Turtle Beach (HEAR) 7 Aug 232023 Q2 Earnings call transcript

Welcome to the Turtle Beach Second Quarter 2023 Conference Call. My name is Gigi and I'll 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]

Chief are Executive of President Officer sales, Keirn remarks Jimenez; Board, of prepared Hanson. Cris Chief John Interim and and today's non-Executive the Chairman Terry global Delivering Officer, Financial Senior Vice

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

a conference recorded. is As reminder, this being

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

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

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

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

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

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

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

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

I’ll call company’s the now, Chairman Terry turn the to over And the Jimenez, Board. of

Thank Alex, to and I'm I'm energy and pleased team's today progress, and excited our very the you, board here be recent focus. with management

As CEO is previously permanent conducting well extensive search position. board the an and organized process for disclosed, the

urgency. CEO the moving and Turtle We is are possible Beach best on forward with focused finding disciplined for board appointing and the shareholders

Keirn, effective extensively worked XXXX, confidence pleased full is While we are X company ability of CEO. Since the with our the Interim have forward the during this regarding Cris search have and July, Head Cris's we to path Sales the his Board to ongoing, of appointment as Cris lead longtime in serving Global our has transition.

an conclusion the provide CEO at of the will update We process. search

full like value ways the which board comment shareholders review and the and conjunction in for I'd Board, Enhancement the stakeholders all our of committee Next, and any briefly to value to to with continues Beach. drive the this of amount the a has for management full management of date potential committee, optimism progress to team. the Significant me on significant has board and made of been given the and the team Turtle work

not at update engagement while a at do by we have engaged formal a this are And Jefferies. early financial we in that advisor time. process, have We encouraged new the

prospects believe Beach support every continues of get appreciate potential we a Beach. Turtle will and at term progress of is to While today, value to creation. and done long near to the drive the that path I'm clear stronger to day. developments sharing your Turtle more and and and I appropriate We look continue proud not our work the forward for we time investment

will With that, our over hand Cris? Executive Cris to it Chief I Interim Officer. Keirn,

quarter results pleased everyone. second Terry, discuss to afternoon, you our joining and Thank I'm good CEO. Beach’s, for to and you as be Turtle us XXXX Interim Thanks, speaking with

from balance into our the second words of quarter, results role. Before me provide my a we insight and the about speak XXXX let say about current the accelerated review few initiatives,

Interim leading team of to last best and in worked I'm named CEO, deep class years In passionate for and the opportunities our organization. about entire our Prior across a being as at strengths seven Beach I've have the led Turtle our global I've business, ten sales ahead. and industry understanding driving performance our over years, our

focusing execution. efforts in place in strive accelerating lead revenues, product team grow that's innovation our and excellent an to have flawless and We for

as capacity I'm steps drive to my Interim forward. taking CEO, business In our

the already are second driving shape company's call. initiatives but in creating for improvement XXXX underway, the several the we are significant, in I tremendous of positioning later discuss expected these half value Not opportunities take that as as potential profitability. only will many are soon XXXX, to Importantly,

our First, results. on view quarter a second

to a promotional adjusted stated of that our reasons we in and includes transitory spend number expect in of in XXXX. be as this guidance provided May, future optimistic we normalize million and quarter year XX% that our second XXXX headwinds and to EBITDA about growth approximately revenue $XX Recall XXXX in $X of a consider freight between million track $X on XX% to remain guidance EBITDA. we The adjusted full to meet million to higher costs

for market due including XX% This performance quarter June, XXXX exceeded the and XXXX revenues X.X% a favorable month $XX market The growth up across for year-over-year. geographies. overall in reported digits back up half second key revenue of double XXXX. is console categories which of sign of and Our growth share the gains net by year-to-date, million, to of headset is US

categories. U.S. Our newly released sales Radar, a during masterpiece. core across brand. Beach top plus scores to its review our May the gaming out in five of two of of and the other variety who highlighting accolades from and five already Stealth it the headset Pro a a console price we gaming months garnered of Pro continuing are called captured including over console XX% first XXX realize Outside the headset products, has Stealth tier of Games power Turtle growth June premium category of of

in As U.S. XX% of and to are controller category year-to-date flight flight our be categories. amazing year up the reason optimistic products controllers exceeds announced runway about simulation sales Circana, share More new XX%. meaningful models now reported the will be later growth our and this and by we these have including simulation

market we the Vulcan markets lineup drive and US will to across expanded these taking and Air and better our growth and Vulcan positioned keyboards with that our gaming II QX be normalizes, we We and in mice XX% launches roughly are still year-to-date, ensure U.S. gained of share in PC been gains accessories. categories. we keyboard Europe Mini mechanical PC Vulcan to gaming accessories continued during as and keyboards are have the weak share gaming actions down but achieved II

development that improvements a and accelerated detailed Enhancement include the initiatives to value that our On a before I'd Working I John the and highlight product spend minute more. this our initiatives for like note, cost with Committee, the efficiencies we a to turn review range and optimization, shareholders. to create mobilized will his customers of driving it have for platform board of quarter over for variety SKU for Value of are we rationalization, and portfolio announced previously closely

today the adjusted EBITDA run rate sight strategic that profitability of level XXXX profitability. $XX to are adjusted run of to on identified line XX% to Based meaningfully a to now to we We of million have are work completed $XX on and Beach previously pleased initiatives line rate these Turtle to our with with expected announce a contribute in have exiting as that basis. we the the range target date of EBITDA the baseline million,

opportunities. guidance past work identifying receive as-- consistent developing earnings formal and XXXX QX, we such has While before be complete visibility early thus into the to and believe the important opportunity will an completed we next we provided gone far highlight practice felt on us appropriate our and for lays that with it is clear that year, after

John cover pass the John? over now to it I'll financials. to

Hi, thanks afternoon everyone. Cris and good

second was The to year increase console revenue year-over-year. the strong in products performance For year-over-year a a compared XX% increase by million simulation ago. million, we driven reported and of quarter, primarily headset revenue $XX $XX.X

to last year. Additionally, versus prior sell year have this the channel and stabilized compared dynamic through in and inventories sell is aligning

expenses the margin period XXX the ago Gross second in to basis XX.X% by driven second warehouse million Operating compared $XX.X the were compared costs, quarter in quarter points costs, quarter. in the in and to ago mix. million year improved to business freight year promotional credits $XX.X lower XX.X%

expense was X.X% Second operating driven which quarter expenses primarily declined management. recurring by continued proactive year-over-year,

XX%. LTM operating recurring the Over have an million quarters, our past decreased basis $XX.X or expenses six on

as period. loss driven $XX.X EBITDA million in loss as million is year-over-year The adjusted primarily management improvement quarter year the second Our $X.X cost higher a proactive well to ago compared revenue of was initiatives. by

track are ago share adjusted per adjusted continue was the million quarter year compared We and million throughout Adjusted $X.XX deliver EBITDA net for on generating loss of per diluted improvements positive the the $X.XX EBITDA second adjusted to loss year period. share net $X in expect for or diluted to XXXX. $XX.X or to

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

to line. $XX.X June Turning our to at million $XXX.X of operations improvement was XX XXXX. $XX.X $XX.X at million million, a June basis. year-over-year a at was of on from we million cash on borrowings $XX.X and which were XX, XXXX, had Cash compared sheet, June, outstanding year-to-date the balance credit no XXth revolving million Inventories flow

the be to focused We dynamics. current continue optimizing market inventory consideration taking levels logistics into on

the that repurchase an in extension of approved acquisition authorizing our announced two through of common XXXX, stock. of years additional Directors of Additionally, March million of shares X, of share the for up of April XXXX, we Board $XX program to our

$XX.XX XXXX, remaining the of second had roughly price we of repurchased approximately million an $XXX,XXX. $XX.X shares the share June During authorization. XXXX, repurchase quarter totaling XX, average under we at XX,XXX At

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

exciting gaming the console categories. committed trends adjacent demand we maintaining growth year for Thanks the underlying accessories to upcoming remain leadership believe and in We supply into XXXX. market support the will and positive game driving remainder an With unconstrained John. increased with gaming launches, of lineup headsets the and and in our

expenses execute growth these our pillars, While we continue operating on we proactively to strategy. core support manage our to will

be on beginning our the ultimately call, of and excited for our deliver at on and our our our said strategy, I key management team to I'm with to the increase very value working As initiatives shareholders. Board execute

place We contributions amazing Beach in work. and Thank for goals. all excellent have team our Turtle entire you team an to the to of accomplish your

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

you. Thank

the [Operator our question. session. begin will and answer Instructions] We first now question for moment One

from line from comes the question Sean first of Our McGowan ROTH.

Your line is now open.

the the memory, get from on of I had thank like to you you. where years couple this here. questions I a to Star get little had in a guys, to trade tough restocking some so is of -- I'd shake and I XX don't with question. is Hi want the I clarity mind. start that One to if exactly don't back

choppiness up said is see understanding a you it's think year, was more and and the it seemed you detail the category I Circana that some I that. think in quarter. X.X% I the May to Cris, but June April than year-to-date, bit think mean but I quite a I says accelerated do, my second be that or than some, there lot May stronger of but rather beginning at

restocking? little talk in and a you bit that just about can are where generally So we

When great is on console question, so Yes, look first market for up Sean. headsets the at year-to-date. the gaming question. X.X% Sure. markets, for restocking Thanks the you --

recall, you it If was QX. in X.X% up

in year-over-year, what June dip to a we was bit and very a back growing which April of and good saw it's sign. in then is May a So

of as from that May, driven from and huge that growth, that of QX, well, to great up of the so release a release game Some industry. you're but in the and what accessories a that think the controllers you're pads, I April do Kingdom right accessories more growth, were game lot and had seeing for of lot Tears was with

now June headsets across growth So Board back including we console there. are the in back seeing-- to

probably sort the retailers the behavior of to how We'll point. normal On and pre-pandemic are we retailers. It's of this replenishments more have but the kind about a looking back the the behaving, for very that few may here a good be there for we little see replenishments consecutive part of most conservative retailers a quarters, from channel. seeing replenishments from question at the are much couple and

Okay.

seen really kind days So, we is channel levels haven't supply the kind up correct? past in of of the then that to is normalized that, from catch

where through sell operating I have targeted months past over I sell the the well much and say channel where part We're and is run. has. seen most pretty it really Yes, the few for that would retailers in seeing it the have match we to stabilized think pretty

in through and But sell is is, Right. sell the balanced.

the I sell a Is thought Now that period that lower that through levels higher it's inventory means was if sell kind of year of than still Like you I'm were because started levels inventory would normal of we'd the case? the at the where too low. previous than lows. get in to not the suggest that actually

we don't the industry a ended others really of know kind ended haven't but really seen in We clean that Yes, there, position this I point. the about exiting of to up some year. we up-- last at

that. anything replenishments normal here year seen of without this like we've or impact So any kind real destocking from pretty

in continue and as well. we market see we'll see the the I we'd benefit replenishments in expect as think moving growth of those see that the to forward

want I clarify to question non-guidance on sort before that of is EBITDA. other one of handing the guidance to kind off and Okay. it ask this just

You're rate that's at to higher continue XXXX, just not of you X right? kind end which the you and and meant be estimate improvements at to than run would XXXX year, full interpreted that, an growth, the X year That's when as for be right? rate you for the make to would see if say

at for It's in $XX we this run of Correct. the guidance to revenue million What year's EBITDA. our net saying of to not to rate for is XXX be $XX on exiting million XXX year expect guidance XXXX. we're a

obviously we we're back year here. a of is So left -- XX% the in half of lot left, year over the have

and want So next for how how to next going frame but need guide year time would but very have turning our that be important to we that before would in QX, guiding, we cautiously revenue obviously be optimistic see year out, to we turns we're once that's out we'll normal on visibility.

much. you very Okay. All right, thank

Thanks, Sean.

question. moment One you. next for Thank our

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

the anticipate thanks. Hi good back should afternoon. the to ask those I I you adjusted of I have It to in called guys, how about a some follow headwinds, appeared we quarter. and those And the in trending out half XQ but then margin Okay, intensify wanted just to slip the sequentially, year? know gross up. in

our it’s do and in that did really to was to QX timing we per continue driven margins and prior they, sequentially and slightly due improve -- QX guidance. Yes, climb expect to as

Okay, two console on okay. And think then I cycle. headsets your typically are a to three year

the to come gamers are starting of during your new to Given pandemic, influx consumers these back you see product? the

the purchases. a we cycle. eye replenishment it's folks and I the based headset lists mark a those pandemic starting on been that's see area keep Yes, that really two great of about replenish you're some year close to to question gaming and that in console Historically starting of off believe is

us potential into that As we half get the you the XXXX. of for tailwind and the so as a know, high are purchases think we into and here back year Pandemic quite that's go

I one in maybe Cris, more just slip Okay. here. can

on forecasts performance know flattish outlook, up ups I to date, the commentary market a still bit that flattish segment that PC that based slightly accessory are to forecasting but be is mentioned think given slightly, you improved the was Thanks. just some of previously was you or to little date? your softer, have you changed I

here the that as a that's overall, that moving in chance I we're think of that all the holding PC But time little a which Yes, categories. that's happens that bit, view something we're of has is seeing think from back the fine recovering still mix half. that is we that good the is around What between right?

Gate the coming at few just up. up, released very along game If announced a officially releases, last you well. weekend, just going Baldur's I is some of upcoming look like Strike Two know game others Counter X sounds of today, Duty Call that coming got with got We

expected to of hopper much lot a releases well that you think So going to know in headsets that category we console run. pretty there's as being had as help it are where good we tracking the PC

thanks. Okay,

to there's Thank you. Operator, questions. back any further you, if

One for our moment question. next please,

great. the question Yes, difficulties next there. having opening be Must

question. One moment next for Please our by. stand

Oppenheimer. comes with Andrew Our Northcutt from next question

Your open. line is

are Hi, -- be why? talk I Thanks. then guys rationalization from just And any terms to the on right lines are Would Andrew for versus guys. under SKU you products most what great is Martin. to really Thanks This in now? product about taking progress removing the wanted rationalization. platform question. the of console development know getting and or PC

product competitive to a taken provide we've by all can data specifically our really the question. look Andrew. and business bit portfolio, based some certain approach you and some lines can consumer streamlining there, through going growth get clarity talk our we're also support and demand a But we tell of to To margin just great across Hi, strategies. believe looked about gone I Yes, we profiles we've due reasons. and efficiencies still at then to at strong that not

won't provide significant specifics, on a we to ahead go this portfolio. stream at So underway pretty but point any it's light and that effort to details

Got it. Thank you.

question. for our next moment One

with comes MKM. McGowan Our next question from Sean ROTH

open. Your line is

more us year of thanks on? expect quarter? costs helpfully to yes, the these color posted you year that we goes on in nonrecurring see the what can were bit mind in continuing little business will some giving Would Oh, of a And that more more -- again. I the we guess as

Sure Sean, it's John.

of to X.X the EBITDA terms separation. related in the approximately the in and CEO So $X.X million of was quarter $X.X million,

-- related we're, related expenses. to and balance was going costs So proxy/activist the as

annual meeting expect from those the decline work back So certainly it of was, and the year. to as slowed light we're the certainly in numbers where half going in would would here the forward is through we of proxy/activist we

you. thank Okay,

no I at further Cris showing like I'm this turn it to back closing for to questions remarks. And would Keirn time.

for you, and in I interest Turtle have Beach wanted just Thank Gigi. a participation thank you all and to day. your great

you This concludes call. have conference all a Hope great Please today's disconnect. day.