Turtle Beach Corp
For the period ended Dec 31, 2024. Filed Mar 17, 2025.
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A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Mar 17, 2025
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Item 8. Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Turtle Beach Corporation (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2024, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 17, 2025 expressed an adverse opinion thereon.
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| Revenue Recognition: Cash-Based Incentive Programs | |
| Description of the Matter | As described in Note 1 of the consolidated financial statements, the Company provides cash-based incentive programs, including cash discounts, quantity rebates and price concessions, which results in variable consideration. As of December 31, 2024, the Company has recognized an allowance for cash-based incentives of $32.6 million in “accounts receivable, net” on the consolidated balance sheet. Auditing the Company’s measurement of variable consideration related to cash-based incentives is complex because the calculation is determined based on significant management estimates. These estimates are based on historical and expected performance of the customer, types and levels of promotions, claims received from the customers and forecasted economic trends in comparison to historical trends, when applicable. Changes in these assumptions can have a significant impact on the amount of the revenue recognized. In addition, auditing these estimates was also especially challenging due to the material weaknesses identified by the Company in its |
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| revenue process. The material weaknesses required an increased extent of audit effort to test the reasonableness of the assumptions used in the allowance for cash-based incentives. | |
| How We Addressed the Matter in Our Audit | To test the allowance for cash-based incentives we performed a retrospective review of the allowance, evaluated the assumptions by comparing them to historical trends and third-party information, and performed transactional testing of customer claim activity. |
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| Revenue Recognition: Sales Return Reserve | |
| Description of the Matter | As described in Note 1 of the consolidated financial statements, the Company provides certain customers product return rights, which results in variable consideration. As of December 31, 2024, the Company has recognized an allowance for sales returns of $7.7 million in “accounts receivable, net” on the consolidated balance sheet. Auditing the measurement of variable consideration related to sales returns is complex because the calculation is determined based on significant management estimates. These estimates are based on historical and current return activity trends and forecasted economic trends in comparison to historical trends, when applicable. Changes in these assumptions can have a significant impact on the amount of the revenue recognized. In addition, auditing of these estimates was also especially challenging due to the material weaknesses identified by the Company in its revenue process. The material weaknesses required an increased extent of audit effort to test the reasonableness of the assumptions used in the allowance for sales return reserve. |
| How We Addressed the Matter in Our Audit | To test the allowance for sales return reserve, we performed a retrospective review of the allowance, evaluated the assumptions by comparing them to historical trends, and performed transactional testing of sales returns. Additionally, we tested whether the introduction of new products or new customer contracts could have a material impact on the allowance at period end. |
| Valuation of Intangible Assets from the Performance Designed Products LLC Acquisition | |
| Description of the Matter | As described in Note 2 of the consolidated financial statements, during the year ended December 31, 2024, the Company completed the acquisition of Performance Designed Products LLC for total consideration of $116.9 million. The transaction was accounted for under the acquisition method of accounting whereby the total purchase price was allocated to assets acquired and liabilities assumed based on the estimated fair value of such assets and liabilities. The total fair value of the acquired intangible assets of $47.8 million is recognized in “intangible assets, net” on the consolidated balance sheet. Auditing the Company’s accounting for its acquisition of Performance Designed Products LLC required complex auditor judgment due to the significant estimation uncertainty in determining the fair value of identified intangible assets for all of the acquired intangible assets, which consist of tradenames, customer relationships, and developed technology. The significant estimation uncertainty was primarily due to the judgmental nature of the inputs used in the valuations performed to measure the fair value of these intangible assets as well as the sensitivity of the respective fair value of the acquired intangible assets to revenue assumptions, earnings assumptions, royalty rates and discount rates. These significant assumptions are forward-looking and could be affected by future economic and market conditions. |
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| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the valuation of intangible assets from the Performance Designed Products LLC acquisition. For example, we tested controls over management’s review of the significant assumptions described above. To test the fair value of the acquired tradenames, customer relationships and developed technology, we performed audit procedures that included, among others, assessing the appropriateness of the significant assumptions discussed above and the completeness and |
accuracy of the underlying data. For example, we compared the revenue growth rates and earnings margins to the historical results of the acquired business, industry and economic trends, and the results of guideline public companies. We further performed sensitivity analyses to evaluate the changes in the fair value of the acquired intangible assets that would result from changes in the significant assumptions. In addition, we involved internal valuation specialists to assist us in our evaluation of certain significant assumptions used by the Company including the royalty rates and discount rates.
/s/ ERNST & YOUNG LLP
We have served as the Company’s auditor since 2023.
New York, New York
March 17, 2025
REPORT OF INDEPENDENT REGIS TERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Directors
White Plains, New York
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for the year ended December 31, 2022, and the related notes and financial statement schedule listed in the Index at 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the Company’s results of operations and cash flows for the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ BDO USA, P.C.
We served as the Company’s auditor from 2014 to 2023.
New York, New York
March 29, 2023, except for Note 10 as to which the date is March 17, 2025
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