HEAR - Earnings call transcript Q4 2019 | Turtle Beach Corporation

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Operator

Good afternoon, ladies and gentlemen and welcome to the Turtle Beach Fourth Quarter and Full Year 2019 Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that this conference call is being recorded.

Before we get started, we will be referring to the press release filed today that details the company’s fourth quarter and full year 2019 results which can be downloaded from their Investor Relations page on corp.turtlebeach.com, where you will also find a latest earnings presentation that supplement the information 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 containing federal securities Please could comments Statements about statements some that beliefs laws. as the call and may, company’s and and expect, during expectations forward-looking within the be results forward-looking materially such statements. involve may that risks of constitute future Corporation’s of and operations These company’s meaning expressions the include uncertainties words aware Turtle similar anticipate made the to the could, will, from believe, expectations. regarding Beach management’s cause results statements differ current

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

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

earnings the and You metrics their in reconciliation could to in GAAP tables reported a provided release find results today’s the reconciliation presentation. of

company’s Chairman call over Juergen? the Juergen and will the Officer. I Stark, now, turn And Chief Executive to

Juergen Stark

for you afternoon, and Good us. everyone joining thank

company’s a best in coming history. year second the that was off are We the

lead accessory with more the headset business. We gaming profitable leaders the are broadly in continue a cash market the positive exciting and flow among market to console

to some growing remarks that we our massive headset and our on will see success in year. in have PUBG, Driven market experience close our progress consumer this we and like gaming Because Today, invigorated XXXX. our anticipated and by the accessories time revenues comments that’s would games position $XXX be market XX% new to year, Battle of drawn years in the Royale sales million. in for this how and The and But transpired. of doubled the headset our roughly modeling on behavior my global console gamers provided we XXXX nearly XXXX that performed the total the the brief to overall around market down last Fortnite we first, remarkably in of I portfolio what headsets focus users, evolving own forecast influx market. market

in total the according than the it supporting was than down American X NPD, console years compared XX% to While is headset considerably to North XXXX still XXXX was base user higher was it that belief our now XXXX, market ago. higher

XX% headset Our own down about still were console last but than higher were XXXX. year, XX% sales

the entry the during market much because in retailers price spike and in believe keeping at our Also a level accounted our we XXXX our get loss demand. was in for share share job guidance we of than a slight categories stock because how higher better of competitors was in

after share marks next and consumers accomplishment for year. are to they doesn’t innovation. with the to reputation loudly decade Our seek market exceeded in company and differentiated brand is products XX% out the three XX market NPD the share that market unless speaks realize a the hold for our something that highly market years according A over XXXX of players share share year straight unprecedented biggest XX%, was than XX% which This more combined. one

with execution well know Our across them. complemented great strength product our by how business our this is of appreciate and partners every retail aspect

XXX our accessories also differentiation. many to patents on innovation course, more gaming more and Of our issued continued way than speak with the in

both deep. strength Our wide and is market share

in According of best terms models X data models. of were XX. and the we the all revenue, with to the X top the three NPD selling of XX best selling even U.S dominant selling had X top and December, all the X XXXX, XX three XX more top In models of we in models of top of best

every points, price in various segment number virtually at Looking the XXX. price position had one below we

and growing in the $X.X this growing the billion share and keyboard, was position We later. our our console long mice more brand. gaining headsets, market One ROCCAT. PC are leader With of by now and established acquisition accessories PC leadership and top most under market the a estimates good gamers is important keyboards with mice. on for baseline have that headset we gaming in products in to accomplishments the X of headsets, sold and we into market large for our be are PC accessories broader global successful XXXX ROCCAT of This in expansion now the a the

global financial how fourth going to XXXX will I to our review as well out our playing results we accessories John over review to see am John? now accelerate come with of turn back as I quarter and in to gaming strategy it growth the comments market. the about

John Hanson

or quarter. focus Most the in $XXX.X afternoon basis currency fourth Juergen year ago my our Net Thanks, $XXX.X was on million for everyone. good the comments on million of a will quarter. million $XXX.X compared revenue today constant to results and

headset driven the remains their games. customer from this by in Battle was above record demand for users first of the the levels, demand While buying prior Royale levels of decline decrease expected headset new historic results the year

to promotional million in promotional as quarter the of compared Royale the increased fourth quarter of in expenses a costs. operating was $XX.X Operating mix lower was in effort which tariff This primarily Battle to million XXXX. XXXX costs $XX.X same and This quarter were decrease quarter primarily was addition was the of the costs. when necessary to offset standard of Gross the by due product in well due of XX.X% expected ROCCAT as XXXX. margin to record-setting less XXXX was compared to the normal XX.X% partially boom compared freight the more level in fourth fourth activity

Net in the was ago million commentary $XX.X $X.XX Net million fourth income the $X.XX outstanding income average ago year diluted the of share in valuation of compared in million deferred quarter just on shares $XX.X the assets. the weighted in to weighted per on release tax was year diluted XX.X a $X.X average I XXXX benefit shares of the fourth to allowances outstanding the Net covered. from million fourth quarter, of XX.X on XXXX compared in quarter. reflecting income included XXXX quarter the quarter million

net of in in million the remain cash and continued to income allowed the down during cash $XX.X year excludes of XXXX Cash modestly quarter the of ago $XX.X Adjusted as borrowings related or interest million expense. incurred for million in outlay This cash historically share of the for ROCCAT compared million the share was operations to $XX reducing the EBITDA XXXX acquisition revolver per against million XXXX XXXX, flow our fourth $X.XX quarter period. of transaction from the year diluted quarter. in release spite valuation the the to $XX.X as $X.XX was year provided compared well per the our throughout to XXXX. was ROCCAT the costs diluted strong low $XX $XX.X allowance, or full fourth from which in million integration Adjusted acquisition

balance of outstanding December Inventories to of by cash million the believe our $XX.X million at levels. we under declined debt the of debt XXXX are to Now, level and appropriate equivalents XXXX. XX, million driven credit This ROCCAT mitigate and had at cash on channel XX, at and revolving December compared of inventory of the last outstanding turning cash our of bit of in December equivalents revolving balance with products credit the we at the at inventory compares decrease from line. both revenue December $XX.X acquisition. XX inventory $XX.X under inventories $X.X a our addition We year. and sheet, tariffs cash bring of million by facility XXXX, lower impact to $XX.X did $X.X The to million more and XX, was million offset our to

will $X.XX continue in our of quarter, of conditions XX,XXX acquiring have share average to XXX,XXX share. per our shares repurchased was we During investing $X.X course activity program cash $X.XX. parameters, regulatory an will announced repurchase of average we The buyback share to prioritize repurchases price Since timing business be and on shares for flow XXXX, or we and at an million our development. and growth continued our of the XX, market subject April

Juergen? comments. to Now, for I the back additional will over Juergen turn call some

Juergen Stark

Thanks, John.

able to from company of success As ROCCAT many This market. of I accessories ours existing console has in large leader our a into goal in a broadly. be business our foothold integration a accessories market console headsets the gaming to gratifying years into parlay it’s for leader said our more the in a and been in strong transforms into earlier, PC the very

market after announce and was the While consoles XXXX dynamics the importantly of as leaders of console past headset likely after Xbox this year. would launches. we PlayStation the The as hardware had the upcoming shows knew wait at market accessories, boom these later announced Sony sales market to overall decline the until formally well Royale the their unique the console of holidays. already holiday well from holiday and In that one the that next-gen were of the disrupted particularly year XXXX, of earlier-than-normal into this to outset that to launch has data season consoles Microsoft launch and incoming expected both console new the announcements the Battle for the driven past,

sales are buyers, videogame figures U.S. it sales According videogame upgrades but pretty still XXXX, some holding the and up impact did they PlayStation that accessories of in sales rather back. it’s Xbox total still hardware of These XXXX. headset XX%. consoles, consoles those to show for accessories console results for preannouncement were Because console replacements down is new market videogame from were more down driven XXXX by the NPD, and to some of affected largely but than XX% XX% of and game January than cards January compared consoles were the against consumers and significant. the U.S. are down

on to gaming when console new may be headset some launch. consumers able Xbox Xbox current generation new are U.S. see the headsets on shows can in and help expected that data down the in PlayStation impact their NPD the console of save and/or they next which to PlayStation wait are with to to still in some purchasing new their sales does try but January. console that work It budget or nearly get consoles, You accessories to console match upgrading a to or new XX% this the

survey are in to new that Newzoo, headsets. consoles upgrade intend to what consoles launched. are once us tends their According sales by the their likely a an also is gamers upgrade to to gaming most uptake This drive

all a a accessories for several for us these launched QX consoles As decline History to dynamics, by once we partially until a consoles of launched. the consoles a console expect new the XX% new result in reflecting of full triggers year, have years. offset year-over-year about that headset the the new deeper growth decline on sustained the increase launch tells in market spending

console this year launches accessories. a off in new cycle anticipated the should growth So, kick

As a console to market and growth for mid accessories high XXXX XXXX. in single-digit result, expect we gaming

disruption category. market. of is video In demand. to Even game exciting hardware a the launches, future of by with the games consumers evolve caused gaming pending that the holding the back sign itself and to strong And produce console continue invigorate a publishers remains a way disruption thriving

a Duty game Royale today, other cross in For other platform released best of free-to-play some of games example, games Duty: as as the which Battle from innovations just Call popular of elements well Warzone, Call Activision other incorporates featured publishers. of

this like veteran into the proven at gaming and the enticing in effective coming very new players free-to-play to back market. model keep Innovations players has be

to console for PC do almost on Xbox. mice for key play global We is the as headsets. part headsets and audio recent is valuable and not than than the market and have are new headsets PlayStation. headsets headset console market also more even mentioned the Better upgrade is $X.X surprisingly, in. headset on gamers Microsoft less it’s At to gaming billion audio represent And now enormous of sales, market core the indicate competence and a gaming global seems same is business. that in as as to appealing market, news us. emphasized $X.X an course their That headsets gaming their just market going console keyboards console global that XD a the larger Sony large but half for market for makes new billion more better better accessory of our the The we has of

the is Here point.

$X.X gaming according we are XXXX Newzoo. growing XX% PC market for just market is a us over good large for grow market billion and We started to getting to in accessories. and expected It’s between That progress. XXXX to making are pursue a

XXXX greater viewed in what’s ROCCAT with the well outgrew indicator Xx. and we Xx. Atlas sales of In sell-through key the double-digits market than in ROCCAT are a in in a from really XXXX. more In Our the buying and U.S. revenue as PC brand, than accessories we getting to view euros products developed gaming before already continue started ROCCAT. just we that outpaced This of by headsets, dollar had market last includes possible nearly as for we growth sell-through the the headsets market X.Xx were as market by Germany, year-over-year portfolio keyboards our And and year, mice that over by the PC market. in and team we PC leading grew

capabilities. Let growth are different We developing PC get keyboards our get plans. experience in more and bit keyboards and more mice high-quality portfolio gaming a of gaming very regarding gaming and world and we accessories. headsets, designing to base ROCCAT ROCCAT to particular, already and which good from In me where say importantly, have capabilities and mice the innovative a class acquired

about good capabilities, and the company. talent, innovations and With In teams, this the we have the the we goal extremely months, fully achieved capabilities feel X core past portfolio successfully the ROCCAT and acquired. integrated I acquisition, we processes into

planning headsets. process decision becoming brand years. a the targeting of ROCCAT markets the for We effort are accessories, PC to including also to brand PC undertook the in with an That leader goal the gaming in PC extensive a and multi-year we product our led accessories utilize coming future

on phase led that plans, out long-term a to impact with the way development products which want to revenues And the some don’t new portfolio in our decision product also accessories has we of our market process our an The to certain by PC the fit short-term led plan price each fill year. this out target. with to X-year in PC process innovative to products the aggressive tiers

and products. say that share are the and For details, but our it suffice PC aren’t the innovation competitive in excited we to reasons, about going design we to plans level of upcoming

encouraging. far the on so retailers brand reaction peak been into we from that our ROCCAT have And the shared key and very our portfolio plans has

over As and the by XX% major past headset that product should extremely retailers in have market is that grow PC position segment we that console relationships we those and fact then with the articulated to attack success share in for the than we with replicate held plus And size us the category more mean success is it’s segment. going one Xx plans but to quick, share record headset in the in a of track be console far number neither allow in market business gives have or to brand It and ability gaming time. maintaining easy market the headsets. decade our confidence console strong and us doesn’t the

with well We and level years, with are principles products all the and operationally. of gamers have deliver partners for our execute we follow high-quality same innovation for going followed to retail

the mission and lead billion putting attractive gaming We of headsets, are PC for to a mice. $X.X invest position going to accomplish the growing in to market in ourselves keyboards

represents and that and expansion into brand, this our those and what the all invest year launches expansion million the the PC of you portfolio, new some marketing ROCCAT product our the do geographies year roughly talent give investments of will development a brand continue the X-year continued of $X means, XXXX. next To team of product of multitude the investment as portion support to in we sense

continue to us growth be XX% track on and expectation and in and that Our And years. to to XX% XX% is for EBITDA. is XXXX a next coming mid should and double-digit grow year should and our in That XXXX single-digit headset given we will long-term gaming grow the in revenues our percentages market in growth revenues XXXX console the in in put PC that growth accessories to goal, our expectation investments sales beyond. earnings XX% position sustainably to this

make would that Given fact asked frequently we share like on a how the that decisions. capital program $XX get I allocation about year, repurchases comment share I we and last announced million repurchase to

purchased of over is X%. worth We my aware ownership years and now the earnings are I well myself price reflects low that beneficial stock stock a $XXX,XXX the nearly over multiple.

am shareholders value view we the plan the create attractive over to in desire the the are time, We I as obviously opportunity stock shareholders. repurchases. so and rest last management which So over of million board, the all aligned we share fully the why and with year an $X.X and are team made is announced

to best to shareholder However, in achieve we put the the position that way to increase value growth. believe company is a firmly sustained

time. that just a prioritizing, modestly to on means multiple best continue the count focusing opportunistically can result that creating feel capital shares rapidly modest the approach share is a it in us That line reduction earnings than view we that, we investing it’s put because of to over and in. cash share top and use You a won’t enable growth this higher long-term that doesn’t other that reducing In the financials from increasing It’s are words priority in increasing evaluate position $X flow. mean long-term shareholder approximately taking than growth growth, XXXX the same rather earnings about EPS. in million in in significantly we repurchases, value investment not see would investing grows to if

a wrap our about coronavirus to the comments and turn make few up, on business. me I let impact our outlook of Before

of slow and So months for is on-hand issues. any major the supply enabled relatively to seasonal production business far, without that have disruptions chain period us The manageable. our has been this our nature these a few past manage means inventory

their progress China that our factories to they progress they other partner committed good steady have in needs few for rate than And meet that scaling supply production. pockets continue enable Our needs. them will a a to issues and communicated have made at our of that XXXX. supply have They to expect

have production year up will based also with back outside a we portion manufactured non-China China plans We accordance the started in XXXX. of products and of this running in and have our implementing significant

So may is while at there issues change, we a few have manage long no as expect we this time. drastic to a significant as don’t impact

monitor virus We situation will concern. necessary remains the to and the very our prudent to long take as protect of as course closely continue employees steps a

now of XXXX. the specifics outlook Turning our to for

first gaming For range we $XX expect the revenues launches XXXX, of of market to $XX console to partially offset by our headset decline reflecting be quarter other in million revenues. the accessory a growth gaming continued new console ahead million of in

EBITDA $X.X to negative the of to in $X.X be We million range negative expect million. adjusted

the the in fully share to $X.XX between range and negative to and diluted be $X.XX of adjusted negative $X.XX. $X.XX diluted loss diluted loss per expect – We share per the share and be

$XXX be growth and the reflecting million revenue XXXX, other console For in console our by headset we continued launches partially year accessory range of offset full revenues. $XXX new in or the to gaming ahead a gaming the PC million decline expect market of the

coronavirus. $X earlier due range million in the be expect $XX for small covered million costs EBITDA expediting growth anticipated reflecting I adjusted the buffer to future to investments We in plus the of to

in we $X.XX Despite $X.XX loss range loss in of $X.XX expect to anticipating to We show the expect range taxes the modest of per loss for because and jurisdictions. for taxes adjusted $X.XX. diluted year, share diluted to pre-tax the to be expect do net provision a we various income per certain be share of in to

of capital to as two, and XXXX, in to next lead position a to the market in new making upcoming we manage headsets to for consoles portfolio to transition prepare healthy shareholder including prudently over put one, number brand three, existing growth products and time. the for console and value. So summarize, in drive a create accessories, in our a and significant lead launches. continue investments maintain Number goals consoles great for long-term our with ourselves this PC portfolio to Number year balance that sheet gaming

a great market. We have a terrific position in

to target great on market. the gaming a to console a We growth And we that here and year in at and Beach. have broadly to well in per revenue I and faith committed the in strong XX% XX% per are Turtle have year investing extending leadership to billion of have $X.X XX% a in position leadership to brand accessories ourselves with more strong frankly, headsets future drive We long-term team positioned EBITDA. and XX% gaming

for the thank ready big company we work fantastic with you of questions. customers. great delivering and for their to and to team gaming grateful I you Operator, appreciate of our Finally, are be do. dedication now they do colleagues best to working the the all take all the all a across you that products to am

Operator

Thank you, of [Operator from Thomas D.A. question Our first Davidson. Forte comes Instructions] sir.

Your open. line is

Thomas Forte

on Two Great. coronavirus. questions

I as then it commented been So near-term about long-term the think between and supply you the there the the your that first far from standpoint? as coronavirus had chain any to disruptions? China sales should chain? think And pertains supply elements the assume you. a on I we near-term we disruption Thank in has or the of demand also not how as tariffs role was question Should

Juergen Stark

Sure.

So for on China, long-term role us.

more now we, production I from though So were between rest our we factories already mentioned, XXXX are been China a needs supply us to non-China the course, our That’s and helpful actually course us and non-China supply diversified have forward a year coming something we in of now going have and factories this with the since of even just flex supply coronavirus that’s Chinese on which production and is an also the production will portion fully committing XXXX. enables on countries. non-China the factories non-China year. simply initiative working gives of having chain to have running of the And to fully started we as substantial up have and for ability

that. demand side, that the in while hotspots. might are sales have suffer, sales And that countries us online On whether something that people by but it’s It’s closely remember for have watching demand. impact say will something going not watching it’s gaming is home not, just very on retail just that nature, any might its on hard counteract seen so judge that meaningful entertainment clear an are do closely. we we it’s to or especially impact that’s at to something we are not I

Thomas Forte

taking Thanks for my question, Juergen.

Juergen Stark

Tom. Thanks,

Operator

Thank you.

next question Mark Street. Our from comes from Lake Argento

Your line is open.

John Godin

make market? and be Thank to what market, only but Two PC that is as growth, positioning both margin mix? the integrated Hey, that able taking the kind Thank confidence PC grow also the trending This it you and larger a you investments take business how do of are basis overall, And of kind see accessories yourself for give overall like now on signs on fully questions. in some share ROCCAT two early portion gross Mark. not in to you. with John you becomes first, are guys. number on sounds from your that my you will competitors be to PC the you able seasonality for have the you

Juergen Stark

Sure.

is PC guidance air So That off than segment, of can and mainly our additional our because that’s of because believe mid-XXs our segment some margins in freight a tariffs of that’s is for kind have gross target and company are normal impact that target mid the our a margins, attacking points a we long-term the lower before a year, we few not we question that’s reflective said the the This points targeting are few takes gross run-rate. of and lower impact. biggest on profile the we XXs. XXs remains margin margins. but

in long-term small have our a average impact still may we the range. XXs on PC and that of are our margins but business, bigger in gross targeting the part a bigger becomes as margins So mid

and So, leading the Germany mentioned asked that’s important before focus I for I of so you the acquisition. indicators, think and And second on is – give had one success. its then things margins the in two I really are have signs is key core me for ROCCAT the where outpaced think They Germany one in the in PC players XXXX, a by ROCCAT we And the only in players stores, the the to in three dedicated market example. one of area largest market. Xx. are growth of accessories these retailers of

market started. gained in the the in really overall obviously which I the means are that grew we U.S. in obviously there. means where we to just market, we small, well growth the there share And PC Germany our there as accessories outpace So that category in accessories but base a and Xx, outpaced good is market getting growth achieved market share we in and PC double-digit the enough then it’s by a mentioned U.S. we sign of the progress

John Godin

you, Thank guys.

Juergen Stark

John. Thanks,

John Hanson

you. Thank

Operator

[Operator Instructions] Chokshi of Our next Group. question comes Maxim Nehal from

Your line is open.

Nehal Chokshi

Yes, thanks.

of million thoughts flow looks that Should free you that on be of year cash like almost contraction as at cash $XX looking calendar So a any in your largely compression, that’s by sustainable cycle. ‘XX guys beat we a there? conversion the Xx, massive result it a

John Hanson

Well, hi, I think coming Nehal, – out John. of it’s

I see bit. in would XXXX we think capital coming expect out a little of to obviously, we working but from some XXXX seeing, benefit to that you are expect which moderate did management

Juergen Stark

the and largely that happens with size market capital as lower it’s just back revenues. result normal a lower Yes, shift working of

Nehal Chokshi

right. Right,

does am free this reason detail the the ‘XX calendar trying EBITDA? year the impact because And is cash to I why so to this flow relative

Juergen Stark

cash the flow we cash will have about were flow talking so flow – had follow the free past. flow you operating cash in same the Free now before, formula cash rough

then items new EBITDA it’s This are taxes. year with spending associated So of because product on minus and we tooling cash and some be higher Xish other launches so will CapEx. CapEx minus

Nehal Chokshi

Okay, cool. investments? and investment the on for okay, ‘XX, it a calendar And so then incremental time then – $X million gestation return PCs was for in

Juergen Stark

in the portfolio the I make to a year, we X-year brand, years, the support the our period, year, part it’s and effort over position I to grow that starting that X-year X part years. will PC. more expect launch our the in that’s really, kind Well, aggressively as is some those investments, in but So next XX% next be it of then continue number that over so XX% would target drive gestation we double-digit mentioned, from of when growth have that, of that enable both brand in Nehal and this there The continued plan in PC what of brand time growth will revenue in to products investments enables the helps investments and growth. company may next growth one it it additional to revenues at our portfolio some grow

Nehal Chokshi

as we make of would in kind expect basis a – you investment, what PC then? have on you long-term that growth didn’t would And

Juergen Stark

an I don’t easy to that. is way know there that judge

We portfolio have the have in with tiers, have we in do well we price in. and mice PC that tiers that with keyboards products the have a good and position we we price products the that in the particularly

in PC and outside The our that known consumer Europe. is positive very And something gamers be be known to brand our product that ROCCAT with It’s view that in Germany. particularly so going portfolio of known is it’s tiers then the less very but has And is actually built more showed of Germany. very strong varieties is worthwhile It’s obviously the a that and investment. needs price brand attributes. in testing expanding – to among here, different products

happen separate of kind type, out And if business. like and the to of kind what to that it’s investments brand so other promote market we didn’t of it’s would the hard

simply very over conclusion that, to the is worthwhile revenue growth very is time. support a investment Our that

Nehal Chokshi

get back will in I the you. thank Alright, queue.

Juergen Stark

Nehal. Thanks,

Operator

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

Juergen Stark

Thank you. our We with and quarter we speaking look forward analysts when our in investors Thank you. results to May. report first

Operator

Thank gentlemen, does conclude this and today’s you. conference. Ladies

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

Turtle Beach (TBCH) 10 Mar 202019 Q4 Earnings call transcript