Turtle Beach (HEAR) 4 Nov 222022 Q3 Earnings call transcript

Welcome to the Turtle Beach Third Quarter 2022 Conference Call. My name is Daniel and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] Delivering today’s prepared remarks are Chairman and Chief Executive Officer, Juergen Stark; and Chief Financial Officer, John Hanson.

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Thanks and our Alex. operational conditions. simulation new us. Good announced very with and executed everyone third expectations priorities were against multiple In and afternoon, quarter, in challenging key market deliver joining gaming strategic to financial for our on operating line progress made thank we and that and you the products, results

a channel continue driven strong retail dollar slowdown and difficult is believe continued freight a that global market despite to We heavy the discounting, by to great in, year, leader and reductions, challenges, high inventory the including rates. market supply a chain demand, consumer in competitive be gaming logistics a

the these market. year-over-year. quarter seeing US gaming headset to the XX% was improvement of MPD, second Per challenges we which signs sequential in persist, XX% the was down of that third gaming market in While comparing council down XXXX, year-over-year, are quarter the

quarter recovery. showed third The some

up delivered in hardware. loss new in of an of million backdrop of net growth and generation we QX QX. loss versus adjusted $XX.X sequentially quarter provided million a Against multiple third double-digit councils XXXX, of XX% supply our EBITDA revenue improved the of months council for million, from Additionally, this $X.X $XX.X

in comp year we a recall, second the history. third faced third highest ago as the difficult may As from XXXX was you revenues quarter our a at quarter company's

In the on poor one again headset by proactively the a reduce third our were leading to macroeconomic in of light which operating gaming quarter, last and quickly in of XX% we number discussed QX. provider the continued expenses, steps as our category we position the quarter took council far. down we conditions, recurring XXXX, As basis

our Our series Stealth products headsets. models the new XX of of the made wireless have top wireless list done in six as bestselling five well latest very of models

the gamers We also our raved X and about Gen multi-platform models Stealth and for launch the this the Stealth for announced where series, Gen XXX the USB earlier XXX the PlayStation MAX models gaming follow headset Xbox USB and MAX products. and availability successful X reviewers Gen year of Stealth both XXX The X of PlayStation.

deliver customizable In with gave and mouse. Gen IMO IGN also the publications, our to XXX reviewed new Stealth technology and showcase fact, Kone's text IGN's that lighting deliver expertly gamer's performance RGB of the the named Rocket we to line create the entertainment headsets headset, great on our the mouse. gaming MAX gamers wireless leading desire the the The RGB best continued ergonomics XP X for since Choice wireless effect gaming of unique In and specs, PC series to as our Xbox Kone RGB mice, desktop MAX, XXX Air lighting In as a IGN wireless well and launched, crafted new headset. Xbox most Editor's create gaming and keyboards, gaming it the PC available. supreme XD comfort PC X our leverage new of Stealth XNS availability the products beautiful one August, the with announced Award. gaming world's expand portfolio, best Gen we've series award-winning

features, bear smart two keyboards, ROCCAT's Mini For world's expanded breaking II optical the plus new Both keys we new Max. the PC and the gaming with iconic Titan models, first-to-market dual switches. introduced Vulcan X X Vulcan LED line including Vulcan and first models ground

which better LED fast switches than IMO comes II showcase their Beyond the rest, ever. with Titan translucent risk an combined stunning. ROCCAT's the ridiculously lighting is also RGB responsiveness, Vulcan dual The switches MAX II innovative new with

of MINI a MAX keyboard smaller Many keyboard. keyboard version a great keyboards is In gamers II footprint size gaming now fact, segment, the wanting Vulcan with a we so II leading compact rapidly gaming in standard been the The are has a have a the Vulcan a option multiple beautiful named growing most the footprint. XX% for by publications.

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more also to to price Turtle Xbox continue free our controllers controller a for gaming gamers recon points launched unique and family controller's Cloud offers phone same and price. gamers controller compatible at and a exclusive our and of features, so lagged offers, Windows and Gaming positive. the first the adds audio and The at of first controls experience Cloud Camo gaming a and excellent response we've expand Recon can the PCs We on Android with Recon winning Beach features go. the this, recon mobile new game a winning The which takes controls but variety line We controller gamers, additional cloud now ergonomic continues and clip same PC the Bluetooth, hybrid many devices Arctic And offers be colorway from and the as while very to which wave a of React-R shape, launched wired our added controller, The Recon like on more works affordable that also products offer hearing. systems. game features superhuman with controllers. Xbox controller, to

The announced Adam together a is controller compact fits product mobile piece an any clipped the versatile mobile magnetically phone, is gaming recently two unique travel. second with pieces the that for ultraportable Our design Controller. two Android Adam

which simulation and planes and gives simulation ultimate VelocityOne VelocityOne throttle up the we the fans launched flight category, every enthusiasts and quadrant, control the complements small and the large For gaming type. yoke award-winning for Rudder, of set perfectly modern

we want from an our controls Leveraging the what headsets over into which and financials. takes thoughts in incredible revenues John expand into to over combines jets leading of the enabling commentary business the customizable with council latest simulation, business and XX% array buttons flight on us diversification to return provider, to and hardware of expansion our council lighting future. VelocityOne headset of QX. our will gamers portfolio a remainder us technologies the on array XXXX Flight revenues of past as to successful fly years accessories we PC the I'll fighter Stick, market-leading year For gaming of more and sticks with and the the space that expect global announce take a is broad through the gaming continue outside be and of to council John? after gaming

and Hey, thanks Juergen, afternoon, good everyone.

expected quarter, retailers history. on year-over-year second highest $XX.X as million spend reduce back inventories. was in continue discretionary third their channel from consumers demand to The down lower quarter the the reflects and our For third revenue decline as cut

pandemic component inventory program potential quarter, an As chain supply driven XX.X%, we inventory conditions. we stated and and to impacts. gross earnings on relating spend were these QX QX margins in incremental increase promotional third to In the call, product for the due market logistics excess including provision

will reduction provision, through decrease rates levels of as highly expenses cost a the free been Freight gross were environment, freight relative and Operating due leverage. year by declining ago third ago this the XX.X% to have impact The roughly High XX.X% million in rates high in products to quarter to period, rates the margins freight the was reduced $XX gross decrease promotional reduce $XX.X that million arriving lower Excluding margins compared move fixed retail year at primarily quarter. which were cost the freight in this in compared recently, inventory. to XX%. X%. pandemic

of as programs expense to that year. lower earlier recurring quarter expenses operating the expenses management well alignment as year, result in we demand. year initiated Third of XX% proactive over market declined A the

driven or EBITDA was million loss $X.X covered Our in the million $X.X loss compared year or $X.X to $X.X above, of XXXX an I've plus cents impact is third XX net X.X items period. the a adjusted quarter income quarter primarily EBITDA period. million in compared diluted cents the the million Adjusted by exchange. adverse foreign to adjusted was year-over-year ago million of per The variance net share adjusted from XX ago diluted per third share for year

effective share million approximately approximately $XX of and our XX% full rate tax count million. and for year approximately average the QX of a share expect full O count to We $XX.X be year

holiday outstanding on sheet million the demand revolving The XXXX. inventory availability than inventories of and $XX.X of normal $XXX.X we and lower $XXX.X expected levels, at reflect were compared logistics elevated million inventory supply credit levels later to borrowings line consumer had load product as well our retail XXXX XXXX, global and challenges. as in our XX, Turning million September XX, maintaining continuing lower balance chain September of September amidst cash at $XX.X at goal to million XX, than

in inventory inventory our as continue back significant We reduction normalized year more end expect by our to the to levels a transition levels. of the

analysis the As earnings Form on accordingly. a valuation have intends a the pending on its goodwill and goodwill XX may to impact GAAP in we impact GAAP sheet that completion noted net company income the file EPS and non-cash release, of balance Q

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

Thanks, John.

will strong We consumer launches many exorbitant growth XXXX. to in have the and demand confluence previously should levels proactive $XXX freight conditions This channel subside remains EBITDA and of holiday. competitive in consumer keep $XXX and including us return to reductions during abnormally XXXX, end spend That we rates, factors of communicated an through XXXX operational that our $XXX if expectation inventory our light million. and expect of range at this but impacted million within, high new discussed, normal discounting the year which and compression, we've even their expect market to guidance our be positive subdued. reflects others below retailers full spending revenue well with year approximately revenues to to low business caution, enable In product combined inventory the of

franchise past margins I that EBITDA comps is Indeed, mid-twenties improvements approximately showing with the gaming We year the market The gross few and the expected has year million Duty of over is sell for Call negative the few adjusted in over to range. be mentioned months, just months, accessory the of Councils launched against engagement. year and ago the believe past through fourth continue as over concurrent climbing digit and million, poor $XX its a in we Steam showing was weekend a double also and launches year of year year. a since quality with particularly opening PlayStation those reviews quarter, is good which supply year indication and users for of improvement at for We July. Xbox much growth quality AAA record game recently last sales. over weak broke has late from given anticipate record continued set up how will fourth better steadily into XXXX resumed this gaming, the just XX higher gamer the releases quarter XX%

multiple since last course, portfolio, we've product Of to expand continued products added including and also diversify our QX year.

to very continue diligent I've we spending. on been As have be outlined, and

opex expect an roughly benefit into with recurring structure we to already discussed, year produced over earlier forward the we've year, this XXXX. As deliver with despite running in full for reduction year XX% flow lean OPEX year,

We develop, through but market while significantly, actions position the business l year. lower products to have to addition lower possible XXXX, have in for freight start OpEx, those forward come really continuing and down costs reduce well p our future. where flowing to launch Thinking to careful rates prudent and expenses and taken great to the next

to EBITDA. freight expect usual category the levels, don't inventory the Promotional the levels. five to margin plus pre much reduce higher been worked gross year return we we come activity While expect resulting rates entire than impact this to to to percent has benefit with significantly as has down pandemic would

improve to in would continue that through we sell made very inventories inventories in reductions retailer low in so growth. believe retail result revenue XXXX that to come as in have that to inventory XXXX and expect down, reset XXXX even level We flat the a

In to an year, we to accessories gaming provide next fact, incremental inventory if believe is benefit levels which thereby pick possible may consumer up, increase their demand starts and revenue. retailers for

while as negative well growth in to impact we past. even why gaming perform it's in expect with XXXX, to analysts return predict Those it inventory incremental on growth a industry including conditions even PlayStation combined positive set Just DFC sales reductions year. having an five a a to is retail demand in revenue, and remains can gaming strong for that and the launches this year macroeconomic And are has in are we are difficult believe as factors gamers EBITDA the recession if our XXXX, markets, forecasting revenue product next continued record expect consumer subdued. category

in Our priorities to long the gaming right very continuing while pillar strategy challenging The when of the that now on remain are straightforward, strategy rebounds. our execute deliver us the better best difficult key possible term to even market financial a results environment same. and position

far council First, consecutive gaming maintained headset market we XX years. for the continue where by leadership lead have to

billion continue and Second, expand accessories to the mice, in portfolio PC gaming share our headsets, X.X keyboards, PC of market. and our grow

with and product and selectively entered in fourth, expanding other including opportunities, is categories term XXXX in new XX growth have Third, Korea target our overall continued to plus categories controller and to geographies in growth we target in and we annual with XX The evaluate to continue and EBIT drive line do objective and simulation as margins. drive gaming growth long growth at so gamepad XX% that percent identify Japan.

With dedication. our for work the great Finally, to thank team at continued a. that, and Beach hard their and q to turn I Turtle want let's

comes Group. Aarde with our And question Vander first [Operator instructions] from Maxim Jack

Your now open. line is

John. Thanks Great. Hi, taking questions. for thanks. appreciate the Hi, Juergen. I my update.

on color So the helpful Juergen, XXXX. I appreciate

just out, bit throughout gradually playing how improve could you'd terms to up. Is consumer of then begins I in little inventories into year. it out, slightly just follow in Just, year any wondering, changes assuming I'll increasing And how the maybe see and you particular that demand plays more if dig out? the it of revenue a seasonality mix, are balance how retail expect a to have terms

Jack. Sure, Hi.

into judge by category unusual know, you been slow QX the a a for First as you hard of to always very, holiday seasonality, whole all, go This XXXX. year's QX week year. it's in with the on driven somewhat

can, and, that. will new is year happens Recall opposite this QX believe and that you is If do that will launch for has QX gaming. way, assumption QX QX A until is to by know, impacted the modeling overall the year. qX, best year, and well. the foreshadows in I also as key a, strong barometer, QX through by how that year games following the are now a the right well normal continue think market strong impacted I year next next typically the by next weak, do games is a that through So that but seasonality be then the the improve holiday QX

if of weekend that but broke you I I were has to One sign. not top sell on think anywhere take demand year. the terms very same top set same retailers of to on maintained when do fulfil negative the to of on mentioned also goes because not weeks eight the but There's weeks XXXX. of a the I need they, games also maintain sell I Call effect normal their the down important top effect now and, and levels, levels large more of to a supply that good that's haven't line their down store, see are their record, that you of you effect only to record which as coming targets know, pleased reviews less even the better inventory normal five first this well two revenues wind new they selling of that the demand, from in below so They've Duty we So inventory the a in mentioned that'll reduced, have normal. you're all on from in as Retailers of decline reduction good positive they they products supply it's incremental dynamic that this through PlayStation also know, release that supply. because much on believe, opening inventory, has and have you other weeks that double an

the expect way, below, expect So stocking lean many by not conservatively below just will and we lean, will through of retailers will be normal to the what weeks target levels. we out run but they that holiday, their point

mentioned I channel impact of flat not So can't could even taking inventory that less if the those retail a at additional targets. the If increase of channel conservative higher the out from a then And that we're we, effect retailers but I, through have in fact is keep because think if sell double not for selling inventory, going year, there's well. reach year compression only through next the they supply their negative next as weeks the you of retailers. we and starts you're weeks limits, limits become we positive supply also consumer now. up sell in an demand, And on

the on that's we expect what that sorry next but of top Excuse the for an of me. long kind year. a, answer, So, overview

want and play i, these w demand revenue returns or I appreciate the No, skis the double if XXXX you is there chance ahead guess XXXX, those I effect, get if and even here, we of out, but double it to is positives see added possible seems get my if look color similar one XXXX a to or and that's assuming like I of positive positive don't

lot a through year. citing we know, the overall were, sell next depend how to going does. at That's even flat economy on That's that you why

revenue is to before increase. a on next in, industry in overall still So going to holiday consumer games a It's the demand, be environment we'd call the similar early year. make too how way see

for just And more one you. Got me.

of ex done you've what successfully focused product term mentioned your or long recently. on, categories, lines you're you're as plan new You part exploring entering and which quite

something Just you makes currently or expect of a looking we sense that that have today? any idea maybe don't at natural what can might you of what or be what,

Sure.

a PC simulation this obviously we, late council entered first set and expanded last up accessories line launched also our the a category So, of mics. as controllers flight new we year we and year, and

categories the expansion mobile we've So year or new those next launched controllers. are, year an This at year in expand some PC last PC and category. to we've in continued

are our a with at. a other R headsets have are got So tam what the those platforms like complimentary That's for position we've And, those gaming that. next we generated and late and a and in products years next simulation. we kind skills of bar rest raising controllers on else other And fully expansions that the we've simulation works we're many additional a for is ability Same the we'll natural you demonstrated the including a, our and, engineering doing businesses of working for of leadership recently we that types mobile There sometime we've And flight all year. and racing one with relationships to extremely go fans from in well do year target within strategic really for extension, categories, simulation can council we've just separate look can had announced. of and Category kind map racing global that's gamers. know, of the products kind current redefining which retail with simulation. of hardware simmers. flight to that leverage fully where the for the of all

back I appreciate I'll again. into hop Well, you. you queue. Excellent. Thank

you. Thank

question from next Our Andrew Rogers Oppenheimer. with comes

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next will some that impact year, have that gross so on expect margins. better that positive We should get

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me Hi. afternoon Thanks for here. questions a letting Good everyone. ask couple

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through the we're, when or impact that flow a we've recent I launches the end does. I highly know, game not has in successful market will we're sales comment the it It's on covering whole won't QX, on of how tell you seen through the direct you launches, impact. not but past a successful because game numbers

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I any instructions] to over remarks. turn conference the closing Juergen start would now to [Operator like for back

again next analysts season. to quarter you. year holiday earnings you. a And you look with call. we Thank and forward Thank on have all great investors We our fourth speaking hope our

concludes This participating. you call. for conference today's Thank

You may now disconnect.