Turtle Beach (HEAR) 7 May 202020 Q1 Earnings call transcript

Good afternoon, ladies and gentlemen, and welcome to the Turtle Beach First Quarter 2020 Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]

Before we get started, we will be referring to the press release filed today that details the Company's first quarter 2020 results, which can be downloaded from their Investor Relations page at corp.turtlebeach.com, where you will also find the latest earnings presentations that supplements the information discussed on today's call.

the the be evening. Company's of Investor on recording of section website a call available will the Finally, later this

be containing statements of call could some Statements about the aware made beliefs laws. as Please this and may, Company's and and expect, during expectations forward-looking federal the securities results may materially such statements. involve the that risks within constitute future Corporation's comments and operations These Company's forward-looking expressions the meaning uncertainties words of Turtle similar anticipate include the to that could, will, from believe, expectations. regarding Beach management's cause results statements differ current

may are the upon affect numerous reasonable cause believes differ assumptions, and may results materially. its While to Company expectations based factors results that actual

quarterly Company Commission, recent events report to XX-Q press factors described cause in releases or results Most Risk review Harbor the So you identifies and actual the that without materially and also XX-K. Exchange from annual including, to risk statements. which reports, limitation today's Safe on Securities report in Factors in differ the statements those specific encourages and Form contained with periodic may other its filings Form and its forward-looking on

GAAP. will accounting information providing update in United prepared principles discussing does not is The you supplement undertake on non-GAAP with revise or The Company call. Company statements a in financial The that to or be generally this that the to forward-looking call, accordance this conference publicly information. States after any Company as notes accepted information also

provided today's in to the their earnings these release You can reconciliation reported Company's metrics presentation. find GAAP a and of results in tables reconciliation

turn to Chief the the will Chairman Juergen I and Stark, over now And Executive. Juergen? Company's call

hope delay the call the afternoon, and more We here. you to joining the beginning thank you allowed at join of short everyone, us. Good for

profitability. margins expectations exceeded We quarter first of are that revenue, results report to for XXXX and pleased our for the

connected. unprecedented being providing a source entertainment, of these gaming way in During times, addition stay to a is to friends for

schools learning increase for from that, moved many the headsets combined forecasted headsets quarter offices for These top year. communications. and distance outlook factors demand and to resulting work our work in our are required well-suited finding or closed the for On two-way to home, a stronger of school most our increase as and an workers in than

Before in first thank great the for I adjusted to detail and quarter about home our and of remotely prioritize part for employees quickly forward. more to done, employees outlook, I incredible had talk results from the business the they've how they've want and our keeping have our them safety others, moving for parts our Like productively we since March. most our all job the working health and of work

work the adjusting challenges our combined haven't to week-by-week despite a of challenge We increase changing beat with the an home. volatile missed basis. extremely to incredible environment a region-by-region, been was on that demand and products retail an has for unexpected Adding from in

than of couldn't every I number they've supply, challenging analyze phenomenal through This has be more these for suddenly done shipments, has where became market of markets double update cover a much trends, each proud forecast, job and a simply, required managed and normal. circumstances. how our manage working to and demand time and Quite expedite team higher volume employee

back only who years was ago. March, were on our in earnings which two fourth seems to Turning results. you call months like ago, but early our quarter Those of

and to XX% anticipated headsets We sales announcement by the industry of That into from we up that past roughly during have will of year the first after than then upgrade decline three patterns seen year-over-year consoles. the pick over cycles these of consoles new of expected exacerbated usual QX remember next-gen quarters launches console and and console we XXXX was the much on the view Microsoft. Sony based earlier the in

gaming time stay-at-home as than the sales believe are for those and market, but well trends reporting spending gaming the much more gaming in consoles measures expected to pattern. retailers as of have continue higher software. We console of Consumers changed are the

addition while working the launched chat, allows phenomenally has well In Animal Call Warzone multiplayer headsets using are a two-way done of well. Fortnite, gaming also Duty: also to extremely at customers Crossing, favorites like home. done believe learning which as Nintendo's and social for We new communications voice recently game. has

have led in demand steep and mid-March. for headsets factors to increase These a gaming sudden starting

all of console XXXX an expansion. X% sales time gaming February, sales high and battle during headset U.S. In January in higher being retail month U.S. in headset even the QX. fact, expected This the resulting March, offset royale-driven console year-over-year the only partially to gaming year-over-year for hit of for decline according NPD, March than down market

better the than market increase to sales saw expected share. addition In also in our a levels, we significant

the have combined. more market share for that share competitors had we in XX and console headsets might exceeds years share than routinely the our that one three You next number the recall of

games, by share market even sub in higher is where we has are of did based job better than $XX a because battle headsets the our because in price in new share the popularity our competitors across believe our at our retailers. increase And we and purchasing on many been product the Fortnite saw tiers. stock tier, retail keeping we We gamers than our an in of of price share drawn XXXX, our in royale partially average

position console U.S. mentioned in the and at steep share our over put sudden of increase a areas share market basis the market demand and over where within days, March, a points of operating experienced large many March I gain for rose with headset basis that Our points matter us XXX combined in company that volumes. quarter. in the were XXX while in a peak

from for the for to Turtle console as selling Beach were XXX continuing measured models six models with of the and top headset the third top In revenue, all the bestselling Stealth of be straight industry's the XX year. March eight by six Xbox

retail. believe the in make Particularly to to both results difference, a to our where a to like supply execution such can big We this us excellent partners. and our times our testament execution continued brand, chain and at products strong operational be retail retail, and

royale consumers. we supply Fortnite XXXX, Like focused possible for are the in our increased market on products extremely battle secure our of increase, during doing retailers everything and to

biggest every retail over are that console effort Given the the done I amazing putting of They headset some environment am we on the have of U.S. our business. since market into bit to this. job, our color past providing adjusting retail partners the the deserve months. dynamic portion Note that's

across the and keyboards March. growth categories, saw major consumer markets of and geographies console sales outperformed in And All most headsets, PC, our market. product our in and mice in demand

come John John? into demand a as our will exceeded details QX. now first I strong after has So all revised with for key financial provides the comments quarter expectations will results and on continued our on outlook financial QX market cover, results. back across metrics John XXXX

and to year-ago million Thanks first of the $XX Juergen, good compared on million in quarter. or for million currency Net afternoon, revenue basis the $XX.X constant everyone. $XX.X Hey. quarter a was XXXX

by last record midpoint setting of as year the XX% record March the year, were in were driven $X still sales guidance by Sales to about quarter Juergen in of being our range our last first the above levels retail versus while battle sales down million in quarter royale described. surge, driven or

volume-based in and decrease cost margin of in more first mix. leverage, compared fixed a of the expected the XX.X% in business Gross quarter quarter XX% the primarily due decline XXXX. to tariffs to was first offset This a impact partially by was continued favorable

costs with were of which XXXX $XX of to completed to quarter of was ROCCAT million acquisition, quarter first XXXX. The of $XX.X inclusion the at due in primarily XXXX. million, the the expenses the end same in Operating compared May increase the associated

the income calendar due Net loss million typically million first two loss first just the the in year-ago quarters volumes per compared a $X.X I lower company net seasonal business. commentary when of to was the sales covered. are the XXXX quarter, nature share The quarter reflecting to relatively $X.X posts net the of in in of

per quarter XXXX year-ago million share diluted million the weighted-average was per and loss the income diluted $XX.X $X.XX first quarter. outstanding of on outstanding, shares in net share shares Net weighted-average compared in to of $XX.X $X.XX

loss of share compared of diluted diluted per $X.XX which to and exceeded $X.X net range of transaction excludes per costs net acquisition significantly incurred first $X.XX integration $X.XX. to share adjusted which These or the million or for the $X.XX related XXXX, in XXXX per results adjusted net the million our to a diluted was share, quarter for period. of loss ROCCAT Adjusted was $X.X guidance

of $XX.X negative Adjusted $X.X the a prior million, in remain million EBITDA nominal of our significantly interest allowed operations cash outlay a million to million. better compared to guidance was continued our Adjusted ROCCAT, positive $X.X to the This first million. $X.X on in was of than expense. quarter. XXXX of EBITDA was the acquisition borrowings negative year-ago negative during Cash cash $X.X year provided for quarter spite reducing from the strong cash revolver against last quarter our flow

year provision full-year actual million the for Regarding $X end depending our million with $X in range. our to corresponding tax for on to XXXX the reported to higher higher taxes, expected be the results of the of is the provision guidance range

This outstanding debt March cash to turning debt we cash million our outstanding zero had $X.X facility $X.X March credit XX, under XXXX. credit XX, revolving equivalents million and line. million sheet. XXXX, and cash compares our to now of cash $XX.X and At the And of of revolving under balance with equivalents at

we expected March hand declined offset year. million XXXX, inventory today, million the at than from ROCCAT at in million debt. to driven sales, the compared by was of XX, zero better decrease have last on XX cash March partially As the $XX.X outstanding of by to The acquisition. over Inventories addition $XX with $XX.X

had helped accommodate we and the bit the a during tariffs brought quarter. that of inventory mitigate has demand XXXX, into increased impact Going to more in us

over the additional turn for some back Now to Juergen? Juergen I'll comments. call

environment The continues to Thanks, highly dynamic. John. be

begun restrictions be the in the on how consumers impacted the and unclear countries point. As we the up, coming speak, this across behave states will and how to consumers How at environment the COVID-XX-related world around some and landscape country ease are other open and have some quickly might retail retailers. countries economic states

supply therefore and accordingly. key for analysis, priority and our market plans now disciplined to continue is right trends level adjusting both country at retailer us monitoring A our

upsurge were induced royale genre This increases that battle relatively cases, be unlike modeled. smooth is there games comes once accessories demand an of or past gamers when slate in for and of those along. headsets extrapolated terms a but to gaming In could demand demand buy detected strong, in like innovative strong curves

increase once quickly to has keep but fulfillment the increase during closed orders this different. Plus actually case been is demand. evolve the is the was in demand in and with as stores potentially landscape, significant be There change currently areas or retail demand which Where Fortnite demand and combined continues up infrastructure of expect struggling for e-commerce in to that some is stay-at-home fulfillment a This surge, are increase we is orders with end. and deliveries. the constraining example, to

be and on buying our shifting ROCCAT However, consumers Beach Turtle job both and seem websites. to to shifts accordingly, retailers significant e-commerce doing great are habits quickly brand directly supply through their our including a finding and

As I models, speeds job and retail environment. record business changing capabilities an ramping adjusting partners have our previously extraordinary to adapting stated, the their at done e-commerce

have to top as customers. We partners retail are fortunate our such great

strong reopen to months and We to thrive ability execute many are a to our indication over dynamics we of consumer the in performance continue stores retail past and of few good is a retail of to variety change landscapes. and well expect able our these believe once

cargo could and impacted. be supply continue particularly air chain, to addition, and capacity have and been In logistics

outside team excellent our arrival been expedite leverage manufacturing variety our capacity increase supply significant of to options multiple China. to hasn't now channels, Fortunately, able and a across significantly successfully its including of

COVID-XX of capacity on year, are partners on that track now. this our earlier impact manufacturing been pleased initial has manufacturing for partner our the weeks back Since we many

excellent their demand. to my production in I our like on In partners to fact, to scale rapidly the to increase meet we've offer execution manufacturing would thanks this. for managed

Asia-based suppliers also resume launches may that fact bode for and Sony well able new consoles. upcoming have of operations Microsoft's The been to the

Board will In strong the their anticipated console timing Microsoft believe Sony to fact, launches. encourage demand across we uptick the in of maintain also and gaming for the

pricing, the demand launch their new as depending lower maybe their out consoles planned premium holiday, reinforced the the have intentions of although console before course Both – economy. on there for state as of the to of expected new

into cycle continue XXXX. market and and growth We be will excited new later to what very console new we of the the be a consoles year about this going expect start

plan serve in and unprecedented into flowing our retail is partners analyze, our products to keep our hands the So of adjust this execute our and continue to excellent well to and environment dynamic consumers. accordingly

for Turning outlook to our increased XXXX.

QX. We have expect to very strong a

in strong April. as orders second the $XX remained $XX This XXXX, quarter of revenue reflects expect in demand continued we million. of that to the be exceptionally recognition million the markets the For stay-in-home of to place many be in end guidelines and to through range

situation. local of are significant will Channel could normal be up or inventories our down on dynamic use range to as state expectations reflect measures revenue as including cargo so stock freight, even current vary demand subside. expected supply, and could returns We given to there relax which government also a estimated more low need replenish demand levels. The the air those product

to retailers to times customers, extra expedite. to even need like is priority our we get supply our to mentioned, if and I spend As this in

the EBITDA for longer-term we expect second costs expediting $X the growth million the breakeven investments this to We of adjusted making quarter be anticipated to and range year. including negative are incremental in the

per We share per expect to the range to $X.XX the diluted be share adjusted and of loss the diluted $X.XX. range be to $X.XX of in to $X.XX the in loss

XXXX, million than $XX full-year our in expect is now higher guidance. be to $XXX This the $XXX of million. we revenue the For previous range million to

some first beat published the guidance few above estimates sales quarter recognize approaching we While that estimates, are a remain as the second factors consensus we and our unclear. full-year forecast our well is our quarter of prudence with

that this of the unusually gaming continue. accessories to to long back something point life will more demand at are at how to people home, it's will normal strong we assume goes know and and subside the gaming “normal”. time don't for First, less If level go spending logical back

we have not Second, actually year. year, that have sales so degree we sure otherwise been far which the of sales have happened it strong would the this are experienced to in might later

pull are we some in guidance. in our of factoring purchases amount So forward of

Third, what whether and economic it's as midst second will to year in including or environment the be half not in been resilient environment, the of it these as the the the challenging unclear will economic unemployment past market has of gaming prove be months.

guidance, future quarter last adjusted higher revenues. full-year to in to of the reflecting $X EBITDA our higher I in investments COVID-XX, be supply covered including more million by We the now – expect to expediting million due about million $XX and range or $X estimate growth higher some than than detail cost offset prior higher and the

investment be well We million our continue on expand this open to market market the to PC plan track future. additional in efforts that underway. in significant year opportunity our share Those are up and for $X accessories

loss compared a in We prior $X.XX. be of expect net income and $X.XX, a of per a range to to $X.XX diluted of loss profit of to share our between a $X.XX estimate of

compared share shares. approximately diluted per of million loss income on to $X.XX of XX of be our $X.XX based $X.XX to net of of adjusted profit expect loss a to forecast a $X.XX diluted a and a in We range prior

our a one, time. Number drive put brand in year making PC in two, as to to XXXX. in to continue So summarize and over ourselves shifts this to we that accessories, consoles. exciting transition portfolio Number for headsets lead and growth for market the lead to and in to significant including position investments gaming and nimbly next new console prepare goals demand respond

well as shareholder diligent maintain to supply our chain needed. four, and quick across three, and and And continue Number prudently a operations sheet dynamic create with manage environment this analysis adjustments to given extraordinarily retail, capital balance healthy value. number long-term execute

a many great times, market. I a terrific I've we have position As in believe said

far that are headsets brand billion by console have and investing in gaming and to $X.X gaming position the more the market in committed We and in market. leading extending strength broadly accessory

growth in to QX per target believe another be dynamic well has well We our per to have QX are believe And drive I XX% example and growth execute revenue EBITDA. positioned XX% of ability in to we future year will to year a to and XX% in long-term been continue situations. XX% and of

thank like conditions. would I under to once done challenging job finally, employees who extremely an incredible have And again our

to makes truly are this of and part You a company proud great succeed be all what you. team this I'm with very

now to are we questions. take ready Operator,

will Instructions] Markets. from from Capital you, Street Lake [Operator Thank question first sir. And our Argento come Mark

You proceed. may

Hey, Juergen. Hey, John.

Just a ones. couple of quick

little you supply had I think But on I that touched chain, guys air couple maybe it that in comfortable bit, spots between right to bit you enough where a Canada can you it just market? apologize, and center, shipping in get I terms your might a the amount now? to – know you're of a you you areas little it get of ability or DCs that the a product areas calls. need bouncing be the product in other mentioned product the in Juergen, of about seeing various are talk you're but

Mark. Hi, Sure.

supply mentioned supply constrained QX increase output and between the even team a chain that May. standpoint supply. will has increasing phenomenal with as job, a So than factory and done just from be a March in I Xx is more

give you sense to the the Just some increase. of of amount

be we So this will quarter. constrained

appreciate them have multiples we and do in or wherever we and demand, depending to including expect into it not. effort know and we two. here But we here obviously spending or getting be get QX by continue up retailers even put supply will supply matter to gone need the either week subside goal the our using when And that is we ramp work as markets on to. air of a We freight and that our quickly, a go recognized they into the in

of of versus headsets guys obviously – assuming have in I about time And backwards you're to new and launch I'm your in managing you terms new product consoles. even say think current-gen next-gen kind product, for compatibility then But the going here. the presentation the it. Got just of

to of of and given maybe next-gen compatible, product, versus don't getting much kind discount So just product ready upfront. current-gen the discounting see as need also and about demand talk the launching maybe if and they're the seen amount year we kind this for of you've backwards

we've a kind fair think So past degradation is margin in a maybe a from gross dramatic a in less about it? than that way to transitions, of of perspective, margin margin seen

the which Both Mark. that X.X millimeter Absolutely, forward on consoles and them, jacks compatible. fully of new backwards confirmed have have products they all are means audio wired

wireless compatible. And forward have the products therefore, be expect kind and expect don't transition of console we major to backward also to any We issues.

And have as we actually you consoles, that needs we with new the for help the believe some We transition never here. mentioned, products that can be will will the product of the – last believe top high us while transitions rate be not into during certainly of to not head the inventory console but that on like will discounted. all this we and of not transition managing be be will very sure, sales holiday

guys. Thanks, Great.

Mark. Thanks

you, Thank Mark.

Instructions] Alper Davidson. next And of Elliot [Operator ahead. go from Please question come our will

your trends that as Great. first in of of changed back And March? April as the in the then about week Thank pre-COVID Could you. and how half you May? talk sales well sales any trends

Sure.

the XX%, that overall February estimating mentioned don't March, it have the and So market with during January of on front – down we only down. and down, much so but in January were I the quarter were we given being have numbers but up we the market the track roughly that February closed X% around despite the – the me, that market call, shot high we share down market. We're sales Elliot and

dramatic mentioned here. terms more this market growth we in and through then sales and So our we – U.S. which March, the been points orders of gained using the the growth. even and April in I demand of stay-at-home strong post the top week have place the share in of that then jump has revenue on And XXX through NPD basis market February had than then noted continued numbers, the and quarter, that, made on in

comments you Okay. there? to Great. seeing through e-commerce? seeing going much change retail if success higher – you're footprint remains physical DTC success strategy And And channel, then was this closed, as seeing Could are any forward? curious your your then volume

Sure.

So retail e-commerce sales we increase to a mention WalMart, our partner, fulfillment Buy, have Amazon, Best websites. just turtlebeach.com have sites, seen Target, few, e-commerce and GameStop, and all both capabilities who in roccat.com an

gone definitely So up. e-commerce has

with have at though up Keep world number for around of Best in they like able like have and front groceries remain and to that delivery. of WalMart and Buy an quickly touchless retailers very online order example, Target have stick to examples shifted other U.S. and mind the GameStop open store, a pick because been retailers

able e-commerce including It's quickly set a by March how been in astounding at if from a the that and how XXXX. boom wouldn't have wouldn't adjusted, market be landscape well March record or Fortnite has the brick-and-mortar have retail and versus of the happened standpoint way, to been

in are right, key areas has strong consumers environment And even and continue the fulfillment with adjusted in extraordinarily to they product, ability find it market through able March But some whole the adapted and as result there to seen. to just just well, to the that get wherever demand product was still a to consumers. retail still could get the be have adjusted increase, demand where the by for constrained supply I mentioned general to and

Great. you. Thank

question-and-answer Stark closing to turn remarks. call the our concludes Mr. I like this session. Currently, to back now would for over

report We investors you. second good Thank we safety times. look wish analysts with August. We quarter to results Thank forward our and everybody these when health unprecedented in in our and you. speaking

teleconference. conclude and this gentlemen, Ladies today's does

You participation. may your now disconnect. Thank you for