Turtle Beach (US:HEAR)2025-08-07 21:00PART I. FINANCIAL INFORMATION Item 1. Financial Statements The company reported a net loss of $2.9 million for Q2 2025, an improvement from the prior year, with total assets decreasing to $240.2 million and net cash from operations significantly increasing to $37.3 million for the first six months of 2025 Condensed Consolidated Statements of Operations (Unaudited) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | $56.8M | $76.5M | $120.7M | $132.3M | | Gross Profit | $18.3M | $23.1M | $41.6M | $40.9M | | Operating (Loss) Income | $(0.3M) | $(4.1M) | $1.2M | $(9.8M) | | Net Loss | $(2.9M) | $(7.5M) | $(3.6M) | $(7.4M) | | Diluted Net Loss Per Share | $(0.14) | $(0.35) | $(0.17) | $(0.37) | Condensed Consolidated Balance Sheets (Unaudited) | Balance Sheet Item | June 30, 2025 (unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $138.0M | $188.4M | | Total Assets | $240.2M | $298.9M | | Total Current Liabilities | $75.3M | $123.7M | | Total Liabilities | $123.3M | $178.3M | | Total Stockholders' Equity | $116.8M | $120.6M | Condensed Consolidated Statements of Cash Flows (Unaudited) | Cash Flow Activity (Six Months Ended) | June 30, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $37.3M | $14.6M | | Net cash provided by (used for) investing activities | $2.0M | $(79.3M) | | Net cash (used for) provided by financing activities | $(41.7M) | $58.2M | Notes to Condensed Consolidated Financial Statements The notes detail significant events and accounting policies, including the $114.4 million PDP acquisition, the company's single reportable segment, new debt facilities, ongoing litigation, and a new stock repurchase program - On March 13, 2024, the Company acquired Performance Designed Products LLC (PDP) for a total consideration of $114.4 million, consisting of $78.9 million in cash and 3.45 million shares of common stock3536 - The company operates as a single reportable segment, with North America accounting for $89.9 million in net revenue, Europe and Middle East with $24.5 million, and Asia Pacific with $6.3 million for the six months ended June 30, 2025101102 - On August 1, 2025, the Company entered into a new Credit Agreement with Bank of America, including a $60 million term loan and a $90 million revolving credit facility, maturing on August 1, 202867 - The company is subject to various legal proceedings, including an insolvency dispute in Germany settled for EUR 722,989, and two intellectual property disputes involving PDP and Nyko Technologies, and Voyetra Turtle Beach and Gametronics LLC757679 - A stock repurchase program was authorized on May 7, 2025, to acquire up to $75 million of common stock, with 0.4 million shares repurchased for $5.0 million during Q2 20259192 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the Q2 2025 revenue decrease of $19.7 million year-over-year to reduced market demand, while gross margin improved to 32.2% due to the absence of a prior-year fair value adjustment, and liquidity is supported by operations and a new credit facility Results of Operations Net revenue for Q2 2025 decreased by 25.8% to $56.8 million due to lower market demand, while gross margin improved to 32.2% primarily from the absence of a prior-year fair value step-up adjustment, and operating expenses decreased due to an insurance recovery Results of Operations Summary | Metric | Q2 2025 | Q2 2024 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | $56.8M | $76.5M | $(19.7)M | (25.8)% | | Gross Profit | $18.3M | $23.1M | $(4.8)M | (20.8)% | | Gross Margin | 32.2% | 30.2% | +2.0 p.p. | N/A | - The decrease in Q2 2025 net revenue was driven by a significant reduction in market demand for computer gaming accessories110 - The increase in Q2 2025 gross margin was primarily due to the unfavorable impact of a fair value step-up adjustment in the prior year period, partially offset by higher tariffs in 2025111 - Operating expenses in Q2 2025 included a $6.0 million insurance recovery related to inventory lost in transit during Q4 2024114119 Liquidity and Capital Resources The company's working capital is primarily from operations and its revolving credit facility, with cash and cash equivalents at $11.7 million and net cash from operations significantly increasing to $37.3 million for the first six months of 2025, supported by a new credit agreement Cash Flow and Cash Equivalents | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $37.3M | $14.6M | | Cash and cash equivalents at end of period | $11.7M | $12.5M | - The increase in cash from operations was primarily due to higher gross receipts, insurance proceeds from claims related to a loss of inventory, lower acquisition-related costs, and reduced spending levels133 - As of June 30, 2025, the company was in compliance with all financial covenants under its Credit Facility and Term Loan Facility, with excess borrowing availability of approximately $36.2 million6265146 - On August 1, 2025, the company replaced its previous debt arrangements with a new Credit Agreement that includes a $60 million term loan and a $90 million revolving credit facility, maturing August 1, 2028150 Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rate fluctuations, foreign currency exchange rates (primarily British Pound and Euro), and inflation, with inflationary pressures potentially increasing costs and reducing consumer demand - The company's primary market risks are interest rate fluctuations, foreign currency exchange rates, and inflation157 - Foreign currency exchange risk is primarily related to the British Pound and Euro, but the exposure is considered immaterial as of June 30, 2025159 - Inflation risk affects the company through increased costs from tariffs, materials, and logistics, and can negatively impact consumer demand for its products due to reduced discretionary spending160161162 Controls and Procedures The company's disclosure controls and procedures were deemed ineffective as of June 30, 2025, and management is actively remediating material weaknesses identified in the 2024 Annual Report - Management, including the PEO and PFO, concluded that the company's disclosure controls and procedures were ineffective as of June 30, 2025165 - The company is in the process of remediating material weaknesses identified in its 2024 Annual Report on Form 10-K166 PART II. OTHER INFORMATION Legal Proceedings This section refers to Note 8 of the financial statements for details on ongoing legal proceedings, including a settled German insolvency dispute and two intellectual property disputes - For details on legal proceedings, the report refers to Note 8, "Commitments and Contingencies" in the financial statements170 Risk Factors The company's business is highly dependent on third-party gaming platforms and game releases, and faces risks from changes in U.S. or foreign trade policies, including tariffs, which could increase costs and decrease demand - The company's business is highly dependent on the success and availability of third-party gaming platforms (Microsoft Xbox, Sony PlayStation, Nintendo Switch) and the timely release of popular game titles171172 - Changes in U.S. or foreign trade policies, including tariffs on imported goods, pose a risk to the business, as increased tariffs could require price increases, which may decrease product demand173174 Unregistered Sales of Equity Securities and Use of Proceeds The Board authorized a $75 million stock repurchase program on May 7, 2025, under which 372,198 shares were repurchased for $13.47 per share during Q2 2025, leaving approximately $70.0 million available Stock Repurchase Details | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Approximate Dollar Value of Shares that May Yet Be Purchased | | :--- | :--- | :--- | :--- | | June 1-30, 2025 | 372,198 | $13.47 | $70.0M | - A stock repurchase program for up to $75 million was authorized on May 7, 2025, and is scheduled to expire on May 6, 2027177 Other Information No directors or executive officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the second quarter of 2025 - No directors or executive officers adopted or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement" during the second quarter of 2025179 Exhibits This section lists the exhibits filed with the Form 10-Q, including officer certifications, amendments to financing and compensation plans, and corporate governance documents - The exhibits filed include officer certifications (31.1, 31.2, 32.1), amendments to financing and compensation plans (10.1, 10.2), and corporate governance documents183