Turtle Beach (HEAR) 7 Nov 232023 Q3 Earnings call transcript

Welcome to the Turtle Beach Third Quarter 2023 Conference Call. My name is Michelle, and I'll be your operator for today's call. [Operator Instructions] Delivering today's prepared remarks are Chairman of the Board, Terry Jimenez; Interim Chief Executive Officer and Senior Vice President of Global Sales, Cris Keirn; and Chief Financial Officer, John Hanson.

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

As a reminder, the conference is being recorded. I will now turn the call over to Alex Thompson from Investor Relations. begin. may you Alex,

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

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a the company's and of in turn release find now Jimenez, the the presentation. And the over I'll provided Chairman Terry can and to reconciliation of today's metrics You GAAP call reported earnings to reconciliation results company's these tables Board. the

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

to As heading the point discuss shortly, believe results management in right we team a that now will today's the direction. company clearly

improved structure cost order. Our has dramatically very in short

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company's our to review shareholders the and team. management value Next, which conjunction full for the The progress. drive any and date. to in I'd closely our to number comment with since Value they stakeholders with financial of encouraged new months Significant progress made like Board continue and hired been Board, be ago, on of to has Committee and has we advisers the committee a with the to the always were working been Enhancement continues

update be the this market at fully time, committee any we we'll While process notify to and continues the engaged, provide once concluded. has cannot formal that

prospects I'm Turtle to your our day. With that, continues appreciate look creation. of more and Officer. continue I Beach While and Executive work get Turtle and done, path time, drive we is developments progress Cris to will investment we Keirn, not the for to and proud our will I appropriate hand long-term Beach. of stronger the believe sharing and Chief the value every to interim near- clear at a We date, over Cris? to to support that potential it forward

joining good quarter EBITDA results and up you for third quarter with and We Terry, financial discuss in third XXXX us the adjusted showcased sales afternoon, everyone. compared strong quarter our ago. Thank execution to a and our year operational to results. Thanks, significantly

revenue expectations XX% to guidance XXXX, our year-to-date. towards by results revenue revenue XX% with in and our Our well supported in were track growth growth over for line XX%

of X% a as year-to-date, in momentum which dynamics expected September. The year-over-year the U.S. accessories a the up XX% quarter, on quarter and key support delivered During environment higher gains of which driven in adjusted by by headset earnings promotional the to industry categories holiday in positive our more initiatives the value-creating across software with trend grew year-over-year, a exceeded into including across improvement EBITDA U.S. the ago growth depending X% geographies, $X freight an margin second continues negative million, the up revenue, category. perform accessories overall in slight variations season. EBITDA the normal to previous Year-to-date, markets the from $X.X quarter, quarter. This lower gaming from XX% higher market is ago driven and Overall, the head year and adjusted share improvement last to year in gaming significant and continue on market benefits console call. spending consumer revenue month than hardware, we similar outlined million was was performance. gaming We costs,

During up month. the outperformance the our especially the Turtle X.X% market was was of for up apparent as X.X% only September, Beach year-over-year, while month was

are category to expect XXX, the in gaming and their respective our category categories, gamers we share key the markets by and headset sellers, year-to-date, continue love year-over-year simulation billion category. to both down Circana, XXX and retail continue X quarter, Per $X non-console year-to-date. Like value continue collectively PC Stealth and that headset as XX% down accessories roughly XX% be to exceed with our top exciting the demonstrated XX% flight take sales We U.S. growth XX, of last share demonstrate growth. headsets console since gaming U.S. delivered that and the U.S. leading but is nearly Stealth still new the in Recon have launches. In challenged

when our as positioned to launches Vulcan for mechanical full-sized PC growth II categories II return well third like best However, quarter. IGN to and Vulcan keyboard. Vulcan Mini recently the with in we are their keyboards named II benefit gaming mechanical choice

Choice While PCWorld gave our Vulcan coveted II designation. Mini publication's Air Editor's the

Controller We announced availability iPhones of the the comes mobile on which QX, for Atom also the in for announced Android. previously Atom of heels Controller the

gaming, we there months, extend in products growth these in to simulation categories PC controllers. further and to believe are across As launch our new opportunities we the runway coming continue exciting

the walk how like second financials detail, quarter EBITDA during EBITDA during profitability SKU Before a made initiatives These more profit initiatives to our initiatives rationalization, progress through call to the strong for platform range John and in impacts are on our to this I our Due we've these million. include optimization, and the to outlined portfolio XXXX development guidance more. cost I'd improvements adjusted cover product of raising guidance. full we turn improvement the over million $XX conference XXXX to that made progress our positively it of $X we range the year against to adjusted we've quarter,

the we Additionally, exit previously to $XX approximately to expect of million, million a million EBITDA $XX up XXXX $XX with communicated million. run range $XX to now rate of from

We are this progress. report thrilled to continued

guidance pass work cover it formal as completed an that practice with is ahead after financials. past XXXX we felt provided has receive John to QX, now it gone over in date While year our will into we visibility developing XXXX. I'll the appropriate earnings consistent to to complete to important and opportunities on highlight the John? for be next

Cris, afternoon, everyone. and good Thanks,

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

freight increased promotional third XX.X%, quarter This the compared margin we Additionally, past fourth costs channel which driven ago quarters holiday is level inventories in the year the from during quarter. Gross the the retailers the third due to sign by increase XX.X% spend. load-ins, quarter primarily to to in period. in improved and was positive X a lower highest for believe

challenges. a $X.X recorded pandemic-driven to last provision remind to chain incremental everyone, we the supply related year, Just million inventory

XX.X% third quarter margin Excluding basis $XX a the year the quarter. a were million ago compared year improvement was provision, to in adjusted the $XX.X XXX ago, gross in year-over-year. Operating million margin expenses point

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

improved resulting EBITDA The $X.X ago primarily margins expenses $X to revenue, period. lower from the positive to quarter driven improved adjusted million higher and a in compared Our expense third negative million control. by proactive a is year-over-year year improvement

breakeven. deliver LTM slightly adjusted and this We an million approximately for adjusted $XX has are track positive EBITDA below On to EBITDA on year improved XXXX. basis, is

our million XXXX. a $XXX.X and which year-over-year year-to-date September XXXX, on Turning line. was XX, Cash credit to compared we $XX.X XX, at to operations $X.X from improvement million Inventories September million a were was of revolving $XX.X outstanding the balance million sheet. XXXX, At million on September XX, basis. $XX.X flow had cash million, at $XX

continues decline we inventories As further. the expect chain global supply to to normalize,

additional over the Now to back I'll call comments. Cris? for Cris turn

John. Thanks,

will with this support results trends We believe and end of third into year the XXXX. positive quarter demand and accessories are in pleased our increased through the gaming

there is ongoing across still performing pandemic expected, demand While decline some games we than Demand to lineup higher are and discounting hardware the with pre-pandemic as drive promotions for into levels and year. of already the replacement to accessories accessory aggressive the an close out to for as well holiday normalizing exciting new supply purchases cycle competitive head are accessories. promotions that hardware drive sales running is XXXX. Console continues and exist, into these new expected strong, scope will is gaming

to remain growth confident place points is rationalization, capitalize gamers, categories positioned in leadership in Beach for the adjacent development our industry gaming sales and in accessories driving value-creating maintaining on all positive remain these SKU headsets product growth and and well committed these With that our our conditions. We optimization profitability Turtle such environment. Beach shareholders. And business, drivers level including in high platform in team turn to initiatives are partners dynamic and value mind, portfolio on in focused and for let's improvements. We're retailer result remain a this I energized to trends entire at by like the would driving our to Q&A. highly enhanced to the for continue thank throughout that, will and Turtle with our performing We

question with [Operator Instructions] Argento Markets. first Capital comes Street Lake Mark Our from

Lake Street. Mark Argento here at

Just better the benefiting from you apologize gross of environment. peel ones. couple out -- margins a if guys bit freight already, a margin up know but obviously kind the quick I on nicely. I it you broke And Gross what little of you're ticked in looked Can onion line? a freight seeing

Yes.

Mark. Yes, certainly. thanks, So

So the freight certainly well driven still near promotional as costs. lower the lower improvement to We've returning but freight spend. costs is as slightly a pre-pandemic elevated seen levels by

next to this XXXX call. rate is adjusted which margin our quarter, line. of the expect of to of the key EBITDA the was terms In we dollars exit for several lower value the million quarters, realized freight on that part the the over run here year-over-year a quarter cost also the benefit and And increased continue freight improve we we to quarter, several

Yes.

the In of and that, question. that taking addition with The some changes, -- been the the SKU seeing we're actions and took to a the seen have last portfolio of better mix. on for rationalization some improvements we Mark thanks we've quarter

also so helping And us. that's

are guide in orders we of in which And super pulled to little then some That's read-through kept nice up the guide buying bit, into obviously of line, seeing you terms helpful. retail QX? now? -- year are EBITDA that you see. patterns is really strong kind here quarter, the obviously is a in right full What But revenue this

at load are just a that are for the all going retailers time the there, going as September console things sooner look coming into with you When feeling that good great holiday holiday, for games for take did the are out Between a the accessories really on. the to in the promotional We supply, question. Great see business. sign how some good coming are up retailers that environment, we orders in really in where holiday. Yes.

revenue a So go, retailers earlier wanted orders. bit still despite to some to know. orders how see that so this sooner good like, point, realize we those there But progressing expected. a to to of than $XXX lot we the for fact at our got saw I of that's those are $XXX as that's year, that XX% in anticipating think hold There's year. million pleased we to expect the and the you It's we're quarter and feel also million of a holiday, why we

Instructions] [Operator comes Vander Jack question Our Aarde Group. Maxim from next with

well. great Okay. Cris, results, to as Great. John, strong strong see outlook

believe color optimal? can added would to target all SKU to product sort is or of your range it relates there the you just bit is rationalization of helpful. number Cris, maybe SKUs more? speak you be any Maybe any just Or So a there that categories, of a as

the Yes, last when that the in, pretty quickly from seen for I think We've aren't. new expanded with categories are thanks really look which some spaces. that into Jack, years. We've experiences tracking operate you customers, over the there Sure. we've products question. and we learned the we've Sure. invested at several our

taken of we've selected the with. the over so those move in consolidate I SKUs would our say, we've action really to the quarters rightsize, the into to seeing portfolios last higher-performing to we're And sales on areas couple forward where point those

and continue what's We're So margin our that to gamers other see we're sales those still no to se we there's just those really grow. where per per and out resounding portfolio a to there categories category consolidating looking from a number with products. There's targeting. mix mix from really

performance at good we're there those and controllers, categories good in we've look success, You because categories. simulation the adding SKUs we've seen and seen

the that very forward at something moving closely. got to a we're right that it's So we've ensure on mix. really We've got that focus looking sharp

market granular we -- provided or on in think you about update console into could more and you into helpful. XXXX maybe as the if speak you just talk revenue been of non-console versus you know or given just if between SKU expect Great. general, past, can But you routinely doing And the PC or that in comments just of review, then can of Okay. the about your maybe XXXX some your look console head That's in I in non-console? terms a have wondering guys in to general, revenue rationalization mix you I mix. specific how as you haven't consistently. evolve

we've we're Sure. We've was question. some strength looking range I Absolutely. console Great is now The mix XX%. XX% XX% know in year. business the that real seeing is before, it somewhere in non-console. to that said, like this seen

the share If the up the and picked console We're X%. more you business up rest U.S. the how at but they're some that. up performing, look markets there, We've down. are than is categories of

XX%. a I up is simulation think, flight We're significantly, down in So good pretty XX% that category. It's example.

to slightly is the this and roughly flat year. well, down market growth in third-party controllers -- despite controllers controller So as the

And headset taking some as in actions performing mitigate really are we're some the quite results seeing not we're that markets space. of strong to those well. maybe So

more the And a year. for so shifting this mix that's why towards console the see you bit space

from I that into some to that expand even really launches And year, drive see from these mix believe going next our you'll level further. that Looking to got year. I share in other continue we've this think exciting are categories XX-ish

question one just Great. Okay. might. And more then if I

the rate XXXX higher -- are -- and year EBITDA I formal you know at given can but at think, a looking guidance, adjusted level. next you quarter, So run I provide you just did exiting

talk factor that you into EBITDA rate. improved adjusted OpEx run does just control about margin could exit of how gross maybe higher if kind versus So just --

of a both. a of a at great that there calls, opportunities in all here drive to we're shared bit as that And products It's product our bring and gamers focused out margin. going some go mix, features again, next platform Yes. got, very improvements look can and a that's drive in we well. you of year exciting on platforms last couple coming the When are the new lot improvements. some of for on great efficiencies, each. We've we've The in they areas that of bring gross development over certainly lot new profit lot really

So we're excited about that.

shaping we've on very OpEx to taken for business headed X that's the we're to On of the structure side, how a up the look the X and needs company, close years where the next over what be.

we'll actions look well, we've as at that. continue there and to taken so And

headed coming it's both on So we're from and excited really, fronts we're where there.

this questions have time. at further We no

for back Keirn I'll closing Cris? the Cris Now turn remarks. to call over

everyone, you, thank day. and and a your Have in interest Michelle, great Beach. for you, Thank Turtle participation

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

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