Turtle Beach (HEAR) 7 May 242024 Q1 Earnings call transcript

Welcome to the Turtle Beach First Quarter 2024 Conference Call. My name is Didi, and I will be your operator for today's call. [Operator Instructions]

Delivering today's prepared remarks are Cris Keirn, Chief Executive Officer; and John Hanson, Chief Financial Officer.

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

conference recorded. the reminder, a is being As

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

Thank you, operator.

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

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

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

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

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

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

the Beach. Cris? to I'll Keirn, now over CEO turn Cris And call of Turtle

all you earnings our Thank call. joining for today quarter first XXXX on us

I'm in for progress continued year with very a company. the pleased our transformative

made profitable sustainable strategic on As growth. multiple significant and progress to drive have initiatives we expected,

we early of acquisition of our product enhanced maximizing synergies. this We portfolio for in to of to XXXX While has our energized talent the integration our benefits are and of revenue beyond. the are achieve team, and and we in stages forward additional and recent further PDP, and scale infusion both expertise executing look increased cost

million, quarter our which half in of March revenue up back from included contribution acquisition incremental First $XX.X was of year-over-year, roughly PDP. the X% revenue

million million improved ago. We also quarter, adjusted year EBITDA EBITDA loss compared adjusted a delivering of an profitability to of in the $X.X realized $X.X

As year-over-year we've initiatives, see we year. are development through profitability product in platform SKU our coming improvements previously all continue full this which effect communicated, optimization, into throughout and portfolio to rationalization of

in Following revenue. gaming nearly climb of QX. double-digit year-over-year headset markets up U.S. XX% Per XX%, markets in were controller market that gaming XXXX, growth the gains combined continued controllers were to PC both and revenue gaming started by and with and console Circana, December up headset

holidays. before exceptional gaming controller accessory for continued growth an driven our optimistic Turtle in remain first-party then the and new compared PDP markets revenue by new sales in launching a lineup few have Ultra exceeded controllers weeks to again of Beach Third-party We products of controllers Stealth increased and models. growth just and the

We over lineup the contributor last QX at with with a the demonstrated market of the pandemic this in that features. era point accessories market upgrades year. in technology believe engaged accessory that offer sales result strong lift of remain cycle generation replacement are growth a console especially a cycle to growing in QX purchases, gamers from of and was to highly accessory new another as titles a

calls, market categories good growth QX pandemic growth replacement replacement key support and purchases that purchases market previous performance indicator for gaming in gaming Double-digit mentioned a we in era we future As anticipated that was are believe will continue replacement would accessory XXXX. to these market purchases in underway, contribute quarters. accessory to in

reduced load-in new headset occurring headset of now categories, and and our promotional and is in and PC headsets significant in of products projected new new products the inventory PC return levels once PC QX. activity Channel to in normalized and product load-in In new proactively to our for we our channel ahead QX, launches is channel is inventory QX. completed

are to deliver will customers gaming business. fantastic the they and are products new these strong confident bring eager We to for results our

Our new Turtle models, Ultra simulation including controller drove the controller for and Stealth simulation products gains QX VelocityOne and premium Beach. share

With grew flight in revenue XX% XX% reported Circana. growth market simulation Our the share of share categories. additional in continued anticipate development, in XXXX over as products from U.S. we by in QX XXXX, time simulation QX to

teams Additionally, pleased extraordinary PDP exceeded added deliveries with and launch of initial which controller with capability has guitar guitar The working to for game. expedite demand controller. Riffmaster to recent post-launch our was the Demand preorders additional update, goods. the we Riffmaster and are timed are greatly the supply, ongoing Fortnite diligently our Festival's

everywhere PDP maximizing on value products, and focused new growth. gaming and to driving benefits profit our enhancement extensive and shareholders for acquisition initiatives customers the launching our innovative from delivering highly through remain our We the

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

everyone. afternoon, good and Cris, Thanks,

of products acquisition. PDP As revenue period increased million. $XX.X X% incremental Cris and and the approximately noted, increase sales the an by simulation year-ago was revenue XXXX quarter to controller of from our That's our first driven compared

reduced was the levels headset launch and channel ahead inventory our wireless QX down PC of year-over-year headsets in we Console revenue as intentionally of accessories. new rebranded

support are QX. of launch the We reloading to products these currently channel the in

freight return profit is improvement resulted by we costs, the is improvement a and The past to lower executing product the from That over spend basis period. in have was various from XXX and quarter initiatives XX.X% margin Gross year-ago driven compared first XX.X%. been point the promotional the increase months. reserves

year million to in a and the year. of Operating were compared million first the March this PDP $XX.X related $X.X ago expenses million in of acquisition costs to include quarter in $XX.X

cash-based expenses operating recurring management. declined primarily expense by X% approximately proactive driven year-over-year, quarter ongoing First

improved reductions. million quarter primarily and increase, adjusted operating $X.X improvement The an year-ago compared is EBITDA revenue EBITDA in period. first to adjusted year-over-year the to $X.X $X.X improvement Our recurring margin of loss expense cash-based the million driven by million

Our was $X.X year a diluted first net or per $X.XX $X.XX a $X.X or compared income share million to a million positive of share net diluted loss per quarter ago.

and cash we net our on million The the million At outstanding of a sheet. credit borrowings end. debt to our $XX XXXX, term and Turning at $XX.X no million had the $XX.X PDP balance XX, revolving line. was for quarter secured March loan acquisition, company

addition XX, Inventories at inventory. in increase million the at XXXX, million March in partially resulting and $XX.X XX, inventory were March from XXXX, to PDP, $XX.X Turtle for Beach $XX.X a the million by $XX.X reduction million of compared offset

from compared cash flow million to operations million million. was March Free Cash $XX $XX.X at $XX.X flow XX, was XXXX.

and flow a Our the ability opportunities. from free of door variety operational revenue opens efficiency generate value-creating to for growth strong cash

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

Thanks, John.

about of From We've the our success first the outlook. we I've our initiatives. our full profitable product of for improvement As our quarter our are focus we demonstrated continued and are mentioned, progress upcoming XXXX. pleased are profit maintaining year multiple driving growth on with XXXX launches this, excited and

compelling accessory PDP, in Net by gaming accessory are new the million the revenues $XXX of to of XXXX. with primarily be growth driven $XXX in acquisition our of outperformance and to market expected range expected million markets launches with gaming growth

we of million, incorporates operations Including synergies the $XX from combined X months pro from to expect between adjusted PDP. PDP forma be and approximately million acquisition, $XX which EBITDA

very at quarter I which exciting delivered for team thank their and excellent want Turtle start efforts to our year. to strong entire have a Beach contributions, this

for the for and We have lot confident shareholders renewed our gaming this our and remain for of about drive year and to beyond in a value growth XXXX strategy and execution customers. remainder store

let's Q&A. that, with to And turn

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

or me. and the could just more That you terms would are products for in Cris, helpful. launching? terms be little in a of ones restocking refresh of quick you new kind kind the of of couple product guys the delve inventory a in the some of Just bit of

thanks wireless lineup Mark, our are so Yes, that question. at the for got Sure. we've $XX point. refreshing QX, we coming price in key up

of products weeks. the So headsets. still And those globally this in couple are is XXX actually be for XXX. and up announced are gaming May, going those We've distributed here a wireless within coming products widely most replaced that still to

last significant from So generation of that's transition that to a into we have channel the this new generation. amount

saw that coming. So we

a promotions, went we position. very replenishments midway driven had as a remember, on get you If then QX, QX. that off in good right, through of to in inventory And through we amount turned QX, those we healthy

that proactively. promotions lower We channel down. And that did team's able the than so with we come to expected year, that do And last we're running credit, to also actually. to see

reloading now inventory here now, and of So that levels. middle those We're the to as numbers in return seen channel the QX channel is we've complete. in expected those

we'll have as recover did QX in expected. we some impact QX So there in that transitional

product, We also PDP a flight for controller the demand but new a just was been we're product, been out launching side has in product. the a race guitar categories, other the it And that knew products surprise new pretty great Across with on in new QX us. a sim there has sim exceptional. fantastic

of that So feel we good in a about. QX load-ins coming lot good here

about up then, just including of flattish? kind the the that appreciate does forma should of maybe imply products? John, overall legacy the core little, that pro I be it imply backing obviously How little? Is growth business? color down core business? there. that what hero in the a for out a terms for PDP, does kind on of thinking we the Is guidance, What rate And the

Yes.

that for thanks So question, Mark.

core contribution, our guidance guidance, still calendar EBITDA the initiative going million drive core it's to that going realized which range, we've improvements to work that potential to expected to is business So higher and the the we you million year signaled with has the November, that how certainly laser past. mid-single-digit $XX their and the the cost in the for more be single-digit, deliver EBITDA in for we felt back sharp that's that's and $XX from much the then done, adjusted grow overlay for business XXXX. to growth. has focused cost to And the business, PDP you than within Obviously,

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

contributed just on Great maybe strong to quarter? and able in maybe much run PDP, I typically Can ask Revenue million just results, question revenue. seasonally of that. to first $XXX stronger PDP touch directionally? speaking. a think, the was about was business than you definitely I guys, It to see the How outlook. rate was, of just related Are that on PDP? terms to reiterated

Sure. about QX, Yes, was it million contribution. a $X.X

we benefit the get there some So of in half March. back

historic and the business size in year. PDP business, growth in our strong the correct see we in That's that You're guidance. coming included of this

to games repurchases you replacement ago. bought year. plenty as were see the and well when console typically that as performing able that were look year. of cycle we they so few ending a pandemic the about accessory great that a finally last of last We entering have And coming the really the we're see now with cycle we're And years to They where phase talked where the from before particularly markets now core console phase accessories. purchases get at have business, you'll of happy for folks

for that's strong a And the growth to lift we there So comps for headsets markets are what's that controllers. that high see and our and happy QX, we both pretty also double-digit in in sell-through. and believe driving

for business on core see benefit see the we timing with growth. flattish an So in That's We're the results value that load taking QX. of channel example, inventory that's core as double-digit kind why a QX. the in saw us of issue sell-through seasonally. down, here still to business, But going you the in

across kind a I'm And the console But at and and this of is the mean then core revenue the rationalization. just Turtle like PDP also product portfolio, ROCCAT, color. on that concentration in is cost terms involved headset been looking that? acquisition, guys obviously questions. as just rationalization, I Maybe It's strategy, entire relate just just but SKU helpful Guitar. portfolio? And then is to SKU specifically, maybe really of That's business, similar product another success. in the the well? there's Beach question Sorry kind core product the the of Great. the PDP it the massive for or but across your loaded brought how business PDP revenue much include in you does process Okay. of

into few We've what PDP done licensing well we're it's historically. last on benefit core development years using Yes. great agreements right our questions. of some business on of PDP strong complementary established. the historically the being integration business great over very the And headset great are great PDP's front to controller now. of working through very job No, with exactly has really that a and doing business. those that partnerships those leaning our that fits the got they've already business controller And got

X really And of getting the kind it's a equals so of situation we're two the plus where combined, benefits both. X X

there's the side with retailers, complementary of the We've realize it for discussions both this and of we really a the talk some for there SKU retailer. to right? And this lot with the gaming are not so the but on side optimization cost now opportunities because in had out also it that great between through and means what of with revenue channel are category, are a what as portfolio about only acquisition the we're excitement synergies working set on brands that our there and X does through products portfolios, the include us rationalization, there

in you as talking many category at when being forward. When consolidation to with gaming the and range kind of moving this also for we're they're look to so categories able now a happening offer their look the different what retailers, puts different space a really us scale doing retailers in at category,

excited really so obviously, in well. seen quite integration, it's We're we've been So far. gone what early about very we've but

repurchase I the touch the kind if just and more, wondering one appreciate program there. there. of a status Okay. update share just developments just recent on Maybe you can on the update

Yes. Jack, it's John.

here of share QX, So the an we as increased authorized with in program. the we said announcement repurchase size

increase the increase to balance value that path our going currently continue to here And authorized said shareholders, a with that opportunistic so with to we would it's that focus we for capital intention to And the is be on. this the share that we're buyback, on and opportunities, of pursue year, the allocation. forward in

next of question from comes ROTH. McGowan Our Sean

if look down in hey, headsets move in At numbers, going say, and it's talking I about guy, of know some that slowdown bigger would second flight probably Are percentages, and the quarter I'm half? it's better I for of that an for quarter, And if a guidance first of that being I your headsets. you massive not to have the shipments risk industry the quarter I would know in not know thought like even first the that like smallest the dollars the lot shipments category. but sim, the even we're How than out against a you being raising the decrease you your be year? expecting strip are in

seeing we expecting not, a anything, we're already the absolutely not on and question, see are of benefit, that load-in last the the massive to benefit going the channel. we're If Sean, to slowdown. actually,

included get these performance, going the draining QX, in to into So we month. and going massive are be we for this look we've coming that knew ready guidance, up our are that when at launches channel the you to that headsets

as that console in U.S. we QX, in for headsets headsets. our sell-through saw So in occurred still growth double-digit value business,

it that growth still realized we but see sell-through. in year-over-year, you So

getting that out sell-through right side, channel sell-in QX because didn't into because in. QX inventory On get we was took the that the you to sell sustained sell-in that transition. We're up through out, in

inventory. lot us. of us in that in So accomplished there because would reduce earnings that promotional of panned A lot to last was that the we really kind clear to have we about out we able dollars the already how of to QX we're Remember, actually spend that typically for excited were for talked a very call. about

strong to actually growth the feeling of prospects guidance And we're market not accessories this in about the assume no, be So increases. the kind had year. year, continues of market market this at that as the was for QX. single-digit bullish pegged the We very it does moderate as gaming

QX we a in what fact nice is surprise. that did the we So saw

think PDP are year Turtle they've are drive as I know continue that replacement also it. market from new about, the drive and tech. have you'll here the products new other the launches, got this to are innovations accessory going performance. thing everything piece to great in the see you going to presenting the done job The here we a new teams fantastic product And drive pandemic the our Beach really And and that we some of drives coming accessory talked from purchases upgrades. upgrades see, from

Okay.

have must Would end very second quarter. and some expect, you lean that caught the ended kind imply of sell the headsets right? you'd reloading quarter, quarter, strong say would second a of mean level, I the you're to inventories at at you into an So with the second unbelievably of be just quarter of that you up through?

there be normal back channel is launches with the inventory. of levels load-in those weeks. kind that We're the the few now of almost we're through to lot a will next because midway happening, up of coming quarter as up in We

actually quite the quarter and inventory, we head So on on the seeing yes, load-in we you it there. happen, hit did right are end low so the

bit unsustainably Okay. mix-wise higher there is too. or I because A for they than that it boosted be mean the of have kind but that's quarter high, unsustainably? gross maybe else would John. you, anything came margin But in a did, question I the in anything little sales would that's like good, that thought,

No.

the through coming The term, first clean we're regard. is that are a better starting want improvements. in the what quarter, P&L pretty see of cost for now to And

lower that for for quarters have talking the we've way their the mix As seeing into about been been several us. transitions costs, you're and which working new into our products, now P&L

So the did and you're quarter. higher guide to and in signal starting throughout see margins year, here we to the first that

improve in all of X We that will the margins brand we've expect the QX and, X we quickly course, on complete Beach. to would small do this planned last then QX the transition and that of products both of potentially transition diligently impact we're be percentage, that quarter second so higher slightly on now wireless X do in new some margin in selling Turtle working We then the but the to have been months. of as the as ROCCAT lower have a point promotions over back

you that expect in second quarter, But second Okay. cost quarter? volume-related you offset would issue that by the there that you mentioned shouldn't just in the it to saying Or we that not the that margin? upside are be get

In dollars, a terms talking but yes, percentage was of I of the it's about game. percentage. more more

would we certainly a slightly percentage, dollars. So expect but more lower

in Okay. commentary the for other preview what there's bit? that tender the Two is of me. Or the little making One got canceled? that to the of appendix questions of we kind a coming? that Dutch us still, tweak just that Is of is are a fact something presentation, about just

No.

repurchase been share Dutch with the tender's announced, program. replaced As the

Okay.

a that financial come. to so summary didn't a of Just if information following something know tender preview completion, I was

No.

to Okay. Last out question, going is be the XX-Q today?

is the works will, the how today. be probably Don't It's in Q far now. but be. should filed SEC It know fact, right the in backed up, behind

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

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

This concludes may you Thank call. now conference for you participating, disconnect. today's and