HEAR Turtle Beach Corporation

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