Strong Product Demand Increases Net Revenue
8.6% Year-over-Year
Diligent Cost Management Initiatives
Significantly Improve Adjusted EBITDA Profitability
Favorable Gaming Trends and Upcoming New
Product Launches Position Turtle Beach for Continued Success
Turtle Beach Corporation (Nasdaq: HEAR) (“Turtle Beach” or the
“Company”), a leading gaming accessories brand, today reported
financial results for the first quarter ended March 31, 2024.
First Quarter Summary vs. Year-Ago
Quarter:
- Net revenue was $55.8 million, an increase of 8.6% compared to
$51.4 million a year ago;
- Net income was $0.2 million, or $0.01 per diluted share,
compared to net loss of $6.7 million, or $0.40 per diluted share, a
year ago;
- Adjusted EBITDA improved to $1.4 million compared to an
Adjusted EBITDA loss of $2.8 million a year ago.
Management Commentary
“Our first quarter results were in-line with our expectations
and track well to our full year 2024 plan,” said Cris Keirn, Chief
Executive Officer, Turtle Beach Corporation. “I’m pleased with our
start to the year and the work underway to rapidly integrate our
PDP team. We are seeing solid demand for products that are in
pre-launch or in the launch phase, and we have an exciting number
of other new product launches planned throughout the year across
headsets and controllers. We also continue to benefit from our
diligent cost management initiatives consisting of portfolio
optimization, SKU rationalization and product platforming, all of
which are coming into full effect in 2024.
“We continued to showcase our disciplined approach to the
business, which drove profitable growth in the quarter. First
quarter 2024 net revenue was up 8.6% compared to the year-ago
period, and Adjusted EBITDA improved to $1.4 million compared to a
$2.8 million loss a year ago. We are encouraged by our positive
momentum and remain focused on capitalizing on the favorable gaming
trends as we move through the year.
“I’m proud of our team’s hard work and commitment to execution,
and we remain optimistic about our 2024 prospects given our
progress against optimizing the business for the future, our growth
prospects in all our gaming categories driven by fantastic new
product launches, and our focus on significantly increasing
profitability.”
First Quarter 2024 Financial
Results
Net revenue in the first quarter of 2024 was $55.8 million, an
increase of 8.6% compared to $51.4 million a year ago, driven
primarily by contributions from the acquisition of PDP and
increased demand for controller and simulation products.
Gross margin expanded by 430 basis points primarily driven by
lower freight, promotional spend and returns along with direct
focus on reducing product costs to enable margin expansion.
Operating expenses in the first quarter of 2024 were $23.5
million compared to $20.6 million a year ago, including $5.0
million in acquisition-related costs. First quarter cash based
recurring operating expenses declined approximately 6% year over
year, primarily driven by continued proactive expense
management.
Net income in the first quarter of 2024 was $0.2 million, or
$0.01 per diluted share, compared to net loss of $6.7 million, or
$0.40 per diluted share, in the year-ago quarter. The weighted
average diluted share count for the first quarter of 2024 was 19.4
million compared to 16.6 million in the year-ago quarter.
Adjusted EBITDA (as defined below in “Non-GAAP Financial
Measures”) in the first quarter of 2024 improved to $1.4 million,
compared to an Adjusted EBITDA loss of $2.8 million in the year-ago
period. The adjusted EBITDA improvement of $4.3 million for the
quarter was due to gross margin expansion and operating expense
reductions.
Balance Sheet and Cash Flow
Summary
At March 31, 2024, the Company had $17.8 million of cash and no
outstanding borrowings on its revolver. This compares to $20.6
million of cash and no outstanding borrowings on its revolver at
March 31, 2023. The company secured a $50 million term loan for the
PDP acquisition and net debt was $32.1 million at March 31, 2024.
Inventories at March 31, 2024 were $69.5 million compared to $65.2
million at March 31, 2023. Cash flow from operations for the three
months ended March 31, 2024 was $27.3 million compared to $29.0
million at March 31, 2023.
Outlook
The Company is maintaining its 2024 outlook, with net revenues
expected to be in the range of $370 million to $380 million, with
the growth driven primarily by the acquisition of PDP and the
expected out-performance of the gaming markets in specific
categories based on the Company’s product plans for 2024. The
Company expects pro forma combined Adjusted EBITDA to be between
$51 million and $54 million, which incorporates approximately nine
months of operations from PDP.
The Company further reiterates its long-term goals of a 10%+
revenue CAGR, a mid-30’s gross margin percentage, and is focused on
driving a mid-teens percentage for Adjusted EBITDA margins.
With respect to the Company's adjusted EBITDA outlook, a
reconciliation to its net income (loss) outlook for the same
periods has not been provided because of the variability,
complexity, and lack of visibility with respect to certain
reconciling items between adjusted EBITDA and net income (loss),
including other income (expense), provision for income taxes and
stock-based compensation. These items cannot be reasonably and
accurately predicted without the investment of undue time, cost and
other resources and, accordingly, a reconciliation of the Company’s
adjusted EBITDA outlook to its net income (loss) outlook for such
periods is not provided. These reconciling items could be material
to the Company’s actual results for such periods.
Conference Call Details
In conjunction with this announcement, Turtle Beach will host a
conference call at 5:00 p.m. ET / 2:00 p.m. PT with the Company’s
Chief Executive Officer, Cris Keirn, and CFO, John Hanson. A live
webcast of the call will be available on the “Events &
Presentations” page of the Company’s website at
www.corp.turtlebeach.com. To access the call by phone, please go to
this link (registration link) and you will be provided with dial in
details. To avoid delays, we encourage participants to dial into
the conference call 15-minutes ahead of the scheduled start time. A
replay of the webcast will also be available for a limited time at
www.corp.turtlebeach.com.
Non-GAAP Financial
Measures
In addition to its reported results, the Company has included in
this earnings release certain financial metrics, including adjusted
EBITDA, that the Securities and Exchange Commission define as
“non-GAAP financial measures.” Management believes that such
non-GAAP financial measures, when read in conjunction with the
Company's reported results, can provide useful supplemental
information for investors analyzing period-to-period comparisons of
the Company's results. Non-GAAP financial measures are not an
alternative to the Company’s GAAP financial results and may not be
calculated in the same manner as similar measures presented by
other companies. “Adjusted EBITDA” is defined by the Company as net
income (loss) before interest, taxes, depreciation and
amortization, stock-based compensation (non-cash), and certain
non-recurring special items that we believe are not representative
of core operations, as further described in Table 4. These non-GAAP
financial measures are presented because management uses non-GAAP
financial measures to evaluate the Company’s operating performance,
to perform financial planning, and to determine incentive
compensation. Therefore, the Company believes that the presentation
of non-GAAP financial measures provides useful supplementary
information to, and facilitates additional analysis by, investors.
The non-GAAP financial measures included herein exclude items that
management does not believe reflect the Company’s core operating
performance because such items are inherently unusual,
non-operating, unpredictable, non-recurring, or non-cash. See a
reconciliation of GAAP results to Adjusted EBITDA included as Table
4 below for each of the three months ended March 31, 2023 and March
31, 2024.
About Turtle Beach
Corporation
Turtle Beach Corporation (the “Company”)
(www.turtlebeachcorp.com) is one of the world’s leading gaming
accessory providers. The Company’s namesake Turtle Beach brand
(www.turtlebeach.com) is known for designing best-selling gaming
headsets, top-rated game controllers, award-winning PC gaming
peripherals, and groundbreaking gaming simulation accessories.
Innovation, first-to-market features, a broad range of products for
all types of gamers, and top-rated customer support have made
Turtle Beach a fan-favorite brand and the market leader in console
gaming audio for over a decade. Turtle Beach Corporation acquired
Performance Designed Products (www.pdp.com) in 2024. Turtle Beach’s
shares are traded on the Nasdaq Exchange under the symbol:
HEAR.
Cautionary Note on Forward-Looking
Statements
This press release includes forward-looking information and
statements within the meaning of the federal securities laws.
Except for historical information contained in this release,
statements in this release may constitute forward-looking
statements regarding assumptions, projections, expectations,
targets, intentions or beliefs about future events. Statements
containing the words “may,” “could,” “would,” “should,” “believe,”
“expect,” “anticipate,” “plan,” “estimate,” “target,” “goal,”
“project,” “intend” and similar expressions, or the negatives
thereof, constitute forward-looking statements. Forward-looking
statements are only predictions and are not guarantees of
performance. Forward-looking statements involve known and unknown
risks and uncertainties, which could cause actual results to differ
materially from those contained in any forward-looking statement.
The inclusion of such information should not be regarded as a
representation by the Company, or any person, that the objectives
of the Company will be achieved. Forward-looking statements are
based on management’s current beliefs and expectations, as well as
assumptions made by, and information currently available to,
management.
While the Company believes that its expectations are based upon
reasonable assumptions, there can be no assurances that its goals
and strategy will be realized. Numerous factors, including risks
and uncertainties, may affect actual results and may cause results
to differ materially from those expressed in forward-looking
statements made by the Company or on its behalf. Some of these
factors include, but are not limited to, risks related to general
business and economic conditions, inflationary pressures, the
impact of competitive products and pricing, including promotional
credits and discounts, optimizing our product portfolio, the
substantial uncertainties inherent in the acceptance of existing
and future products, our dependence on third parties to manufacture
and transport our products, reductions in logistic and supply chain
challenges and costs, reducing our cost of goods and operating
expenses, the difficulty of commercializing and protecting new
technology, risks associated with the future direction or
governance of the Company, risks associated with the expansion of
our business, including the integration of PDP and any other
businesses we acquire and the integration of such businesses within
our internal control over financial reporting and operations, our
indebtedness, liquidity, and other factors discussed in our public
filings, including the risk factors included in the Company’s most
recent Annual Report on Form 10-K, Quarterly Report on Form 10-Q,
and the Company’s other periodic reports filed with the Securities
and Exchange Commission. Except as required by applicable law,
including the securities laws of the United States and the rules
and regulations of the Securities and Exchange Commission, the
Company is under no obligation to publicly update or revise any
forward-looking statement after the date of this release whether as
a result of new information, future developments or otherwise.
All trademarks are the property of their respective owners.
Turtle Beach
Corporation
Condensed Consolidated
Statements of Operations
(in thousands, except per-share
data)
(unaudited)
Table 1.
Three Months Ended
March 31,
March 31,
2024
2023
Net revenue
$
55,848
$
51,444
Cost of revenue
38,062
37,305
Gross profit
17,786
14,139
Operating expenses:
Selling and marketing
9,013
9,523
Research and development
3,902
4,101
General and administrative
5,674
7,007
Acquisition-related cost
4,910
—
Total operating expenses
23,499
20,631
Operating loss
(5,713
)
(6,492
)
Interest expense
150
163
Other non-operating expense, net
370
120
Loss before income tax
(6,233
)
(6,775
)
Income tax benefit
(6,388
)
(70
)
Net income (loss)
$
155
$
(6,705
)
Net income (loss) per share
Basic
$
0.01
$
(0.40
)
Diluted
$
0.01
$
(0.40
)
Weighted average number of shares:
Basic
18,321
16,578
Diluted
19,389
16,578
Turtle Beach
Corporation
Condensed Consolidated Balance
Sheets
(in thousands, except par value
and share amounts)
Table 2.
March 31,
December 31,
2024
2023
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents
$
17,816
$
18,726
Accounts receivable, net
42,908
54,390
Inventories
69,531
44,019
Prepaid expenses and other current
assets
10,322
7,720
Total Current Assets
140,577
124,855
Property and equipment, net
5,533
4,824
Goodwill
52,907
10,686
Intangible assets, net
48,704
1,734
Other assets
10,668
7,868
Total Assets
$
258,389
$
149,967
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current Liabilities:
Revolving credit facility
$
—
$
—
Accounts payable
44,842
26,908
Other current liabilities
31,947
29,424
Total Current Liabilities
76,789
56,332
Debt, non-current
45,954
—
Income tax payable
1,527
1,546
Other liabilities
8,893
7,012
Total Liabilities
133,163
64,890
Commitments and Contingencies
Stockholders’ Equity
Common stock
21
18
Additional paid-in capital
260,594
220,185
Accumulated deficit
(134,122
)
(134,277
)
Accumulated other comprehensive loss
(1,267
)
(849
)
Total Stockholders’ Equity
125,226
85,077
Total Liabilities and Stockholders’
Equity
$
258,389
$
149,967
Turtle Beach
Corporation
Condensed Consolidated
Statements of Cash Flows
(in thousands)
(unaudited)
Table 3.
Three Months Ended
March 31, 2024
March 31, 2023
CASH FLOWS FROM OPERATING ACTIVITIES
$
27,257
$
28,989
CASH FLOWS FROM INVESTING ACTIVITIES
(76,225
)
(887
)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on revolving credit
facilities
80,288
53,892
Repayment of revolving credit
facilities
(80,288
)
(72,945
)
Proceeds of term loan
50,000
—
Repayment of term loan
(104
)
—
Proceeds from exercise of stock options
and warrants
1,257
125
Debt Issuance Costs
(3,170
)
(80
)
Net cash provided by (used for) financing
activities
47,983
(19,008
)
Effect of exchange rate changes on
cash
75
83
Net increase (decrease) in cash
(910
)
9,177
Cash - beginning of period
18,726
11,396
Cash - end of period
$
17,816
$
20,573
Turtle Beach
Corporation
GAAP to Adjusted EBITDA
Reconciliation
(in thousands)
Table 4.
Three Months Ended
March 31,
2024
2023
(in thousands)
Net loss
$
155
$
(6,705
)
Interest expense
150
163
Depreciation and amortization
1,476
1,242
Stock-based compensation
1,105
1,959
Income tax benefit (1)
(6,388
)
(70
)
Restructuring expense (2)
41
—
Business transaction expense (3)
4,910
—
Proxy contest and other (4)
—
569
Adjusted EBITDA
$
1,449
$
(2,842
)
(1)
An income tax benefit of $7.0 million was
recorded in the three months ended March 31, 2024 as a result of
the reversal of a portion of the Company’s deferred tax asset
valuation allowance.
(2)
Restructuring charges are expenses that
are paid in connection with reorganization of our operations. These
costs primarily include severance and related benefits.
(3)
Business transaction expense includes
one-time costs we incurred in connection with acquisitions
including professional fees such as legal and accounting along with
other certain integration related costs of the acquisition.
(4)
Proxy contest and other primarily includes
one-time legal and other professional fees associated with proxy
challenges presented by certain shareholder activists.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240507322859/en/
MacLean Marshall Sr. Director, Public Relations & Brand
Communications Turtle Beach Corporation 858.914.5093
maclean.marshall@turtlebeach.com
Investor Information:
Alex Thompson Gateway Group 949.574.3860
hear@gateway-grp.com
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