HEAR - Earnings call transcript Q3 2018 | Turtle Beach Corporation

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Operator

Good afternoon, ladies and gentlemen, and welcome to the Turtle Beach Third 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 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 third quarter 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 the 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 to and future Turtle involve risks uncertainties materially results results Beach could statements company’s and regarding management’s These operations the the that cause Corporation’s current differ from the expectations. risk report the Securities The and today’s contained you quarterly including, in to reports, other company annual forward-looking described their that release Exchange and XX-K the statements. events results encourages factors risk safe review harbor press those Form limitation, the which specific statements and recent without factors may differ on their periodic cause also actual in to Commission, with filings or most in report XX-Q, and Form from identify materially on company revise the any publicly conference forward-looking update does or call. after of this date to statements not The undertake The company on also will call financial non-GAAP noted be discussing they that information. this providing is prepared accordance in as accounting a that supplement in accepted or to the principles information generally GAAP. States information with United company The

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

Juergen Stark

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

and levels market innovative great due prior The and of another market. console our products As last both gaming phenomenal strong overall to growth gamers our communicated of headset portfolio for and outlook. quarter year profits delivered our compared to share the all we in pre-release, record of the growth is in our to

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more John, like acknowledge Out pleased innovate third you detail. with developments business other our and couldn’t over I I’d beautifully addresses of the for John? Thank our full every after a John It’s in to I will to walk together turning of quarter members. company well outlook be it team our financials to all team. performance through and greater our of job area all execution. coming our and Before done. continued out

John Hanson

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

Juergen Stark

year strong discuss of and fantastic Thanks, fourth industry the the to another set John. some results Clearly market I’d outlooks. quarter introduce dynamics full driving increased our like top from to bottom. and of

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to for sheet we’re balance In position best with growth course, dedicated this we one about And now ourselves market enter. in put forward. and a better our summary, in and we to proud efforts I’m quality now to to and much a we’re brands would a talented, I’m record of drive financials, innovation significant great to ready going improvement in. given be the are I’ve gaming have track mentioned, position our questions. naturally And We such the take we as that excited we look strength of to take grateful any of future. segments of Operator, the to advantage hardware bring group very colleagues new a with so I’m working in

Operator

come sir. Capital. first you, Lake will proceed. of Thank And Please Argento Instructions] question from our [Operator Street Mark

Mark Argento

have solid couple a a around. questions on quarter. Congrats I

up year, been rate about a when could retailers you look how look If you from clip thinking So, think that you’re sales QX up talk decelerate QX of little what XX%, up nine at just about bit the such months QX XXX%. know wild a little a guide to going the a trends XX% guys to you’re bit we the but through the at XXX%, high the it’s the holidays? would if and first believe, in? I it’s QX I were you’re XXX% you growth of card, hearing a

Juergen Stark

much, we’ve these at larger us. in of Yeah. Glad thing asked amount like gamers Mark. market other that That actually. market revenue gamers a underlying mentioned set new It’s to QX. is where QX year. based millions I’ve like Sure this than on with or Fortnite you of and The QX this that year there the entering quarters games PUBG. a look dynamic past; rough and much new a got for is you and the in key can QX the as is of number during than core QX larger in the

in new is of of percent much QX. kind that So, that total market a the as base smaller installed

drives So, that’s revenues about for that in typical of the in market. year does XX% what Remember the the that QX, numbers. market all the

in retail also all QX retail. about So, that view it’s who me new market trends are of than lot There super QX. than or QX expectations, you The in higher consumers getting and it is asked games basically the everybody contributing already is in what a is we from much the by But particularly upgrade good your QX driver. earlier we very That’s from have strong denominator And even excitement a way see QX. much, to reviews. this entered is as the year are excited.

quarters an -- comment we’ve mention stronger we prior than reinforce to components in from past as is guidance other revenue forecast now the upside hit plus scenario be would would provide forecast we’ve scenario. in I’ll case lead that able is secured inventory market comments long an to that our The the upside our and the for fully just inventory including secured thing

Mark Argento

retail a I of That’s almost manage going over know couple know helpful. years the years I in think of like into the ordering ordered. has been past terms over in seems counter or you were it they indicator I ordering, what’s past -- in under historically in guys do put How a still you’re an through retail? decelerated, and on growth though from environment like allocation absolute pretty but you the dollar now robust Do basis how pretty percentage with environment you strong? guys or on retailers said even managing have right an basis basis unit to

Juergen Stark

Sure.

interact The to less estimate pay I know ordering. about we or they’re to we And one, of two So, we you across will expect side. right their What on don’t the detailed attention by you model markets. years, answer they’re asked that’s more use -- them past order the negative first tier updated sentiment. that terms retailers sentiment what our and weekly is or we retailers in what on of the price guidance, we And of to drives our have be on basis And is either attention what and under on retail that, number by them the part retail be tell let to what pay modeling to analysis all over ordering give to levels. given based core we gets we sell-through analysis. positive the is a sentiment inventory with the tended over to retailer retailers to by need the

modulate in a is you’ll a their inventory of We’re listen QX, will accuracy of right pretty and never would we dynamic portion get By market. perfect. damn try they QX it us X% hopeful X% the ending that in for a big the be place. good to ordering in be level will QX to way, and their This one can

we So, get XXXX comes you which QX. it why another guidance never for we’ve out is reason everything for until perfect seen don’t give where

Mark Argento

queue. back Great. Thanks the hop guys. I’ll in

Juergen Stark

Mark. Thanks

John Hanson

Thank you, Mark.

Operator

Thank you.

of Our McConnell Scott next question from D.A. comes Davidson.

line Your is open.

Scott McConnell

my much so Thanks guys. for Great. question taking

and real retail, PC how can addressable you from headset on market that it’s of PC of how the landscape that’s on headset to you market then talk you has early headsets in the differed any but still hope on, have been how much Thanks. in the capture? So, sale market? the updates if console competitive And about

Juergen Stark

little Sure. in it’s more distributed of market. the It have bit Thanks stronger the console doesn’t just very that we It a the number to among like level evenly competitive. have of PC do. share Scott. players tends market, any is market a that players be

market So, overall. regard, a the in is that we that positive as because growing view

our over console. grow be it’s -- players. it’s So, against time given share, but revenues against probably -- we the them for share much to other hope take can we taking rather us And how us we’d in without competing obviously, than would competing be strong is share from they

larger our our the roughly In than over gaming headset that the is PC terms expectations of gaming time, core headset market mind size. geographies double market, in in the keep console

part indicate that of doing. once overall size changes will meaningful we real a share based it PC, we’ll relative on console we’ll And happens start in a as the outweigh market. numbers, start But for we’re to meaningful, will anything small become how of will So -- PC our more now, take becomes business while. just for gain our it in the but

in be kind time like couple of of for lead we realistically Lastly, it over would but that That able I XX% gaming console, range. that to us to XX% share get next years in headset. time market be in top category get to we that put share over the would to great be hope the more is us would would and we PC hope couple in the do in the

Scott McConnell

Great. Thanks for my taking question.

John Hanson

Thanks Scott.

Juergen Stark

you. Thank

Operator

comes Chokshi of instructions] [Operator Maxim next you. Our question Group. Nehal Thank from

line Your is open.

Nehal Chokshi

your I Thanks. But prior Fortnite to on that, perspective And base the headset guidance the a on phenomenon? get Turtle has do growing get fast to been that. before how have nice question installed here, like to I’d I Beach

Juergen Stark

I but I probably be rate would gains faster share to market quite You know think that product of that rate X this year’s estimate almost made a Gaining of over couple my obviously share would fair digit top years last that mid-to-higher off I installed have the number given strong have base the don’t the speaks position obviously. has then a our our Turtle at single would percentage grown Beach head, And portfolio. estimate. and points impressive much is growth

Nehal Chokshi

rate grown clearly Definitely. you do digits the What’s your -- during overall historically. headset has from as single analysis And then it’s console faster been the Fortnite as phenomenon? far high base market, what that than much guess growth of installed the best

Juergen Stark

Sure.

on of analysis I So, magnitude. the useful numbers to here which be the would of kind to rough purpose of mentioned couple idea everyone a an give

and reiterate were I’ll sold gaming headsets incremental gaming September through versus XXXX year U.S. sell-through This X.X. So, console this is here. data XXXX, in X.X and million units, NPD XXXX. sold Canada million same just X.X were the period in headsets

million almost of So, full XX% -- in is two year sales. the X.X X.X of those a

gamers it’s coming the of in mix million to use users headsets X.X users, of headset weren’t things. new new is and who existing some gamers and or a headsets it’s brand It’s new before. it’s Now headsets games, not brand using start two existing buying that

through how And units a incremental idea September. should decent progressed of the have so, you numbers even of that set

Nehal Chokshi

which guidance XX% year-over-year, quarter, have one you assumption And same revenue you or mentioned in same of will right. the the users there is then number percent the that new December all was incremental that of Okay, the it? headset

Juergen Stark

Nehal that would? you if Restate

Nehal Chokshi

Sorry.

revenue have usually typical? incremental December like users that’s or is dollar might XX% of it guess quarter That’s you a attributable question. the in So, amount I to your the

Juergen Stark

In that’s past new came peal performance and to nail try are But quarters. headsets upgrading to indicate from that’s example. And hard users and to a out back number our QX that. to for is of math kind who those down. works of roughly into our that existing -- with all new rough That $XX gamers, million a QX users we’ve of $XX million tough worth that would headset number said, the for modeling two and figure

Nehal Chokshi

December the what at the base drive slowdown that that quarter? continue because know rate exactly of in guess installed I will play the guidance is don’t that Fortnite phenomenon end less embed the quarter growth trying to day to in December or you how more through I’m

Juergen Stark

These a to this picture. use some it numbers, at math. Look to but going just way, create Yeah. and I’m the are clear not right example just

versus or So, might adjustments of QX incremental million in $XX gamers -- for some net look if of of new got like people years normal headsets using you the $XX look million revenues couple increased on normal for it’s XX% $XX $XX QX $XX past and million. the us based in million tail a million because every be incoming at are million of million of time, A kind of if these But to XXXX-XXXX, $XX back $XX first yeah you QX. year there XX% QX. is the million $XX is around for and

using because a core much sense? is the that make in QX. some for you by So, lower larger just underlying Does get a sample number, percentage revenues net us, definition

Nehal Chokshi

the that during for so channel related Can you us lost Yeah, number it contribution PC My what’s as mentioned you you’ve here you question give a concrete the space fill, far products? for expectation as presumably the your headsets shelf targets. is PC -- last does. the hit the

Juergen Stark

Sure.

the about talk that future. just we’ll more XX ago. launched, literally So, days We in

space this we the you way. do put product rave number way the the read on products. good we two intended is very our get to then it that you investors to to past. to terms and search in new like it’s And we a get Number space. good, And that’s every key shelf a even in Elite the for there we with see target to The to most of on early and will is shelf for we got and Atlas are start by that thing So, headsets. at one, this important example, get we you’ve the launch, through And reviews reviews into too steps start the given two, given talked exactly That’s want wanted nail that had in us plan. as I’ve want the get if the hit launch focus our not getting or we market.

Nehal Chokshi

for me it was That Okay. for now. you. Thank

Juergen Stark

Nehal. Thanks

Operator

you. Thank

from of next Street comes Mark Capital. Argento Our Lake question

Your line open. is

Mark Argento

Hey.

on then of terms or the use you’re sheet. of over walk constructive flow dovetailing it’s just any couple Just terms the of balance like here, for could going here just that next wanted to thoughts a on that, decent of you forward? off or any excess are you on free penalties to if the other expectations base generation quarters? on through, maybe up pay the a John, going down just cash, cash in capital amount in any our debt any us touch buyback And there type follow prepayment of quickly And of throwing start

John Hanson

Sure.

around any million have The payment loans Financial. So, question of here the with the it’s is our only hundred term me of All are any -- Crystal prepayment we first $XX.X premium early your cover and penalties. -- other is several penalty let in which that thousand dollars… with the or facilities debt that

Juergen Stark

Those reduced I think year. after January next

John Hanson

over sliding the life they’re loan. And the of

Juergen Stark

And wouldn’t in Yeah. they our impact what on do terms of -- they loan. wouldn’t meaningfully decisions that we

John Hanson

correct. That’s

Juergen Stark

$XX So, generate And said generating good anticipate flow. second cash you this cash really yeah, asked flow. We’ve about million free -- starting cash flow been year. of you as mentioned, we to good I

leader in we to debt investing if long-term for what would very fully bank the mentioned to next QX be business QX better once cash and we’ve down XXXX. in position next to year we’re to the the would position. pay in And as yeah, flow the on in then like What would is sub-debt be topic growth, our which we in all driving and a actively do priority funded So, we the on and for the of loans going decide the we be and so probably even our -- the want we is any or of a that cash efforts. QX what beyond radar underway do and category done the growth do

Mark Argento

And Any equivalent changes or just in full for terms me. one headcount? of time one last

Juergen Stark

Yeah.

XXX mentioned the we past we’ve in So, people. have a about

dealing volumes to bit, thankful level And small increases to cases. how you team happen who’ve again, in year working frankly that all really to permanent higher headcount but volume of not hard lot XXX% doing, been given a increased I make pleased a We can’t the I’m meaningfully. am have with without a in tell the And increasing have I’m we’re only of that significantly really our OpEx. I

Operator

you. Thank

Juergen Stark

Thanks Mark.

John Hanson

Mark. Thanks

Operator

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

Juergen Stark

you Thank Thank fourth our call. We Great. joining March. analysts speaking investors and results in to very we you. when report our look with forward our for much quarter

Operator

today’s gentlemen, conference. participation wonderful and you and conclude this Ladies does Thank for day. your a have

may You all disconnect.

Turtle Beach (TBCH) 6 Nov 182018 Q3 Earnings call transcript