CERTAIN PORTIONS OF THIS LETTER AS FILED VIA EDGAR HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION. PURSUANT TO 17 C.F.R. § 200.83, CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE OMITTED PORTIONS, WHICH HAVE BEEN REPLACED WITH THE FOLLOWING PLACEHOLDER “[***]” IN THE LETTER FILED VIA EDGAR.

October 6, 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

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

 Filed March 29, 2023

 Form 8-K Filed August 7, 2023

 Response Dated September 7, 2023

 File No. 001-35465

Dear Ms. Hooker and Mr. James:

On behalf of Turtle Beach Corporation (the “Company”), this letter responds to the additional 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 September 20, 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”), Current Report on Form 8-K that was furnished with the Commission on August 7, 2023 (the “Form 8-K”) and the Response Letter from the Company on September 7, 2023. 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.

Due to the commercially sensitive nature of information contained herein, this submission is accompanied by the Company’s request for confidential treatment for selected portions of this letter. The Company has filed a separate letter with the Office of Freedom of Information and Privacy Act Operations in connection with the confidential treatment request, pursuant to Rule 83 of the Commission’s Rules on Information and Requests, 17 C.F.R. § 200.83. For the Staff’s reference, enclosed is a copy of the Company’s letter to the Office of Freedom of Information and Privacy Act Operations, as well as a copy of this correspondence, marked to show the portions redacted from the version filed via EDGAR and for which the Company is requesting confidential treatment.

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

1)	Comment: We noted in your response to prior comment 3 related to the adjustment titled Proxy contest and other.  Please address the following:

•	Describe to us in more detail the facts and circumstances related to the proxy contest and related litigation.

Response: The Company respectfully acknowledges the Staff’s comment. Detailed descriptions of the facts and circumstances related to the proxy contest and other litigation are as follows:

Proxy Contest: An activist shareholder first reached out to the Company in March 2021 to discuss the business and current valuation for the Company. Prior to this inquiry, the Company had never before received any significant interest from activist shareholders in its history as a public company.  Following their initial contact, the activist shareholder continued to contact the Company expressing disagreement with the Company’s strategy and capital allocation. At that time, the activist had an approximate 2.7% stock ownership and approximately 6% beneficial ownership interest in the Company. The activist shareholder requested representation on the Company’s Board of Directors and escalated their activities by publishing public letters criticizing the Company’s strategic and capital allocation decisions. The Company responded to the activist shareholder’s statements in public responses. In early 2022, the activist shareholders nominated a slate of director candidates to replace the Company’s entire Board of Directors and commenced a proxy contest which required numerous SEC filings by the Company.  Ahead of the 2022 annual shareholders’ meeting, the Company entered into a cooperation agreement (“the Cooperation Agreement”) with the activist shareholder which included the appointment of a number of the activist shareholder’s nominees as directors, the formation of a strategic committee of the Board and the announcement of the exploration of a sale process of the Company. The exploratory sale process was concluded several months later with no sale of the Company and the strategic committee that was formed was dissolved. Pursuant to the Cooperation Agreement, three directors proposed by the activist shareholder were added to the Company’s Board in May, another was added to the Board in October of 2022 and a mutually agreed upon Board member was added in December of 2022.

In early 2023, a second activist shareholder surfaced nominating three potential new directors and suggesting other actions to be taken by the Company in public filings. The second activist shareholder held at the time an approximately 7% stake in the Company. After multiple discussions with numerous shareholders, in May of 2023 the Company began implementing a series of governance changes

that had been requested by shareholders including adding a principal of the first activist investor to the Board, splitting role of Chairman and CEO  and the establishment of a Value Enhancement Committee to review and determine the best path to increase shareholder value. As a result of these changes, the second activist investor withdrew their director nominations and reduced their stock ownership prior to the 2023 annual meeting.  As a collective result of these director nominations and proxy contests in 2022 and 2023, the Company incurred significant abnormal and nonrecurring costs in the form of legal fees, other professional service fees and executive and non-executive employee retention costs.  These costs were not part of the Company’s normal on-going revenue generating activities, business strategy, or industry and regulatory environment requirements and had never been incurred before by the Company in its history.  Given that these activist campaigns have resulted in five of the seven current directors of the Company being appointed since May 2022 and the separation of the Company’s CEO, the Company expects these proxy contest related costs to be non-recurring.

Other Litigation: These costs relate to a settlement of an intellectual property lawsuit related to the Stealth tradename that had been disclosed in prior Form 10-Q and Form 10-K filings.  On November 24, 2020, ABP Technology Limited issued a claim for trademark infringement in the High Court of England and Wales against the Company relating to the use of the sign STEALTH on and in relation to gaming headsets in the UK. On November 16, 2022, the parties entered into a confidential settlement agreement in full and final settlement of all claims regarding this matter.

Response: The Company respectfully acknowledges the Staff’s comment and provides the following quantification of the components of costs included within the “Proxy Contest and Other” line found within the Adjusted EBITDA reconciliation:

Response: The COVID-19 pandemic caused a dramatic shift in global supply chains beginning in 2020. Component part availability needed for the assembly of the Company’s products rapidly declined and our contract manufacturers in Asia struggled to retain personnel and to manage government mandated Covid restrictions which included the unplanned, short-term shutdown of their facilities. Manufacturing plants were closed without warning when Covid cases emerged in Asian countries. In addition, transportation systems, including rail, trucking and container ships experienced a 500%-700% cost increase and lead times increased to more than twice normal levels. Global supply chains which were disrupted during the pandemic were not able to manufacture to our demand plans or produce components under historical timelines. The Company’s manufacturing partners, therefore were able to produce our products only when factories were open, when components were available and when production staff were available versus producing for the Company’s demand forecasts as was the case pre-pandemic. Prior to the pandemic, the Company manufactured product on a just in time basis.  The pandemic-related global supply chain disruptions led to significant uncertainty related to the future availability of various component parts needed to produce certain goods.  In addition, the availability of workers within the contract manufacturers that the Company partners with to produce products for the Company was also greatly impacted by the pandemic

•

Describe to us in detail the circumstances that led to, and the nature of, the $4.4M of cost written-off in 2022. Help us better understand how pandemic shortages resulted in various product redesigns that led to your having to reserve for unused components and unfulfilled purchase commitments. Tell us about the unfulfilled purchase commitments.

Response: The Company views these unusual and incremental pandemic-related expenses and inventory and component impairment charges to be consistent with the guidance set forth in Question 100.01 of the Division of Corporation Finance’s Compliance and Disclosure Interpretation of Non-GAAP Financial Measures, as expenses that are not normal operating expenses and do not occur repeatedly or occasionally, including at irregular intervals, and therefore are appropriate non-GAAP adjustments.  The Company determined that excluding the impact of these COVID-19 pandemic-related costs from the Company’s results provides information meaningful to investors.  These incremental charges do not reflect the normal operating expenses and allow investors to better assess our actual operating performance from period to period.  No such non-GAAP adjustments related to COVID-19 were recorded in 2023.

The Company believes that these inventory and component impairment charges resulted from the pandemic-related supply chain constraints due to the lockdowns and manufacturing facility closures in Asia.  The manufacturing partners required certain commitment demands from the Company which were unprecedented.  Such requirements did not exist pre-pandemic and have not continued post-pandemic.  In addition, the unprecedented and sudden global semiconductor/microchip shortage caused by the pandemic lock-downs and the manufacturing facility closures which resulted in the Company’s inability to access key components for one of our highest selling products, the wireless Xbox headset requiring a complete redesign of some of the key subcomponents of the product.  The Company considered the related impacts to be unusual, non-recurring in nature and not reflective of its normal component and finished goods purchasing and managing of inventory levels both pre-pandemic and post-pandemic.

Response: The Company reviewed the guidance under ASC 740-10-30 which states that a valuation allowance is recognized if, based on the weight of all available evidence, it is more-likely-than-not (likelihood of more than 50 percent) that some portion, or all, of the deferred tax asset will not be realized.  Both positive and negative evidence should be evaluated when assessing the need for a valuation allowance (ASC 740-10-30-17) on a GAAP basis. Positive evidence refers to factors affecting the predictability of one or more of the four sources of taxable income.  An example of negative evidence is cumulative losses in recent years. Although cumulative losses in recent years is not defined, it is typically considered to be a three-year period, including the current (2022) and two prior years (2021 and 2020).

The valuation allowance assessment on a GAAP basis is based on evaluating the four sources of taxable income:

The valuation allowance established as of December 31, 2022 is on the Company’s US net deferred tax assets.  On a GAAP basis, while the Company is in a three-year cumulative income position through 2022, it was mainly driven by its strong 2020 performance.  With 2020 removed and the forecasted GAAP loss for 2023, the Company will be in a three-year cumulative loss position for 2023.  From a GAAP perspective, the Company considered the three-year cumulative loss through 2023 as significant negative evidence to support a valuation allowance, outweighing the source two of taxable income positive evidence.

On a non-GAAP basis, the Company considered the four sources of taxable income listed above and reviewed the positive and negative evidence of expanded timeframes in determining cumulative losses.  For this analysis, U.S. pretax earnings were adjusted for costs identified as non-GAAP expenses and evaluated based on a historical five-year period.  For non-GAAP purposes, the Company, considered source two as additional positive evidence.  With the non-GAAP expenses removed from pre-tax non-GAAP earnings, an expanded recent years analysis and future taxable income, the Company determined that the positive evidence outweighed the negative evidence on a non-GAAP basis.  As such, a valuation allowance on deferred taxes was not required in determining 2022 non-GAAP earnings and therefore the valuation allowance on the deferred tax asset was considered to also be an appropriate non-GAAP adjustment. 

	Sincerely,
	/s/ John T. Hanson
	Chief Financial Officer Turtle Beach Corporation