HEAR - Earnings call transcript Q4 2017 | Turtle Beach Corporation

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Operator

Good afternoon, ladies and gentlemen, and welcome to the Turtle Beach Fourth Quarter and Full-Year 2017 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions].

Before we get started, we’ll be referring to the press release filed today that details the company’s fourth quarter and full-year 2017 results, which can be downloaded from their Investor Relations page at corp.turtlebeach.com. will be an discussed you supplements presentation website, to information on that also earnings find that On today’s call.

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

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

Juergen Stark

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

that me with Beach some helping very start this Let We strengthen my by making we our begin At to focus investments we are thank have on XXXX in and last and we accomplished colleagues sheet results. us at again profitability for believe the significantly stated our Turtle pleased saying year, that to hard improving growth we goal. would our their time work balance that XXXX. to I’d like in achieve for enable us

investors who opportunity. compelling Let we me are also on refresh why are we investment a believe we our and

aware of market, headsets brand in a share of gaming gaming largest gamers dominant in the which are, of fans over brand hold be the in a the We the eSports gaming headsets of parts almost headsets and and At to where with total Consoles, majority Consoles we on dominant are gaming turn provider billion are U.S. Europe. the a else. of billion portion are gaming we XX% other players accessories. the $X global for Gaming market the mice the accessory, peripherals, about headsets play in important $XXX gaming global market. anybody peripherals and than XX% many gaming of and keyboards, XX% headsets, are include continue more consoles. than most strong are arguably headsets to platform also more

generated announced sustained the financing and will dominant gamers to to costs, year, in this fans This It amended sheet, billion our drive over we new growth covenants, we our growth investments agreements cash market The to say already to enabling flow support despite us to with initiatives. of improved a and losing gear $X over the time. stage interest gaming today. maturities eSports significantly nearly balance brand of million past will also for XXXX, stage share lower supplier the which with increased moved to more EBITDA, is increased tripled on our further which and shortly gaining our agreements, intended results. key a are $XXX sets we availability make have operating a which So great John market. our on share, set

expense Underlying that shortfall sales million versus for this our results Despite show met compared market for on cover and and headset was guidance market sales dynamic, or EBITDA data quarter, management, market earnings North to Despite outlook as growth headsets share reported a quarter our competitive several the in delivered we As helped show, range. North highly U.S. – gross Beach NPD grew was the than leading Turtle results, higher. preliminary our basis to to also market, the XX.X% revenue XX.X%. approximate leading America the of shortfall our points momentarily. quarter, its our drive ordering XXXX sales the the in margin fourth XXX which XXXX. I’ll Turtle growth more strong XX.X% an revenue share increased Beach quarter prudent million in of another fourth full-year from console all by of large January, to $X Cautious expansion. data and XX.X% that up retailers share and recent American for in revenue The of NPD share made fourth in quarter February’s $X our strong caused we experienced trends fourth strong exceeded

our of of UK, these in distribution our the experienced markets. in European points was share the major in revenue markets, also largest outside gaming where share headset XX.X% our Included robust We console strong console XX.X%. market of share year-over-year particularly grew U.S., the to major from in most growth addition of gains the

of respective their comment XX%, dominate despite North over tiers. of closed Despite we shortfall, America For at priced shelf healthy our products European increasing retail space more points existing strong by products across very our earlier performed our very markets, coverage, and retail. example, the gained across my distribution distribution Board of restocking XXXX well key this the and quarter gap. demand first many has sales the QX Indeed, than consumer in early and regarding

both PlayerUnknown’s XXXX well January believe exponential In to Turtle in this basis the is We being overall gaming data XXXX headset in Beach releases, dollar strongest Battlegrounds since XX% of are reports fueling January gaming strong gaming a market, XX%. for fact, NPD driven by an driven in blockbuster eSports Fortnite January compared console robust sales, during and and as growth American sell-through part shows on console which up the North as by up headset XXXX. and

XXXX pleased trends say obviously more in We’re financial so to see call far full-year that about I’d to very John? results introduce market January. the outlook, we outpaced even first. over to the to our turn like but review business strong our will have I and John in to

John Hanson

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

to product estimate decline in by ago caused several a gap in our this fourth As was mix logistics-driven to ordering the XXXX. chain This highest a outlook. largely improvement public we and becoming in gross shift highest the our achieved balance towards gap margin well compared year lower expenses, becoming cash equivalents reduced margin as Both supply record improvement headsets, to or cost basis we in again, Gross we’ve driven to level that January $X to to due and compared focus increased was This We in ago. sales December retailers since public of higher $XX.X share XXXX, Juergen Operating was as million, million $X.XX the is to tripling – full-year, compared million X% ago expenses cost to compared the to goal million XX.X% both in compared of per share, million million quarter across quarter due year to the due to net And to million, business. in $X It’s a the closed fourth with one reported our of million, the continued for of quarter adjusted were higher the Net that in $X in XXXX. in and margin turning million, adjusted cost million since EBITDA points XX% by operating level ongoing $XX.X $XX.X increased XX.X%, And the was on X% income metrics with reduced to orders. million, and noting XXXX, $XX.X year ended management margin $X.XX gross entire higher compared the EBITDA quarter. XX fourth income cash EBITDA, replenishment or by $XX XXXX. mentioned, our $X.X also quarter Adjusted compared $XX.X fourth to of the to the in improvements. were to and in the per now increased quarter $X.X million quarter. XXXX. the the nearly sheet. in worth $XX.X reporting

to $XX our to to retailers revolving million, his opening the credit ago facility, XXXX reduced Inventories in one $XX.X Juergen of generally a hold result increased don’t by remarks. XX, compared large balance. million a As $XX.X December that due at described we cash million ordering year

debt $XX.X we of for our subordinated are this last the $XX.X strong under in Total debt given outstanding December The XX, compared XXXX. However, period levels million term at in million in of principal at $XX.X XX, million debt, and $XX.X December loans, million far revolving XXXX, to year. $XX.X sell-through was XXXX million, so already inventory well consisted debt.

December total debt months consolidated which ratio, XX, at at we months leverage ago. Our This improvement significant times trailing XX average X.X revolving stood XXXX, times loans was year one EBITDA term adjusted compared by XX trailing goal XXXX. for define plus X.X important an divided to as

elimination will the in term reduce the give next over changes forthcoming five filing. business funds expected various of debt, years. to effect new interest savings of including at our is and expected prior of leverage more revolving performance Crystal the run in XXXX. a a debt net Further of least, improved are in to and and The $X.X X.X% million flexibility to subordinated EBITDA and financing term use business facility, the the new strategies. on term loans subordinated agreements the us reduction Stripes, greater lenders, availability the we rate loans, our agreements on a interest ratios mentioned, a the our interest in X.X% majority as Juergen earlier reduction credit the rate announced reduction agreements The the the our certain a terms As amend the covenants to with to ability on rate the with agreements, Form of, on covenants The today. under to to us improved and enabled interest the be coverage X-K loans the from be extension loan details pursue

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

Juergen Stark

Thanks, John.

to January XX.X% earlier Turtle strong XXXX, X XXX America of my compared in at America. to business basis achievement, NPD, sell-through share. comments revenues addition in In for larger revenue January, January gaming this total percentage console market out about Beach for in than points, share North the North was the next in topping headset according Underscoring points to gained growth in January January the our competitor largest

had the wireless number market number one XXX, selling headset X FORCE our both one to January fact, selling XX%, headsets of share indicating very the in Recon in launches the number data, we headsets, and in headset up STEALTH the wireless XXX XXXX EAR best the North and Our reflects had points were XXX, third-party wireless look our year-over-year our market, for through up – period. we X,XXX America gained we perform continues fully to in November PlayStation Xbox number whole that includes We STEALTH XX% in industry-leading strongly. time being the in direct all headset XXX in which We one jack of share, new platforms. compared technology. in which XXX product one the market our gain portfolio and STEALTH connect If over number XXXX being the at our NPD two basis

seven next driven the headsets others are are competitor. first-party the one over In line performance the consumers of two addition, is top Turtle broadest three Beach of to headsets. the XX products We and believe closest by of strong prefer that this

I mentioned – We of have in past in a retail a gained distribution in highly market all, and even have distribution great merchandising, the is high-quality brand gained performance. as despite exceptional products, gamers market. All to strong retail share love, points contributing year, and our and earlier, competitive

our core priorities continue business to Number three headset market. our dominate console for to on one, Now XXXX.

nurture in the We of viewership segment. distribution, on enthusiasts are equal and terms presence continue XX% to of XXXX, make have the is Illustrated, surpass this by eSports produced million in putting stated will that year. Sports Newzoo, number According hockey American to this the VR there to leader $XXX and We in around XX% operational our from male $XXX millennials billion investments in eSports, to that, and more an by eSports it two, well up globe great markets. watch year make article That expected and broaden merchandising brand, us million staggering with XXXX capabilities is burgeoning more according of some February revenue virtually the even estimated $X all What’s XXXX. brand during a Number XXXX. as demographic. and the and that to among eSports baseball article products drive focus we coming our our plan to our published

As even their to console far presence delivering headsets one our that develop we of to players by partnership measuring Turtle and In XXXX, influencers leading and teams to of to eSports of PC have away for when are and players headsets seek will headsets providers eSports gaming the innovative driven Beach further opportunities. provider fans. look together, and gaming the we gear gamers, top and high-quality

of of successful partnerships growing the long-term professional segment, headsets great small as are which gaming best some partnerships world, forward XXXX. we and testament in growing Astralis, a OpTic we to including platform. Gaming, and Our Splyce ongoing organizations a VR look with a in has gaming is believe our to appeal others the the but eSports our potential

headset, when category. three, nurture warranted. STEALTH additional this to to revenue seller drive our launch be and products As designed top segment that future this in you continue audio this know, for innovative specifically Goal we new an VR, headset number continues by future launched XXXVR, gaming growth. the the first for We’ll to lead in the invest

like on commissioned drive year. in is increase the the we globally terms priority mentioned and XXXX, in as more PC growth With of the meaningful shows I size biggest is console PC with in to a China, more next future. as market. recent and headset known emphasis our our area As untapped gaming growth in now virtually the prior The we in headset gaming geographies to us. gaming And similar year relevant begin to and new put future China PC are opportunities this investments market in to China on gamers research markets. future. this that market have in investments calls, well to our gaming That will strong core is in we accessories growth. our our world brand investments be headsets, by make the in gaming year We’ll efforts a bit performance drive position non-headset

our outlook. to in XXXX opportunities I’d these turn to like with So context,

our mid-single are to market sales past believe major up drive expect overall core will three, QX markets expect year be digits gain console of to Number the reduces on headset as be based Number over concentration to we that low in the gaming one, Number quarterly Here given the changes that in difficult two, to also profile reduce are our retail non-core meaningfully run key lower retailers few XX% forecasts. QX in years. inventory maintain year. revenue won’t have this revenue to In through QX revenues game see well XX% aligned which the year share rate, at had the to be and they and past words, typical QX XXXX. will not done every drive revenues are stronger the of years, we’ve we XX% inventories retail likely of further in subsequent versus which our channel with we cause cautious holiday that markets in we a swings other over in few other to like more XX% releases and assumptions XXXX, in order. share

first compared compared the compared million performance the includes approximately of The share, to rest improve $XX.X the sell-through industry XXXX. discussed. of driven performance as of to restock to of $X expect be quarter of for per to first $XX the $X.XX note, we by expected quarter especially increase million to loss is XXXX, Adjusted XXXX. inventories, the their in and as to strong Please the million, is to XXXX first share retailers approximately EBITDA the improve XXX% is for in strong net first million spillover $X.X Net our to in million $X first approximately loss for of So quarter loss $X.XX we this quarter of from expected revenues products. to per to quarter first approximately XXXX. to quarter expected $X.X the robust

is XXXX X% net compared to XXXX $XXX.X Per to make investments we and the XXXX are drive in but Gross hold to full-year growth year expect comments comparable I of as concentration we be priorities with more For to margin like slightly, QX. expected operating timing to XXXX, to to million just increase the this expected in be of as expenses revenue a my to incremental revenues expect less we roughly discussed. percentage XXXX. approximately increase revenues in $XXX the comparable to

products $X.XX As growth in to XXXX, in million pleased in public a consolidated based fourth in $XX.X the are we quarter improvement about objectives. loans and and accomplished share outstanding In incremental strong tied $XX.X XXXX per diluted on $XX loss Net our partnerships $X.XX a reflects expected our to having very result, to our XXXX. record becoming the million since approximately already. This approximately in start share in expect XXXX, million compared to improve compared closing, to per to key is generate excited company to EBITDA in including adjusted investments to XXXX the in year a and and we’re profitability net the XXXX XXXX. loss with goals, of shares we

the Operator, exciting forward to of driving as that great strong a we we dedicated to we’re On the position brand of markets and reporting have is in employees, a behalf of in most now of and our Thanks, our to market. again, the year ready future look great one look what our for year. We progress such bright to colleagues feel team start to in unfolds. world we a all forward take questions. the

Operator

[Operator Thank you, sir. Instructions].

Our first question Capital Street Markets. Mark Lake from comes of Argento

Your line is now open.

Mark Argento

guys, Hey, the year finish for outlook to congrats a decent on solid year. and next

of Just a time this How couple different, like up been mix? in of that for shaping to terms little have market cycle some there of little launches, a duration. that at know updates change launched on a around questions thoughts launches, longer kind around consoles. consoles you new I the how of transition transition versus kind cycle? least you’re the approaching from new just see bit headsets. the in or guys of has overall the seems last it I has been hardware product XXXX this been Does the little a know do new

Juergen Stark

cycle, old-gen, Mark? Last Sure. right, you mean

Mark Argento

Yes, old-gen?

Juergen Stark

Sure.

be quite continues market and for the to X PlayStation Xbox good. continues X So to be

at to track old-gen. to roughly similar continues is XX-month above PlayStation old-gen same fact, the end of the is XXXX, which tracking In Xbox and well mark, PSX

the performance than and significantly good you than add way, the NPD XX%. more Xbox the up up by And platforms both, the So data more January, of so up positive PlayStation U.S. the market both them. two in in way up was whole January, were by I was XX% mentioned, when year-over-year. very of very, the

at And the so year. to of start the strong contributing the sales that’s headset

console good. continue expect the to be to we be new-gen the market the kind So market of to console

adapting out We’re on to old seamlessly. upgraded platforms. obviously that’s issues point both last in new at essentially portfolio of old-gen – pro-models news. this to No the the years. completely our And Those stuff have platforms side two gone

are One Stealth the X. headsets the for fact, great In both headsets Xbox

point, consoles, any with the it have a disruption connectivity expect don’t past, launched is we the year. kind new year pro a we the I in of of essence ago, years and models same and did so at as Xbox as as that to level because platform we year this some expected in update couple when the the mentioned standardized before quite there’s the demonstrated PlayStation, for not to And transition now respectively. And last

Mark Argento

much And then or know leaner seems about I helpful. it thinking just inventories just That’s continue like inventory, at work Okay. to retailers the inventories. operate

point or are that when your just that’s restock feel of replenishment kind like inventory versus of normalized What running? the XXXX. terms for of about this at kind of guidance kind You you of forward kind retailers think trough run rate going in

Juergen Stark

has Yes, past of years. I’m revenue couple inventory you asked. major of over of Retail changes glad been the a kind swings driver

January of of we increasing substantially few we In in there’s our to so the product fact, actually And off to period. which in presentation sell-through we showed compared the the over core trailing you actually has good of is – unlike which slightly that been go for swung – been a going sales. you up just our the heck last on, just But where showed it the represents North we has which sell-through our Turtle chart lot essentially revenues UK, and down America – markets, released, up strong, three that shows years. and time products have past XX Beach past revenues, retail what of stable months, quarterly right, years. And full-year look which in good shows is at over because periods few the years a and and the the we and majority the our for vast our tracking have

a two felt with we were essentially, ended game into inventory in channel and too the of $XX they in stocked coming ended weaker of of up it million market bit context years. maybe retailers course, of in XXXX wasn’t strong as But some told in shooter much. they QX last that heavy they replenishment. about performance in had retailers up like Recall XXXX terms now, expected and time ordering cases reduced we the out right little So first-person just because XXXX, that gaming overhang figured already as by

So launches the quarters This drive to bit. in or resets as year-over-year launched overly months first market typical. – games two three going now QX the down heavy of weaker leaving ordering, or a new quite the the is a somewhat weaker three well, of for year. new And the tend first up them three then was XXXX, first XXXX. quarters, Weak to But launches the everything market games QX in QX. were was launch of QX, so three did retailers they think perhaps sensitive were, because we into

for And and were record we good telling they our we a that have so were retailers, And were little. right. guide their indeed, ordering track ordering too we this helping far QX, forecasting

on out or one fact, literally key In into they in obviously frustrating us. going right everything figured we out is of was for who And particular, XXXX few we a the very strong. was retailers, holidays, had sell-through XXXX, at stocked top parts during very which were

inventory significantly literally And January. behind in first suddenly, way two in on were these way behind conservative and so trying weeks be of to a on even the stocked guys up

some meaningfully. run U.S., which kind a now think of And end sure think because it’s where like leaner, the is because they catch-up run about tracking ordering, more these will stock retail with in the stock around. making fact, we of much which from have moving up down we major So not guys in us that listen our they retailers rate, a best in essentially the cautious up ends products we QX, despite up they’ll value still a don’t outs. dollar bit channel down year-over-year, more cases little revenues over at it is maybe where we the and be sporadic either, they’re frankly, and our across in the can’t inventory And to

forward. never know much revenues how exactly now – to is go. that, sense track sell-through it’s closely more But So going should our going you to our our

been answer, it’s topic revenues long look for the Sorry a at – really what you kind going there. our important but to when on what’s of understand historical

Mark Argento

refinancing, it’s It guys here of but any hard but cash you obviously, retire next – little to hear. One months? over leaner for continue free sounds kind of XX like to the of is prior know cash a once to that Yes, holidays away the some through you flow getting I where a hard the kind earlier are, bit released of the little delever. Could to you yet, said, the can wind like flow bit you predict, of out excess about kind about it’s sits know inventory’s I here, level hear down imagine start that of down the have guys generation, get I The trough haven’t – to today, and talk terms debt. you some there. kind Mike, and capital in you’ll press the ability to to little – pay after been the of to the balance bit the the which to talk all fantastic. numbers sheet ability good start shipping get able

Juergen Stark

Sure.

John Hanson

John. Mark. Sure, is This Sure.

leverage and use here repayments. we our flow – less CapEx, free as one of we – and scheduled that as of our the debt metrics less EBITDA as our as So course, cash cash define less interest

see so cash flow. delivered And we forward, we $X more as lines something for And XXXX. the we’re million along million $X.X leverage looking XXXX, of for free

OpEx. of improving the leverage and the lower in as margins So of we’re grow XXXX, to across cost a we continuing and get and And more deliver flow that’s base. course, revenues function cash free leverage fixed grow our

Juergen Stark

balance, year, when at to other any be at line tends two near things, total And because the end careful of debt looking the maximum. working just maybe the our add capital the be balance revolver

big actually number, and which So agreements paid of with end because rapidly one and total can key deal rapidly million of to we two and to get then here, is this some – terms us we to interest near be that, sheet. generate loans during will in the – And goal the fact, debt improved typically, for – balance off years, that about it amount term obviously, as the improving the – it’s up the approaches a second during being a and that look coming thing, So moves good loan you’re term right? the is rate QX, off the start here, retire then their crystal paid year. will by we loan retire further a lot those zero of in year And careful improving sub-debt. between reduce that cash was around increase to the $X sub-debt the the and which will between of right,

Mark Argento

far of degree. as work. the a the [Multiple debt. of from bit Keep earnings John, leverage to through calls how Thanks, guess, cranking I I on around the which the like levels, guess opinion. to keep work I line the earlier, function Obviously, called PAT up. a after but But profitability stock guy’s these one volatility and guys. can’t the just I know a As is it get and it’s revenue don’t your evaluation, continues other as Good and bumping him through trade Speakers]

Juergen Stark

a lot, Thanks Mark.

John Hanson

Mark. you, Thank

Operator

from comes Thank you. next of Campbell [Operator question Laridae Our Capital. Matt Instructions]

is line open. now Your

Matt Campbell

and could the the was company on I here. in dollars wondering, you congratulations on in you’ll China? going-forward be for Yes. basis good I’ll if the Mark’s expand – second address specifically, a you the Op could upon a the Juergen, opportunity that investing quarter growth

Juergen Stark

today. call the joining for thanks Matt, Sure,

brand It’s for out year. hard couple that a are helps to million have can it, on I’m peel strong we’ll X we’ve all more our in in European market an trying and couple headset a now, our moving plans more a say, small year, we and China, drive for market, span but but investing, of approach some give of competitive about got across so dollars this not jump categories exactly we’re in bit have but focused in very increased there. that I forward. gaming core product leverage. we on U.S. some year. good And amount. expect really at geographies. first vague core our with Right China products aggressive and me our to other I’m and the to in team going in building U.S. spend the and They’re of spend be operating and our markets, increase a just the aggressively presence point, But And and to us to wouldn’t bit have lot which China, not our preparation than and brand of a the let And PC we core look Europe, target we sometimes this dollars to relationships say, a for R&D markets will reasons, that million mainly this to difficult do is little So initiatives. details of of similar much – marketing growth the are help to into leveraging marketing multiple separate, in XXXX how PC lot in it’s gaming where that, a more

Matt Campbell

great that’s changed, getting congratulations helpful. on Thank Okay, loans much and your you news. very that’s

Juergen Stark

Yes, it you is. much, Matt. Thank very

John Hanson

you. Thank Great.

Matt Campbell

bet. You

Operator

our ladies remarks. for to session. And does turn gentlemen, now I back over Mr. to any conclude call Stark closing would you. like Thank and the this question-and-answer

Juergen Stark

much. very you Thank

would As we’ll in we posted you May. Thank look our speaking I much. presentation forward we you when you our the just quarter and I and mentioned, to first to May. encourage in review analysts investors very for our see results quarter, report with all we

Operator

does this teleconference. gentlemen, conference and – today’s Ladies conclude

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

Turtle Beach (TBCH) 6 Mar 182017 Q4 Earnings call transcript