Turtle Beach (HEAR) 13 Mar 232022 Q4 Earnings call transcript

Welcome to the Turtle Beach Fourth Quarter and Full Year 2022 Conference Call. My name is Victor 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].

are Financial Chief Officer, remarks Stark; Officer, prepared Chief and John today’s Chairman Executive and Juergen Delivering Hanson.

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

recorded. a As conference the is reminder, being

now Relations. you Investor will Thompson Alex, turn to may over I Alex call from begin. the

the referring be year that presentation Relations you, company’s details the Investor be we fourth Victor. downloaded XXXX release where press quarter find call. information call today’s the Thank full results, that discussed the can which filed from On and corp.turtlebeach.com, also at will to this the page today’s supplements afternoon on you’ll earnings latest

recording of the Finally, the be will Investors of the available later section website on a company’s call today.

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

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

statements. company after any or to differ publicly to with cause may in limitation Form filings Harbor that Risk does in without Factors and events not specific Report its this on revise statements materially our Securities contained or identify Commission, encourages undertake Safe described which press reports, other factors company XX-K call. statements the the today’s results release review also risk periodic Annual So and to you and from its in conference and forward-looking including The the those forward-looking Exchange update actual

a United or supplement that the generally non-GAAP company accordance in providing to discussing as with notes in financial call information they accounting on is States, also the that GAAP. company The information. information prepared The this principles will be accepted

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

And now, and company’s I’ll the Executive Juergen Chairman Chief to call Stark, Officer. Juergen. the turn over

Good us. Thanks, afternoon, and for thank you Alex. everyone joining

While improved year XXXX extremely year, an a product expansion market execution us challenging continued pleased and we results was with and macroeconomic XXXX are which gaming from in beyond. sets well we and for the up throughout believe standpoint, our

million constant sales quarter fourth $XXX.X $XXX.X currency. our million $XXX.X bringing to were Our in year and million, sales full

revenue combined While more XXXX gaming a market we experienced purchasing, reduction inventory us others. with conservative impacting many and surprising sales for and with retail entered which consumer in then accessories estimates a large than drop others,

thesis XX% year-over-year basis our with target product revenue net along supporting constant This, the recovery growth for and ago X% started. has percent provides plans change, showed improvements sales XXXX were Importantly, in QX than year retail a Each down in revenues were and through from our sales during well for XXXX successive balanced. market our our XXXX. sell less our currency, that quarter

fourth on to freight Excessive compared excessive extremely million enormous freight ago. headwinds competitive year cost full margins operating EBITDA unprecedented a earnings. and $XX $XX.X roughly reported million EBITDA costs aggressive by for created of adjusted million quarter for year $X demand, an of discounting $XX.X and the the combination We of loss XXXX, XXXX, pandemic lower adjusted million. of amidst a of impacted The EBITDA alone and market wide weak leverage driven

Fortunately, those costs recent in have dropped months. significantly already

We XX% bear very expenses key careful with to to this already XXXX million expenses recurring that steps EBITDA the took QX. $XXX EBITDA as will in maintaining back eye programs proactively XXXX, over five our reduce a this generating and are soon We years XX%-plus positive spring on did in operating getting EBITDA down we starting to with last returning target fruit our year and through beyond. to as intent in After in possible.

environment, headsets categories while console to difficult strategy into continue is our our platforms well. leadership the and Despite and additional progressing diversifying

As the gaming long the the continue and best gamers number become growth accessories on to and gaming multi-platform aspirations. trends the our to leverage deliver strategy enables of underlying and grow, norm, this market of positive gaming us term

execution of some are XXXX Here highlights for that notable our on strategy.

be by leader far the gaming console clear in We to headsets. continue

share exceed next the competitors QX. market to U.S. continued Our three combined in

a that end premium with $XXX wireless MAX MSRP price Stealth We retail XXX over high sales also captured US tier. our and series XX% launched phenomenal of share

despite fact, over over our X% increased NPD. in market our ASPs console X% we the ASPs promotional down by extremely increase, US per In the headset the year. were XXXX competitive competitive Without environment, for

be #X now usable why brand Importantly, category. multiplatform, hardcore Beach Interestingly, the increasingly Turtle and the our headset as headsets wireless PCs is console consoles gamers loyalty in in intentionally U.S. on among mobile devices. and are PC as may the on this brand in well

to lead a continue well We and year in and this product headsets, which strong will multi-year strategy maintain and XXXX. are our working counsel executing is

design features controller. In Xbox controller, Recon expand of critically which many addition as gamers headsets, console same to our we the acclaimed to with our our or game bestselling controller the offers pad for lineup continue React-R

announced bullish Recon devices React-R controllers, Following android and Xbox. hybrid compatible for playing the Recon gamers is our on we of and controller, perfect reviews mobile Cloud which

iOS products designed soon. platforms for other We have additional coming and

controllers, reflect here expansion gaming. well the cloud expansion activities Our an as and mobile as in in

pedals, dollar our stand product full in November stick launched the back its Flight sales best-selling flight Our flight controller XXXX. VelocityOne first gaming number XXXX simulation year one became the accessories VelocityOne by U.S. NPD. to the Incredibly, with category in launched in per and continued in Rudder, first expand

by simulation continue and year. XXX% categories over Our perform to growing product last controller well, well

innovations signature, premium make XD this PC our We PC headset quarter strengthen the advanced we beautiful a In ever we've Air most with Syn and announced Rocket headset, our PC continue Max to lineup. comfort produced. fourth sound, the that headset our wireless superior

gamers, We our wireless versatile Air mouse winning of a gamers Max that and X for recently Kone ultra-fast in keyboards the characteristics and give the availability edge. X XP Number responses, share position also stunning took which with durability PC optical We keystroke announced provide added keyboard PC the Vulcan mechanical Germany.

without the debuted Additionally, latest controls. our they're up quality our giving pick to we is when for mobile which SYN Hyper-Portable portfolio, the an way our we sacrificing expanded go mobile expanding easy to the controller Controller, addition game ear by access quarter is wireless winning our and go. lineup Scout gamers and it Atom buds, the Air to launching gaming Air advantages Buds In and fourth on gamers

platforms. highlights, product increasingly covered I've these mobile and diverse In PC counsel, spanning our portfolio gaming

revenues of are our now outside tremendous XX% roughly console past category, core reflecting of headset progress over Importantly, our years. the

is of Our all accessories provider gamers platforms long-term strategy top all a for well. gaming become on tracking to

To of and strong strong achieve leverage brand Succeeding revenue superior target overall our and allows leadership reputation and gaming with term clear audio, underlying operational we our this quality, leverage retail console growth. strategy execution. innovative trends this goal, XX%-plus and us meet products, with of the long across best for high to

for us opportunities #X created turnaround well share keyboards the in market In outgrow to year. both per fact, the mice in capitalize the additional revenue and position U.S. as come revenue in the also to on gaming the headset, market XXXX during NPD. at PC, console positions combining guidance inevitable we reflected for and This this our

see Next, we provide I'll turn the for it additional what our in in the and over to which after financials comments cover the business about Year. I'll to John. John further New detail, market

everyone. afternoon good and Juergen, Thanks, Hey!

company's our Juergen compression. year by This channel million we full that revenue discretionary currency. last million compares $XXX.X in history. in of A million and consumer significant spend which or demand to driven the inventory reflection highest year, the reported was As noted, was constant $XXX.X revenue retailer lower $XXX.X reduced the

currency revenues lower came at in constant progressive recovery revenue only quarterly $XXX.X modestly changes QX mentioned. Juergen indicating a in on XXXX, as year-over-year than million

gross combination driven reduce promotional due impacted margin pandemic fixed inventory pricing to freight compared by aggressive an cost competitive to was XXXX, in volume XX.X% high driven In and unprecedented levels, of deleveraging. XX% higher costs credits to XXXX,

the in and to Freight recent costs see XXXX. in declined significantly have months, benefit expect we

million gaming components relating impacts supply finished a chain the and to driven goods also market charge excess last weak year. $X.X for potential We and pandemic recorded

Excluding these non-recurring items, gross XXXX was margin XX.X%. in

XXXX that million to $XXX.X Operating in reflection were ago $XXX operating period, as market to declined compared expenses last alignment Recurring the $X.X in year a year full initiatives demand. XX%, management the as approximately in million year's related $XX.X included non-recurring mid-XXXX, items we expenses proactive lower contest expenses million of resulting undertook from the the million expense for of and with proxy well and of expenses.

variance period. including than items costs. million $XX.X compared the was adjusted by of primarily higher is year million the of driven and ago activities more estimated a full EBITDA impact year-over-year in above, covered year freight $XX.X Our million higher loss promotional to $XX gain The an as

for to $X.XX income the a Non-GAAP in compared non-GAAP million period. per diluted the $XX.X net $XX loss million share $X.XX full XXXX per share, or year a net year or was of diluted ago

be effective approximately our year full expect tax for We the XX%. to rate

XX our balance line. Turning cash XXXX million borrowings on $XX.X of and at million $XX.X the December we credit sheet, to have revolving of outstanding

debt company and of has outstanding the XXXX, on borrowings revolving line fully credit the As repaid February therefore its is free.

December of XX, XX December million compared XXXX $XX.X at XXXX. at $XXX.X million to Inventories were

I as flow. said our on inventory it decline to the has Now expected we improving call, last cash as

discretion two that Directors those extension, the has authorized share to common the repurchase company before purchase additional an extension XX we shares open X, the time already of or in its block at up including this years program to the of program to acquired million market Under acquire Board program our of a shares announced also of XXXX. for through under total April in Finally, transactions. its our this stock, of time an from afternoon approved is

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

John. Thanks,

our we strategy. and about advantage look growth combined market execution trends with enable We in to of positioning forward gaming. full believe what the strategic given gaming a and compelling XXXX, progressive take prospects recovery superior and are to be us our should This, continued long-term excited will underlying as XXXX markets the and strong we product of

XXX X% down million of XXX by gamer throughout pre-pandemic XXXX. number on Despite the to all XXXX. on expected content year. game Even market per since hardware, annual foundation slump, year's continue gamers growing. also an and accessories, is the year-over-year, hardware, over XX% with grow increased global market and wide well grew gaming above to According last by through spending more Newzoo, levels gaming consumer to trend video in since million XXXX are the Gamers over is spend XXXX XXXX, of spending up the additional being in

AAA of this with several slate We setting year. are record games quality encouraged by outlook strong the games franchise for the higher and

generation XXXX. supply for New and PSX to DFC expected forecasting XXXX increase Xbox PlayStation is sales versus improve, a XX% in with significantly

up The the result pullback sell-through. demand sales consumer While sales to have caution inventory in months reliable. retailer year, gaming believe in caused been last consumer significantly We in months. spending over XX will on delayed of accessories XX add due to excess also over This economy we which gaming reduced slowly time accessories, could predict, sell-through consumer improve pent broader modestly to next upgrades the recover and more which that may that this than believe has difficult very year. in historically levels,

in outperformance our our Those as revenue continued roughly including in XXXX, of revenue going forecast exciting expected product categories returning forward. by overall launches XXXX based projects to for growth plans, strategy us XX%-plus specific is XX% of on this the execution plans driven markets year. of said, That the our additional business well gaming growth product as primarily

year include margins still in improved, competitive expect XXXX be early of some from residual significantly XX%. QX, full XX% in to but to margins normal sequentially costs, under We aggressive headwinds Those improving. freight and the gross then discounting XX%, and are year, margins gross particularly just than higher but the

year. this those headwinds, to we EBITDA by the million from over improve roughly $XX approximately million $X $XX to impact million expect Reflecting

Our returning grow overtime. we to EBITDA targets adjusted financial has us progressively as of XX%-plus outlook our long term profitability revenues

of We revenue roughly XX% anticipate in to similar the quarterly in percentage revenue in second QX, phasing half. QX about XX% XXXX in be and

on is continue are XXXX to the and as believe in, strong focused to XXXX in the market We from the on downturn. recovers gaming we market great leader a opportunity be capitalizing a

follows: leadership The First, long key in pillars our as headsets of console the billion are lead gaming strategy XX term market, by we for consecutive where to have continue far years. $X.X maintained

execution provide of in levels high superior retail and for leadership all strong foundation Our longstanding growth categories. reputation continued a for innovative and gamers products quality, operational and new for

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

we the Accessories products and While this a to exciting PC plan in part all this challenged for become player was year, our participants very as have past market large of multiyear plans category. major

the Third, drive these and controller, we that entered With we XXX% our in reaching growth growth strategy. this product on ahead gamepad first and past expansion speed #X well simulation flight simulation of year continued mic full this categories are in sales, and growth in over in XXXX. categories U.S. part our

evaluate And new and as fourth, product have with expanding and continue we including other growth and Korea categories selectively target opportunities, to identify Japan. and geographies

profitable gaming drive market to growth of strategy organic take fulfill full compelling over enable investments time. trends advantage objective selective global in and through our long-term This has to to the and M&A will the and us continue

shareholder Our delivering XX%-plus create our revenue annual on targets EBITDA our on and margins. goal to by is long long of strategy growth value term executing XX%-plus term at

to want dedication. Beach I our work great Finally, hard team their thank and continued at for Turtle

let's that, turn our to Q&A. With

you. Thank Instructions]. [Operator

Mark Lake Capital first from Street the Argento line comes Our question from of Markets.

Your open. line is

John! couple Hey of Juergen! quick a questions. Hey Just

get wanted conservative? are it perspective retail starting view what are they from do to how the First like then taking pretty inventory to channel and they still or seeing an Are off, retail. on your just restocking some you from looks

on good inventories right but into Hi, are have shape restocking just in balanced of Great than of had were covered own inventories, question. inventory well XXXX. terms reasonably actually QX speak in you sell-in well during normal, of in coming the actually higher low the know I quarter sell-through. reflection as some others category, the providers supply of I front is XXXX and which we've a Mark! the you Nice on. in are for can't to the that couple a Retail as retail our inventory, products as of in and as were having script at and

the So is of we where at a about our reason inventory little feel year normal than why part higher the actually. of QX good that's is and XX%

view remind the driver XXXX. that’s key the able can – XX%. least can seems of – little business bit you consoles super drivers installed of expectations – talk about helpful. to into really Are a of at us feel in the the the comfortably It your what kind to to you That's again, then like base growth. XXXX the be the and pretty And you terms your key of is really or grow you just able in grow business

Yes, we for by to going driven categories. but plans be outperforming growth the select growth reasons, it's on in for based really to this XX% competitive And product which our target expect market not I'm cover and our categories, the year. us

the all things our year. and that's each which assumption That's underlying are underlying a driven the two obviously this flat What to that which dropped gaming markets, up by counteracting know last really means basically, you other. assumption ton year, is gaming slightly for for

to that's and it's leading is the obviously recovery specific earlier driven year. two games, a growth supply, forecast, largely launches be sentiment still the more but the expect in while XX% and market a the gaming product recover view, dynamics our we in offset, the and what of during to our flat our we in year, to those year but console better in is reluctant slightly, up gaming, during that plans the is with first view for difficult The predict particularly consumer underlying new our by to market, really

sheet? down. generator capital inventory one sheet. It just in year? capital was for working of are anticipate then about John terms working you balance you do thinking work one the are balance you needs, final from like looks net What And Okay. How this the

Yes, so good question Mark.

positive to today the driver we a EBITDA, we for a announced be business share is us, of XXXX. do to Obviously the return that we also inventory be we're to manage net which capital going repurchase. as key to extending and So the why in continue that's expect working generator

certainly. the flows cash two over generate to here expect next We years

Great. Thank good you year! guys this luck and

Thanks Mark.

Mark. Thanks

One our moment next for question.

of Stifel. comes the Drew question from line next Our Crum from

Your open. line is

guys! Hey Good thanks. Okay, afternoon.

to year, EBITDA half So look understand for versus reported you adjusted better this was an adjusted projecting XXXX, Juergen, sale forecasting guidance. reported about the I but just that Xx that figure you're If the at want than I this what you're EBITDA year. more for

about how understand on adjusted puts thinking for So the I just better want year EBITDA you're this I prior takes relative guess, to years. to and

question Yeah, a good Drew.

in million freight and million better residually progressively $X That of essentially the year, Last gets So $XX from high, we of $X from one. first transitioning estimated around the year roughly this freight, recovering reliable the quite an also which go to are is around adjusted of that's reflects it's the had reflects year so few million million, we kind number as EBITDA still year in through – particularly it be improvement. around in pretty is and impact impact terms costs, quickly an quarters. of impact and this $XX

competitive two, expected has roughly last about at Number is and our EBITDA promotional a half guidance. forecast through aggressive impact the to which $X year, $XX discounting, created and in impact million million continue least first another

with light, we know of kind we driving our you year. are discounting competitors we when participate and that that's turf, expect while this We into are inventory to pockets that pockets plans heavy factored are heavy our and defend have – so shape good and that on EBITDA are

think thing were that were XXXX? to comping I last remember the – is, you And you

I XXXX. mentioned

guys million year. that $XXX reported You in sales

Right.

categories that's going marketing growth support costs generated and over with good products, with to those, as revenue example, categories North as a really each in a come this the business, you few launch and with those costs, year. geographies. past and based. years growth to the single the in to those America years we really that support business Korea with costs So so business and just in comes spans gaming and is a business geographies, chunk was were multiple of well headsets though threaded that that are – of R&D with we're each an Europe remember And mostly to that OpEx and now now, Japan of compare can't console ago But essentially

Got it.

then maybe sense. that And Okay, follow-up. makes a

I talked was growth thinking I being or ’XX? specific assuming the that you're that you Can revenue that nonetheless, pricing APSs of part think for if how Juergen, about portfolio, consoles are your across or take up in X%. miss you preamble entire about but not? you the in environment? this maybe Is pricing

X%, Yes, so $XXX United in over XX% taking a was which couple mix of console that X% is of price and that States, price selling impressive right. in things. market X% us the us tier, share our average market dropped growth by helped significantly headsets portfolio without the The was the across pretty given in

zero really the tier. that way up from roughly in by So

we’ve up pull tier ASP’s trend our and continued has up going So pricing and of terms that's to that moved helped this in to year.

price to aggressively of terms that our of is have inflation somehow plans Part move pricing. but don’t we as well, driven in increases plans,

go been among drive that and that normal, competitors better the you to through will year in that know average and as gross pricing. Our back go of we and hope will itself of to is that, in categories better and the our contrast all pervasive level the industry margins discounting in that's

Got it.

Okay, guys. thanks all right,

Drew. Thanks

One question. moment for our next

Group. comes from of Maxim from Vander next line question Jack Aarde Our the

line Your open. is

just for you has product my ramped nicely remind of XX% again your hit the great. just remind sales update, revenue. taking appreciate XXXX Thanks me, Can questions. pretty it Okay, non-console us clearly for Juergen, kind and guys. detailed I product XXXX, there. over of how your the these balance any targets of of well? mix sales ramping of time, directional splits comments kind throughout as then XXXX And non-console in that

Sure.

challenged was close that in year, the drop very significant number That challenged, highly XX% zero even years this business the category that continuing yes, used so more discounting. competitive over We a see to challenged. So than know to console you PC to terms headsets be reflects past few ago. market given years accessories of and progress be

the this year up other a product – expect new bit simulation. roughly we So in to categories, PC, in new be controller flat

well. microphones, off XXXX we that not because Microphones, and investments in category in our held have on was early already plans really tracking

in start given wrong XXXX to a was we that So in player return not and and I similar all aggressively a products. developing time those promoting and XXXX, to expect for would roughly be expect That more category XX% but the the XXXX, in new small so brand dynamics. the in to marketing microphone

That’s basis, Got you've idea. back color. you! the And the past I helpful margin on of just kind economics had in unit gross then of think to kind this

impact impacts product product think – other unit had across I is like today, is increases similar case the know done shift? a margins the freight certain same roughly whole gross on still is roughly and – basis. we've some of recently, your you’ve the some on are picture every seeing a kind you you portfolio it on But basically inventory. price Is that or products

roughly of structure margins. the than we're product, of got Jack, have hit and lower in still importantly, on products have the our depends product. that the product, gross It the really categories mid-XX’s, specific that to It type cost the tier is with same trying price some of all most gross margins some and target better we've

overall that's an So of kind view.

to be and which despite margins down by simulation and gross freight margin an the coming to the tends are in discounting, to console challenges in above, track we're particular mid-XX’s. bit target. costs a our mid-XX’s gross little ends track of excessive track PC around level tend the And like new the mid-XX’s target for a other long-term competitive lower categories to target than and maintaining right driven

you. it me. That's great. for Okay, Thank

question. our for next moment One

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

Your line is open.

other Juergen, Turtle or thinking you you're to maybe do different their Beach can you my question. are products know across differentiate elaborate assuming competitors about the categories on product across categories just the you Good how in competing? you the main to taking intend Thank afternoon. first portfolio, for question expansion also is, you

Martin. Sure

our and innovation than really in unparalleled headsets long term for driven category. the introduced to part the of a company the in reputation consumers products that know XXX have and by is now are sustained patents what's you which product; that more pace console innovation, Our And has. innovations importance is behind at that leadership roughly the XX years the

So new is that we to one and believe the we categories. first these why win foremost have in in and why continue past we

first simulation a by with And new first in share was in in the that category or that number an full market frankly, in and the expertise high flight been product, year, standpoint; that U.S. the product category from had the that anything launched to quality at for product market us. else unique had – the relative was and right of a and in took innovations the its We driven product product time. the knowledge engineering that a one the position hired deep and

you. thank about question is My it, Got next ROCCAT.

consolidate the You the almost and know acquisition. think about for to any or is intention do How everything you maybe years into you brands, we're Beach? two under Turtle there to four the

a That's question, Martin. great

You more certainly multi-platform more pervasive. is know and becoming gaming

in with position be console console of three the we us number PC, made commented suspect I hardcore PC more and and prepared having of more our remarks, used gamers. to gamers PC headsets a might among headsets the multi-platform that wave United that by lot on loyalty ride And States. that in brand intentionally have our essentially, We the being actually

more Beach, our with that reputation, that while brand, So with to over everything that comes and see plans said, time. and is that how that we'll all and brand now and along that part continue strength of and the right that, that clear retail part more making then consumers are ROCCAT of Turtle ROCCAT progresses

overall gaming Got XX non-gaming market My the of your on share? competition. final and the is your any it, you have months, seen coming to competitors accessory space question on how background, Based perhaps you know characterize thank new you from would you. threat observation onto

meaningful of mind to competitors No outside new come Martin. category the

lot competing You competitors. $X.X over know in last from is years, key the to all what us play which time, is to a categories, is TAM for we've doing, expanded products billion the have of white across year help the in because it that's is categories, also deliver last same what the of opens drive all these us to seen gamers for to can and that a great is categories in across us space all multiple few growth. driver over billion $X our competition Everyone up

fact had conservative we What year competitive a we've seen driven be competitively activity. really promotional change that's aggressive just It and a by pricing really might last more forecast is than been others the – that we a issue others that market in had the know last in much led have may you that inventory than a bigger category, and downturn have to year. much

competitors inventory. the subsides sell And goes their you know to back as through so we and hope normal that

you, it. Got Thank Juergen.

And at any showing for Juergen. Thank Instructions] remarks, I’ll back call now you. this over not questions closing [Operator to Juergen time. the Stark further turn I'm

our your company. We in much. look for Thanks May. very in you and our analysts with Thank investors speaking forward again participation interest to and

and ladies Thank conference. concludes you you for participating. Thank today's this gentlemen,

have great You disconnect. a day! may Everyone, now