Turtle Beach (HEAR) 3 Mar 222021 Q4 Earnings call transcript

Good afternoon, ladies and gentlemen and welcome to the Turtle Beach Fourth Quarter and Full Year 2021 Conference Call. Delivering today’s prepared remarks are; Chairman and Chief Executive Officer, Juergen Stark; and Chief Financial Officer, John Hanson.

Following their prepared remarks, the management team will open the call for questions.

Before we go further, I would like to turn the call over to Alex Thompson of Gateway Investor Relations, Turtle Beach IR Advisor, as he reads the company’s Safe Harbor statement that provides important cautions regarding forward-looking statements. Alex, please go ahead.

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You to now, reconciliation and call in the GAAP of the these presentation. Juergen a can company’s I’ll the today’s And reported turn And find Stark, tables the release metrics Chief reconciliation and over Officer. results Executive company’s earnings Chairman the to provided

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million $XX.X provided adjusted in our delivered also range. EBITDA line We with previously guidance in

market. limited retail certainly growth, releases unreliable over Accessory X normal AAA Console that and levels. than had hit were sales, from XXXX suffer game disappointing year shipping While we period challenges. and another game, Semiconductor video availability delivered normal, The impacted the constraints PlayStation longer air foot costs much lower and times traffic, times our Xbox of holiday constraints Console industry-wide and more freight

customers. Our – success, execution to excellence operational and environment, is challenging to our brands hard our team’s a despite the testament operating and commitment work,

positioned Our XXXX our for performance reinforces consumer have diverse and products our success. operational demand for belief strong future that portfolio, well expert our management us

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chatter, expect community start well onward. sell the product to Given XXXX and we strong to positive continue this and in

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We the XXXX, and new launched brand, partnerships, new also ROCCAT we brand. to for world a In Gaming businesswoman Team PC continue partnership gamer, our Jessica the and Blevins. announced with personality, new Ninja portfolio ROCCAT entrepreneur XX popular XX renowned, we and announced the online accessories PC as broaden

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XLR At II that USB new Bee Bee anticipated and product, us Microphone the the of market Neat’s and eagerly These Microphone. the over $X also to launched Microphone products Worker XXXX flagship creator XLR II to II billion. Bumblebee lineup. King pursue for end the microphones QX, We Neat’s streamer enable added totals we

distribution in XXX%. well product investments we’ve expansion, geographic and paid As all Japan of across also retail and over in investments made I marketing targeted where developed in our with The look year-over-year growth new – in categories, early noted and dividends relationships. Korea, last revenue have quarter particularly Asia sales we

tremendous encouraged there by we’ve progress and potential holds I’m Asia excellent the XXXX. in made

the John progress turn commentary I’ll the cover after it on outlook detail, Year. which provide Next, we’re in further John? over our and New to financials in making to continued the I’ll

Hey. and afternoon, Thanks, everyone. Juergen good

of As to history, in noted, of highest are the the record $XXX.X previous pleased million report XXXX, million Juergen for revenue $XXX.X XXXX. in company’s we compared our to

XXXX, million compared constrained limited the normalized XXXX, new was margin record by Operating the XXXX. XXXX increase activity, driven full expenses rate promotional was to support geographic activities. global XXXX the in increase added during The launches, product wireless predominantly in in to revenue more components. our in year more the in costs discussed, semiconductor XX%, of holiday revenues $XX.X growth year. costs support was prior to to year we’ve was to actually XX.X% than marketing investments expansion XX% A those full compared which a freight As gross run compared number and of million XXXX. XXXX to from were and by increase In due $XXX

for or $XX.X per to XXXX. I compared in was covered. the Our full the share just full XXXX, net million Adjusted diluted million, per $X.XX share, adjusted year which $XX.X EBITDA in was XXXX, income in reflects $XX.X to or million $X.XX items compared $XX.X year diluted million

rate was million compared and to $XX Our supply longer due activities $X.X generated income a risk for inventories for cash increased million, XX.X%. chain by tax Full times transit ago, driven cash the year used operating and year full XXXX effective lower actions. totaling was to mitigation year operating

to XX, revolving $XX.X balance at with $XX.X a million At and $XXX.X the credit including no year December zero for the XX, million, cash cash to sheet. debt, were of XXXX just Inventories equivalents reasons compared our had on noted. Turning December we XXXX, million ago borrowings I line.

levels. risk As million to in repurchased we nearly XXXX. over stock inventory subside The plan during time, reduce $X also supply chain company

lockdowns income activity was to impacted in XX.X% development in period. the Xbox half $XX.X year market, PC we quarter the a we Operating increase reasons the XXXX sell holiday the cited strong fourth in adjusted checks January. we corresponding phasing due compared and and a as the of driven in unusual constraints The leverage. XXXX. of exceptionally promotional we $X.X video investments, EBITDA of and Gross gaming Looking XXXX of quarter availability well million ago of due The share, driven and $XX.X net in to decrease was in fourth compared benefited our million, in quarter. stimulus net was continued for traffic in as channel the in versus game as Like compared in level holiday year-over-year through product quarter. at or margin million by $XXX.X our Addition the in noted to during new categories mostly adjusted portfolio. in first of preannouncement some million to expansion first normalized mainly on more Accessories’ new season, XXXX ago. and $X.X were revenue million and from fourth were the was above. quarter year-over-year This the $X.XX same the AAA XXXX, the as $X.XX In Revenue ago the continued due expenses and mostly XXXX of reported $XXX.X per the was in XXXX year quarter the fourth back was $XX.X increased year incremental of million small million significant of – XX.X%, diluted operating to diluted period by change by reduced or was releases, per replenishment quarter. to compared XXXX the XXXX, the costs in fourth million the PlayStation entered freight others quarter year disappointing $XX.X to share period weak retail slower the

Juergen? comments. Now, to additional the for back I’ll turn call over Juergen

Thanks, John.

results, achieve challenging external we we’re bottlenecks. semiconductor execution with again to cost spite increased shortages, of in demonstrated freight like As XXXX our shipping operational circumstances said our pleased strong and which ability

market and the record year-over-year. and a to that Headset declined growth Our mid-single enabled and the and us allowed deliver our leading digits Microphones given XX% growth of Instead, respective following Headset provided categories a backdrop. across EBITDA our been products launch number execution Console revenue new into Flight top Accessories we achieved Had have dependent Controllers, line business, would on growth record in we not margin Gaming Gaming PC successful benefit of despite a Simulation solely XXXX. entry this a performance Console business

XXXX. move Let’s our outlook to for now

reflects an the expectation we markets year approximately orders in be and range the checks inventory, all gains revenues exceptionally this XXXX, expect and channel growth categories, X% revenues. XXXX, the share anticipated full midpoint may drove stay in from our Console in plus offset and record in reduction For given flat, or to sell-through decline stimulus XXXX minus The at first that half from by PC XXXX. somewhat absence of home strong that and of

retailers bring to impacted normal replenishment as quarter The first by levels. post-holiday XXXX of slower inventories is back channel also

be other to phasing revenue related more impacts. quarterly quarterly normal revenues expect in by COVID years and We several abnormal XXXX, driven of lockdowns following

basis our XX% on QX in anticipate communicated, in previously XX% be the an quarters. XXXX XX% analysts quarterly So and half. in around versus to our and second as to to XX% we QX, progress That [ph] phasing annualized we individual should said, shareholders revenue track roughly in [XX%]

Next. X% roughly by expected below This and costs, be as impact to X% normal year, freight to we to to return expect reflects component target costs well gross range, into product partially pricing. our levels the for margins mid-XXs X% a year, higher as roughly which new from promotional offset higher full factoring X%

freight remain levels. normal somewhat, well above will down that While they come we costs may assuming are pre-pandemic

to high flow to freight margin the first later We early pressure in of from on somewhat year. particularly the products to in move the the XXXX, year given first the P&L late on and expect out the normalize items which inventory margins quarter, costs as timing half, of focus these

margin be due we for to our an continue year, expect shares $X.XX our to within the XX%. from inside discussed. margins, maintain factors XX% XXXX. expected $X.XX, long-term the million grows the just to of EBITDA that diluted be of We I to gross for on adjusted Net our EBITDA income to based target share diluted plus of X% slightly range of And margin $XX.X below mid-XXs range per XX% to within and the target is or

a year holiday more by gamers we is Newzoo’s Global X seven the drives We platforms now global the a is Report, complemented market significantly and underlying and season, expansive by billion gaming industry the we Xbox categories good expected Games AAA and than games Accessories to higher in grow lineup of the new for demand entertainment growth. expect of in. extension, and the the of this reach stronger all industry’s PlayStation far the end produce January products half anticipate markets on of and easing as world gaming largest in Gaming the compete number Market supply per to most across The By growth by quality continues constraints gaming second to continued the and product XXXX.

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that Here context. in are for priorities our XXXX

First, continue in Headsets. to lead Console

category hours lead approximately Gen that’s battery competitors wireless which of and set and and and X a two best-in-class $XXX can NPD products, battery USB, life, XX the the new plus full Max X to hour continue on earlier just version. XX We MSRP XXXs we Stealth with Gen adds more you attractive the – share Stealth the XXX keeps days this than capabilities game data, XXX new the with the of first per combined US multiplatform next announced Max three our over

our more Headset category We exciting in Console this have products year. category coming –

keyboards lighting. PC in Second, which RGB myself, and functions, $X.X Kone of groundbreaking cool. portfolio feels versatility, continue category. We stunningly best-in-class it to XX grow design our assignable billion great, buttons favorite, our and and not mice Xd that fan X share only I well expand as mouse as it and mouse this looks Gaming to – just and ROCCAT’s ergonomic XX use works redefines launched XP the headsets,

this with expanding expansion exciting portfolio. portfolio also continue see year. Gaming more you’ll our further Products’ will our coming And Mobile ROCCAT some of We product products

to Controller, Microphone Simulation our in is Gaming priorities last drive and we Gamepad Accessories growth of the Third on categories year. the entered list

we identify expand categories. we growth We continue roughly will revenue together continue combined this products to And new And of to year. other will these pursue with the of portfolio, from opportunities. fourth, the portfolio these in deliver selectively $XXX PC to above million and categories expect

our expand Asia markets growth with to for opportunities – expanding in growth look in will and XX% in addressable organic have acquisition our continue our very investments business drive continue. to growth XX% And and gone to line and annual Our we well target.

now operational partners, on categories. tight team diligent, day-to-day our external gamers, with priorities these financial requires execution. course, focus. always Of talent and collaboration of a exciting lean With seven high which quality and providing part It’s an delivering be our a to are across for leader in product time accessories high

great benefit with disciplined of remaining our record off momentum, delivering continued stakeholders. our a the coming and while all for on focused priorities of We’re year on

extend accomplishments entire continued record XXXX, new achieve the and Finally, and Their execution allowed to circumstances. want has team. thanks in our products innovating I focus, while of revenues, as record throughout always, delivering number and us given diligence to a Beach challenging my Turtle to especially

beyond We you update QX. questions. all store have more you. Operator, in to take much and to now and again for ready Thank we’re XXXX following I’m excited

Instructions] line question Thank Crum the of [Operator sir. from Now Stifel. first Drew our coming you, with

open. Your line is

guys, Okay, could how you detail good the Headset I Console wonder thanks. on see Hey XXXX. provide if afternoon. more category performing you Juergen, in

Your with a And if my mid-single you’re I your share business math’s commentary follow-up. right? a suggests have down then gainer digits

Sure.

So year. market bit the Headset a we declining see this Console

XXXX very that’s first the of half driven of particular, and high QX and, by last So in year.

about was up up QX our were XX%. XX% over XXXX. And Headsets Gaming Console think I in XXXX QX

did in stimulus extraordinary of outside an forecast our through checks first part impact lower-mid up lockdowns, including of QX single By for if market. went last So year. all half. Headset outsize we of Console sell-through digits, would year, way, half whole year, Gaming last year, of because of last year, so channel a right. really for kind all is decline market well the drove first actually be refill But that that the and market modest performed last really about the really but the And that that, normalize of the we forecast actually for our QX

will, of sell-through, business guidance in terms sell-through increase anticipates in Our our year-over-year. an

share announced we that expect semiconductor dynamics, new than sell-through affected number least and given had products. That’s us and of products particular, So don’t as their we last new the have different channel growth – in the inventory won’t that for have than that whenever to at – have also year gain, the a QX, less sales in expect, there’s post-holiday retailers fact, products QX just we have we are weaker redesigned and constraints that replenishment we coming, inventory obviously. in align is levels. are revenues Sales the our channel fact by category retailers as including kind in the of

it. on margin. And Thanks. got Okay, gross then just

the You mentioned language think Thanks. component percentage was that I a higher clarify But over would headwind this use X abate Can to from And year what that? spending? percentage hit is point promotional normalized more costs. X also the point for freight and time. you

else. them back come them pre-pandemic don’t estimate you there’s may year. go a from freight our cost particular, higher across expect the down semiconductors, in parts increases, like come to for Yeah, to are is, know we others, But Sure. many to X% pressures more impact business freight expect inflationary are unlike down there component and somewhat everybody about and of expensive. time, are time. some for X% to there we this costs some expect, levels while quite We, over We

XXXX mid-XXs you our margin, gross – continuing cost and more reduction And costs higher across we target know factoring of the are line back product new approach – opportunities returning you Board again, beyond for to which with the certainly pricing. into half very year, we expect we the also opportunities. aggressive know, would other cost finding we’re on a be by and to a in So as focus

as to return products part and that track our do back financials, those time. of on we to target So launch over become expect to mid-XXs

okay. it, Got Thanks, guys.

Thanks, Drew.

Capital question next our the Street of Argento with Mark Markets. line from coming And Lake

is open. line Your

Juergen. Hey, John. Hey,

continued bit up have to And as kind you you as growth. Console the kind Obviously, cranked know kind kind yourself in little you that the thoughts dig does hasn’t to and of guys normalized least the quickly for of a of grow you operating know you know on in a know position kind environment? on to a that going of marketing, maybe anticipated. XXXX little opportunity expenses. given wanted And market of Just on side promotional given really OpEx maybe OpEx I guys at guys OpEx how know slated for of you change much bit forward? you And activities? any you

Sure.

record amount it. or normal. our was given it’s Every did, than dollars a we product launches several prudent has million you spend know category no year, product the happens of higher you matter marketing required a you launch, last product product know So marketing number amount alongside what that of in, of

to launch continue but an categories, the same in We of portfolio the not XXXX. rate expansion at expect to multiple in

– sorry. So XXXX,

in down brand some launches. in So as the across way the course, millions were single-digit all but And, as of that spend we look at take brands, just know will XXXX. the we product measured you marketing marketing product will of dollars a of continue

really the it’s come somewhat. marketing, that product-specific So down will

are to know expect year. So come roughly labor that, OpEx OpEx, overall, inflationary all the of parts despite OpEx $X down markets million an of you overall And business, the the business you know the but including tight. for we on pressures plus are in there

historical XX%. that a you That’s guys And I talked XX% margin helpful. X% of EBITDA kind to of know range, targeted kind you or think guided to

a bit that You good some reinvestment to little know cash? you of XX% give in you and try more – a EBITDA versus try that being good X% and to business are generate cushion into to Does if the what’s some of XX%. margin reinvest you does kind terms – lean things you or know able wanted out guys decent

reductions to kind expenses I try And lot more in companies with happens the Mark by carefully running roughly be. any stay in our margin. of a dollars it know profitability, on mentioned, by our not to XX% have we’d we think growing that where a to that’s through aligned with to year couple we’re make that like this you a include expanding. and our and way percent you to XX% parts of we of balance do. XX%. our roughly than know level of we our that going produce I operating type business, head. be with It’s our to But a than who’s good a financial we’re leverage know driven our actually as business discipline going balance, all of the like And future lean, good X category that per plans. is and we run business, know, Corsair, track year of – parts you below OpEx, of do gross lot line. as the very keep times some million level should a there’s go And the operation more that the we a do including in revenue all But other to – you are EBITDA margin size

kind And of then Sony Microsoft the to just just of are you know hardware where a you of more the do maybe this the in last you and particular, in and to relative side year question, think know boxes supply and guidance? do think enough terms where the in their juxtapose that availability your you Console market market know in ability is Console to on shortages, you you know semiconductor regards

Sure.

highly supply into doing they’re last were estimates obviously you running when don’t to the progress. growth that amount our do is launches, use significant to they’re hopeful a much they to around, year, and or visibility constrained that chains, hopefully holiday. time, we’re we produce We know supplies But have – we good assuming forecasts constraints expect abate as and their clear, supply they that through no are in that that continue particularly the financial on know we expect be constraint And to game have disappointingly time of Console better during to year. less by we good you going make QX. some a – AAA QX the we’re constraint assuming we So and so go rolls by

of Good Good. the the rest for luck guys. That’s helpful. way,

Mark. Thanks,

Yep. Thank Mark. you,

from next the Group. Maxim with question coming of Instructions] [Operator line Our Vander Jack Aarde

open. Your line is

Great. Japan Korea, my you Thanks, mentioned believe and there. I growing Juergen, expansion, guys and over XXX% questions. geographical well for taking particularly revenues

provide to year in Just and you mix more of any quantified it? you represent forward expect you you targets look in signed something revenue what or mix you next to numbers over just know sales know know terms can you put Asia rough the know material your time

probably set reinforce grown have business I specific we that, I a fact that. that around the But international quite will won’t targets bit. our

still of It’s North percent just expect And And progress continue. Our Asia good the small, other more know XX% Asia revenues in but in outside also and gone markets. of that overall not actually somewhat we business. European to becoming XX%. know of business from in our now, and progress, just America it’s to have really meaningful you that’s you approaching double-digits

this XXXX And or certain on on certain million constraints particular. Okay, due revenue, this of embedded million And there? supply have to expect chain issue to supply in any chipset chain an for dragged estimate Do embedded XXXX module great, believe wireless helpful. you then you is think implied kind what estimated or a $XX I you related your impact know revenues that’s to you I you so. have approximately know $XX or

because expend I’m an to enormous question, Gen Max wireless in semiconductor USB. most and in in And And only not now. – resource at improved life expect announcement XXX of XXXX, year new out which of any a hours, meaningful even for the last increase again, related speed value constraints around out more that X hours semi additional That’s amount we and put record coming by we way semiconductor. supply you’re you set asked. have a XXX. issue around and of couple Stealth a We that the constrained-specific – seeing redesign there semiconductor just effort of significant with of on to great the also of wireless USB. the XX know the don’t that to work products Max, actually XX fully an Those you first products products new are proposition the is the with last but days, constraint, an battery on deliver glad

think surprise that semiconductors, we barring around the constraint platforms, And so expect XXXX. new a executed now new to on successfully the have for we

Okay.

to is or is categories? say? from Is that all equation structurally completely product fair across challenge that a kind So a that now the of obstacle your removed

Well.

So we overall. can’t forecast in the industry semicon – what semiconductor happens

statement. we’re that make But have now in share So orders that was I constraint the for think quite and very we there specific to for into availability anybody surprises our last guidance semiconductors, that worked semiconductors those any or fully you at around have was the wouldn’t the semiconductor blanket have for in lion’s the of we year, our which the hit year. a time, us we we for year, semiconductor going barring know could factored supply on situation need

bulk it your USB you’re the was thinking? number you willing about I other is then and the that you Is number the Custom And and one to fair it mean, the it $XXX more is kind of ROCCAT-related. talk the I that a between is like assume and Is non-Console Is is target plus of stuff. ROCCAT? all from there Simulator just bulk your is what fair Flight a Okay. know to of just million Is Headsets. imagine revenue XX% fair? know there? Controllers of I this there Microphones But

ROCCAT we’re is two-year But I say right. categories, going the bulk a head it majority suffice over has is ROCCAT, wouldn’t to other The of specific of provide you not the – know, start ROCCAT. breakdowns. got it

I will tell Flight during in the million. and to products Controllers other you which launched contributed launched in the that’s the the and XXXX our year $XXX start that categories, which particularly, And materially reflected number. to and Sim off terrific the guidance the very so that contributing year, versus to late a – are Microphones

time. I’ll back the hop appreciate I helpful. That’s queue. the in

Jack. Thanks,

of the Oppenheimer. coming question next Our from Yang from line Martin

now line Your open. is

where XXXX, – do influencers? see My see of marketing OpEx. question Hi, is geographic new good on you for some returns on you expansion new the question. you across do my on taking and spending afternoon. product OpEx on know where Thank on Juergen looking first investments development, higher you your reflecting the

you know in first Sure. remarks. roughly XXXX. of business the resources, If scale grew what can’t swoop. have people, re-outline in million $XXX one When that John million that happens, you But prepared let to question kind your infrastructure, fell from that’s $XXX instantly understand XXXX, $XXX business. in do of me The the related you in to and in to invest size I million his correctly, covered everything

resources, the full run that were impact XXXX. because staff, goes in the the in year, that why of that you’ve Those you’re added many resource a once costs for added up in. the year adds impact, we the That’s time year got full those got and all throughout of QX, QX-over-QX, X% example, year the kind only year course OpEx XXXX. but like or about rate have already late the the by for during about full of full year, XX% those you X% you’ve in right, facilities company XXXX, So then the hit

XXXX that’s scaled rest investments break the business, is that than to just other is the the So out, accommodate like multiple new growth integrated, in run specific of the product is geographies, did as fully OpEx product we driver categories. categories the marketing And in new business then, the the for the and by larger in – very the of opportunities staff in run we including of and fully biggest new those products. continued the engineering some way, making The we business. business far scale business, by of the parts don’t increase, integrated

holiday half performance question thanks. – is you on more thoughts Is half gains the second you next the year? like see seems there this on your it, it based trends the makes My the growth your guidance, second on year. broader from with comfortable [earning] – you’re this of more any Got guide comfortable the on on [ph] that

QX, Well half in US know really general, lockdowns, Stimulus strong phasing two quarterly Console right. again important it in if of exceptionally year-over-year Gaming there drove are year. retail right, in remember, the One like I sales the is first checks, up things for that remaining items – drove market Headsets, the are XX% XXXX. the you

that into and effect lot continued a So of that QX.

comp So there’s to half checks of QX because a first everybody year. stimulus not in lockdowns be and year-over-year, going no QX good the or is expected for this

returning more dynamics. the because for every few big driver now, phasing had we really So haven’t has level, that’s past quarterly unusual of a which to a normal for years years had many

sell-through also thing impact. a QX, a is revenue but impact, particular, a has in not The second

levels normal. replenishment post-holiday as their inventory Just as retailers channel to lower is get back

So half. the all of affects kind of that first

was is XXXX item just other The not important strong. QX

declined PlayStation PC, releases, franchise QX. the is day more games for know on weaker of a scores, then Accessories review Accessories Console double-digits in were supplies were Gaming both foot Friday, Console driver the an lowest of think market, of Xbox I in and particular. somewhat the weak, AAA traffic, PC Console particularly market You And histories, that big multiple those game obviously. sales in constrained, has on that Black were which impact releases Game there

of So the of give we constraints. of time QX work and out titles year, by Xbox in the their set we with for do And will better stronger us because items a we year. supply the a – will hopefully AAA this Hopefully that new confidence game PlayStation a those chain think job hit QX alone much two launches. expect much

Got it, you. thank

line Yang of a have Martin the from we coming question And Instructions] Oppenheimer. follow-up from [Operator

line Your open. is

Juergen. Hi,

the defining of will products Accessories Just think a new more explore Does question know you business. business? that as and the part company Mouse Do your Creator your your non-Console that on you anything Accessories? outside conventional comments indicate you quick on Keyboard of

Yeah, great, question. great

now mic portfolio Those – just market. new why you its the So That’s about people tools of That Accessories that, uses. market, driver know that language and obviously, the lots gaming creators major of you that’s billion. for Mic – overall Neat like have Obviously Gaming the streamers. Gaming PC the that’s is Neat market buttons not a launched. that kind that us that’s portfolio own that know Accessories, are for microphones. the things because of adjacent and of product are $X.X primary we’ve my terminology, added is lots primary just actually for with new use want highly but mice functional

for – the thanks Got it,

And yes, are in The streamer, that creators gamers, we is, the answer those this the markets. of between portfolio startup I Creator given and there lots one segment. didn’t overlaps synergies part, now which have That’s on radar. and certainly

expanding growth and radar that for our look to So opportunities. portfolio on is definitely at

makes that Thanks. Yeah, sense.

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

Hi, you much, very thank everybody.

We’re excited XXXX to Thanks great our spring. day. look a speaking call a great much have again in QX on be and this momentum with operating forward very to

and this teleconference. gentlemen, Ladies concludes today’s

time. disconnect now You lines your at may for participation. this your you Thank