Revenue and Adjusted EBITDA Increased 16% and
54% Year-over-Year, Respectively
Maintains Full Year 2023 Revenue and Adjusted
EBITDA Guidance
Provides Line-of-Sight to Exit 2023 with $25 -
$30 million Adjusted EBITDA Run-Rate, In-Line with Long-Term
Adjusted EBITDA Margin Target of 10+%
Previously Announced Value Enhancement
Committee Continues to Review Broad Range of Opportunities to
Maximize Value
Leading gaming accessory maker Turtle Beach Corporation (Nasdaq:
HEAR) (“Turtle Beach” or the “Company”) reported financial results
for the second quarter ended June 30, 2023.
Second Quarter Summary vs. Year-Ago
Quarter:
- Net revenue was $48.0 million, an increase of 16% compared to
$41.3 million a year ago;
- Net loss was $15.9 million, or $0.93 per diluted share,
compared to net loss of $17.8 million, or $1.08 per diluted share,
a year ago;
- Adjusted net loss was $7.0 million, or $0.41 per diluted share,
compared to adjusted net loss of $12.7 million or $0.77 per diluted
share, a year ago;
- Adjusted EBITDA loss improved to $5.6 million compared to
adjusted EBITDA loss of $12.1 million a year ago.
Management Commentary
“In the second quarter, we delivered sales and adjusted EBITDA
results in-line with our expectations, and up significantly
compared to the year ago period,” said Cris Keirn, Interim CEO and
SVP, Global Sales, Turtle Beach Corporation. “During the quarter,
the Board and management team have worked to accelerate and focus
our initiatives to innovate and create value for our shareholders.
These initiatives include portfolio optimization, SKU
rationalization, platformed product development for a range of cost
improvements and more. In addition to normalizing recurring
operational expenses, these are projected to improve our overall
mix and margin while continuing to support our growth strategy.
“The operating environment and gaming markets have improved
significantly compared to a year ago, and our strategy continues to
track to plan. Operationally, we have experienced a stabilization
in channel inventories as retailers are returning to pre-pandemic
levels and strategies, and as we expected, the frequency and scope
of the aggressive competitive discounting has decreased. With
respect to our products, we announced upgrades across our product
portfolio and are pleased with our progress to date. Specifically,
the Stealth Pro performed extremely well and captured over 15%
market share in the U.S. premium price tier in its first two full
months of sales. We expanded our Vulcan keyboard lineup with the
launches of Vulcan II Mini Air and Vulcan II Mechanical Keyboards
and achieved U.S. share gains in gaming mice and keyboard
categories for Q2.
“We remain committed to maintaining our leadership in gaming
headsets and driving growth in adjacent categories. While we
execute on these core pillars, we will continue to proactively
manage our operating expenses to support our growth strategy. We
look forward to continuing our work with the Board and management
team to deliver on our strategy, execute on our key initiatives,
and ultimately increase value for our shareholders.”
Second Quarter 2023 Financial
Results
Net revenue in the second quarter of 2023 was $48.0 million, an
increase of 16% compared to $41.3 million a year ago, reflecting
stabilized channel inventories and increased demand for console
gaming headsets and flight simulation accessories.
Gross margin in the second quarter of 2023 increased to 24.7%
compared to 19.1% a year ago, driven by lower freight costs,
warehouse costs, promotional credits and business mix.
Operating expenses in the second quarter of 2023 were $27.7
million compared to $29.3 million a year ago. Second quarter
recurring operating expenses declined approximately 8% year over
year, primarily driven by proactive expense management.
Net loss in the second quarter of 2023 was $15.9 million, or
$0.93 per diluted share, compared to net loss of $17.8 million, or
$1.08 per diluted share, in the year-ago quarter. Excluding several
adjustments to earnings in both periods (summarized below in Table
4), adjusted net loss (as defined below in “Non-GAAP Financial
Measures”) in the second quarter of 2023 was $7.0 million, or $0.41
per diluted share, compared to adjusted net loss of $12.7 million,
or $0.77 per diluted share, in the year-ago period. The weighted
average diluted share count for the second quarter of 2023 was 17.2
million compared to 16.5 million in the year-ago quarter.
Adjusted EBITDA loss (as defined below in “Non-GAAP Financial
Measures”) in the second quarter of 2023 improved to $5.6 million,
compared to adjusted EBITDA loss of $12.1 million in the year-ago
period, due to higher revenue, improved margins and lower recurring
operating expenses.
Balance Sheet and Cash Flow
Summary
At June 30, 2023, the Company had $15.8 million of cash and no
outstanding borrowings on its revolver. This compares to $10.9
million of cash and $15.7 million outstanding on its revolver at
June 30, 2022. Inventories at June 30, 2023 were $67.8 million
compared to $120.7 million at June 30, 2022. Cash flow from
operations for the six months ended June 30, 2023 was $24.2
million, which was a $65.5 million improvement year over year.
Additionally, in March of 2023, the Company announced that its
Board of Directors approved the extension of the share repurchase
program for an additional two years through April 9, 2025,
authorizing the acquisition of up to $25 million of shares of
common stock. During the second quarter of 2023, the Company
repurchased 85,903 shares at an average price of $11.34, totaling
roughly $974,000. At June 30, 2023, the Company had approximately
$17 million of availability remaining under the share repurchase
authorization.
Full Year 2023 Outlook
The Company continues to target its long-term goals of 10+%
revenue CAGR, mid-30s gross margin percentage, and 10+% adjusted
EBITDA margins. In light of the aforementioned market and
operational conditions, the Company is maintaining its outlook for
fiscal year 2023 and expects net revenues to be in the range of
$265 million to $270 million, with the 10 to 12% growth driven
primarily by expected out-performance of the gaming markets in
specific categories based on the Company’s product plans for the
remainder of 2023. Adjusted EBITDA is expected to be in the range
of $6 million to $8 million, which still includes significant
headwinds from competitive discounting and freight costs which are
expected to abate as the year progresses.
Further, the Company has mobilized and accelerated initiatives
for a variety of efficiencies that include SKU rationalization,
portfolio optimization, platformed product development for a range
of cost improvements and more. These strategic initiatives are
expected to contribute meaningfully to the profitability of Turtle
Beach on a run-rate basis, and based on the work completed to date,
the Company now reports a line-of-sight to exiting 2023 with a
run-rate adjusted EBITDA in the range of $25 million to $30
million.
Value Enhancement Committee
Review
As stated previously, the Value Enhancement Committee was
established to review a broad range of opportunities to maximize
value for shareholders, including potential strategic transactions.
In conjunction with the Company’s financial advisors, the Committee
has been and continues to be focused on both short- and long-term
revenue, profit and cash flow optimization and capital allocation,
as well as a range of potential strategic paths to maximize value
for shareholders.
The Company notes that there can be no assurances that the
review will result in a transaction or announcement of any kind.
Turtle Beach does not intend to comment further regarding the
review unless or until it is determined that further disclosure is
appropriate or required by law.
With respect to the Company's adjusted EBITDA outlook for the
full year 2023, 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 on August 7, 2023 at 5:00 p.m. ET / 2:00 p.m. PT
with the Company’s Interim CEO and SVP of Global Sales, 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.turtlebeachcorp.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 fifteen minutes ahead of the scheduled start
time. A replay of the webcast will also be available for a limited
time at www.turtlebeachcorp.com.
Non-GAAP Financial
Measures
In addition to its reported results, the Company has included in
this earnings release certain financial results, including adjusted
EBITDA, and adjusted net income that the Securities and Exchange
Commission defines 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 net income or loss” is
defined as net income excluding (i) certain non-recurring business
costs, (ii) acquisition integration costs, (iii) CEO separation
related costs, and (iv) certain valuation allowances. “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. 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 net
income or loss and Adjusted EBITDA included below for each of the
three and six months ended June 30, 2022 and June 30, 2023.
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, 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’s ROCCAT brand (www.ROCCAT.com) combines detail-loving German
innovation with a genuine passion for designing the best PC gaming
products, including award-winning keyboards, mice, headsets,
mousepads, and other PC accessories. 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 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
inflationary pressures, optimizing our product portfolio, reducing
our cost of goods and operating expenses, reductions in logistic
and supply chain challenges and costs, the substantial
uncertainties inherent in the acceptance of existing and future
products, the difficulty of commercializing and protecting new
technology, the impact of competitive products and pricing,
including promotional credits and discounts, general business and
economic conditions, risks associated with the future direction or
governance of the Company, risks associated with the expansion of
our business, including the integration of any 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
Six Months Ended
June 30,
June 30,
June 30,
June 30,
2023
2022
2023
2022
Net revenue
$
47,982
$
41,300
$
99,426
$
87,962
Cost of revenue
36,110
33,418
73,415
66,051
Gross profit
11,872
7,882
26,011
21,911
Operating expenses:
Selling and marketing
10,351
11,587
19,874
22,416
Research and development
4,189
5,136
8,290
10,388
General and administrative
13,125
12,532
20,132
18,767
Total operating expenses
27,665
29,255
48,296
51,571
Operating loss
(15,793
)
(21,373
)
(22,285
)
(29,660
)
Interest expense (income)
(17
)
84
146
193
Other non-operating expense, net
198
1,109
318
1,828
Loss before income tax
(15,974
)
(22,566
)
(22,749
)
(31,681
)
Income tax expense benefit
(54
)
(4,740
)
(124
)
(7,379
)
Net loss
$
(15,920
)
$
(17,826
)
$
(22,625
)
$
(24,302
)
Net loss per share
Basic
$
(0.93
)
$
(1.08
)
$
(1.34
)
$
(1.49
)
Diluted
$
(0.93
)
$
(1.08
)
$
(1.34
)
$
(1.49
)
Weighted average number of shares:
Basic
17,156
16,500
16,869
16,348
Diluted
17,156
16,500
16,869
16,348
Turtle Beach
Corporation
Condensed Consolidated Balance
Sheets
(in thousands, except par value
and share amounts)
Table 2.
June 30,
December 31,
2023
2022
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents
$
15,787
$
11,396
Accounts receivable, net
20,254
43,336
Inventories
67,831
71,252
Prepaid expenses and other current
assets
8,927
9,196
Total Current Assets
112,799
135,180
Property and equipment, net
5,691
6,362
Goodwill
10,686
10,686
Intangible assets, net
2,238
2,612
Other assets
8,124
8,547
Total Assets
$
139,538
$
163,387
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current Liabilities:
Revolving credit facility
$
—
$
19,053
Accounts payable
34,036
19,846
Other current liabilities
21,808
25,433
Total Current Liabilities
55,844
64,332
Income tax payable
2,196
2,076
Other liabilities
7,443
8,038
Total Liabilities
65,483
74,446
Commitments and Contingencies
Stockholders’ Equity
Common stock
17
17
Additional paid-in capital
214,245
206,916
Accumulated deficit
(139,223
)
(116,598
)
Accumulated other comprehensive loss
(984
)
(1,394
)
Total Stockholders’ Equity
74,055
88,941
Total Liabilities and Stockholders’
Equity
$
139,538
$
163,387
Turtle Beach
Corporation
Condensed Consolidated
Statements of Cash Flows
(in thousands)
(unaudited)
Table 3.
Six Months Ended
June 30, 2023
June 30, 2022
CASH FLOWS FROM OPERATING ACTIVITIES
$
24,210
$
(41,247
)
CASH FLOWS FROM INVESTING ACTIVITIES
(1,252
)
(1,207
)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on revolving credit
facilities
99,785
36,209
Repayment of revolving credit
facilities
(118,838
)
(20,502
)
Proceeds from exercise of stock options
and warrants
1,358
538
Repurchase of common stock
(974
)
-
Debt Issuance Costs
(80
)
-
Net cash provided by (used for) financing
activities
(18,749
)
16,245
Effect of exchange rate changes on
cash
182
(634
)
Net increase (decrease) in cash
4,391
(26,843
)
Cash - beginning of period
11,396
37,720
Cash - end of period
$
15,787
$
10,877
Turtle Beach
Corporation
Reconciliation of GAAP and
Non-GAAP Measures
(in thousands, except per-share
data)
(unaudited)
Table 4.
Three Months Ended
Six Months Ended
June 30, 2023
June 30, 2022
June 30, 2023
June 30, 2022
Net Income
(Loss)
GAAP Net Income (Loss)
$
(15,920
)
$
(17,826
)
$
(22,625
)
$
(24,302
)
Adjustments, net of tax:
Non-recurring business costs
1,086
5,123
2,079
5,295
Acquisition integration costs
—
—
—
58
CEO separation related costs
5,063
—
5,063
—
Valuation allowance
2,768
—
4,012
—
Adjusted Earnings
$
(7,003
)
$
(12,703
)
$
(11,471
)
$
(18,949
)
-17
%
Diluted Earnings Per Share
GAAP- Diluted
$
(0.93
)
$
(1.08
)
$
(1.34
)
$
(1.49
)
Non-recurring business costs
0.06
0.31
0.12
0.32
Acquisition integration costs
—
—
—
—
CEO separation related costs
0.30
-
0.30
-
Valuation allowance
0.16
—
0.24
—
Adjusted - Diluted
$
(0.41
)
$
(0.77
)
$
(0.68
)
$
(1.16
)
Turtle Beach
Corporation
GAAP to Adjusted EBITDA
Reconciliation
(in thousands)
Table 5.
Three Months Ended
June 30, 2023
Adj
As
Adj
Adj
Stock
Adj
Reported
Depreciation
Amortization
Compensation
Other (1)
EBITDA
Net revenue
$
47,982
$
-
$
-
$
-
$
-
$
47,982
Cost of revenue
36,110
(511
)
-
(162
)
-
35,437
Gross Profit
11,872
511
-
162
-
12,545
Operating expenses
27,665
(460
)
(248
)
(4,808
)
(4,207
)
17,942
Operating income (loss)
(15,793
)
971
248
4,970
4,207
(5,397
)
Interest income
(17
)
Other non-operating expense, net
198
198
Income (loss) before income tax
(15,974
)
Income tax benefit
(54
)
Net loss
$
(15,920
)
Adjusted EBITDA
$
(5,595
)
Six Months Ended
June 30, 2023
Adj
As
Adj
Adj
Stock
Adj
Reported
Depreciation
Amortization
Compensation
Other (1)
EBITDA
Net revenue
$
99,426
$
-
$
-
$
-
$
-
$
99,426
Cost of revenue
73,415
(1,028
)
-
(337
)
-
72,050
Gross Profit
26,011
1,028
-
337
-
27,376
Operating expenses
48,296
(920
)
(513
)
(6,591
)
(5,294
)
34,978
Operating income (loss)
(22,285
)
1,948
513
6,928
5,294
(7,602
)
Interest expense
146
Other non-operating expense, net
318
318
Income (loss) before income tax
(22,749
)
Income tax benefit
(124
)
Net loss
$
(22,625
)
Adjusted EBITDA
$
(7,920
)
(1) Other includes certain non-recurring
business costs.
Turtle Beach
Corporation
GAAP to Adjusted EBITDA
Reconciliation
(in thousands)
Table 5. (continued)
Three Months Ended
June 30, 2022
Adj
As
Adj
Adj
Stock
Adj
Reported
Depreciation
Amortization
Compensation
Other (1)
EBITDA
Net revenue
$
41,300
$
-
$
-
$
-
$
-
$
41,300
Cost of revenue
33,418
(601
)
-
(96
)
(1
)
32,720
Gross Profit
7,882
601
-
96
1
8,580
Operating expenses
29,255
(665
)
(311
)
(1,934
)
(6,793
)
19,552
Operating income (loss)
(21,373
)
1,266
311
2,030
6,794
(10,972
)
Interest expense
84
Other non-operating expense, net
1,109
1,109
Income (loss) before income tax
(22,566
)
Income tax benefit
(4,740
)
Net loss
$
(17,826
)
Adjusted EBITDA
$
(12,081
)
Six Months Ended
June 30, 2022
Adj
As
Adj
Adj
Stock
Adj
Reported
Depreciation
Amortization
Compensation
Other (1)
EBITDA
Net revenue
$
87,962
$
-
$
-
$
-
$
-
$
87,962
Cost of revenue
66,051
(1,185
)
-
(122
)
(1
)
64,743
Gross Profit
21,911
1,185
-
122
1
23,219
Operating expenses
51,571
(1,273
)
(623
)
(3,445
)
(7,025
)
39,205
Operating income (loss)
(29,660
)
2,458
623
3,567
7,026
(15,986
)
Interest expense
193
Other non-operating expense, net
1,828
1,828
Income (loss) before income tax
(31,681
)
Income tax benefit
(7,379
)
Net loss
$
(24,302
)
Adjusted EBITDA
$
(17,814
)
(1) Other includes certain non-recurring
business costs.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230807807781/en/
MacLean Marshall Sr. Director, Public Relations & Brand
Communications Turtle Beach Corporation 858.914.5093
maclean.marshall@turtlebeach.com
Investor Information: Cody Slach or
Alex Thompson Gateway Group 949.574.3860 hear@gateway-grp.com
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