HEAR - Earnings call transcript Q3 2019 | Turtle Beach Corporation

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Operator

Good day, ladies and gentlemen and welcome to the Turtle Beach Third Quarter 2019 Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions]

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

of recording later this website of be Finally, company's call a available under the will the Investor Relations section evening.

the include meaning of Turtle could, the the anticipate comments during differ forward-looking materially Corporation's Please statements Statements management's expect, the statements. aware uncertainties results current may constitute within words such forward-looking from regarding laws. beliefs that some expectations. securities as be These company's may, cause and statements of containing company's operations this believe, results federal Beach made the similar risks future and will, call and about to involve and expectations expressions could that

may to those on actual contained recent to and statements Annual Including Report you the on also reports harbor which Securities or Form limitation, results review Exchange safe press encourages their with in most their today's company and without in The filings the factors report quarterly described from Commission. risk and identify in specific Form forward-looking differ factors that and materially other events risk XX-K XX-Q, periodic cause statements. releases

principles supplement also in prepared call. be company update information information. accordance any will the GAAP. a to statements forward-looking financial company States The date that call, revise accepted this accounting to in or or providing company The does United not conference publicly information that non-GAAP with undertake The after the on as generally discussing of is they notes this

to and of in You these GAAP release provided tables the find results can presentation. in today's earnings reconciliation reported a reconciliation the metrics

Juergen? turn I'll over Chief call company's now, Executive the Juergen the to Stark, Officer, And

Juergen Stark

ahead history company’s of of of thank estimate. extraordinarily XXXX the the QX our half third consistent published the which our with XX% the the just consensus and for highest QX first results joining year. expectations in XX% us. We afternoon, quarter QX year's reported Good level is came sales. last you the for with in compared in everyone, for posted We're pleased previously This the up results to strong compared we down revenue and to second

look XXXX, it, first to as our what only for to the as headsets closely predicted in for be console emerging fact, gaming laid In in PC shaping is we and outlook position second we are we things pretty the at biggest our months, well tracking market the up last our as year. ever XXXX when the year market, to presence accessories initial headset through second out gaming console nine

our quality headsets the gaming a growth in PC of high We well years gone continue line of as have market and PC own as market for XX for headset has as to due with ROCCAT of we increasing the levels And gaming market with innovative gamers. powerful portfolio all of line our this lead to share accessories both our well continued accessories

PC headsets.

of our of and and the Atlas and risen keyboards three but XX% somewhat that XXXX, headsets. headsets, which As to significantly Beach of XX% have that console sales be this year, share accessories we a XXXX’s sales the seen the higher but in year our share than the clearly components level PC that PC XXXX from three beginning compared our the had decline would increase headset Turtle gaming PC driven addition XXXX one, leading of two levels, at the headset of record industry-wide would market, reminder, significantly ROCCAT’s were main normalize to console to would would by the outlook the in the in line would of mice, continue

details All unfolding financials. it over these three a buy John expected. causes three a points more Fortnight increase This like Last for on add I'll market year, play to by games XX%. time PUBG. bought color to to before turning gaming of QX these of gamers generated and the on new effect first headsets are headset as that bit millions console

a Note console I'm over and base going who would headset data using U.S. forward stats. market their gaming headsets and would headset from versus predicted. for we a the This out as growth those time. users is share playing net and predicted effect join XXXX. upgrade installed gaming replace NPD gamers significantly be larger We but drop XXXX The of

it market the decline better in face fact share in expected year of the last boost our and console got to the from segments. headsets share shortages we inventory in-stock had competitive entry in XX% position because We a relatively a level over bit that price our

lose is the This playing year. year-to-date up XXXX that out roughly advantage market, of share than the the share to there higher than somewhat most mix our XXXX With be share lower expected last but our next as reduces less our also making we higher from overall segment impact a continues in-stock than plus competitors that three we importantly, with and combined. is

year forecast. tracking emphasize me headset original market to console the our quite and two we are are well and our revenues points, three both above the Let quarters that overall the on into console

to others with what we While surprises. see we’re surprised, expected be seeing may no

estimates small of keyboards market lead business push global Newzoo, in These TAM while roughly mice sales of the for billion in we ROCCAT PC PC PC by far. by of due amplified are As to of versus revenues. tripled product great has ROCCAT still headsets effort you and TAM of addition headset the in the gaming a from headsets a and for June. portfolio and our growth that $X.X of PC acquisition and PC nearly Atlas in billion sales, mice the $X.X know, keyboards adding we market part our of year-ago The gaming overall accessories our with market console headset our of QX year-over-year a about launched headsets, our a line gaming

made in also leveraging We've progress good Asia. presence ROCCAT’s

proud John worked of the align third market months, processes, to our plans solidified the plans environment, integrate reviewed the the many outlook branding we've cross-company four PC say teamwork to plan the Over quarter attack years. modified headset more have for the items coming financial approach our through and developed to console, accomplish overall those results, excited multi-year the our our our portfolio, I’m plan. team, PC to the ROCCAT product for of and after walks about I'll John? and internal PC combined about the and past

John Hanson

good and to Juergen everyone. afternoon thanks, Hey,

results. the of quarter historic third was the remains was of million core part XXXX the revenue as on $XX.X XXXX demand now third this headset million tough the who just into decline are quarter market, covered. net QX year currency installed revenue base given net right a constant $XX.X Moving of the increased result above users Juergen levels, customer gaming reflecting in last our basis, of $XX.X comps the while Delta in was demand expected million from or

quarter as in and timing Gross result somewhat mentioned are quarter year XX% revenue we've higher was largely than third the the of that in Note holidays. revenues XXXX. of vary in margin which each retailers to QX, as XX.X%, significantly QX can expected between the QX, for third compared prepare the

inventory normal activity accounting XXXX, due and This level of acquisition. primarily setting of expected impact to promotional of record costs when compared product from the very the well light, the more promotional a decrease purchase period fixed activity the to mix, leverage revenue was as ROCCAT driven impacts was given costs step-up

compared as expected operating and and million Operating quarter $XX.X costs, expenses based in from integration increased ROCCAT acquisition This to the and XXXX XXXX compensation initiatives, primarily the ROCCAT plan and incremental of was to the million digital of due costs, revenue in marketing period. by in partially decreases third $XX offset quarter sponsorship XXXX. to same as

in integration was million or $XX.X acquisition loss quarter XXXX of million costs diluted was million income average net XXXX or per the related covered. diluted loss $X.X $X.XX third Adjusted on reflecting outstanding income net the million year-ago Adjusted compared commentary of I per million shares diluted income of of to weighted million share quarter. of compared $XX.X in EBITDA year-ago ROCCAT average per to Net weighted the transaction just quarter in XX.X outstanding of incurred the year-ago net the period. Net and $X.XX $X.XX excludes loss quarter. was which share, shares to the third to $X.XX share XX.X $XX.X to in on $X.X quarter, the compared net XXXX was diluted share million the in per compared million in $X.X

our in under cash $X.X the outstanding with revolving outstanding to equivalents turning compares in $X September of and at This had $XX.X debt. notes, XXXX million consisted debt September line. and $XX.X balance $X.X of cash XX, sheet, and million of and $XX.X we which term million XX, equivalents subordinated debt of revolving loans, Now million XXXX, million credit of cash million to million $XX.X cash at of

our on we quarter, the program share our since continued repurchases, During repurchase announced share was

XXXX, our flow course conditions and development. shares for will to prioritize repurchased of business April in million, have cash continue buyback $X.X we $X.XX we XX, approximately activity market timing or investing XXX,XXX and be The parameters, to of regulatory of subject share. will per and an average our growth

effective full-year is $XX.X tracking million to million impact help at as Inventories line as with tariffs. in This at mitigate for new our the is September and be XX%. of September expected XX, approximately XX well includes The the buying the $XX inventory XXXX year to early expectations. last some ROCCAT rate acquisition, were from to tax compared

turn Juergen? back comments. Juergen for to Now the additional I'll call some over

Juergen Stark

the Thanks our see to plans market the comments we John. to next outlook. turn PC console how I few like and on years, evolving now some over would our

XXXX both are to to season. of the continue excited upcoming for which be and about launches Xbox in market system, PlayStation of be We Microsoft's very holiday the next X, expected

to playing of according new that Xbox Last PlayStation prior the on consoles the for hit this DFC. barrier hit also been new about this excel XX base set season, new million games. custom Meanwhile, to X to have will expected cumulative announced is X it'll PlayStation processing with installed the XD had will million headset designed developments interesting of strong the a so new for Both lower that buyers. to entry consoles how quarter, to the and on believe Xbox integrated power. market. and holiday ahead to audio XXX a the are course be units working is for gaming bar constitute time to older headsets. see first I sold cloud to is One graphics of the continue consoles exciting mark impacts

which with consoles And on reductions anticipation lookout we a console existing potential XXXX these we the games industry make to last next systems. case for could the transition and Microsoft year launches. sales believe are the before, get relatively of year for mentioned transitions. retail boost game see in believe on accessories boost consoles channel and in push video for legacy the price at Many and launch as levels, we Sony the will is from inventories console big and We a accessories a in the new low this year's already of market

In for coming new gaming fact, above QX this accessories. in contributed some rates continues after our consoles launch expect, to revenues market console forecast, the average pattern stock the expectations. we've track the levels, to show higher retail than bit follows which low or first two If console for and to our will also year responded a given growth we'd console to cycle

will has forecasts said in sales the of XXXX records consoles, launch new and set that the continued and current DFC it the fact, combined that of the sales hardware with In XXXX. systems,

an uptick focus expected console of year reflect and XXXX ahead in very Our a to next portfolio have plans product also products with exciting. new XXXX, key PlayStation as launched Xbox important year transition the

Lite. to well. it showing is a and from to DFC, got Switch the growing, do at and the continues platform year of September million Nintendo growth Switch the and in launch boost XX very this Switch only According best units is platform selling

While relative those course platform gaming third to headsets becoming for PlayStation, indeed same we of headset sales a it is driver Xbox it's the use. And have and headset portfolio gamers. Switch great a for of of

times of enthusiastic to said the two PC combined to we the come. now in portfolio mice market a gaming years and as And very our PC the predicts is and the headsets, keyboards the market. that represent console Newzoo headset market. of ROCCAT the PC market continue be plans, accessory size opportunities Turning size the growth double-digit gaming addition for I for to about earlier,

accessory gaming well our competitive it in know used to we're us full it's and will of this years. course that PC console which market, to some can we coming take a for So the market right. market believe of a growth be we that great We source headset the do time know in

market. the brand vision ROCCAT leadership of it's ROCCAT’s for And developed plan headsets, best Beach the mice few to console strength also engineer the extensive portfolio. high portfolio that examining to enjoy fits well with we've who So We've ecosystem the for next with span work that product and done the have the gaming their a determined PC of Turtle to compliment a will quality reputation goal great and brand keyboards that gaming recognized and German our the the the years experience. better for gamers PC play gaming of in want product

transitioning be to brand the ROCCAT PC for our products. we’ll So

as PC plans off revenues in years. We prior reach target, good to coming first stated a calls million we're get we've there accessory plotted our on is to start. Our the in and $XXX to

mentioned Beach first I earlier, revenues. Turtle PC nearly As the of the accessory versus ROCCAT year ROCCAT quarters in of the with headsets, three and have both last shown PC growth year-to-date based on revenues strong our and plus our PC QX headsets products tripled the PC Beach growth Turtle

let asked briefly on frequently. since Before outlook, we I to get comment me about get our tariffs it

in companies, be tariff either to place. products new this other Like stay subject currently if tariffs, our later electronics consumer manufacturer current China are are expected plans year, or to tariff the

in in of in been number rates a We goal tariffs impact to about increase half of products including steps tariff with impact mitigated the Those mitigate had of price the with holiday year, bringing of happened efforts this the including year, disrupting the some taking early have that not the this sales September. increases.

during products of diversification XXXX. timing of outside into have our some non-China expect plan XXXX, the a to with of we and Going production QX target for China our increase to course

course, the there's today, as that we're as eliminates a will agreement though leadership happen. that and come of chance won't China Of an that but earlier hinted the both to tariffs, U.S. preparing was

for a $XXX to we range Now to in full-year expect $XXX turning to our outlook our be of revenue million. XXXX, million

the our we lower will gave the last of Our reduced timing slight in intentional narrowed plan $XX of at the guidance our toward come tracking and revenues use inventory million transaction $XX to quarter later and ROCCAT Turtle of the roughly product console we based reflect reduction revenue sell-through channel to close we range ROCCAT and that the on as revenues analytical expectation end million model align Beach. same process to based range

to in remaining reflected We the impact million, quarter. approximately $X fourth which $X.X to expect tariffs million be will be of the

and bit. us XX%, our PC product margin in products promoting While both range a also our We've tariff we QX marketing to in prior increase range expect the be of support gross and in the business. to console, the to XX% to made of we and impact move our in investments in expect decision that down brand

for an the $X.XX range per of also above of $X.XX give EPS us EPS the are and numbers $X.XX. and $X.XX estimated rate reflect to John's year. EPS on EBITDA higher EPS items to $XX million tax of expected million $XX million, The These adjusted the adjusted figures GAAP based XX.X comment, shares to

in streaming is We and position an participating best market in great to consumer including we market. influencers have global be segment that a exciting Gaming today. a terrific the to eSports continues be believe

PlayStation multiplayer consoles strong brand increase console next drive launch Xbox benefited could the headsets, they a from in the gaming leadership gaming, new growth position social and additionally in and and year. after incremental continued We and are have which

are retire growth with we I'm of that the also end see and as PC the We in target after ourselves announced future closing well large board with to than to Doornink very market pleased A few in the per a leaving years year. be to EBITDA. XX% positioned per and XX% opportunity Ron the year of to I will nine discussed. has our Chairman, XX% related. revenue, long-term the accessory year XX% at as in Yesterday, we notes more people that decided drive

been personal with him miss enough for and thank his him privilege retirement. my will I these I well partnership. work and Ron can't years, to It over and has The him and we wish contributions his in board

we CEO. the As has yesterday, also also continuing while role reported board the to as appointed me Chairman

August additional of Thompson Chairman. great take on her addition a the in strong have background, We retail Kelly of the board and including delighted responsibilities I'm with to

value. Chairman Bill combined, often to forward the the to shareholder to we're work board board for to drive Bill colleagues a is dedication appointed And XXXX. and fantastic Operator, they lead of do. to appreciate CFO I'm has the are board and CEO independent the work the to for you take when be delivering with across big since and customers. execute great the our retired all all and you us continue really now with is director Keitel products the our I of grateful Bill gaming to roles of been do with our director. you As Qualcomm norm, plans team and the closely look company of the and on ready best thank a as questions. finally, rest excellent the working their

Operator

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

proceed. may You

Mark Argento

you're little a little on the guidance, you for coming as broke Hey a tariff out the spend like dig the guidance forecasts well wanted know those magnitude you the full-year puts the Can I side, coming revenue of I maybe then the looks know the kind in Thanks. on just in top of some and guidance then going line on down. takes where please. bit, dollars little marketing talk EBITDA level of to in spend a the bit impact to million, and and kind into million incremental $X roll-up your guys, bit but $X.X revenue the the the

Juergen Stark

on so that Hi, and and you'll key or right has to reduced recall, revenues coincidence about Mark. on consensus took and are down to also range somewhat Sure, of analyst centered XX EBITDA. on range the is the actually had we we the drivers expected by is narrowed XXX. the impact of revenue last yes, XX closed X% and time the line, the and around midpoint it in down The that based an ROCCAT delayed we factors the

couple, to have We we right the move way Beach get to products wanted channel at that ROCCAT on align be little a process like sell-through taken so intentional inventory sell some Turtle actions unexpectedly extensively retail, at, which to a we by to time. we looks sell-in of bit be using and that time but basis into took going sell-through, revenues where so us don't over around that the

small console now of that's of it's those But take period. two full-year biggest little side So Those been of drivers a you as months that lower line expected. ROCCAT roughly the channel see out revenue in implemented bit very adjustment the the are range can revenues. all does net-net inventory and few where outcomes transitory a we we've with on tracking narrowed our sell-in, the now, to but the a on expected have the

simple. it's line Okay, on pretty EBITDA

and XXXX. a pay both in for about tariffs EBITDA the for million good will we're reduction products, and feel momentum to both of revenue just about and promoting believe into on over a million help we the us our So $X frankly we our in got of QX more terms $X marketing dollars, and we've long-term there then to tune dividends. That's impact in decision spending million results few brand

And on those moves. so we've executed

Mark Argento

you is dollars And what what spend, marketing kind promotional kind guys of plan? activity, of marketing

Juergen Stark

It's board. across the

on So console additional spend its QX. getting side. up PC the some promotions additional marketing and some Again and straight side of placements in and both retail media

Mark Argento

kind peak one of Okay. holiday through And what of work you looking follow-up guys season? quick like as anticipate in borrowings terms the you

Juergen Stark

our the would which models for last just probably would That's show year. today the year be $XX million peak. be us under so about Yes, Mark, where below

Mark Argento

guys. Great, thanks

Juergen Stark

One, to to to maybe revolver in for part one typically last buying follow-on the for mind goes and year, reflects the ago, and also long-term of comp, Keep ROCCAT the that It comment a in zero our from of in months debt. few remember we the year that. the the revolver. normal last paid-off a level you cash, following when meantime, that's year relative very all early look

Operator

next of D.A. Instructions] Thank question from from line you. will Davidson. the Sean come [Operator Henderson Our

may You proceed.

Sean Henderson

thanks questions. for my taking guys, Hi,

when rolled both ROCCAT ROCCAT prior we expect on we think internationally, the basis, be So soon the of front should the that? just just first on that now distribution on in to the about to a fully all on, U.S. ROCCAT products and the of holidays, when timing retail is out

Juergen Stark

great a That's for that. thanks Thanks, Sean. question,

it moves something is the So couple how into that ROCCAT next portfolio laid-out over of distribution years. and now we've the frankly, we’ll, that

if be too want don't to shelf You much not portfolio the like early retail to space try in complete. too and is grab

this I year. get So the in, you distribution with Phase everywhere say can't late the implemented is make to By it already phases. increase comes which in product and one, way, some the three in kind portfolio. the to of we've moves current of points easy would

just started process we do of kind space shelf some early the are haven't barriers you there natural year. So can wise, what in to the that

additional presence is Phase side, on that would three of we Stage Asia we're mice the will So types all want I going is, we I again, a ROCCAT best plan, of well, then one complete products. the got and it characterize an to the in feel X, XXXX X would also keyboards Beach that's Turtle enable to kind ecosystem of PC carefully Beach portfolio of portfolio headsets, done phase we happen version what in that side expansion on X those And leveraging driving and the we've Turtle have business, as and of of distribution. be the the headset points with to call going some the and the expect the to placements. of us some additional

adding have the for to time, place you And succeed, to distribution, of is that products continue to then about out. but And in goal expand, that's obviously you updating as now comments that back a successful we over then excited and if my will start having multi-year drive kind rolling of distribution, those points products to various it how you're I'm XXXX. continue really about. see And plan

Sean Henderson

thank one good follow-up. you. kind that ramping just Great, of outlook And activity last investments I how noticed long-term what the a of since be is program the in quick know amount earnings then want Athlete it? Brand into to program will Ambassador just on you your call, guys and

Juergen Stark

Yes, that, Sean. love thanks

athletes, a Beach signed of So an big and that's new products. been to by super Beach because brand the into a an are And productive we're consumer products. And it. followers it's really as expensive about proposition gamers. but the influencer have pro-athletes way who using we not lot like They Turtle exciting the excited been segments yes, they're because it's Turtle these number so, as the of pro-athletes a way, personally expand kind very of I'm

it's with the time working gaming having them really athletes with team's move. think we're great and really good I And these really providing a products.

Sean Henderson

the Appreciate color, it. Got you. thank

Operator

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

Juergen Stark

look and you March us. fourth We in report joining our with we quarter to Okay, much. analysts very full-year results speaking much next our again, for of well, and year. investors when forward Thank you very thank

Operator

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

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

Turtle Beach (TBCH) 7 Nov 192019 Q3 Earnings call transcript