Turtle Beach (HEAR) 4 May 232023 Q1 Earnings call transcript

Welcome to the Turtle Beach First Quarter 2023 Conference Call. My name is Latif 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 Officer, of Financial Juergen Hanson. remarks Jimenez; Board, Officer, prepared Executive Chief Stark; today's non-Executive the Chairman Terry John Delivering and Chief

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

a As the being conference recorded. reminder, is

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

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

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

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

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

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

directors its and filed direct in when available, information or the the strongly certain proxy with proxy will accompanying from SEC of intends Meeting. definitive card, executive SEC otherwise. the proxy shareholders card security carefully their and The proxies association white solicitation the company's to the its identity interest with such participants with any of officers other the indirect to connection are of file are the in XXXX and encouraged company, a their statement proxies. in they The proxy entirety its statement the information and regarding documents Annual by of contain Shareholders with in connection company facilitation read and all in become including holdings important and the participants they as a

get Jimenez, Board from we'll the Company's of Chairman non-Executive Next, statement Directors. the a of Terry

of practices. earlier its best week with in commitment consistent to the Monday, of series ensuring board best actions the class governance plan this and on to call transition actions, of announced cover and to governance afternoon, Alex, in everyone. a a pleased Thanks, the our I'm was this press make all which has in taken May a on interest afternoon briefly acting release shareholders X, the statement in CEO good

Meeting. William be XXXX at independent at nominated the would Keitel in the all for be actions the all board stand accepted The with CEO transition XXXX. the new be and intends chairs, The this, on not XX, of committees, the Stark Mr. board was Annual CEO decision directors. importantly, by XXXX Annual elected forward. did roles composition are implemented shareholders. June Meeting. committee chairman separated the Keitel's continues has whom succession focused two the in From chairman, of going the reelection I plan for at notably representative date the Juergen the a board strategic long We appoint and Stockholder tenure enhancing a interest to reorganized that or board of place to women, shareholder including the to board election new value and

He's as details his earlier. company's the I contributions directors, to maker Juergen our also can for of I leadership across announcement of XX want Further POIs director. in referenced over many thank behalf board our service release transformation gaming overseeing years accessory categories. growth for the of to Bill for as valuable of be leading separate into a found thank and want past On the a years. Keitel

and team value. Finally, the my chair upside to for and on with to unlock continue shareholders. upside to members working engage and and the role in for I board enhanced fellow take look there am shareholders, working all value Beach closely I honored I that believe board with board Turtle of company management significant the forward to value is and the and with to in

the With to to over first that, cover will pass results. I quarter's Juergen it

everyone, quarter to context XXXX joining our our provide came which thank and discuss for afternoon, results, first for in and above the you Good us. pleased increased XXXX expectations I'm outlook.

adjusted in the great revenues consistent and X.X progressive articulated positioning prospects, XX.X are revenues with net delivered I of of Year market we growth quarter, March. first gaming year loss strategic strong million million. an that of EBITDA the over recovery XX% up During and the

the of the from last with on some improved to After the after this through five the in challenges. of observations market state to Adjusted million year. return EBITDA the EBITDA months with through expectation consistent first three adjusted business years start EBITDA generated XXXX I'll XXX business in our has positive all, year's XXXX. market-wide our adjusted in

the inflation, environment rates, to economic given threat and consumers economy as the Both hand, of interest the than and challenges, have higher recession. spending activity caution normal at still and headwinds continued and face issues year. including remain some gaming operating market the When industry significant last compared discretionary promotional among macroeconomic improved such rising

the encouraged However, are as tailwind from gaming we council accessory industry benefited data sales by sales. a strong in latest

of in through history up X Circana, were reported shipments any million fact, the compared as gaming highest reported that increased units to U.S. formerly QX U.S. headset Council period. over X%. in PlayStation sell known In ago over X NPD, council year the Sony

Additionally, U.S. channel inventory improved in QX.

the Our subside seeing are by with to gaming pandemic but inventory We're levels at the we we trailing since discounting is expect improvements progress lowest surge. PC we council The levels, in gaming market. encouraged the the recovery this market the through are year. as heavy

Turtle by respective data. markets we the categories, across Council accessory performance to council far lead brand outperformed headset Beach based Headset on our as at U.S. continue the growth broader gaming headset Looking category Circana

multipurpose gamers quote, of Radar gaming a brings and to quality headset. the gave revenue comfort. in headset Our XX stealth mentioned our exciting headset, we've ultra-premium called of in along launched call absolute product acclaimed best-selling review highly our it a collect XXX Games multi-platform praise XXX were the Editor's wireless audio, recently to quarter, MSRP, Recon XXP headset the and on X the Choice best-selling units. headsets series XXX, it and award with all-in-one X which gaming their At plans be rating by from March, outlets. Stealth and of pinnacle gaming our gaming the models an the I masterpiece continued and pro by Pro continues and stealth

and across for working as PC Importantly, this mobile PlayStation as Xbox Councils, headset gamers. is line multi-platform well perfectly and

the still our coming While in above early consumers with early in we sales, launch, extremely were are and expectations. very the pleased response resulting from which

and market in mice the XX% is reporting, accessories category, recovery Despite categories. with have our PC Looking for rocket down at growth sales brand products our three approximately Circana U.S. Council headset, headsets sales all gaming year-over-year year-over-year keyboard, QX. lagging posted this, PC

with launch is gaming XX% new illuminated programmable with large footprint lighting. which perfect the Magma for products. showcasing is RGB We stunning has compelling PC a to PC mouse movements and continue rockets, Amo, five released that gaming fully zones keyboard, smaller We Mini gamers

category progress. plans forward our look continuing have ahead to We our exciting PC and for

our U.S. and roughly Velocity flight market pad gamepad late grew U.S. the products flight proud of for performed XX%. to QX, during sales but flight number first simulation game product. flight quarter simulation Our and XXXX, the are X products to game controller our we post have sales well continue over simulation down in controller position in year-over-year the X was XX% products. launched The

these launches more as in exciting categories product have well. We

the long-term strategy platforms gaming all Our top becoming market provider tracking is by of accessories the of a shown and categories and of quarter. this outperformance across our on as above highlights well multiple

growth, as only our additional of innovative brand, to a on discuss capitalize reflected strong and market shortly. outlook is This quarter the results, opportunities in created XX% allows but us high-quality XX% to our revenue first increased Our in execution improvement. operational during not also I'll products

provide John additional pass after now cover quarter the to financials, I'll comments I'll the on outlook. and to it over John? which

everyone. Thanks, Juergen, and good afternoon to

provided we million, revenue performance. product first XX% revenue March. $XX.X start and The good we towards year-over-year the reported demand increased in quarter, to $XX.X U.S. growth annual headset consumer year-over-year year double-digit console is XXXX stronger reflecting million of strong ago, For gaming a growth increase a compared a the a growth of market, XX% guidance

year. was light was quarter offset the year while it's And really lower costs. in a in reflecting promotional improving, and continued was expected. which in higher QX compared ago higher we discounting logistics in competitive period, partially QX, margin XX.X% Gross headwind last discounting, XX.X% to started as by first freight the of it The competitive in spend

sales decline rates freight bit benefit lower costs with higher in and pace we seeing accelerating this actual rates As started already to the inventory tracking quarter mentioned a the to continued lower-than-expected. and previously, have

million expenses $XX.X $XX.X in million, ago were first year the to period. the Operating compared quarter in

expense operating as management XX% plans. driven First launch which with marketing as well declined spend lower and was to primarily nearly undertook sales year-over-year, we quarter align by recurring expenses initiatives our in XXXX product the

primarily quarter the last $X.X ago $X.X loss adjusted year-over-year The first driven loss well in as compared was implemented operating management of EBITDA as year is million year. higher initiatives Our to the we improvement period. revenue million expense by a

net $X.XX the adjusted the period. non-GAAP plan in year diluted per first loss We $X.X share, net million to ago are loss quarter on compared of diluted generate the year. improvements for or or EBITDA share $X.X to $X.XX was throughout million Non-GAAP

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

and credit XX, no Turning our borrowings inventory their year levels March over XX, as $XXX.X $XX our $XX.X to year. was an and million the flow was operations at since of pandemic cash outstanding million XXXX. improvement which Inventory on of million Cash end from $XX.X revolving we million million At mentioned, Worth line. quarter, are at at compared sheet. in noting, $XX.X the at Juergen XXXX quarter levels March were the XX, surge. March to balance had XXXX, lowest

additional for Juergen? Juergen And now to comments. turn call I'll the back over

John. Thanks,

deliver given As to I the our challenging strategy above commitment in to environment, still well our improving which said, we're market. expectations, pleased team's particularly quarter first gaming an on executing our results demonstrates

positive up through On content XXX. are underlying is to reiterate and accessories on gaming consumer According the our discussed last spend per to in year. spending hardware call, above levels throughout slump, with XXX even dwell expected video trends by to million XX% gamer gaming. spending March all a XXXX, continue number in and year's grow hardware, I over on trail pre annual few. the of gamers pandemic more global the Newzoo, since game Gamers also I'll

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

new expect forecasting to five and improve generation PlayStation versus a with We to PlayStation for XXXX. continue increase DFC XXXX in sales XX% Xbox significantly supply

an start. a setting all-time in Sony is shipment councils all versus QX great record

we in new light our in performance on our gaming and last call, communicated portfolio healthier financial we market of improvement existing continue and a strong to progressive As of a products. expect

of performance mainly stealth QX to year, which our we outlook million growth million, expected quarter yet XXX outperformance come our XX% specific pro increasing of launch multi-platform launches are for outlook range to positive revenue XXX and to would driven start to Given provided share to well that, first contribute. by headset in phenomenal a This as our reflect XX%. and in the the exciting are gains the in a ultra-premium as is of our good expected of gaming on The the categories. markets

management. X to are our expected increase EBITDA adjusted by continued to increasing and range an cost driven of tight in million We guidance X revenues million, a

year, As and headwinds, significant which we for abate a of we the profitability progress will expect we've in noted, this provide includes XXXX. better level through still as therefore much

Pro we Line. the QX, revenues similar For of Stealth somewhat a spend and as expect higher level QX launched to recently marketing support

displayed the we in the As pleased first said, strong momentum the that of I created three the the the has balance year. with of and for I'm year execution months positive

As in, is the and of great as position a additional market strategy recovers. to to we a be we opportunities every key on continue pillars to gaming remain market say intact. The quarter, capitalize our ourselves leader the

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

the a leadership plan addition Pro XXXX In to position. market launch, through Stealth have recent our very expand portfolio strong we to

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

As multi-platform good rise, position for gamers we portfolio offer gaming all to a experiences. the accessories trends feel in continue to platform of we're

category for challenged encouraged share accessories for we by was this into and our XXXX. exciting market this year plans While participants were PC very gains the year, all past well this have

growth we as revenues us fourth, and controller XXXX. have selectively accessory generate categories adjacent to core target categories expansion new the identify Japan. and leverage can in product to from. in and gamepad geographies Beach These Korea markets entered in with Turtle and we and expand continued expansion products Third, evaluate And successfully our continue including growth addressable to our and allow of competencies that we the simulation gaming increase markets, opportunities other drive

As trends gaming March on our March, continue call in compelling advantage us to said take will objective the long-term a growth. enable strategy and this -- has I in and drive to market to of full our fulfill the profitable global

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

I Turtle June will down on stepping my that Beach Given be be will XXth, this call. last earnings

of valuable for the years. the past you, I'd stature over amazing our an Thank Turtle you It's company highly we'd still over be to and able me his Beach. with given never in as company well like being regarded onto as recall to team the Bill. place his nine good board, most him for the Bill the Keitel been the in get a is excellent one first quote, to thank good contributions Thank CFOs told country. for transition. to for at to honor an team a This a years here time make lead here. time XX I

driven sheet OpCo demand dominance years while out We've In Analyst XXXX we've continued growth. supply quote, of long-term market debt enable gaming in the through, and swings, laden including the team to conditions, surges. multiple challenging our managed significantly our adjacent outperforming the well past diversifying ourselves market This led through put a years, XXXX. the executed balance XX council violent headsets Fortnite and it, in into XXXX pandemic worked categories has with including as

value and we've Our I'm current drive creation going the are exciting of well business our to portfolio for had. confident stakeholders. plans XXXX and business the through forward most is for positioned success good ever all hands in

the other activities, spend time to While company. I I'm team on will the to have and excited really miss

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

question line from Mark of Street. the first Lake Argento Our comes of Instructions] [Operator

Juergen, on chapter, -- do the been XX working It's fun company little chapter. of flying. great bit and to a bit little we over to forward years. last and experience congrats But the the new more more to hopefully looking a that and point next country got getting with

you. for But times hats exciting off. So

on the the stuck like do inventory pick things I bit think things little inventory enough refill quarter. year? going down inventories back throughout to as drill that question a a worked here up cycles, in is, got fairly guess I terms you Just feel the you nicely. of the to hopefully you out levels, me in guys in wanted couple particular, of In

also You I years miss the of to folks nine frankly, than company. I'm of are after appreciate coverage going of working more together. the great And one certainly your

the On April pandemic the inventory, XXXX. starting so our inventory, since lowest level in surge

holiday up So load We depending to we come the plan are in on it next inventory, of good lower still will position. couple but the quarters. a in with end year

Functions phasing.

Yes.

revenues load the the of in. phasing and Just

the Great. a overall in and typical buying a terms rate see the half actually What's here patterns, get could attach terms of year. good of console the some there. headset in the when pretty you sales front sold through And in then obviously attach of console you

So of that we Is should more QX? XXXX pickup QX, more a event? of see a

accessorize setting percent I better much consumers, sure well think the not a headsets. for is a and PlayStation Mainly do -- supply will effect, console to the U.S. There And buy expect X% does over console of the improve. situation the continue And in council supply contributed record, growth a of surprise some That's effect. for as it entrants. was quarter on have it. that the who an will new a huge the which we quite that Xbox, to we new saw but as

of out of constraints I and the effect positive the phase frankly, they market think on -- that are have are they this year. out of the certainly the a will council

least just terms one a margins, and the you normal in nice of gross call of of would run normalized of not kind improvement highly or of of relative What's a at gross kind rate kind were I of one was. promotional model And environment. kind our we new in where but think more where to margins, it, last terms Great.

are you glad I'm asking.

This year, than freight margins, continued normal, driven gross maintaining target are coming we and still higher expect mid-XXs rapidly down. to margins, of but We that by long-term really our that's expect gross costs right? XX% XX% are --

also million we line think million the very counsel higher line that effect will PC, competitive completely severe, of that's kind still in more I into have which overtime. into discounting, will going two out the on in to would going XXXX those system. improve improvement and things I'm to and I on gross say going still expect our EBITDA an remains hopeful XXXX, margin $XX are that of some about and reliable But be a that past So be well $XX

Next question comes from from OpCo. the line of Martin Yang

been been phone position to covering we'll want ask coming Pro a since it's segment. first Stealth are products. about definitely the It's premium future you on I Jurgen, and in ultra-high you take calls. miss the while

on questions two So that.

address for question again? to take the to meaningful And Beach? long how is this segment is does this to or you it Turtle why then second you First, so segment

and done of to redirection which it right, in been protect the started you're haven't But and did the I to resources a call A very continue through you, to we we in had more long that a two to well, and reenter haven't emergency mid lead time us tier. headsets than ago, and as it we And XXXX, is that market. upper tier reason that highest and the for the frankly, engineering large we a re-platform by that But highest that because mid-tier. really continued R&D the wireless stream have half, have dominated we created Pro. tell price from successfully. semiconductors and forced The business, far the will we a with late headache divert plans an years year that such divert XXXX essentially Stealth to pandemic we had revenue for really

king saying And are the that's certainly, excited even think at they're priorities just of the long we premium we King tier. fair had of wireless. move. a over in a last that are so very we will some of that take matter as claim And be them making make the reviewers wireless And can that of frankly, we're to what

the the believe, is XX% So The tier about, for overall top very of market. I excited. revenues about

the So, that above that gains accretive share. the market share will overall overall no we've business all and our of the be and had economics meaningful of given share XXX, to it's XX%,

seems the to play on are Steam new where that? on angles? cloud certain a is initial Ward My in to players? that products and you new or hardware handheld emerging Deck PC Do emerging sort have like on Beach the view gaming segment the view have plus a from about market product positive second And feedback other referring question if then, and your categories. I'm held potential game handheld role to trends what

right or council, not developing are we So focused own our now on handheld otherwise.

particularly or them simple opportunity places as more gaming Our cloud game easier is the the our we want all the useful on it can to is view people those multiplayer. and if accessories, of have just headsets, which sell more you to play to are for platforms game

would immediate some gaming I I and will the at released mobile enter but well also note hardware plans we've work very You say. products to mobile, very itself time, complex with council any that category that have this don't

of McGowan of Our Roth/MKM. from line comes next question Sean the

even with of by me at Let you off going and you to met you were releases. the the weird paramedic press without side I writing it's stuff, saying this start before you a too, by cover then you be lot these helm. before side company work there

to you So Wish it's going the best. be unusual.

first with on question Yes, so let a the me in clarification jump up. market being

I say from that they you or console NPC is X.X% think, is themselves? console did that Circana, call and only whatever

remember Circana our remarks, Sean. I'll as I you the NPD. kind quite well interactions actually, working and well. Yes, with first for very miss Thanks

recovering Europe I slowly So in headsets, market there. U.S. headset every council. numbers XX% macroeconomic less, in and U.S. but up kind from not X.X%. some case gaming And And of and more U.S. country -- PC in versus and worse every came general. the some about a mice in the for think faring council is at are keyboards, category, up council U.S. varied down Europe in the than is but is the more gaming down down the headsets That's every in generally, down standpoint. those Europe,

lot what margin expectations I Do on that as XXs for be a And quarter there's gross mid I you. the year? following within you're that the could pretty at margin, your are. exit up Thank kind think of you the Mark's line. you fourth before question so you gross mean, operating know on on rate of clear leverage

margins entering lot would has we QX at costs. at depending freight operating out that quite be think has mainly leverage we're OpEx better again, think think, mid-XXs gain of the system better gross I discounting, on the in the I have a we hopefully into typically the because be should I margins of by time. or rates the on margin And discounting passed will our better by gross headwinds but the, fixed the XXs definitely the and should XXXX. always certainly what time be sure, happens expect maybe QX for because not I on level margins that to largely with of

happen your that and guidance forward. of G&A that assuming the range, particularly I'd great. I helpful. we're it reason I'm little joint of EBITDA reduction end lot aside frankly, Okay, on That's Because might that -- million much. because cut since be to bit willing in of what But I'm that pushing getting having without putting -- X I'm what upper think a trouble a going to the is

So of we in like, you what or we that going do is sounds each think it maybe expect quarter, be of saw first the that gross to G&A that quarter it lower? could is should the better. margin forward level But indicative going be

period. a in then single-digit marketing marketing heavier QX stable, And low QX. will higher G&A, go because millions for much up in little we go a the then costs up QX. terms marketing will of be will a that's bit And just roughly the bit

you. Thank

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

answer And of Do right follow-up come have your Maybe around willingness I'm to de-stocking? second going more on that question good asked take sense, period of Mark the a here. following I are a what just is on got But follow-up. on retailers’ shelves? to I not Juergen you that a earlier. sure product retailers conviction then restock a back and half visibility the have

Sure.

say, from some a But levels conservatism some are and the particular So their cautious. we that general, too are I and are I are retailers, less levels in stock think moves. still in when low there are retailers realizing in making a, would seeing little suffer inventory

few. conservative those at are with guidance based bit until conservatism they they our So through side, retail the such a and expect came They or that remain low stock on restocking not the depending year. roughly flat, by will the the assumption up But that we and the less sell share the does made allow to market not multiple It's inventory a during and that to some will on But the product growth. really channel quarters like QX in particularly deliver will forecast outperform coming, XX% things gains of We that market somewhat results they rebound. us on maybe really do heavy have in driven level category. the of largely on of launches revenue inventory out the a by and be see drive that. bit, are a XX%

then there are mentioned inventory. you lean category. promotional you the the And Do activity PC inventory on in you have excessive or

anniversary that, spiked this we maintain I to last Once in promotion positive that, should year. using gain And really that just assume gross by the neutral that second are share. you or You John, margin think Thanks. will mentioned to you spend be XQ the half? promotional

PC inventory are much, working business, still but we our levels obviously is a much smaller of in PC. our So part reduce to

a large many by of through. are, sell promotions. And our levels share large market player very the has in As of I the more life player, heavy as believe our activities driving and still category really smaller the by many driving as difficult inventory -- evidenced makes moving down players in others terms promotional

-- mentioned, to heavy generated heavy PC as that three encouraging, quarter as will that categories tonnage, believe a if were tell through markets do year. I we obviously the will is move so to down continued despite actually we the that the significantly, competitive all in to that to happen We was growth Hard discounting. see but speak. US It the very go QX subside key by in QX.

or on terms in to progress terms of they everybody's QX need much not it now discounting. and make may need how depends still in to QX of So do to between what able in really do

[Operator Instructions] line from of comes question Our of the Codera next Jack Maxim Group.

for think This The that guidance. product was wondering give calling XX% this, color improved about, you given mentioned for Aarde. last still ‘XX what for and I I'm was might for Jack any the I expectation overall. have year? missed you slightly then if in the quarter mix. target expectation Is is that could Vander XQ Jack non-comp but Codera full the was

Yes.

categories launch So, this on the move encouraging markets, results a the we But results of XXXX provide were of to of are with not particular, business because in going which have on our the plus to depending annual very up will depending track diversification in on obviously pleased quarterly our we're gains bit every council year. across of our success We'll provide all of down the many share outside the of and products continued mix and and quarter. this headsets remain business our and percent the when.

Thank you.

further at time. have questions We no this

to Now back remarks. the for closing I'll Juergen call Juergen? start turn over

It's you. again your I'll the hosting for with the participation these miss calls. analysts, these pleasure team and you and and doing a been interest calls our in John. thank company. Thank And

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

You may now disconnect.