September 7, 2023

VIA EDGAR

Securities and Exchange Commission

Division of Corporate Finance

Office of Manufacturing

100 F Street, NE

Washington, DC 20549

Attn: Mindy Hooker and Martin James

Dear Ms. Hooker and Mr. James:

On behalf of Turtle Beach Corporation (the “Company”), this letter responds to the comments issued by the staff of the Division of Corporate Finance, Office of Manufacturing (the “Staff”) of the U.S. Securities and Exchange Commission (“Commission”) in a letter dated August 23, 2023 relating to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 that was filed with the Commission on March 29, 2023 (the “Form 10-K”) and Current Report on Form 8-K that was furnished with the Commission on August 7, 2023 (the “Form 8-K”). For your convenience, the Staff’s comments are included in this letter, and each comment is followed by the response of the Company. Capitalized terms used in this letter and not otherwise defined herein shall have the meanings ascribed to them in the Form 10-K and the Form 8-K, as applicable. Unless otherwise indicated, dollar amounts included in the Company’s responses are in thousands.

Form 10-K for Fiscal Year Ended December 31, 2022

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Key Performance Indicators and Non-GAAP Measures, page 27

Response: The Company respectfully acknowledges the Staff’s comment and advises the Staff that in future filings with the Commission, it will reorganize this disclosure to comply with Item 10(e)(1)(i)(A) of Regulation S-K and Question 102.10 of the Division's Compliance & Disclosure Interpretations on Non-GAAP Financial Measures.  In future filings, in the “Results of Operations” section, we will move the sub-section on “Key Performance Indicators and Non-GAAP Measures” to the end after “Other Non-Operating Expense (Income)”.

Response: The Company respectfully acknowledges the Staff’s comment and advises the Staff that in future filings with the Commission, it will clearly describe the specific nature of the costs included in the adjustment and explain management’s reasons for excluding these costs from the Non-GAAP measure in accordance with Item 10(e)(1)(i) of Regulation S-K.  An illustrative example of the revised presentation is included below for the Staff’s reference.

(1)

Inventory and component related reserves includes (a) $4.4 million of costs associated with certain component parts that resulted from the effects of the global constrained semiconductor availability due to the Covid 19 pandemic and (b) $5.2 million of reserves primarily related to the buildup of excess inventory in the distribution channels.

(2)

Impairment charge includes costs related to impairment of intangible assets.  See Note 6 to our condensed consolidated financial statements included elsewhere in this Annual Report.

(3)

Restructuring charges are expenses that are paid in connection with reorganization of our operations. These costs primarily include severance and related benefits.

(4)

Acquisition-related settlement includes the gain associated with a legal settlement related to a prior period acquisition.

(5)

Change in fair value of contingent consideration relates to the release of reserves associated with the earn-out liabilities.  See Note X to our condensed consolidated financial statements included elsewhere in this Annual Report.

(6)

Business transaction expense includes one-time costs we incurred in order to acquire ROCCAT and Neat including professional fees such as legal and accounting along with other certain integration related costs of the acquisitions.

(7)

Proxy contest and other primarily includes (a) one-time legal, other professional fees, as well as employee and executive retention costs associated with proxy challenges presented by certain shareholder activists and (b) the settlement of an intellectual property lawsuit in 2022.

Response: The Company respectfully acknowledges the Staff’s comment. Detailed descriptions of the specific nature of each of the adjustments mentioned in the Staff’s comment that are reflected in the Company’s Adjusted EBITDA measures and an explanation of how the Company determined that such adjustments are appropriate based on the guidance in Question 100.01 of the Division’s Compliance & Disclosure Interpretations on Non-GAAP Financial Measures are included below:

(i) Inventory and component related reserves. During 2022, the Company recorded $4.4 million of non-recurring costs associated with certain component parts that resulted from the effects of the global semiconductor shortage issues experienced during the pandemic.  These shortages resulted in the unavailability of certain microchips which caused engineering redesigns of certain products utilizing alternative components. These various product redesigns led to the Company having to reserve for certain unused components and unfulfilled purchase commitments, resulting in the $4.4 million charge related to non-recurring costs. The Company also recorded $5.2 million of inventory reserves as a result of pandemic-related global supply chain disruptions. The Company determined that these adjustments were appropriate based on the guidance in Question 100.01 because the semiconductor shortage issues and significant impact to supply chains stemming from the global pandemic were unusual and non-recurring events and not normal, recurring expenses necessary to operate the Company’s business.

(ii) Proxy contest and other. During 2021 and 2022, the Company recorded significant costs associated with a proxy contest and related activities of an activist shareholder group.  These costs included legal and other professional fees as well as employee and executive retention costs.  During 2022, the Company also recorded the settlement of an intellectual property lawsuit.  This represented the “other” portion of this adjustment. The Company determined that these adjustments were appropriate based on the guidance in Question 100.01 because the proxy contest and related activities of activist shareholder groups and related fees and the legal settlement were unusual and non-recurring events and not normal, recurring operating expenses necessary to operate the Company’s business.  Specifically, the director nominations and proxy contest brought by

shareholder activist groups were the first such activity the Company experienced since its listing on the NASDAQ in 2014

(iii) CEO transition related costs. During the six months ended June 30, 2023, the Company recorded costs associated with the separation of its former CEO.  Such costs included severance, bonus, medical benefits and the tax impact of accelerated vesting of stock-based compensation of the former CEO. The Company determined that this adjustment was appropriate based on the guidance in Question 100.01 because the CEO transition was an unusual and non-recurring event and not a normal, recurring operating expense necessary to operate the Company’s business.  In fact, this was the first change in the CEO position of the Company since its listing on the NASDAQ in 2014.

Response: The Company respectfully acknowledges the Staff’s comment and advises the Staff that in future earnings releases, it will provide equal or greater prominence to the most directly comparable GAAP measure when providing non-GAAP measures, in accordance with Item 10(e)(1)(i)(A) of Regulation S-K and Question 102.10 of the Division's Compliance & Disclosure Interpretations on Non-GAAP Financial Measures

Response: The Company respectfully acknowledges the Staff’s comment and advises the Staff that in future filings with the Commission, it will revise this disclosure to present all adjustments gross of tax with related income tax effect shown as a separate adjustment and clearly explained, as required by Question 102.11 of the Division’s Compliance and Disclosure Interpretations on Non-GAAP Financial Measures.

Clarify whether the adjustments relate to a tax valuation allowance. Explain to us your reasons for excluding these valuation allowances from the Adjusted Earnings and Non-GAAP Earnings (Loss) measures and why management believes the adjustments are appropriate.

Response: The Company respectfully acknowledges the comment and advises the Staff that the valuation allowance referred to within the Adjusted Earnings and Non-GAAP Earnings (Loss) measure presented for the reported periods in fiscal years 2023 and 2022 relates to a valuation allowance against our net United States deferred tax assets.  The Company recorded a valuation allowance as of December 31, 2022, as it is not more likely than not that our net U.S. deferred tax assets will be realized in the foreseeable future.  The Company evaluated positive and negative evidence to support realizability.  Significant negative evidence evaluated was the Company’s three-year cumulative loss position forecasted by the end of year December 31, 2023, due to the sharp downturn in demand for consumer electronics the Company provides to large retailers. 

The Company reported the valuation allowance as a non-GAAP adjustment as it is a non-recurring, non-cash item, and not indicative of the Company’s overall performance. Since the Company expects to utilize these deferred tax assets in the future, it believes it is appropriate to adjust for the impact that the valuation allowance had on Adjusted Earnings and Non-GAAP Earnings (Loss) measures.  Upon valuation allowance release, the Company will remove this benefit from Adjusted and Non-GAAP earnings.

Response: The Company respectfully acknowledges the Staff’s comment and advises the Staff that in future filings with the Commission, it will provide a reconciliation from Net Income (Loss) to Adjusted EBITDA for all periods presented in accordance with Item 10(e)(1)(i)(B) of Regulation S-K and Question 102.10 of the Division's Compliance & Disclosure Interpretations on Non-GAAP Financial Measures. Further, in future filings, the Company will eliminate the Non-GAAP income statement most recently presented in Table 5 of the August 2023 Form 8-K.  An illustrative example of the revised presentation is included below for the Staff’s reference.

(1)

Stock based compensation includes the accelerated vesting associated with the separation of our former CEO.

(2)

Restructuring charges are expenses that are paid in connection with reorganization of our operations. These costs primarily include severance and related benefits.

(4)

Proxy contest and other includes (a) one-time legal, other professional fees, as well as employee and executive retention costs associated with proxy challenges presented by certain shareholder activists and (b) the settlement of an intellectual property lawsuit in 2022.

Response: The Company respectfully acknowledges the Staff’s comment and will clearly describe the specific nature of the costs included in the adjustment and explain management’s reasons for excluding these costs from the Non-GAAP measure in its earnings releases going forward in a similar manner as described in the response to comment number 2 in this letter.

Response: The Company respectfully acknowledges the Staff’s comment. Detailed descriptions of the specific nature of each of the adjustments mentioned in the Staff’s comments that were made to the Company’s Adjusted earnings and Adjusted EBITDA and an explanation of how the Company determined that these adjustments are appropriate based on the guidance in Question 100.01 of the Division's Compliance & Disclosure Interpretations on Non-GAAP Financial Measures are provided below.  Further, the Company advises the Staff that it plans to eliminate the non-GAAP income statement as most recently presented in Table 5 of the Form 8-K.  As a result, there will no longer be an “Other” column within Table 5 in future filings.

(i) CEO separation and related costs. As included in Table 4 of the Form 8-K, these costs included severance, bonus, medical benefits, accelerated vesting of stock-based compensation of the former CEO and the tax impact of accelerated vesting of stock-based compensation associated with the change in the Company’s CEO on June 30, 2023. The Company determined that this adjustment was appropriate based on the guidance in Question 100.01 because the CEO transition was an unusual and non-recurring event and not a normal, recurring operating expense necessary to operate the Company’s business.

(ii) CEO transition related costs. As included in the Adjusted EBITDA table located on page 28 of the Form 10-K, these costs included severance, bonus, medical benefits and the tax impact of accelerated vesting of stock-based compensation of the former CEO associated with the change in the Company’s CEO on June 30, 2023.  The expense associated with the accelerated vesting of stock-based compensation is included in the stock-based compensation line within the Adjusted EBITDA table and not within the CEO transition related costs line. The Company determined that this adjustment was appropriate based on the guidance in Question 100.01 because the CEO transition was an unusual and non-recurring event and not a normal, recurring operating expense necessary to operate the Company’s business.

(iii) Inventory and component related reserves. During 2022, the Company recorded $4.4 million of non-recurring costs associated with certain component parts that resulted from the effects of the global semiconductor shortage issues experienced during the pandemic.  These shortages resulted in the unavailability of certain microchips which caused engineering redesigns of certain products utilizing alternative components. These various product redesigns led to the Company having to reserve for certain unused components and unfulfilled purchase commitments, resulting in the $4.4 million charge related to non-recurring costs. The Company also recorded $5.2 million of inventory reserves as a result of pandemic-related global supply chain disruptions. The Company determined that these adjustments were appropriate based on the guidance in Question 100.01 because the semiconductor shortage issues and significant impact to supply chains stemming from the global pandemic were unusual and non-recurring events and not normal, recurring expenses necessary to operate the Company’s business.

(iv) Certain business acquisition costs. During 2020 and 2021, the Company recorded costs associated with the acquisitions of both the ROCCAT and Neat businesses.  These costs included professional fees such as legal and accounting fees along with other certain integration related costs of the acquisitions. The Company determined that these adjustments were appropriate based on the guidance in Question 100.01 because the ROCCAT and Neat acquisitions and the related costs were unusual and non-recurring events and not normal, recurring operating expenses necessary to operate of the Company’s business.

(v) Non-recurring business costs. The Company has recorded legal and other professional fees associated with a proxy contest and other activities of an activist shareholder group. Specifically, the director nominations and proxy contest brought by shareholder activist groups were the first such activity the Company experienced since its listing on the NASDAQ in 2014. These costs included legal and other professional fees as well as employee retention costs, and to a lesser extent, legal fees associated with a previously settled, non-recurring lawsuit. The Company determined that these adjustments were appropriate based on the guidance in Question 100.01 because the proxy contest and related fees and the settlement were unusual and non-recurring events and not normal, recurring operating expenses necessary to operate of the Company’s business.

* * * * * * *

If you have any questions or if you require additional information, please do not hesitate to contact me at (858) 914-4461.

cc:

Megan Wynne, General Counsel, Turtle Beach Corporation