HEAR - Earnings call transcript Q3 2020 | Turtle Beach Corporation

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Operator

Good afternoon, ladies and gentlemen, and welcome to the Turtle Beach Third Quarter 2020 Conference Call. Delivering today's prepared remarks are Chairman and Chief Executive Officer, Juergen Stark; and Chief Financial Officer, John Hanson. [Operator Instructions] Before we go further, I would like to turn the call over to Sean McGowan of Gateway Investor Relations, Turtle Beach's IR adviser, as he reads the company's safe harbor that implies important cautions regarding forward-looking statements. Sean, please go ahead.

Sean McGowan

Thank you, Joelle. from will that to quarter details which be we filed press XXXX call, page can afternoon Relations this the downloaded today's be the referring release results, at On corp.turtlebeach.com. Investor the company's third earnings also discussed the call. latest today's that supplements There, you the presentation will find information on

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Juergen Stark

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

our We pleased raise deliver guidance another and extremely are the record to year. quarter again for

accessories, put margins kitchen revenues, proud COVID more tables, in records their this offices well about who, has dynamic sales set up and as will cover and phenomenal the EBITDA, the another year-over-year, line of third other excited our of make-shift expanding Our million, months, PC brand PC to our themselves. future. the John product for articulated areas on our in past maintain This situation tremendously us portfolio, home gaming in our XXX% I the gaming has in including all in and team, $XXX.X the this accomplished constraints headsets, healthy all quarter cases, speak maintain reflect quarter couldn't more fronts, strength accessories us. We've be has many console amidst sheet execution of of results balance we've drive a QX environment. business. unusual of and execute of for growth our continued goals of as or well exceeded, on In many in and lead we which again The all detail. from

quarter data Higher factors continues Here drive for strong. socializing in Once consumers XX% key continue console and strong was we are the as year-over-year out We a in strong working, dollars results. our home. buying Using top gaming sell-through for strong of the influx significantly which outperformed America, headsets QX. very for headsets didn't last to schooling NPD demand. believe Two, the line gaming North engagement, drivers again, up X One, to market results. be and continued we factor we gaming market, for well a coattails new at market. of as was the of gamers, our just major lapsed the quarterly ride laid the

our With was the XX% up sell-through dollars. console in market XX%, American North headsets up of gaming

Our of was the headsets was over revenue share XX%, and units our over share of shipped XX%.

in on supplied of we a units rest from numbers, in increase only American up the market basis. excluding through unit X% North the QX and fact, the In sold the market was

continue retail market exceptional to a key to and role ability supply, execute operations share performance. our played logistics on Our in

QX one XXXX almost headset headset unit our XX% production example, total units was of As production. factory in

to Of our to a share of testament continues market the course, our product and portfolio. brand be strength

console PC September. were produced Beach. of Three, the new an a Both in STEALTH headsets of best Xbox exciting make we wireless models, X at the Xbox phenomenal sales price the the compelling we and of September, launched As in and top achieved already launched U.S. recently per In are because example, gaming continue headsets to Turtle for one models month our And PlayStation. revenue ever our model in STEALTH successors X of with the NPD into accessories. PlayStation, all partway headsets, to partial the for only U.S. top-selling top points. line X progress these XXX XXX These products this are XXX September. with we've and selling the

made later. console launches leverages cover in Air past the just These strengths and the seem same professional headsets entry-level industry-leading all headsets our more years. of his bestsellers example, of X The capabilities STEALTH have I expensive headsets. our to received reviewer our capabilities sounded During far that gaming for our Elo first have our apply of wireless all gaming mentioned. get QX, Elo ROCCAT headsets, PC XXX model, launched for $XX other model product I'll better PC than that $XX reviews. models fact that we new the couldn't the line rave One

I've And review will to everything our and pertains the leverage just in performance almost operating our entirely a execution line, but excellent, moment, so excellent levels John said record course, across goes board. as our top far gross expense were beyond margin well the Of strong sales.

mark As will of of and trends million, we year, that million. and the see increasing $XXX come I sales the underlying the XXXX. strong our we third for which to exceed the our quarters a over would for of result next with revenue holidays $XX quarter the balance many our over continue positive and the I back into turn the performance, what about view year past over high John full With will which the year to will in after are prior our comments some financial to that, call by John? review additional outlook

John Hanson

and everyone. Juergen, good Thanks, afternoon,

We report to metrics. strong financial are another quarter very of pleased our results of better-than-expected all across

this a It margin, adjusted gross sales, about record results. quarter said, record market to able was these is to said quarter EBITDA, third be truly we And quarter, third Juergen operating a fluke. record record-breaking is this income, not quarter, record gratifying share. talk record As record EPS, last as

EBITDA of built back track have XXXX. to record basis XX-month going We delivering on positive adjusted a a

quarter, shown X consumer when presented Our order consistent of gross produce year to significant in or and basis, a margins constant to currency XXXX million leverage. revenue we second challenges lockdowns the sales Net had the operating to but in significant half our in specific sales given had not a the the million the year increase of rapidly compared strong excellent saw in for earlier overcome have $XXX.X past third in sales year then like been and ago for increasing $XX.X And the the in QX XXX% revenue We in had over and on third the was $XXX.X have March April quarter of quarter. at the we months. these year. put million XX% obstacles million $XXX XXXX results demand, for forecast for quarter in drove we just guidance

in CapEx, of the expense future was expected. lower-than-normal half As increase to XXXX. some Accordingly, was investments level XXXX is, significant loss purchasing year, the quarter, of we XX.X $XX quarter diluted had higher airfreight rather quarter was the share in expand shares trends weighted and ago that on year highest expense compared discussed. the well includes as higher XX%, XXXX, a the of there quarter quarter. the year-over-year million favorable million Adjusted and cases, XXX of to per in $XX.X year in our the which year had QX, quarter. count in outstanding in This consolidated, now adjusted average changes million a several had over revenue, costs, operating in recognized defined just of of EBITDA $X.XX This higher higher as well amounts and X QX comparable the loss at lower-than-expected QX, than is in business $XX.X months XX.X% net was a holiday the additional half the to XXXX The offset September driven million quarter I factors: but third like the performance in the this profit fixed $X certainly million $XX.X we in quarter. net was as contingent third consideration $X.XX year-to-date $XX.X share is planned $X.X a third million was roughly driven Net by third $X.X loss increase and partially quarter the result a as million the million, as our revenue, to so of the gross growth. quarter in be profitable dynamics, XXXX. PC $X.X and leverage, the our in count and income but above in diluted half Gross compared for million ago we've of increase look million is estimate increased same activities portion EBITDA supply the being a diluted to quarter and increasing adjusted in of level to XXXX Year-to-date, value quarters the the cost case highest expenses than sales. margins, we leverage at less facilitate in ago diluted our to reflecting than or in totaled an will quarters we history. $X.XX of spending a shares compared margin higher year, of with the in diluted compared reported incremental shifting improvement the the share quarter the XX.X loss gross in fair net changes a period. Operating million income outstanding EBITDA ever share even of modest the per net from volume-related investments timing Net And second as net of the of second this was promotional cost was million the business million a higher mentioned. operating in what net share income expenses and acquisition third why costs, to net to small growth. flow, same it's and points million expectations XXXX that compared from more also single $XX.X quarter one for driven by This than the XXXX. were in million airfreight mix, of demand on in which from of quarter can $X.XX the third provided early as basis million EBITDA of important again, margins volume-driven I has was Note of of was XXXX. roughly revenues per $X.X in selling in compared outcome. ended bulk $XX.X loss. per we to as excludes versus by consolidated XXXX $X.X look integration other, of result second weighted share million third in year-over-year is cash The the in we've adjusted results by discussed given in driven by primarily income Obviously, in the result at average just were to Free drive in $XX.X accessories expenses cash $XX.X QX, be some is but or by which because or past, airfreight marketing, third adjusted quarter and

and sheet our We consecutive cash delivered for for have free growth. balance positive X positioning years, flow us strengthening

effective our that year, are is rate provided for approximately outlook March, on Since tax now could XX%. we financial call. exceeded the increasing significantly the to tax mentioned that expected I full year we be year the our we As in rate XXXX higher had if full guidance to be for full

September September Now last XX increase at $XX our of sheet. revenue in September business. and revolving balance the debt, X at net XXXX, compared $XX.X $XX the with That's million no retail XX, turning year. expected to XXXX, had earlier equivalents including to million Inventories XX, purchasing year. At driven The cash borrowings $XX.X from line. were cash inventory for higher last credit was we by change a holiday on and run million rate million

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

Juergen Stark

to believe for has the best best, continues of We that the John. one which finish of some not to year I'll beyond. comments consumer in Thanks, gaming a see what we be leader. and and the be the category been if rest with on

on professional e-sports, is including socializing are your and get entertainment end, to together companies continues of viewership we the gaming Some competition, category. to has really for with level the that track way become time. at that exceed all and keyboards popular sports. in that one the at leisure hardware market headsets, only call a gaming, It's of of the other few top it many aspect It's of people's is in a billion which $X to share It's one But mice. it's friends. grow

these as globally the Interactive from first it normal. be XX over consoles. days in In rate company versus new when XX% recent to of research XX spent gaming According for is gaming of console for highest segment on have X. unit consulting The continue for segment dynamics units to said in to by share than positive in the away specifically, segments firm, popularity XX% strong first future accelerated will return a launch also and ever-expanding they that, console and XXXX increase unit gaming before consumers orders roughly half the U.S. has hours on of time in sales general that all than coming engagement some the market available which NPD and growth tracking to According orders, orders XXXX, time demand after to market gaming highest XXXX from the we're often S. the PlayStation to gaming stay-at-home increase and the we And Activate things bright. by XX%, DFC, the Sony over return XXXX trends, the Microsoft would carry Activate, with is normal, of in the of consumer things both the XXXX, XXXX, very years. seeing X year increased gaming that in expected console to XX% of retail did to and will as it's estimates that sales increase Entertainment, make statement stay-at-home past in XX% that the Gaming even into positive view has through PlayStation console and persist. forecasts consumers presold on higher Xbox forecasts compared CEO and by even this higher many of sales. to PC normal. record-breaking Xbox that PlayStation will were previous remain stay-at-home X things return spent that a looks more was The up and the when firm, weeks believe as We already a the this Series measured

mentioned PC us for I trend new to with track good versus year do specifically the expect in share to will step double these realism, very PC rocket market increase function remain the a console this accessories. positive we accessories which our earlier. in sales is more change Robust our our category PC I generation on Elo gaming gaming well, long-term also consoles last headsets for very as new of consoles, Given and in our business. than growth is

gamers. launched top-selling new keyboards Germany of keyboards Vulcan Two what's of models to that's year-to-date. keyboard the models yes, Optical Vulcan headsets, PC In smaller we X the models fast. addition gamers. of keyboards. response serious matters and called extensions are format new very in use rates a XXX our keys, the becoming are PC high-end mechanical X new popular gaming And ridiculously to proprietary than up XXXx XXX And Titan with to line to provide which are our Switches, These the faster tenkeyless, which that

of and mouse of new mice, $XX a Both with shell where with PC X launched through honeycomb is lighting our is of Optical cool Burst accessories Core Burst the use Burst ROCCAT gaming million part transparent the the along coming Titan lightweight extremely going PC portfolio investment new building This -- expansion also Switches, Pro really We the and Pro. shell. organic also roughly the these year, brand. this features new our our growth

of ROCCAT Of QX, making the and and original course, we the good in products headsets, core in strong categories. mice very keyboards Germany, and PC market in gaming market, targeted share X brand in our market product all are by the are gaining

is our incremental an headsets, $XXX to the categories is PC keyboards to gaming I longer accessories, accessories lead create and in As mice. business our million goal mentioned, PC and first for goal term,

our drive growth. XX% top at long-term us a XXXX to year-over-year with XX%, of million over from prior XX% $XXX million our CAGR for $XXX line we $XXX positive to result year the business, million. XX% from of growth outlook put line and entire to top across a sales trends X-year As over further increasing these objective would are the of our estimate consistent

of quarter. fourth timing and for the what the results quarter John third revisit impact mentioned on Let's earlier about

after As second could of year we significant retail. timing we shifts shipments see this report, thought said our in into that quarter

share, Market the inventories, with Given retail guidance. speak, in so earlier restocking this low than that particular both and so the higher sell-through, resulting will retail we strong share, second our quarter we year, third expected. purchase some the retailers market ends exceeded on into expected. in which quarter as to occurred sell-through and the We forecast, our quarter, second of necessary anticipated trends market started guidance factored half being our

will year, QX shift do total QX what to from return anticipated in based QX to into with shifts few strong spend $X of our holidays. XX% for a earlier And half guidance airfreight revenues particularly timing $XX well. of estimate are half of second retail be QX this increased to revenues are in million a anticipating QX result, million we roughly to in into looking is as to few as numbers, As of shifted up a holiday increase continue a important. reflects levels mentioned. normal second on is John and well. marketing million be purchasing, Roughly consolidated as This with of now we in keep demand, a expenses expect there promotional at the why We

Note supply impacts in. So from we our product chain for we the but the full started also given investing portfolio the to years expansions supply outside some operational now airfreight cost China. initiatives enable half approximately higher-than-normal gross due revenues get ago, be of XX%, than and we year, more leverage from we X are that to to gains expect margins significantly reflecting

estimates guidance of increased of prior our roughly The full the more we've million XXX%. updates above on EBITDA increases adjusted XX% discussed. and investments, million. EBITDA includes guidance and the higher half The change second year, the EBITDA revenue roughly margins of $XX by than result guidance growth in investments than be EBITDA for our to we million a expect $XX As $XX

We're such net be accessories of adjusted our and income continued both full per given from per the the one per great make all gaming excited share be net the segment. positive share increased expect a $X.XX dynamics that for income consumer year significantly very gaming diluted be to We prior to roughly diluted leaders of approximately $X.XX, in guidance. to few share,

of gaming and categories. line already in We have over accessories tremendous with a believe future. the team global the headsets, would the position in best, best other are continued balance progressing we've once brand members well seek opportunities strong time, done thank we consumers retail sheet we I have hardware Combined the conditions. execution and had, out, but growth we are challenging Beach on, for a PC And to job broadest under very Turtle like who positioned again extremely ever an finally, incredible importantly, and

You questions. part you. with company of are a all be proud very we what succeed, this take this ready I'm Operator, and makes truly are great now to to team

Operator

Capital. will come Instructions] our with Lake Street John from question [Operator Godin And first

John Godin

on Congrats the nice quarter.

it new attach that And us maybe First, can the ones, on the launches, headsets to demand think to in these then some coming is any year? over cadence as refresh reason demand different kind rates? of relates this for historical years the that console increase be dominant new for would you headset console and there those launches the historical trends of in

Juergen Stark

Sure.

again. trend new that year accessories launches So the normally, for to launch start launch new for with as are consoles. the picks QX, accessories the accessories demand the as consoles And consumers for up wait of is then in down the console

QX, stay-at-home some higher-than-normal over -- typically, then in clearly that's next as the benefit year, orders get sales the holiday and that's window years get you those than some X X for And re-accessorize X new driving up whole normal again, You that. are with they us their even trends XX% the market, double because the up people more of you for normally, This accessories quarter nearly launch. get the that out consoles. quarter

for consoles, in launching nice a over which kick over category. trend headset should gaming years us do few that new very few and next in well console the weeks the to time, are next the So here, the we expect off

John Godin

expect reason orders is All quarter? up the right. to constraints kind any potential of your rest of with with And partners the to supply on any going try second, to of through holiday companies some logistics there chains, capacity in ease their pulling

Juergen Stark

operations great ocean part since the in chain That's a numbers challenge been securing QX in factored to QX, And in full see to supply have from conservatism we the the Logistics, that a question. QX. and frankly, of We year to logistics. shipping some we even have kind see guidance last-mile based rest for that with here. our continue of issues view the Airfreight, on trucking and all fact we and the factored long-haul could of have containers. tough, airfreight challenge, that and some and continue year into everything delivery been the

John Godin

then last me. one And Okay. from

As I to do investments capital to as where you're significant been far on free amount as cash guys maybe new now you've out a go that generating next of net capital the earn able flow? months, higher to look guess forward going return you and allocation. for XX going be X you think

Juergen Stark

Sure.

well the even PC extremely already and results making we're year done, plan. $XX continues our We've to been you're dividends that million to positive the came year a raised business investment I those as are and into with in paying $X mentioned, invest And in as the to year. think I priority this with results this progress growth. that this the accessories. and We has has of the million specifically, business, in far, our that obviously, drive so investments long-term originally seeing the some

going business So driving capital. use priority the in will growth, for be the of forward, investing our

Operator

Davidson. with D.A. Alper [Operator from Our Elliot Instructions] question comes next

Elliot Alper

think for quarter. margins gross the So to I December wanted about

or in is correct for of talked the I'm quantify I'm would to spending assume uptick it what's correctly, it be about margin that airfreight, that, you the for any promotional correctly. about You XX% increased it quarter? looking kind if If at December thinking And year. the if could XX% I guess into gross helpful. going the about

Juergen Stark

Sure.

a in I'm to the year, -- to QX, normal. it, for last low, the and would, the sell-through we supply just year it was QX, margin given of XX% most we're And the have We back margins margins. expect didn't gross which the thought We to But it of way. again didn't additional gross big we where QX had too points, to below come that way we expect that by a But levels year, whole slightly for for through expected It So referenced average. a blistering, have QX. roughly continued keep full equate sounds normal. getting that of with several the with major airfreight. is kind example. be and go quarter driver up X return things to we expect our and was a gross to not normal for higher dynamics, in fourth the sure demand. QX otherwise, the difference, -- expect that bit reflects guidance would million QX to margin reflects you're cost of of airfreight, call promotional

Elliot Alper

about as X cycle that consumer? And September equal category, for what below Okay, for of we like? looking gamer? specifically refresh the how's quarter. Kind core kind non-gamer non-gamers. then helpful. And And of way core same ASPs then different it demand of should kind your the the are that than parts. there is Wondering thinking the about be if that continued traction with Last quarter, talked you was the

Juergen Stark

Good question, Elliot.

numbers, before, headsets uses I market per mentioned given market the quarter the my I'm X/X data which analysis surveys roughly -- QX you demand QX by incremental going market and referenced was coming stated the the had obviously is, was gamers, an roughly for sales from of that engagement incremental. last X/X market orders. that So QX of conducted, existing large bump we the non-gaming higher the and and into X/X for the we doubled, the up gamers new just we sell-through And from could remember, QX half of use as to so was start initial of X/X was about very was we've call of for comments, QX exceeded XX%. nearly stay-at-home and the

And to so down, the way continues has year. but market last slowed outpass

headsets. So non-gaming level we the into of and new come a gamers gamer believe result that the continued to engagement, incremental of the purchases market continuing demand some higher of some is

survey. consumer a when -- the we conducting can't obviously, survey. to people the And them tag without rerun haven't purpose, actually buy We detailed don't headsets, we

of still So in would some, it higher the portion down that but I expect demand. be have a come factor to

Operator

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

Juergen Stark

safety We look investors unprecedented very with full forward good when times. We year. results speaking much. health our analysts and and you we next in our these year Thank everybody to report wish

Operator

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

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

Turtle Beach (TBCH) 7 Nov 202020 Q3 Earnings call transcript