 million and $36.3 million, respectively, compared to $10.6 million and $30.5 million for the three and nine months ended September 30, 2023, respectively, due to incremental intangible assets amortization and operating expenses related to the PDP acquisition, and integration related severance costs.
Previous wording
Research and development costs for the three and six months ended June 30, 2024 was $4.6 million and $8.5 million, respectively, compared to $4.2 million and $8.3 million for the three and six months ended June 30, 2023, respectively, which reflects incremental expense related to the PDP acquisition and certain integration related severance partially offset by lower headcount and costs associated with our product portfolio plans.
Current wording
Research and development costs for the three and nine months ended September 30, 2024 was $4.3 million and $12.8 million, respectively, compared to $4.4 million and $12.7 million for the three and nine months ended September 30, 2023, respectively, which reflects incremental expense related to the PDP acquisition and certain integration related severance partially offset by lower headcount and costs associated with our product portfolio rationalization initiatives.
Previous wording
General and administrative expenses for the three months ended June 30, 2024 totaled $7.5 million compared to $13.1 million for the three months ended June 30, 2023. Excluding non-recurring transaction and $1.3 million of activism related costs, but inclusive of incremental costs from PDP operations, expenses decreased $4.3 million as the comparable period included severance charges associated with the CEO transition.
Current wording
General and administrative expenses for the three months ended September 30, 2024 totaled $6.4 million compared to $5.2 million for the three months ended September 30, 2023 reflective of incremental costs from PDP operations and certain professional service costs.
Previous wording
General and administrative expenses for the six months ended June 30, 2024 totaled $13.1 million compared to $20.1 million for the six months ended June 30, 2023. Excluding non-recurring transaction and $1.8 million of activism related costs, but inclusive of incremental costs from PDP operations, expenses decreased $4.6 million primarily due to lower severance and non-cash stock-based compensation.
Current wording
General and administrative expenses for the nine months ended September 30, 2024 totaled $19.5 million compared to $25.4 million for the nine months ended September 30, 2023. Excluding $2.5 million of activism related costs, but inclusive of incremental costs from PDP operations, expenses decreased $3.4 million primarily due to lower severance and non-cash stock-based compensation.
Previous wording
Income tax benefit for the six months ended June 30, 2024 was ($5.5) million at an effective tax rate of 42.9% compared to income tax benefit for the six months ended June 30, 2023 of ($0.1) million at an effective tax rate of 0.5%. The effective tax rate for the six months ended June 30, 2024 was primarily impacted the by reversal of a portion of the Company’s deferred tax asset valuation allowance.
Current wording
Income tax benefit for the nine months ended September 30, 2024 was ($5.5) million at an effective tax rate of 58.2% compared to income tax benefit for the nine months ended September 30, 2023 of $0.4 million at an effective tax rate of (1.5%). The effective tax rate for the nine months ended September 30, 2024 was primarily impacted the by the reversal of a portion of the Company’s deferred tax asset valuation allowance.
Previous wording
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.
Current wording
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
Previous wording
Adjusted EBITDA (and a reconciliation to Net income (loss), the nearest GAAP financial measure) for the three and six months ended June 30, 2024 and June 30, 2023, are as follows:
Current wording
Adjusted EBITDA (and a reconciliation to Net income (loss), the nearest GAAP financial measure) for the three and nine months ended September 30, 2024 and September 30, 2023, are as follows:
Previous wording
An income tax benefit of $7.0 million was recorded in the three months ended March 31, 2024 as a result of the reversal of a portion of the Company’s deferred tax asset valuation allowance.
Current wording
An income tax benefit of $6.9 million was recorded as a result of the reversal of a portion of the Company’s deferred tax asset valuation allowance.
Previous wording
Business transaction expense includes one-time costs we incurred in connection with acquisitions including professional fees such as legal and accounting along with other certain integration related costs of the acquisition.
Current wording
Business transaction expense includes one-time costs we incurred in connection with acquisitions including warehouse lease impairment, professional fees such as legal and accounting along with other certain integration related costs.
Previous wording
Proxy contest and other primarily includes one-time legal and other professional fees associated with proxy challenges presented by certain shareholder activists.
Current wording
Proxy contest and other primarily includes one-time legal and other professional fees associated with proxy challenges presented by certain shareholder activists in 2023.
Previous wording
Cash provided by operating activities for the six months ended June 30, 2024 was $14.6 million, a decrease of $9.6 million as compared to $24.2 million for the six months ended June 30, 2023. The decrease is primarily the result of certain acquisition-related business costs.
Current wording
Cash used for operating activities for the nine months ended September 30, 2024 was $8.6 million, a decrease of $16.5 million as compared to $7.9 million for the nine months ended September 30, 2023. The decrease is primarily the result of certain acquisition-related business costs.
Previous wording
Cash used for investing activities was $79.3 million for the six months ended June 30, 2024, which was primarily related to the acquisition of the Performance Designed Products business, compared to $1.3 million for the six months ended June 30, 2023 related to certain capital investments.
Current wording
Cash used for investing activities was $80.7 million for the nine months ended September 30, 2024, which was primarily related to the acquisition of the Performance Designed Products business, compared to $1.9 million for the nine months ended September 30, 2023 related to certain capital investments.
Previous wording
Net cash provided by financing activities was $58.2 million during the six months ended June 30, 2024 compared to net cash used for financing activities of $18.7 million during the six months ended June 30, 2023. 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.
Current wording
Net cash provided by financing activities was $82.7 million during the nine months ended September 30, 2024 compared to net cash used for financing activities of $5.1 million during the nine months ended September 30, 2023. Financing activities during the nine months ended September 30, 2024 consisted primarily of $58.6 million net borrowings, the $50 million term loan and $3.0 million of stock option exercise proceeds, partially offset by $25.3 million of share repurchases, $2.9 million of debt issuance costs and $0.7 million of term loan repayments.
Previous wording
Foreign cash balances at June 30, 2024 and December 31, 2023 were $4.1 million and $8.0 million, respectively.
Current wording
Foreign cash balances at September 30, 2024 and December 31, 2023 were $3.8 million and $8.0 million, respectively.
Previous wording
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 Euro Interbank Offered Rate (“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, 2024, interest rates for outstanding borrowings were 9.10% for base rate loans and 7.19% for Term SOFR loans.
Current wording
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 Euro Interbank Offered Rate (“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 September 30, 2024, interest rates for outstanding borrowings were 8.60% for base rate loans and 6.70% for Term SOFR loans.
Previous wording
As of June 30, 2024, the Company was in compliance with all financial covenants under the Credit Facility, as amended, and excess borrowing availability was approximately $34.6 million.
Current wording
As of September 30, 2024, the Company was in compliance with all financial covenants under the Credit Facility, as amended, and excess borrowing availability was approximately $21.1 million.
Previous wording
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, 2024, interest rates for outstanding borrowings was 13.69%.
Current wording
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 September 30, 2024, interest rates for outstanding borrowings was 13.11%.
Previous wording
As of June 30, 2024, the Company was in compliance with all financial covenants under the Term Loan.
Current wording
As of September 30, 2024, the Company was in compliance with all financial covenants under the Term Loan Facility.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
(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.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
Comparison of the Three Months Ended June 30, 2024 to the Three Months Ended June 30, 2023