HEAR - Earnings call transcript Q3 2017 | Turtle Beach Corporation

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Operator

Good afternoon, ladies and gentlemen, and welcome to the Turtle Beach Third Quarter 2017 Conference Call. [Operator Instructions].

As a reminder, this conference is being recorded.

Before we get started, we'll be referring to the press release filed today that details the company's third quarter results, which can be downloaded from their Investor Relations page at corp.turtlebeach.com. On that website, you will also find an earnings presentation that supplements today's results.

the of be this the of Investor on evening. recording section Relations company's a call available will the Finally, website later this federal securities Please comments statements some that laws. the call during within the be forward-looking may of of meaning include aware made the could, forward-looking the will, statements. beliefs as company's and anticipate about expectations containing expect, Statements such similar words and may, believe, expressions constitute differ and future Beach involve risk uncertainties from to results Corporation's could statements company's and regarding expectations. These operations current Turtle that cause results materially management's the other in may which The that Exchange safe from report risk factors company filings actual encourages specific cause those periodic harbor statements. limitation, statement you reports, and press to annual recent on described XX-Q to including, Commission, review and the Form risk release most XX-K, differ also identify or factors today's report results Securities their events on forward-looking materially their in in and without with the quarter and Form contained not does update this forward-looking after undertake publicly company The any of call. the conference or statements date revise to that this The notes discussing on information. also call, be they non-GAAP company financial will The company to accounting prepared United supplement generally as is information with the accordance States providing accepted in GAAP. a principles or in information that

I'll Executive company's metrics the find the this provided now, reconciliation and call the You Stark, tables can results Juergen? over Juergen Chief of on turn the release GAAP And presentation. reconciliation these to in reported in Officer. earnings today's

Juergen Stark

everyone, us. afternoon, Good thank you and joining for

costs. EBITDA that now gaming our and profit the these gross as our which business strong are prudent management, development believe HyperSound largely quarter financial the provider, drove EPS leading margin are by to headset performance exceeded adjusted console results we expansion in and third by unencumbered of marketing beginning was and potential brand that underscore We significant Our highlighted outlook. growth expense and

as high from to into quarter impacted large October. customers quarter sales shifted some the third by September, velocity our shipments the in possibility that slightly from began of was that in September late Third a identified were outlook. holiday Due orders shift

difference a full factors, While have us had outlook full and run including for retailers slightly timing our this to impact outlook, slightly on headsets, rate reduced revenue year inventory reduction some led year for forecast. lower other no levels in our

However, we continue both holiday with for performance and significant expansion the John full our financial to quarter, detail. year, holiday after expect quarter revenues will I a increased in strong which you more EBITDA through discusses walk and

the headset to is of the our the NPD, the XXXX+ According headset top-selling One. was wireless One and third our was great our performance that products Stealth Recon QX top-selling this Xbox XXX. gaming drove industry-wide for during quarter,

our also last in continued to headsets, launched Chat We growth Recon we May. experience just line product a strong

PSX and Chat September. our its sales sales predecessor, Chat segment we the Recon on the highest in predecessor, of Recon in based combined fact, our for on by Xbox had in Chat combined selling Xbox the Recon were headsets XXX, we In the its headset One quarter. PSX Chat market Based third market headset in PXC, of and revenue leader

strong share. months share products specific the Beach unit maintain market. industry-leading Turtle a finished gaming of our data, of U.S. performance console helped XXXX This level retail Of course, first a are headset these and revenue XX% at leading XX% for Turtle headsets part portfolio every gaming of share its console gamer. market the of NPD to X of Beach recent According

was XXXX, September of at XX% to in revenue For Turtle share XX% the compared September XXXX. Beach month

have of combined. the the Beach. the were again, third-party And we the U.S., of next September XX% U.K., and Turtle XXXX, console market respectively. in units XX%, outside to X Finally, share largest gaming and X versus #X In from greater the January revenue versus XX% to to year-to-date, XX%, all headsets console than September, grown market our Turtle a X had according top competitors gaming revenues Beach, Chart-Track, share

more outlook, like review call John the our turn our XXXX and results. financial I'd speaking quarter to over our performance to about Before John? to third

John Hanson

and Juergen, quarter good $XX.X million everyone. $XX Thanks, quarter in compared XXXX of Net was the afternoon, to in revenue third XXXX. million the third of

shift their patterns. fourth due mentioned, was Juergen some largely quarter into a the September as decline large in customers from As part the and holiday the to loading in of out of orders change

our the XX%, here. in have third decline, and orders Gross the we begins shipping market to in into in mentioned. quarter and holiday that was margin sales offsetting XX.X% discussed, can XX.X% previously significant compared to Partially case by Europe in increased the improved U.K. driven year-ago QX, As late as the growth international the slip QX, quarter. Juergen share

$XXX,XXX cost impacted equates million million $XX.X the quarter. and excluding chain the was chain and Operating This well in to the $XX.X in model. improvement with quarter Gross of XXXX million loss significantly product. expenses focus reductions, license million with In XXXX. expected reduction per mix. to teams third forward margin HyperSound higher-margin HyperSound our we improved agreement driven October, quarter by $X.X quarter the share a HyperSound-related the However, when in entire product a in XX.X% year-ago to $XX.X loss license segment reduced million a manufacturing product were to the commercial our toward decline retail the continued to HyperSound-related a $X.XX of cost HyperSound-related transition were in in gross $X.XX will positively first due margin $X.X to mix savings, or compared to per product sign increased logistics to the and This in to XX% business. share or management did was logistics quarter. a charge, of we were display take by compared cost and and quarter complete the who excluding company charges are as going margins our expenses models French Headset as Waves, in $XX.X million Net HyperSound operating supply the to XX.X%. across driven to continue approximately or was experience, year-ago third shift XX.X% $XX.X compared up year-ago net the headset due teams. supply on as a third to by million our of

than cost share was per loss $X.XX million in improvement $X Cash borrowings share. has the last to million for first in from charges, revolving in driven flow XXXX was third million Adjusted management months months X significantly $X.X which of per the compared XXXX us net X by under our to of operations higher $X.X initiatives. first Excluding HyperSound-related $X.X reduce year-ago allowed or to EBITDA The quarter also $X.XX million of year, quarter. facility. improved was the primarily roughly credit our our the

cash of Now quarter year $X.X $X.X to million cash turning to ago. equivalents ended We compared million the with and the balance sheet. X

million to a of season, XX, million were expectation outstanding we debt. subordinated $XX.X result XX, plan holiday was working $XX.X September season of will be $XX support cash and with XXXX. year unchanged in principal million Taking capital. healthy term debt a but fund holiday September of of million entering are in our consideration level sufficient XXXX, large on $XX.X September are essentially senior loans The revolving at compared the more credit to significantly $XX a compared balance. Total more Juergen we expecting don't capital basis believe believe debt consisted and consolidated at strong XXXX, to at debt, million we have our As credit we and of into in business million to $XX.X $XX detail a XXXX our line profitable a facility, revolving Inventories million generally we hold which repayment. discuss shortly, ago, debt considering in our we

XXXX. fact, is In balance average decline to compared revolver in to our expected XXXX

Juergen business our for back Now updated additional outlook. I'll some the turn on comments call the and over Juergen? to

Juergen Stark

gamers past a innovation as it a will we When multi-platform of new look category-redefining Limited months. a War in headsets headset. product, September, One audio that To in front, Elite John. X,XXX high-quality, Xbox launch By headsets on couple headset. wildly we to headsets our paired One, turn PlayStation PC. for #X unique connect and incorporates I more gaming and design. The the big, One, performance eSports and to Xbox logo first gamers. limited playing. no signature In that Duty: Xbox successful other innovative and the world's and headset the called a the vintage debut mic gaming do deliver being their launched be play will launch to only simply headsets first-to-market units, we experience camouflage world. World the is we for the the including Camo, new exciting The to in of early of success visual innovative This launched Thanks, and market. -- up -- STEALTH picked forward console the console, final headset, product note, praised a weeks that wireless X our this, underlying military a gaming headset Recon with Duty gaming to Xbox series, no launched a XXX adapter a of brand our mid-October, From several the beneficial producing immersive STEALTH professional off shared sites team's in to base into directly Call in station to showcases feature perspective, gamers we XXX think next the theme, and just review we continue product gaming needed. II. Call we highly its is accents directly by We In no title X new as the advantage. headset wires, iconic burgeoning Pro arming To battle great a OpTic lead our franchise gaming investors our intend commitment which On and continue provide November, ago, Pro vision our know to was now, the really competitive with start on gamers Edition

hundreds the While their teams, explosive serving pros consummate own, representing OpTic league as the world. the for growth around fans a of is formation in professionalism Gaming to eSports and has of height Pro led in and of of aspiring models

in XXXX decorated history. most Gaming is OpTics fact, story the In

been War crowned brand. So brought Duty: and far Call Gears world home this showcase They as partner of have and a be World great and also championships continue of Champions. of year, to Halo War in our they

take October, to our such business, in as agreement in Before our now Systems Waves for pro outlook, sell hospitality venues will to and forward. places of our and development HyperSound license worldwide. on going for audio/video has and in HyperSound John provides integrating upfront Waves financial retail, sales and HyperSound manufacturing specializes and product agreement commercial interactive our moving product. years royalty fee. Waves museums, fee mentioned, per of several The players selling we executed for a the produce as audio a manufacturing in in that France-based an exhibits experienced licensing product unit with and

pleased license in our HyperSound to business, HyperSound While on have place core to the agreement be and focus Waves. headset first product able offer this we to continue is through commercial our to our audio with are pleased

our Now outlook. XXXX I'd like to turn to

These think September, was was physical new recent helpful up by month September software, our as while we in up top cards, up so, closest performance expectations. market video promising other XX%. II console were and on Beach Xx more hardware XXXX, for spending According In of season up backdrop driving market than new the Video to Video a was doing II holiday, game accessories And a to NPD strong as tomorrow, physical XX%. These selling performing, Wars was the Destiny first software and Before and industry which up we physical competitor XX%. and to is coming to Turtle Headsets game Destiny hardware on are provide XX%. X increases, Beach hardware, latest game with holiday to uptick measured were NPD, includes industry what our compared XX%, headset the be will and forecast the titles, spending, game was it's November is predict predicts market up Turtle spending driven revenue. headphones software expected. Battlefront early by a Friday, XX%. Call launch XX. first-person XX% increase launches to current of fourth Duty: releases, video X very some shooter World with this September, XX%, X along forecasters successful coming in up new game quarter, the consistent War this Star major of with gaming. the

is NPD packaged ago. XXXX top strong a is X the game that selling forecasting titles will AAA there more combine for generate X fourth NPD, least holiday to XX% to consumer revenues according outlook at this the Finally, titles. than X top quarter year

revenue So with of be between million to $XX.X compared $X.XX for XXXX. the million fourth range this $XX.X of million expected $XX.X XXXX. quarter $XX.X range fourth of the per we and to fourth quarter million in $X.XX to quarter $X.XX with in for $XX.X net of per compared to XXXX, Net the and to expect the mind, XXXX. in Adjusted fourth the is in income million to million the range EBITDA between $XX.X compared of in share is expected share quarter quarter fourth

to few compared $XXX A down to coming. $XXX from into preliminary year expect the guidance release have perform million net our sell-in, full range with approximate key our -- to course, retailers major November the headset year-over-year sustain This business $XXX million as for XXXX. to bringing million, million QX, rate sales will and large planning XXXX, surge based launches reductions to on prior to we've Destiny to X our their call we further slightly now your headsets, in retailers $XXX in also in old-gen recently of revenue reduced sell-through. old-gen with sales inventory million an reduced of and levels effectively shrinking Several some exciting during the run to For reflects XXXX. X accompanied assumptions X $X decline sales the essentially of between the visibility how million We've attention. year, for million $X in outlook indications $XXX of overall headset did outlook without that that industry yet and not October, independent

material headset approximately degree share headset of where into $XXX some other new-gen brackets dominant no and $XXX Baked HyperSound. this we expect in enjoyed have is revenue revenue We and of accessory million, share. for million million to price in loss, $X particularly assumption extremely revenues some market approximately

We gross our in in operating modest other reserves to is expect cost lower up XX.X% XXXX. XX% least to due prior continued This The period. from outlook. estimates. as improvement improvement expected XXXX charges margins of restructuring operations of million allow but HyperSound strong of XX%, reflects diluted than leverage a costs $X.XX be impairment consolidated it forecast. to us XXXX and improve some to goods hold greater expected to compared the diluted would We sales lower favorable in on at comparative adjusted reduction a outstanding. our EBITDA between HyperSound $X charges a million product still $X.XX impact supply to XXXX first $XX.X excludes based which in per well airfreight improvements XXXX. expected guidance share in to and our charges, the as range XXXX is and generate share $XX restructuring as negative of still in in half XXXX in asset logistics-driven expect into $XX $X and Net $X.XX revenues EBITDA, in million to intangible share chain mix in shares in to on This some million per EBITDA loss is quarter factored more comparable these goodwill million roughly have and $X.XX consolidated product fourth XXXX. adjusted per despite of A compared and to cost to loss loss

priorities questions, Before XXXX. we to turning to about reiterate your the call as I'd our over like think

design segment push expect continuing quality, in envelope and console gaming the strong We to the maintain our to leadership of gaming performance. headset by

headsets for continue would groundwork we growth China lay develop and like presence in new VR. said and eSports our also categories PC to future We opportunities the

to market additional growth, the growth gaming revenue expectation opportunities our that objective in years. the drive double-digit is coming grow long-term to headset given will digits the these Our console leverage mid-single over

gaming the gaming, the of proud all-important of to -- like over with the our colleagues and strongest Operator, work we close to questions. also billion appreciate gamers we everywhere. every holiday to progress Beach. across work of of and a $XXX one As by at your forward landscape. hard to ready day look best opportunities take I'm look global take reporting continue in on and you the In brands fantastic known we're we to also Turtle behalf team season. the time, personally thanking I'd meantime, will now at dedicated and

Operator

And Instructions]. [Operator our Lake question from line first the Argento Street comes of Capital. from Mark

Mark Argento

the a it inventory. I has things. cautious in opportunity. international just Razer in today demand then, know go wanted QX, being touch filed I overall retail at public. the of sounds know market two, terms you least is deleveraging on to its of maybe towards touched a the couple in category And end, -- or One, I little to Juergen, like

a on think PC big do I you they're could console. touch little of Maybe that bit briefly. gaming, a

Juergen Stark

have Sure, Mark. call. on Nice the you to

things, demand. into our factored retail key So There kind are guidance. are X of, that

The that do they're several run first QX. have we inventory and look during year, have retailers rate the to is, through that channel going reduced like had their

met because to in a they're for makes but they turns, obviously, that that obviously, And sell-in. forecasting very any does between the adjustment but number, that's market means, detailed millions our multiple in dollars, impact create sales on it forecasts October it's And a that. to affects expected that through we their our sell-through, don't had expectation channel little So rate tends that's each standpoint, that's September, two, with means performance. our the them. because, sell-in and be of difference month performance This, -- year what launches our model the one. variety number our market calculated softer were of have our normally expectations, have sell-through, is inventory kind of that drove obviously a as sell-in to bit market and data Number end a expected. target couple of going to inventory. November. supply first obviously, demand flatter and big model, a them, the demand, October And what game for share at our business is and performance run lower great It on retailer business will data our somewhat for higher weeks with than we a tell way, the from on the done has good Both That's in they where we shown. all sense, by hard to that a of in market of the if can the all the But so because market doesn't run then complete sell-through end our than based and happen have attempt we the past. October,

still in, we obviously, the tend is holiday we shopping. but -- that and So what wait where, to year, holiday and in participate see get to we're know factoring patterns one And sales do. going hand, November on every consumers to to don't

factored softer and our launches best these a bit and great we've estimate December. it's then to with October but what game September, a hard interpret, for a little expect November we So at somewhat to in least

Okay.

So does that answer your Razer then the to And I'll your question. question demand? turn on retail quickly

Mark Argento

great. that's Yes,

Juergen Stark

public are gaming to I of it And I forecast. PC we're in because a brands factored And a believe. shine business, not wish sure. great, on gaming to brand gaming. a mentioned. one IPO the the success the competitor them our headset in way. They will the Okay, in and big market, apparently they're it's largely or a gaming you value frankly, going strongest that's obviously, as into of Razer, be light all yes, going Kong And leading general. think by in brand today, Hong I the They're been looking revised

got company public a is So there a comp, have think, fantastic. we as out that's valuation they a

I wish best all IPO. their with So them the

Mark Argento

a Great. full I your bracketing it of just numbers retail that the getting XX still despite And kind then like for year EBITDA the back little looks of the kind know [indiscernible]. the to XX and bit. number -- de-stock,

the EBITDA could Juergen, you the going. finding you kind walk be John, -- you're of maybe, leverage are able how in to model the how to keep guys through So

Juergen Stark

can Sure. I'll in. John, summarize, jump maybe and, you

obviously, X of EBITDA a significant we we've So including -- each for overperformed in on the quarters, beat QX.

of forecast, forward some course. flowing our annual that of into is So

that, stronger. from of have to in X be in you as occurred quarters, margins past, takes tended outlook, and our we're We'll puts some more Our occur but QX QX. to airfreight the see have can forecasting these have lot in between driven full of will There's than year charges costs, goods a and margins, earlier some the cost by every supply significantly to efficiencies, gross margin actions we make in including other single costs. that and better took improvements on to year operating we chain-driven, continue above just OpEx including -- mix, gross product the year reduce be of

John Hanson

Yes.

initiatives set optimize the programs on year run make structures and follow poking our entire here, cost at that to around, and Just across comprehensive here. of We every to we a sure in and month-to-month business.

And so we're seeing that. benefit and the of value

Operator

for [Operator this our now Stark closing to I question-and-answer session. back concludes turn time, Instructions]. the Mr. call And remarks. like will at to over that

Juergen Stark

you Thank much. very

we forward very year we analysts speaking I our and Thank and results March. you in quarter full report As our fourth with mentioned, to look much. when investors

Operator

conclude Ladies today's does and gentlemen, teleconference. this

this You may you lines disconnect for your participation. Thank time. at your

Turtle Beach (TBCH) 2 Nov 172017 Q3 Earnings call transcript