HEAR - Earnings call transcript Q2 2018 | Turtle Beach Corporation

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Operator

Good afternoon, ladies and gentlemen, and welcome to the Turtle Beach Second Quarter 2018 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 be given at that time. [Operator Instructions] Before we get started, we will be referring to the press release filed today that details the Company's second 2018 results, which can be downloaded from the Investor Relations page at corp.turtlebeach.com. On that website, you will also find an earnings presentation that supplements the information to be discussed on today's call.

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 further Beach involve risks 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 encourage specific cause those periodic harbor statements. limitation, statements you reports, and press to annual recent on described XX-K to including, Commission, review and the Form risk release most XX-Q, differ also identify or factors today's report results Securities their events on forward-looking materially their in in and without with the quarterly 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 the 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

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

Juergen Stark

months be quarter. more that to members our loans Beach year. Company area the execution recognition earnings retiring four toward by On outstanding job outperformed is for strategy, the year coming well sheet, the to prepared Every persistent noticed investors. a everyone, raised the including great have done. Through an balance results the of we value, the of which the you we this deserves do with all the renegotiating all year. usually team the us. the in undergone actually eye issued And our the It's have and had of guidance strong something market and B of towards of had getting excellent afternoon, produced for I'd of like liability. second proud are and to over Good half I building strong long-term thank the remarks results and and of reviewed members. another transformation Company growth first We and start a team our my you last and first joining Turtle team. for end, for couldn't first the our thank we call, Thank our Series together recorded beautifully, quarter, quarter, for guidance the all for I

continued our net we became Company we outstanding and gain to Over our quarter, to acceleration since levels significantly expectations beat did saw public what to had and of and in in the video with and the That's in the We operations at then, continued welcome financial strong in since in even financial incremental analysts rise of Beach's gamers another has game headsets interest recognized the the combined Turtle have exactly can months revenue, produce market, the EBITDA highest new Beach be investors the and net strong in quarter June. products the position love great the adjusted some margin, and the Sell-through quarter. even performance in XXXX. income share growing QX. with attractive gross brand, own market headset Turtle be who leveraged results. investor three leadership

increased products reducing air inventory. And margins low we at we strong keeping than lost in sales expected incurring our maintained better to stock did due despite and also freight costs. We

already is paid than debt. position and Our of more $X sub Friday, as down last million and we of last revolver ahead a million $XX balance year result, QX cash

an industry growth. were Why often $X.X believe in category. operating rapid get has the all-around fastest strong are asked. into growing the We put, track growth is video Of consumer experiencing in we XXXX, the games an spending trillion NPD entertainment phenomena. we evolved in Simply gaming

you If make the like the add all viewing favorite is playing PlayStation, hours console arguably the plus that Xbox, world's Switch gaming pastime. up platforms hours available,

an be in our it's exciting to time So, industry.

this particularly up year-over-year quarter. growth Turtle in market gaming QX again, higher XX% The U.S revenue we U.S. XX% experienced Beach more in the next growth, versus continued Our second closest in quarter revenue console market second well last the headset in in versus sales year. And market grew QX continued gains the XX.X% in headset the entire was as competitor’s Canadian strong QX. growth is share The up by in for own Beach in Turtle than our was in the quarter our QX as by was second the in were revenue in XX.X% market in a and first. Canadian year-to-date, share fueled console up XXX% and industry over QX from growth XXXX. and the gaming and XXX% business at than

UK market revenue the major headset well. data, share. GFK Our as span example, gains year-over-year and versus market In Beach market a up while on rest share XX% European outperformance our up the for XX% XXX% based with Turtle gaming is the is console of markets

also a good most Chat grew products us and or price we’re PlayStation roughly we accomplishments so we while this headsets retail of the XX% price became Within approximately our XX% are at headsets share And the we $XX the point. NPD our May the Xbox over to the gamers chat chat price quality, categories. in to growing for top-selling and is have with months our using the of below year-to-date the numbers, few $XX $XX the tier. entry-level last on way share pleased $XX helped of grow well-designed year, share tier. sales year in industry and price Last entry-level did our Recon of below both Headsets, launch, the One introduced

one for both PlayStation PlayStation two selling the testament Beach. retail winning top-selling one on of of second five the U.S. selling the to gamer. console Xbox number and headsets headsets. not X One price other top-selling PlayStation headsets our It’s John X, had of wireless year One cannibalization and Xbox very John? the full-year least. the on And all sellers the headsets with addresses our We on outlook introducing say top according headsets. number the were sales highlights mid-tier and headset, Royale greater craze a and revenues had X level was one and console number NPD XX Turtle points to one every One great entry-level top will a half four Turtle chat and good Xbox number both Beach. number A Battle was selling few timing products I X, in quarter Canada. this through All financials Xbox after wireless in our product to walk our are and the So, entry-level headsets, in these Beach the headset at gamers, PS -- console detail. line Turtle of new a of business many developments first with the the our One

John Hanson

second in $XX.X of quarter commissions driven and Beach's same compared by gross increase compensation, partially higher June and basis in to cost highest consumer headsets XXXX year. second expenses $XX.X web of volumes, reduce is gaming which ability an XXX% was a second strong Net The Juergen, was second everyone. expedited million $X.X public leverage. last revenue manage the outlook, second an due Gross good in the by significant expenses margin revenue impacts period better as primarily XXXX increased our demand quarter quarter normal relative quarter million to company. the to market record air in primarily was the for in in and Company than quarter and strength year-over-year gain due to share The volume-based than million to fixed sales and marketing of and increase compared given share spend allocations based consumer of and XXXX incremental increased year. increased was a margin out-of-stock about $XX console to second and by month. XXXX. in driving million Thanks, million last the to the increase offset continued, costs, in XX was to the retail in Operating $X million costs, robust freight. quarter in higher This versus Turtle XX.X% freight driven The history XX% also afternoon, $XX.X the to supply This variable sales compared higher points approximately revenue to anticipated in revenue-related to XXXX. of to demand, our increase

growth expenses of loss or second per increased diluted leverage. compared million the operating $X.X per in a was XX% in record share Net to to a our quarter. in second net $XX.X a increased diluted compared income operating Adjusted significantly and year-ago, the improvement to XX% leverage. favorable As of a or revenue, $X.XX share, the quarter fell quarter The to EBITDA negative compared of in the $X.X $X.XX driven a quarter percent million second million sharply million $X.X record to reflecting net to million expense XXXX year principally our of by ago revenue quarter. $X.X year-ago

XX, facility with cash equivalents the amount a versus million Inventories one revolving our Now, credit $XX.X level million, into and going cash turning We facility ago. $XX.X half. ended to million at $X.X million million last credit June the the second and million is the year XX, XXXX, higher compared net of our $XX $XX XXXX expected equivalents March year. XX, with revolving position XXXX, and in the of cash outstanding million and at under sales were cash in at increase to $X.X reflecting under $XX.X $X.X balance to outstanding cash sheet. compared June no This million quarter

our recovering on $XX debt $XX.X the Series decreased more obligation was of based million June XXXX June XX, it subordinated principal and and retired by million excellent about at XXXX. term XXXX our execution million the consisted factories a stock at loans. preferred We Total Recall in warrants B at million XX% our the to of time outstanding $XX.X at June stock $XX.X was levels XX, are $XX.X whereby teams million to inventory the transaction combination debt April, and operations and than compared at also increasing a for The supply. of cash, in discount. debt XX, that in

to leverage consolidated trailing X.X by times X.X and loans, X.X end year EBITDA, a compared times just define debt and which significantly June senior as revolving average times, ago. divided the XX-month ratio total debt XXXX to at XX-month term XX, Our adjusted one of we at trailing XXXX improved

As you filed may have universal million statement. customary seen a registration today, $XXX we shelf

no have companies. a our interest raise shareholders Company as best we norm is current many to it place in the capital, public determined Board in and While plans for the have of is our to the shelf

to Juergen This subsequent total the our outstanding maximize further million, to paid debt our balance and bringing million subordinated our reduce value debt fact, $XX.X as million. the of $XX.X for In holders. debt and quarter, equity $X by we is mentioned, supportive to commitment down subordinated to principal

let turn over Juergen, words I say Before about me taxes. back few a to it

an of internal forecast. for XXXX assuming currently are We of our for rate purposes X% tax effective

recognition regulations any use over but amount tax thereby our utilize Going the be still of to reduced. our given that effective impacted be forward, certain could somewhat IRS rate. could in would NOLs the available spread require able be time, the be by increasing year NOLs Would of NOLs the to

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

Juergen Stark

Thanks, John.

third the full-year strong our color increase to Now, industry I time that last Battle on outlook. dynamics. of the I'd our and quarter introduce we would mentioned provide some like driving view discuss dynamics of and more Royale market some and the market

well rounds supply to as industry inform consumer and as our done of modeling forecast planning. primary help two research, have We

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well and of Beyond titles headset if any headset. going a the gaming a will sound, a And as headsets to or release. the they believe We forward. and gaming any replacement for level specific big majority better be collaborative is would comparable of immersive as if here be this holiday change or jump social to by independent has game. that of large the in mode upgrading, gaming Duty stay. drive and competitive both of believe level gaming Battle this that which as given PUBG, games we unlikely. these interaction, the in specific fad, new don't only Indeed, example, be of which gaming this desire believe gamers Fortnite it's function drive of the to because game vast bring believe of stop announced same gaming like headset We a of Royale won't is a competitive could experience, influx That driven size the with stop increase headset a users highly Call social, fun don’t with their we step market market an

drivers turn these over to for I'd in our quarter let momentum me walk to But third our expectations. our mind, what outlook So, first, increased through XXXX. like

compared to the XXXX. in approximately expect quarter third revenue XX% net to increase $XX $XX We to million million of

more holiday the from meet $X.XX game depending are net often $X.X revenues September variability demand. per year, $XX of and continue This can impacting major approximately third current somewhat estimates expected is QX to gross and in well the of launches that than of third move million, And operating QX. in load-in significant sales, without we in and between approximately Note well Adjusted fill but XXXX. as year. improvement and higher QX as September mentioned result improve past, be quarter as share how income improvement, late supplies in our quarter revenue in easily starts is leverage positions a and Net to orders several share the This favorable October the in have reflected to we that to impact have triple split the actual of XXXX. expecting in-stock to because is our expected the October the some the $X.XX to channel QX of of million improve of margin September. expected on to compared could improve there between splits per expenses. EBITDA can Our loss in

and of year full-year up on gamers, Trying than to in crest, to $XX to will, of key and before I it quarter users, the this In water difficult. the predict upgrade meaningfully leave million puts slow wave games three, our we've driven approximately a of in increase moving outlook. balance sell spoke Number down style the majority we incremental million XXXX, sales that level. driving now second replacements believe the is market. revenue higher at compared influx point. May know driver; for the that driven by gaming to headset new will installed increase timing from $XXX one, our of new crest Royale to We revenues is reflects crest, the some a We the traditionally Now $XXX.X at the roughly will gaming after and in through continuation million been is the outlook. usage XXX% Battle of games which of XX% XXXX. two, Royale headset net we the all rate; over know per point, users. about million but, last Battle seeing from base XX% roughly higher half dynamic by increase quote, expect increased This and a new $XXX XXXX

You Fortnite is in we far. and new sell PUBG. any can slowdown again, the planning slowing see our crest. of That’s that through meaningful working that the from raised the on. not influx to And seen have note predict estimate for some by we are in based But, so gamers, of difficult driven guidance it's the guidance timing our

from the reasons XXXX marketing second or several in be headset half a products, there additional gaming and/or would and expedite to users expected due expenses growth. of approximately the offset for additional and investments gamers future the compelling supply dynamic are we Indeed, base planning be well Based to upgrade, sales their occurring headsets. QX is replacing margin for crest second of costs separate quarters, our upgrading drive are this, versus which upside expenses, increase leverage up going to scenarios. we’re half independent to XXXX on by impact variable many expected now Importantly, impact deliver timing usage operating in rates the higher dollars to able as headset the of higher is installed product including revenues. million our to select from of Gross Operating are XX%, as crest.

approximately comments. our of expected outstanding. from assumes a net now share in loss to outlook. a share $XX $XX is effective forecast Per EBITDA approximately in As expected per are in to of estimates May This in to net up May in is XXXX. $X.XX shares XXXX. Net adjusted per per rate significantly John's per to income estimated X%, $X.XX result, share, up income million diluted to million, $XX.X now our total significantly compared tax million is million $X.XX based compared XXXX improve from and an XXXX upon in outlook XX.X This to increase share earlier the

million outlook which $XX over Our reduce cash positive believe full-year us flow further anticipates this to time. we will free of approximately year, enable debt

remain the address remainder this like our priorities of Given strategic XXXX, unchanged. which I'd for outlook, to

the to lead headset continue console First, -- console core market.

the the year nurture coming capabilities distribution, believe on plan to as operational this make focus that in more our and we all well. of broaden to We will leader our and We to brand great we segment. products continue merchandising our continue some have us make to investments brand, and

coming and e-sports this economy million year. will in investments of increase presence advertisements, to non-endemic indirectly, will issued XXXX $XXX burgeoning directly, and will that a by of last XX% almost our million, a XXXX, since in and the generated in XX%. drive made e-sports the market. grow through be XX% According and media sponsorships research Second, endemic e-sports growth licenses the $XXX year, Newzoo, year-on-year Over market to global global content rights having spend brands by over

Ali of the OpTic with such A and franchises e-sports a additionally have other console fans. brand to and and players influencers core leading brands a Gaming, of proteins, Manchester we've are sports some and DisRespect, way our gear Knicks including and this markets As to as dynamic, their iconic including partnerships in City others, as Astrolists the plus most of of earlier, premier foundational providing gaming of professional such create headsets with together, the some PC aligned gone year's their traditional Gaming. we the partnership mentioned Steve and as measuring headsets initiative of headsets And integrated gaming out one among with as e-sports top part teams, Houston Dr. and and world's our comprehensive Outlaws, high-profile

Third priority.

invest future We will to continue growth. to drive

as in launch core North in with soon gamers that PC and China us. untapped a markets. several As in plan European China core And gaming new The gaming well headsets virtually our great to PC market. we’ll the the gaming our I've is by markets. based opportunities currently we gaming market size recent on calls, world time, and and research gaming future. accessories first our prior brand mentioned the in that in priority is headset believe non-headset PC is our over announcing we known be market like on and as focuses we geographies growth have commissioned, the we on headset similar That's new believe American console PC and relevant biggest with products

year increase in as modest second some investments but focus currently China, We’re future a intend making this in the our to priority.

in to gaming We which also can distribution for great future areas and we evaluate strong product our leverage growth. plan brand other

to performance year-to-date leadership drive resources there on and pursue us headsets place to our like we category Personally, to after resolving we’re and our what questions. price has across have to proud great issues, good seemed be. are increasing a exciting future ready Being employees, five and the in efforts years Operator, take with accordingly. the shareholders a more I'm most of hard what flexibility partners Our a the position balance best-selling we've sometimes would growth, we’re and now of ourselves the in take is and insurmountable clearly that sheet put console planet market provided work to are argue in I position with points, focus gaming benefit. nearly is consumer multiple advantage

Operator

Our Capital. comes Street of Mark Instructions] question Argento first Lake from [Operator

open. now is line Your

Mark Argento

see quarter. on Congratulations continued to guys. a exciting It’s spectacular momentum. Hey, the

able terms the demand. thinking So, retail, to about to potential is how do holiday the have conversation holidays or a really sounds for at. manufacturers then, are like think planning about situation, have secondly, lot whole in And you doesn’t kind you guys out capacity of given do couple gifts of thinking here, is of guys that quick are it probably be with your headsets in like When hopefully this there we a with you to the there electronics of deliver go else are holiday, sure questions. big that ,making out at could stock the be? you of not as year, as How are just season holiday you you the if seem you type -- are

Juergen Stark

the for thanks and congratulations. Mark Thanks

So, remarks. yes, that's factored holiday monitor is all been comments we including planning, retail we kind a factored modeling, our in into the going when of stuff I weekly guidance, sell in like couple trying of used difficult through of gamers the and of made got We’ve to that’s to to of stick analogy I through, is remarks. new the this influx the forecast forecast in and went quote, some to crest, the prepared which that bunch

though, are guided a from also what of inventory accommodate to able planning we supply really mentioned to. I part So, important scenarios some and planning this is that and we've to our upside be

that done that that operations means and and work our have lot all that that their you a supply ensuring of is done inventories our our helping with ramping the have fantastic from us team factories and job we’re So, QX can numbers. capacity, recover of as factories along see

don’t components. one that to I continue. on sure And we planning is far -- work used that we is So, supply other key the having making you’re long times complicated. components shipping and lead for longer element and going second on holiday then, have have before, steering That is have more the wheels, They’re analogy not cars.

of planning cases, and until have trying done attention scenarios trying for meet I’d on months can component not optimizing we sure -- be That inventory long But, to won’t lot to from deal an through upside everything and So, build that buffer inventory, we paying all it. this to make say it’s have been working is that. something easy thing multiple lead expected. from higher we QX point we’re which partially holiday four that at already of a can and not had with whole operational The you a we how is Not sure in component we we’re execute long-term to fact freighting, the of if suppliers, items could we upside an driven good very done buffer were by the with inventories results lot as a better use job see there set air of keeping execution year-to-date. relationships of all than the but our right easy, to team’s have a the was hit making that. just to

So, that holiday. and about thinking that how I’m continue the that’s kind we’re hoping will

Mark Argento

of are in NOI right tax the carrying you protect you at ability one that effective And hopefully are up, but quick. obviously terms now John, earnings? now? of to right kind get of rate When the about of think X%, And your looking you what some what for choose you to

John Hanson

Yes.

assumed federal’s $XX the side which a did have we assume state X% federal NOLs have existing guidance, million on our now, million in right we NOLs into And tax the or strong $XX about and utilization year. that would this of So, heading states. rate effective the over

And on so, any utilize what from basis for can have not XXXX. we that we will NOL been the assumption an has limits

Operator

comes Our next Thomas of question from Forte Davidson

Thomas Forte

my for Thanks question. taking

wanted tariff. turnaround, consumer that questions remaining One, two Turtle thought ask. you the So, And incredible be that in could front Is then, here, Beach? is tech the hot there tariff anything particularly what’s for on to the I topic spec independent? orchestrated two long-term in concerning potentially your given now reports right Juergen,

Juergen Stark

Yes. way. Tom. great with And It’s among you by the group the us analysts. the have in Thanks, to welcome

comments work by So, beyond I've of well me question, first turnaround prepared the the about that's that a acknowledged the as in people lot I remarks. appreciate the hard

don’t independent. You Honestly, being asked about I that give much thought.

continue being forecasting, an deliver obviously supply, to public products, maintain of level our independent that. being right We’re all to on company. able disadvantages do good of the to focused advantages And and there's

do a something share we long us give into. we as are it's products our great and of and that putting as that, market lot can continue think the that things I not to thought So, leading all

monitoring. day happen glad you you going I'm that’s closely then, don’t that. different factored you guidance know Yes. It's a read holiday Every that's very exactly the our to news So, one. there. and actually. And asked for all that number is what's item happen about are could something we we tariffs. into because asked about It risk

also going And implications and would it's happen, too important and it. we’re then that. be tell what's say, both So, early of monitoring in there to terms obviously could all I tariffs freight, to

factored we've team top but to because be whole the kind able of I about very And say of environment in, think right more for uncertain it, it that on I wouldn’t the everybody So, well monitoring. is is tariff now.

Operator

Thank you.

question of next Our Maxim from Nehal comes Group. Chokshi

Your line is open.

Nehal Chokshi

I Beach with Thanks what you is do but help increased console actual this past explain have for to a attach discussed is users. on the the rate have probably refresh what’s sharing first your sense of survey the users? guess, going to for is that Turtle you existing thing in rates

Juergen Stark

it. and do Yes. discussed We we have

months refresh XX to cycle. XX a like is there historically, So,

important kind Now, got really that's curve. of normal band, wide that imagine note it's distribution like on bell to a

on is average But got XX that's months survey a data. the range. XX So, based to consumer wide

upgrade will will and a people want upgrade work they’ll them or people some it never break buy them, and headsets a they and in matter of or they months. will an some replace headset buy just So,

So, our two working is assumption here in our around historical basis years.

of is So, of that got, reasons headset half more moves kind our if for base that working to But my users is we've analogy, one this XX water base, bit and for why then proportion it you or line impact right compelling hypothesis gamers up upgrade, would for cycle. will PUBG use that and to year. I'll that of and line independent Fortnite installed around, the the tell the around gaming of little a half are of that the this from higher if water replacement. I be is installed the these you of there stay headsets than new XX people games now, though mentioned, factors come to would because example, influx up that rate each obviously months more of would that all would upgrading have

Nehal Chokshi

Got million it. of XXX an do guidance of going in your CYXX as updated opposed user? then, you to that what is for be think refreshed And to percent incremental

Juergen Stark

quarters, would But, going gamers. in then the the and the out of new that the break market a I be would underneath be to it’s this -- That's able question. normal two good And our that’s influx to because upgrading. sales not say, across quarters. replacing Tom, different very been working of lot first a have I

of coming then the lower And are, some our normal upgrade, earlier lower for QX, include majority in guidance in will replace way the from gamers which that, be revenues that would the think new the as QX we have somewhat by and reducing gamers, a then of I in of the I So, of think new influx the that year. somewhat basing mentioned, level we on again QX.

and based tax you’ve replacing, underlying hitting QX of So, we’re got modeling and in that then kind this and independent guiding market upgrading again increasing of crest, rates. upon the of than

Nehal Chokshi

presumably influx see or average finally, to to tick back I influx then, down, to users, going as gone then And start finishes possibly had that guess has we’ve of the your this as off, off but ASP you’re ASP up?

Juergen Stark

and and because I very it’s asked give discuss don't all ASPs time sensitive by get it way units we the ASPs, did We data. the but competitive

disclosing going are ASPs. to not we specific be So,

of well-timed tier say gamers of kind as by investors that meaningful those we metrics. these every But For certainly the down kind not of my me, models some have up entry-level those of market the in way we’re But our have segments, ASPs is least. mentioned price gone going share in who’ve asked stick way. There new was I the in remarks market to significantly. to said, and -- the high any one is broad bought

In in by for our market highest is the That’s revenue $XX. Stealth revenue year-to-date. the fact, XXXX the wireless top-selling product product

that seem significantly are top could price because growth. in to the ASPs to So, assume I down know from QX the in this we that going all tiers backup underlying don't go benefiting of be

Operator

of next question Alex Silverman comes from [Operator Our AWM Instructions] Investment.

is Your line now open.

Alex Silverman

help free you do How think million, your couple ahead? use how the Can with things. it of you $XX about us cash year you in a

Juergen Stark

Sure.

we So, continue improve flow over cash of be also it time, obviously, well, to will And we use initiatives. growth balance use already, funding debt started down Alex, and sheet. to then, the as primary which mentioned we’re pay the some

market. to of will are level more headsets and QX couple PC and by flow soon new all down kind that got to investment, market the of otherwise be now cash going announcing focus improve in free the that used we’ve including debt of as And a support and upping the are be part PC numbers if pay that’s in will you but that. expect So, got not gaming our of get our be to that's entering the huge way and going to a would a you sheet. That's balance

Alex Silverman

guided and shelves refill refill of the where catching-up? terms then is in you'd second point of had in-house first, refill then, sort the -- at your the And you one channel you warehouses, third. are Where

Juergen Stark

we by good Good for all point us caveat by that. all we’re Yes. perfect geography, how at XX largely our recovered. where June the -- -- board inventory. are Not and by just was the our of recovering, in of product retailer, very Shelf QX. of saying me by general, now low Channel varies the end we’re a good. it example And but let in model it recovered and across But we've and of now question. stocks That’s widely I recovering would or the in-stocks now million our XX of refilling versus And in we where inventory. levels May. are XX is think that terms mostly inventory and start and are was recovered, to now now of levels, inventory warehouse I significantly rapidly level say. to point inventories kind of able own

in So, really pleased for our trough kind less QX. to initial I'm through and of to than originally in with that we’re had revenues we fact our -- our disruption QX with into predicted ability manage built guidance a

Alex Silverman

Does you in didn't or fly inventory that suggest August? to July much that have

Juergen Stark

August. not we or No, a did. July million roughly, We $X spent

some have to or we QX. like some we things it, the did will we QX, be way, in and especially and expected air lower in because always By of late but now launches freight, have QX early uses that. you you it it Sorry, QX yes, what kind in of if product new the significantly

be we normal of million that higher level much coming than is $X kind now So, normal the back a it's into I more not want supposed in level. to clear that had to but QX certainly be and zero, at

Operator

you. Thank

Our Hill. Will Manatuck Hamilton next from question [Ph] of comes

Unidentified Analyst

what just you've numbers, a about just thoughts the strong next would wondering, the that your that would want it It don't survey little installed given talk I to upgrade high-level color pretty some after you the could great. for from the but was can I on mean, and you just demand you you I of like higher XXXX? be would year, and we seem there have base but more know, Juergen, healthy, expect be other data, this comments still that any got now your cycle. give year? prove bit

Juergen Stark

Yes. Thanks, Will.

sell what not are never put We need to into the XXXX, do through, prepared see need shares, other that. than by the holiday see you to We of on we all commenting market way, because you remarks.

won't comments at So, further point. XXXX be this I making to

Unidentified Analyst

And certainly understand then, and the question, that that. on separate I

terms initiatives thoughts bit OpEx, containing more a tight given just Just pretty the those forward Do or we your of expect spending on going spending. OpEx growth of growth remarkably little in some any there?

Juergen Stark

costs somewhat level PC. can in by marketing increased do way. kind tight any staffing Part back that’s expect levels we OpEx We of That's investment driven single-digit a driven of do flow-throughs from few of sales costs EBITDA. then Yes. No problem. the and shift, selling of incremental in see and increased a half, or millions. in to selling higher and you million meaningful led not high run have We

to we’re the balancing also out are being our able maintain of of that lot very of balance. to make of be burning a our volumes able with given that. level to work selective We needs It all in keep to healthy But, to it demand. the up making the and sure not a while be careful OpEx not functions employees on takes number increases to overdo high teams are work-life

Unidentified Analyst

question deploying free just capital, terms then on And the Alex’s on of cash a flow. in Okay. follow-up of

o $X the You or gone net, you million quarters end are of these paid part the of to be be off the I subordinated that paying of mean coming in that by more going early here, ‘XX? off year should

Juergen Stark

holiday. in the that capital meantime would the the here reason we by is we of say I off paid because goal the do more working And why need have sub the is our for XXXX. end wouldn't be to debt QX

interest costs. sub so, debt. And on a all a is various small balancing one prepayment There penalty, the we’re the

moment. And right we capital along. of in to the all and stuff working comes and game sales kind So, that's the gets pay way down at QX, to plan. it, we could for the rest use by in John default that holiday. debt. finish extra operating model then, of tsunami now in sub holiday cash to calls our the It use cash, of factored as then But, plan we the that That’s of change But, the the in. we the want go get holiday, that kind

Unidentified Analyst

or was there replacing any comments? close the after you Okay. be filed the shelf mixed questions I’m expired And just that. just lastly, is sure of that that year, -- about there’ll a something then,

Juergen Stark

Yes.

have public So, And we obviously part operating expired. shelves ago it had and while companies procedure. a normal as shelf of just a

had just They we we so, listed of because -- And constraints B some put would but a few were sooner, days Series one transaction. in the ago. there have

so we we’d just remarks. did timed make And intentionally so, the some today, do have the in as we it prepared to that to comments it ability

Operator

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

Juergen Stark

for appreciate Thank all the very questions hard in first good of half you again the interest I much. our Okay. Thanks in Thank you good keep very our our the of quarter employees Again, and the the the work speaking third to to Company. and in investors forward much. all And report work. up with we look year, analysts, November. we results the when

Operator

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

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

Turtle Beach (TBCH) 6 Aug 182018 Q2 Earnings call transcript