Turtle Beach (HEAR) 13 Mar 242023 Q4 Earnings call transcript

Hello, and thank you for standing by. Welcome to Turtle Beach Fourth Quarter 2023 Conference Call. [Operator Instructions]

I would now like to hand the conference over to Alex Thompson, Gateway Investor Relations.

You may begin.

remarks Keirn, Terry John Chief Financial prepared the Chairman Hanson, today's Officer. Chris Board; Executive and are Jimenez, from of Chief Towanda, Officer; and

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

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

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

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

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

information company United discussing accepted in that non-GAAP the prepared in generally a notes is accordance States to supplement we'll The or also company that the with principles information The coding as providing information. financial be GAAP.

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

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

Thanks, On announcements Board Alex, we will like Directors Beach I for these a you fundamentally exciting of interest actions your the Beach, at of would that for Turtle Turtle better. Beach. thank believe number of today, all to change and in the Turtle share behalf

First, or of strategic industry will after we that we larger, knows of announced acquisition provide grow the more it. business. Today, lengthy a acquisition resilient a to and PDP, much comprehensive as diversified more assessing process announced alternatives, and on our Design Products, an which the Performance foundation have

enterprise value We and have cash. roughly PDP acquired stock of combination a for in an X/X of million X/X $XXX consisting

the leader share With in categories. game that in being we in controllers PDP accessories believe and and other leader in Turtle is video PDP Beach being powerhouse headsets, controllers console product created we've among platform. a leader accessories a a market-leading gaming

attractive PDP post-synergy the basis. benefits cost our deal. PDP's pre- stand-alone will that allowed highly scale to same diversifying profile, base partners consumers, we attractive the to addition at synergies and tangential a realize In significant synergies, on These with Beach revenue categories believe significant Turtle a the multiple and in we have and both come acquire alongside with

flow $XXX This flow volatility cash to $XX million We acquisition million create of to $XX profitability expect free revenue free the cash and powerhouse XX the generation global company million cycle, throughout minimize the EBITDA. our our first of earnings increase the will combined gaming and a in between significantly months generate in $XXX and and million category. better to adjusted

which price by our of intend way launch auction. reverse range to per up of to share. at $XX to month all capital premium shareholders pleased that between some will set today company are tender announced share next at to will results of we a a launch $XX.XX stock back We chance earnings XX% to May, quarter to repurchase minimum today's to of is a Dutch to This shareholders their the our sell million following are have return closing Additionally, provide a or intention of first seeking to $XX and in our end significant common auction, liquidity, a from tender stock price.

single value each PDP as stock, the this the to that that and highlighting provides. have former to the of Versus, tender Directors, share tender range top Board Beach To than the the of owners all management shareholders confidence not of we end member significantly of well have deal more team create as a committed Turtle of will

We liquidity this have important Board. an was for listened to providing option shareholders, consideration our and

have As the less we forma will PDP, entered transaction have of at pro a that facility close. for with than the into Xx debt company leverage part

transaction, fully the Assuming the EBITDA just half forma at And currently multiple as our over detailed have Beach million peers. sit XX XX of will X.Xx value EBITDA. Turtle slide tender leverage of level less months our the importantly, pro $XX is enterprise utilized, next we is trading deck, than at net closest in months the for next its

we today's narrow this the to as be company on announcements, for shareholders allowing recognize to our expect the at over focus massive the execution. year, over has happened now shareholders past time culminating created significant We transformation as gap that with value

members a member. and have Board, great to and products join such well are we comes our Dave market experience Board. as deep to set new welcome of We transaction team our with someone complementary thrilled a assets, as Muscatell gaming the Board With

a to of Chief external demand near significant, and Chris' as Beach to announce and its And sweeping ability to finally, Keirn are term. execute search the our his company's consultant, search, was and engaged review. that number The of the understanding with that of Board a comprehensive it believed broad for this guided deeply succeed the the understanding after we gave The PDP exhaustive and remarkable best both on candidates. business, the ran the long of quite existing became chance At by role and strategy search, end next the Board a Board, deep clear Turtle his us Executive Officer. pleased Chris

We are Turtle has for shareholders. past are Board transformed enthusiastic future shareholders, we about hard and future The over for Beach this year, employees new, and prospects the at its company the its excited refreshed been and work and customers. and the about

that, over With Keirn. to Chris it turn Chief will I Executive Officer, our

and fourth Thanks, earnings on joining Terry, year and XXXX quarter today for thank us you all our call. full

to role team, the recognize also like look for advancing have Turtle last thank Board I their team we efforts. position the and Beach interim Turtle CEO to great the Together at success. want we that strategy our here ultimately thank their future the placing to CEO summer, me to assuming shareholders. to best increased to entire trust as for Beach Board tremendous First, the drive I'd forward. together return worked Since our forward business I in lead the moving and for closely with

Next, I want announced earnings news today. to we from earlier discuss exciting that separately release the our

significant the noted, headsets, of game and gaming Terry proven and combination momentum agreement controllers, The a we expertise, transaction powerhouse creates teams with execution is video delivering announced leader a including acquire growth. accessories, leading As definitive the of power product of industry-leading track to cases and a in other PDP categories. accessories records PDP, provider. a profitable

$XX of future to to profile PDP transforms scale Beach synergies. fundamentally and benefits million financial in to estimated and Beach the of synergies development opportunities meaningful revenue to acquisition additional controller will the gaming category Bringing Turtle The significant that addition financial in an PDP's create $XX million cost leading adds Turtle company. provide

XXXX. Considering this our development, recapping full state before transformational me XXXX let outlook now year

expects QX full XXXX, in including of the adjusted and million. the $XX operation, to expect in to range for months, through XXXX as QX revenue to X success the million million and sales $XXX to first synergies the welcome business of is range to be $XX of million million. EBITDA generate of the to quarters XXXX, Further, forward in PDP in the We year For X we net contributions the the Beach. generate in million $XXX $XXX $XXX in forma great together. outcome, to range fantastic adjusted the to $XX to million tremendous and $XX achieving team range and to I a want of look be PDP EBITDA million This Turtle pro

move year in Turtle elevated commentary. XXXX resilience has and fourth and Beach's gaming the into XXXX adaptability full accessories. now across quarter and our I'll leadership position

gaming revenue by year-over-year growth. geographies, markets to including post-pandemic effects net business increased With result products are share as gains of X.X% of transitional new exciting forward year headsets. full significant a categories to XXXX looking multiple our now us, we and a console business gaming and of our era strong Our and across behind core

ago. an to million We adjusted loss to of $XX.X in generating compared also a returned $X.X million year of profitability adjusted EBITDA XXXX, EBITDA

continued share the and promotional of new in projected groundbreaking grew Higher levels higher preparing wireless temporary basis new has was models. inventory successful headset XXXX spend in the the points XXX including grew and XXX through U.S. year-over-year The basis for inventory categories. was -- for up from January points launches the levels across XXXX. XXXX, significant are as product benefited channel share lower in quarter fourth console promotional Our throughout fourth our upcoming year spend promotional and not quarter our full spend spend value our the

differentiate our gaming reduced we're upcoming share including well product growth us in spend set seeing headsets, landscape to key XXXX, continued XXXX. the gaming year-over-year in accessories console promotional in January for areas, launches, new Despite positioning

Turtle example, As we year is be for beginning launch an of Xbox controller the a of and for PC just believe Stealth will highly the acclaimed Ultra what transformative Beach. our

more John will in detail. through the now financials John? take us

afternoon, and good Thanks, Chris, everyone.

to console quarter headset slightly ago the console for XXXX ago share products. by promotional increase higher-than-expected compared Chris softer-than-expected simulation a that's $XXX.X to compared market. of year $XX.X period down As million and our million headset gains year spend to were Fourth million, noted, and X.X% both the $XXX.X revenue driven due full year driven revenues our was by an revenue at the gaming

a lower gross XXXX, in was In our the freight of to result spending The during was year. XX.X% XXXX. promotional and increase XX.X% margin compared

you'll the and charge the gaming pandemic-driven supply a excess market. chain As relating we $X.X in potential components a goods recorded recall weak to finished impacts million year-ago period, and for

nonrecurring items, point these Excluding basis improvement a XX.X% which was adjusted in year-over-year. margin XXX reflects XXXX, gross

reflection initiatives XXXX declined for marketing year compared as product well full a $XX.X of alignment year-ago mid-XXXX operating as were the Recurring in the period. expense in demand expenses support the XX.X%, we proactive $XXX.X to expenses our management and million undertook million the launches. Operating of to

EBITDA covered year-ago to The EBITDA in adjusted million primarily by million period. year full the Our $XX.X the significantly items I've compared year-over-year loss to above. driven of improved $X.X an is variance adjusted

in growth in EBITDA enhancements adjusted deliver our advance and to continue profitability, XXXX. strong expect to We we

$XX.X of million loss full $X.XX share Our per diluted or net year per improved $XX.X diluted compared or million ago. loss $X.XX a to year to share a net

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

Additionally, York on not acquisition we at unless and without separate at share will expire of not of common is as have hand. XX, Dutch share in the today, closing Beach The XX, XXXX, taxes and interest, PDP, per Turtle stock offer press stock using day commenced per April the withholding commence tender or the applicable our On in at per our on was with share. million cash than $XX.XX communicated March purchase City common price the greater of $XX XX price than and per anticipated up XX, available to offer auction tender we a along and terminated. with release cash to $XX.XX $XX any the time a that XXXX, to New less modified XXXX, of end value share, midnight extended less announced May

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

John. Thanks,

product significantly portfolio portfolio business poised team. acquisition and we benefits for profile, stronger of growth. an are financial gaming a industry-leading industry-leading with PDP Together, As mentioned, our the

performing we're on such, gamers, I partners our and our to dynamic like remain would highly shareholders. thank a and should enhanced level by As entire at environment. trends this business, Beach team, PDP efforts the high our value focused energized such and for new colleagues, driving We for Turtle their the in including throughout tremendous

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

ROTH. with [Operator Instructions] line the comes McGowan first question Our Sean from of

else? you, lot how on for A so Can multiple for anything some to digest congratulations controllers in versus sense Chris. you much especially PDP's today, give or business us of is headsets of us,

talking you When mid-XXs, When categories to of huge nearly striving controllers, trying about stand-alone at we've change PDP of one XX% this the Sean, which appreciate the it and get is diversify. is look other we've outside And that even really business diversification always console in change XX%. talked about looking about headset in our That's console step so gaming growing XX% about thanks this add XX%. being I our core been of us. you of That's to be that Sure. We're we're historically headsets, question. the much, a helps business, and really XX%-plus, a a for, us for things about combined pushing business, basis, that been on us, and outside for category. to

business. gives the us which up As ones much may down, year-to-year we be balance this really better and you know, vary across believe a the or categories on can

sense figure the how look you margins much on basis? rest revenue give did on some the annual calculated ballpark how a the does relative they there same of Can Turtle basis? Beach an us And Okay. to or

our rough as a we're they're look a adjusted million margin see you at XX%. Yes, of tough revenue. the When percentage from said guiding we've can guidance, profile, more targets looking And Sure. to percent thereabouts. at our now last are around and EBITDA you year XX% historically, about net $XXX

talked can call. you programs about that the we derive the earnings what last So is from in

in SKU So seeing optimization product of full some the platform going we've and XXXX. through, we're now portfolio the come that into been the effect those development, rationalization

about changed business, a realize So we running about that that business associated yield on business the generating and also and fundamentally with really stand-alone rate. also bring PDP, has their EBITDA. XX% it's you once in our synergies same at XX% it's

volume last if in, can more a Are quarter you below guess, I suggesting it's than thought? a Or below I one spend. certainly consensus, comment in year estimate, came just in in have business would that promotional my but also helpful. below fourth in then decrease existing squeeze you revenue? your you on that was the little cited price just reduction drove That's the lower

Yes. That's we last the markets, you of significant did bit see a a look dip. great question. a holiday, When pretty both. at It's

was QX. about X% double-digit remember, of headset at you the took up gaming October, If drop then market year-over-year. percentage a year-to-date And the November end

from that market did that seen lead standpoint growth. and to the December we've to Fortunately, some recover pressure on was back revenue. But the

really up we great coming this that, year. have of part As a ton of launches

the those And we own to were to action good so did take ahead go that bit in and promote are, inventory and a channels which we more expected than make our is that they sure shape. clean,

again, which of very ahead here coming wireless we that we mentioned launch new models. XXXX, the the new in have are of And exciting, Sean, launches our

you now, not then. Okay. that which right gross margins that forward, if low It gross to kind I Are the quite quarter. without tack a not mid-XXs than and mid Well, have said we've margin fourth of to like just commentary expecting sounds before? what kind targeted back on to to could promotional margins that get could that in spending, is of level reported at bit higher you been seen least required was going

XXs we're this Yes. to right. point, and Yes, looking even for of looking We've creeping back Actually, the that. that exactly of high end up to goal mid-XXs of for the higher we're to always getting had year, at mid-XX on mid- kind margin, the for more XXXX.

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

annual Question on the cost rate anticipated run synergies.

over that? And is the to do then in of to can I quantified expect that expect What time? incremental is have you revenue 'XX? follow-up. that those the all $XX recognize Or the is quantify a source And to What million you you synergies at as it savings? $XX you timing get of think Would I million. of well? then

Sure. Great question, Drew.

line OpEx $XX a So our processes when sort business that There's of anticipate PDP items of common million you to that's variety business. the of and at be rate. we what's run between $XX is there. to a the million, going it's And look lot driving

contributor there are many ours, can so being are headsets being processes because that their we consolidate. the complementary there's from controllers main of and So opportunities lot common a there businesses

do So we'll sort those $XX that time that say, realize the to next, We million of within let's expect over optimizing million to be XX $XX months. frame.

San estate, offices example, like as in And things real now an Diego. got we've

look obviously, So at of to we'll down the consolidate road that things the some Those are type really point. there. contributors

achieving think for after that. calendar roughly those half, half the of So year, I here looking coming synergies at XXXX, for for those we're balance and year then the months this of the in roughly

it. Got

Just revenue any comment the on synergies.

And partners, know synergy to we have any degree estimate opportunities the built customers. We The pretty really because our there's well. today. into are our same discussions that one, revenue great of with obviously, great haven't each there. take that we going significant. on lot to business point. fronts that's Yes, even Number a two lot customers think of opportunities we And other's a

we to do on going that opportunities be front. there's so believe And

some with manufacturing We partners from same the also of standpoint. work a

there's we take those. will to cost do many there. see Again, think realize we So go pursue. some these and synergy time opportunities there But opportunities to

some our do On that, we of with top partners. see benefits

company we we to for we're partners license much across with X, what So and got a we all now to And first-party license relationship combined more talking strong a as all can looking it as we're terrific have and have the it with manufacturers. a we've the -- us portfolio powerful offer that just as partners about combined makes company. retailers

business. expectations assuming are legacy as PDP, then, addressed in as you aside kind what setting Sean's but for the you as your XXXX, you're core of question, business to far response the in discuss legacy your and follow-up, And Perfect. a just this preamble in Okay. can what Chris,

call, rate sooner we we $XX to $XX able run absolutely. our realize -- those than talked run 'XX, you we for been benefits to look we rate, the EBITDA believe And that about rate EBITDA last Yes, that run when million, we weren't in $XX margin about at -- million talked or being we've million In guiding well, our anticipated. range.

when running an we come XX% from a really the in earlier. even bit as EBITDA So at at standpoint, and of we're have you look those profile, expected and revenue

a how high revenue the feeling the seeing number. XX% seeing We're we're mid- good in And side that from core about is to profitability we're of coming perspective. that So hitting business growth digit significant sort on out. growth

question Our Jack next line comes Maxim. from Instructions] of [Operator with the Aarde

about This is Jack acquisition. new the It I ask, pet should Vander on the know some Jack simulation we of sets in wanted to how for that you really kind Congrats console be of kind flight versus thinking was between anchors of exciting. Aarde. PC seems like non-console about of these given now? the as exciting. as should segmentation well have like it segments? we controllers, console two other segments I thinking quarter, prior were in accessory be kind How really the

across and Great console be entered right? last to the as clearly be, were the will of several about in into to PC, over categories with Certainly. going our we've all the range -- here. between business, our other we'll XX%-ish well hit categories SIM, business. headsets. be other as Flight much used be the to XX% you probably do of controllers running nearly years that When the continue continue They'll the we existing business the our question, controllers to Controllers majority quite segments, there. they look Jack. not But We're

a we're more as us much forward, different balanced see those across so categories. you're a more portfolio contribution from much balanced and And to going going

balance probably and And of in of in PC rest will total top the categories. off in my be our here. the XX% somewhere range maybe of controllers XX%, then SIM would head the So be the the

general then of Okay. That's one And helpful. very, I more industry very question. have just kind

headwinds levels retail more And year? retail some I mentioned can the today, and progressing but think from Dale these do retail are other part store factor historical you a any expect closures? inventories in how closures, you of seasonality, you've you the bit, channel news if color of give the given early in you on the normal and

results channel and now. it lean really retail characterize I a and would was it in even seeing We're lean is in Sure. good right coming partners QX good with as into our The inventory QX. very place.

would good seeing replenishments back from partners So good normal more sort to we're cadence. say, of I'd there. It's our out a in of be

with have really over inventory They're done we lumpy we're kind don't last a as that pandemic, those years. issues that channel very few anymore Now trying of were place. in good we unwind in the the to the

for retail categories. with amount we're excited means what as transaction As because products are well about the go offer retailers able really of far forward that across as we're retail, to this

platform. think have we trends really everyone on When retailers We address now portfolio there gamers a gaming platforms. can And folks. across consolidating. just seen is have you all Nearly of multiple don't that of about out gaming, one those game

And from us and partners, good at really the a from our a market so helped seeing response retail we're it's momentum retail. standpoint, out with there

Opco. Our comes of Yang with from question line next Mark the

deal. the related maybe talk overall view aside is down market? on deal being console any Is you controller Congrats the rationale from future an about exciting. there on of rationale asset? attractive Can PDP your the to on console Doubling

deal, always diversification. towards not for single-threaded and two worked you're our have look towards, is the behind the and Toll for question. we've key at scale so headsets. one the that you the rationale and for that console that that are on diversification same, thanks has us items thing to worked Those Martin, so When PDP investors

It them, this. is same for So change gives on combining we've very and a the portfolios really been to on mention why these competitive complementary space. that in advantage great for both This X that's expertise the sides. us taking PDP, us, not developing teams step a

very comp out console in And we continuing the little during console. could bit way demand all out part we massive is of the perspective. demand year last And that and hardware. the the we're last And finally think cycle year, know pandemic. about the We're consoles, first of And it we with frankly, even a this recovered, this in that, we've is middle we And a year-over-year there. saw the had were early seen console years. the that that see of part January was strong strong replacement And first-party that and many so from to really that all a demand very there the happened cycle. think, year I X year about go games cycle this and great that's in softness, now market you buy console in

So great that a these seeing lot products we're is by on all And coming of and the those demand the controllers us out accessories. new market And innovative headsets and level and are really that products, in gamer dollars just And and and were headed as those all a towards great their products seeing great console hardware. great gamers the from these too driven PC from board. across from now out launch new we right, is They we're others. simulation of really part were headed their games. towards there engagement they're refreshing what

So really with good these console in we're accessory for from feeling an year next and all dynamics about the how standpoint looks play. that market optimistic

Got it.

as to Another releases? mid your calix about looking how the for hardware you Do a such to new past Pro? sales? console you for feel leverage console product PSX upgrade new you as your generations, mid console a back driver as those try that games How compare usually do question related to is exciting upgrades do at

out looking play all you've you've It upgrading some their games. got hardware Yes. new When at Great there, play gets what got some what really to they're going a lift thinking they're question. it systems, people going those people to about use boats. are to helps next and excitement,

-- with from and and carry this cycle. release console still really So that out. it sustain at the because least major helps sustain few each seen -- Sony and is Microsoft years demand to next that really a to It probably help the does we've through next

really And the so momentum midterm keep having moving. those releases helps

of on Last model. interline basis new a the the you would sense incur rough on question debt give from the you Can facility? expense from us interest me

from interest interest So an cash expense? perspective,

Yes. That's right.

for be ABL term million $X.X loan. the about it's would Yes, That XXXX. and

question with [Operator Instructions] Sean follow-up of the line a We McGowan have from ROTH.

A of here. couple kind follow-up model of housekeeping

that quarter expect And do contributing deal close? pegging second you're you PDP guidance do to So expect start when you 'XX. to revenue? to of the When

That's today actually.

Yes. Today, it's signed Yes. and closed.

fun been a day, Sean. It's

on too. that, Congratulations

And a points. seasonality Turtle Beach. you it's Can of so you sense of similar the vis-a-vis fourth seasonality of can there? very some the I I Is sense category, price concentrated us little less but know a quarter? some PDP this in give mean different us give the bit

Sure. you the cycles in for with people of perspective, seasonality historically look our new comes safe from the from demand modeling the to kind that When that It's accessories, very console are similar. at looking and you're use the out games a are and when a phasing standpoint.

forma John, And free helpful. That's sense, of Yes. a CapEx flow? then and finally, can us cash give you pro

Yes.

months the months, we're the guidance, XX each, XX look combined if CapEx, you -- at full in if less on next a million for $X based on business. about CapEx you in EBITDA is our So take

$XX to So million you're in the $XX million range.

over I'm in I back to the remarks. queue. closing like the showing turn Chris call now would to no for questions further

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

participation. concludes today's this gentlemen, and for conference Thank call. Ladies you your

You disconnect. may now