HEAR - Earnings call transcript Q2 2022 | Turtle Beach Corporation

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Welcome to the Turtle Beach Second Quarter 2022 Conference Call. My name is Abigel and I will be your operator for today’s call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] Delivering today’s prepared remarks are Chairman and Chief Executive Officer, Juergen Stark; and Chief Financial Officer, John Hanson.

the questions. will remarks, call up prepared any for the management open team the Following

reminder, conference Alex a turn may As this the will recorded. begin. call now I over to Thompson. you call Alex, is being

Alex Thompson

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

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

are expectations differ factors may upon cause While materially. believes that results actual results the company its reasonable numerous to affect assumptions, based may and

results on accordance the update any as is including, in not information. specific differ accepted call, prepared that and described this actual may in our Commission, in States, reports, this which to factors The financial a the periodic release So, Exchange that undertake statements accounting harbor does that Form the company they risk or safe limitation, with and those materially company with events company The to company from XX-K generally factors also after forward-looking encourages report you also be will in today’s supplement non-GAAP on GAAP. press contained Securities United or other its the notes information and statements. discussing risk revise publicly its to conference identify to cause statements call. and providing review forward-looking principles in annual The filings information without or

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

Juergen Stark

second advanced gaming innovative maintain afternoon and Good and joining our quarter, further thank launch products, everyone us. the headsets product continue and new portfolio. diversified you counsel and leadership announce to for In we our

and the impacted for gaming products reduce retailers While above and discretionary spending demand slump business spending many the gear control, across like we quarter executed on many also functions caused by purchases in results second our the and in were which conditions than to has consumer more macroeconomic gaming within difficult drops our slowed categories. companies, consumer other The beyond expected. we other

net and revenue bring EBITDA inventories In million of have levels. XXXX. In delivered million down adjusted environment, challenging look an our to gaming this promotional inventory competitors second quarter loss of retailers accessory activities as addition, high to we for increased XX.X and led XX.X

continue impacting consumers Major better, by the were major freight through U.S. costs of than down in had a as the inventory incurred as we U.S. incrementally the high the P&L recent more that to gaming retail those declines. According and core we NPD European quarter strong reminder, down Europe. categories over most but costs. also near fared down through too our record the recall XX% XXXX market gaming of countries second were flow sell category experienced checks, in given console gaming XX%. over a result to sales accessories extraordinarily headsets spend a stimulus bit fueled in likely PC despite As of QX. reductions a we’re strong that dollar pandemic even

As and than we headwinds. past, the concrete have in navigate the markets, took in we higher expected these to steps demand quickly swings recognize in our

ago we As workforce. efforts, part in implemented of hiring mitigation constraints our select several completed and months reductions our

around We in year’s have expenses. reduce these to QX, actions seven other expect QX focus we OpEx and X also is on from Recurring actions to continuing second costs OpEx taken reduce diligent last down half our possible where our managing by million. XX%

resumption the factors declines markets uncertainty been”. then growth in years. I fundamentals generated many of in for the the and are the as even some the have retail see We expansion made rates with one growth the stronger thought see has have although when continue demand out gaming best a noting pent well mean as macroeconomic but have video that are over industry game consumers long we poised will that “in that short prospects of and market believe we course, historically new gamers become downturn strong economic great has put normal in create term, gaming period past very remain years. sustained of are turbulent rebound two consistent we time, market to challenging remain gaming console consumer our invest in a for We enabled restocking to into strong. that that growth. term it significant and and Millions does, continuing gaming portfolio products NPD the term, we may expect the turbulence, past environment conditions of to will retail these performed stronger and Of revenues years and Gaming new than strategy. and up the headsets analysts come ever the our one they are leadership of to long it likely and the confident growth well

concurrent end the June XXXX, consumers shows that to To research the gaming as globally since year. July added totals past gamers increase users America showing for In nearly of have XXXX hobby added is pandemic, Bank gaming new their the surveyed number increased and fact, a which million, XX% of from according new year-over-year. in of a in staggering. is from engagement over XX% Steam XXX have Newzoo, XX% to

Newzoo gamers in demand of currently X% by over X.X positively. continued consumer turns rebound the up accessories that from console been increase gamers current we and in indicate to Accordingly, for coming reductions headset active inventory recent XX% demand do strong down. forecasting those gamers of an reliable eventually billion fundamentals. increase exactly an has sentiment a headsets continued retail and costs XXXX. will to XXXX exacerbate downturn purchase which in XXXX, that intent upgrade when the console a trends in last survey XX% have have the growth should opposite decline global and that when to is year replacement result months a in already underlying freight Newzoo the from year. and six showed believe the XX% The in would this on impact up, started Historical for pattern up gaming demand next consumer demand temporary that based pent swings is Interestingly,

benefits P&L into margin will the quarters. those in future So flow

is when and the our We current strategy we future. this the are be continue recovers. well execute on in believe well to we market us the through managing environment, on while working good So we’ll place to focused for position a

as number for continue we U.S. headset gaming years console headset Looking to the market, by gaming the the lead the one category running. console U.S. XX at In per far manufacturer first the the XX PlayStation best of half of headsets in Turtle headsets. selling three five were selling NPD of top five by headsets, Beach dollars Xbox and best the top XXXX

the gaming MAX which for premium platform gaming broadest the and named in line Xbox new headsets their continue X our the Gen Stealth latest headset in reflected the clear XXX by XXXX Xbox, XNS of IGN of headsets series We best We produce multi launched our console series recently which aiming best is category headset to gaming best leadership. models story. with wireless

line us counsel to in XXX tier, at share have nice which for new price in significant of a premium June Our overall. contributed to wireless share headsets jump XXX the captured

points. including new We premium a price have headsets soon, additional counsel coming

ROCCAT visually also Platinum mouse. recently expand. mouse. gaming Air masterful gave PC new Pro calling gaming Award, a a mouse mouse this gaming The is continues accessories stunning Our Wireless PC it T-X symmetrical and lightweight of line to Burst wireless,

ROCCAT stellar ROCCAT of addition the released very through and also Buy The nice positive version mouse this impact was of inline this in the Best increase portfolio. very version saw announced new wired at incredibly The the the a expanded praised ROCCAT development Best its wireless our Kone was from of display Buy. in exciting step our display is including interactive recently, radar year, XP a at brand design. XP. for a recently sell In portfolio The games released earlier Kone by comfortable

all year, gamepad controllers, exclusive chat Beach advantage. We’re our continue mute, new the for also the more including the cloud The controllers colorway later our The in the flight and setting as Xbox design REACT-R new Arctic Recon We high a even for REACT-R Turtle plus affordable for game an with our announced in and quality On controls controller. excited controllers. Controller camo is of Controller lineup is controller competitive Beach’s and will back portfolio mic, in balance, year, category this mobile of a XXXX. Turtle volume sound and additions as hearing superhuman exciting half well of to for in simulation expand launching

QX Non-console headset continue revenues to console XX% continue and steadily and we our our increase efforts expansion for to controllers expand PC category presence well. were Our products. as revenues simulation go accessories, gaming in of

that part We business. of our with advances and proudly sets goals a will and Turtle also be which program, Play to ESG continue Purpose Beach core launched our initiatives are

strategic interest the not for and Lastly, uncertainty in multiple it I’d to even refer on financial to alternatives I Not surprisingly, number committee further. announced resulted to parties. details. strategic board ran received discuss advisor comment potential financial has America release process to current economic by macro to May. summarize, a conclude the company the issued committee’s like parties potential will of of of fulsome the charter. press to and additional which buyers, strategic strategic with to conditions the outreach the over the a buyers. of from strategic determining with would evaluate committee in acquire strategic the proactive to we those to to that today before proceed Bank to indications caused included consistent the financials, opportunities outreach Therefore, But continue the the large I committee Nevertheless, you determined strategic briefly its the turn we John process,

John John? to detail. to the more over financials Now in cover

John Hanson

Thanks, Juergen and good afternoon, everyone.

For to near gaming orders, home at quarter company’s government reported record the ago million a XX.X products a strong revenue for net demand payments, by period, where stimulus of we million stay market year the second strong in in driven compared XX.X the were XXXX. accessories and

XXXX that results was QX, cost, our due product reflect the mentioned the to in second environment the As others margin are mix, driven freight challenging levels, and ago than facing. supply. period, volume the compared higher XX.X% Juergen in to Gross higher normal business costs fixed macroeconomic promotional we quarter and warehouse to year deleveraging ensure higher cost, XX.X%

costs and freight some roll those continue the through. inventories to high XXXX are Specifically late until P&L XXXX early to sold

As including and costs year primarily this costs which Operating X.X started and have continuing year costs, down contest proxy the of the later in benefit are Juergen coming which incur. the already in XX.X which company non-recurring ago to mentioned, will million, million quarter is period, compared related expenses into were freight to XX.X XXXX. million second the P&L

XX% operating year-over-year. costs, roughly expenses by these were Excluding reduced

Excluding year mentioned. XX% year-over-year lower for be non-recurring due we’ve by we over lower expect the taken items operating to costs Juergen actions to full the XXXX as expenses

X.X to year-over-year net Our XXXX Adjusted The of quarter million compared year loss million net in compared the diluted XX.X adjusted year EBITDA loss driven second or the items ago variance adjusted EBITDA X by XX.X covered diluted for quarter share above. $X.XX in the adjusted period. million $X.XX is of was per million period. per I’ve to primarily share, the ago second of or income was

tax to be effective rate our for year XX%. full expect approximately the We

borrowings inventory We prioritization cash and turning inventory XXXX sheet higher longer and company’s channel we availability amidst to due in to shipping consumer challenges. convert and to of global of at million XXXX do the of XX.X inventory reflection higher ocean portion the transit significant XX.X a outstanding inventory product supply the to retail this demand and times million line. two to million, to June Jun compared three is credit XX.X The than Inventories balance on expect maintain had chain expected into XXX.X our quarters. revolving of XX, over cash logistical Now next levels, a a balance at were lower year million XX, ago.

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

Juergen Stark

Thanks, John.

consumer gaming it’s gaming amid difficult that our is when market to underlying turn weakness this the strong current sentiment around. predict belief driven will Given by fundamentals,

market through gaming remains XXXX. the muted Assuming

high be activity across combined our million. with to A We of in million soft gross to XXX require EBITDA to expect full operating year mid as freight an put is higher in lower revenues promotional loss costs market of XX million. as result range XXs likely has to X and our expected the leverage expected continued well That the in million margins markets. our XXX will

portfolio in Therefore, QX conditions As retailer we costs growth swings our I’ve including a inventory profitability in XXXX. high will see the and and discussed, improvement half trending up return by are by are to in product temporary reverse freight we actions market when a rapid second expanded exacerbated we driven believe better now year-over-year that down. expect that including demand

Our conditions. difficult is to key these consumer execute through priority and well highest focus economic

underlying We a are have gaming once the great sentiment consumer drive an the intact will confident market spending are market strong made normalizes. that fundamentals upturn in discretionary on and such

ahead. total billion reach remains remain billion reduction over market spend, managing capitalize gaming plan expected proactive diligently sector the We with strong XXX gain on in year that environment, the the to this continuing opportunities execute in to discussed, and the to cost be of we XXXX. the of are confident on is a in gaming XXX are trends that current I’ve given north defined the actions market addressable we a while clearly So leverage market to including

for Our and by have markets success. our products for diverse future strong X billion portfolio proven well demand positioned consumer expanded our over us and

the strategy remains Our long term same.

U.S. lead First great and more maintained This by wireless XX% market to the headset consecutive patented years. of success the for way. driven about the our for market the innovations products, premium in excited the share new XX continue console or brand where models go gaming I’m Xbox of is we share at very valuable on models taking premium and to and points models strong execution. price with PlayStation have

share accessories Second, in product with year. are our of new products launched mice additional Best and Buy we our keyboards coming our grow continue PC in portfolio and additions by the exciting PC the X.X We ROCCAT portfolio, headsets, expand several this are And to market. that seeing have interactive to display. new gaming we stunning billion and encouraged results

controller drive entered cloud growth leverage growth and Third, several addition flight controllers in core simulation the gaming in selectively We our will other the the to continued gamepad gaming accessories expanded and to and XXXX. in controller, portfolio. microphone expand and and have to of company. categories identify our These we And products markets simulation we we mobile just evaluate fourth, line coming additions fully the opportunities. further serve continue competencies that

organic to with expand growth XX% Our line addressable look for our product annual markets business long and in we target. and performing XX% growth acquisition is and our in to expansion continue growth geographies drive across to well term categories opportunities

to Their business. want to our again us the I over turn focus, quarter to and let’s ingenuity Turtle the our continuing our in to long-term the Beach successful participating in portfolio and in counsel have and thanks the also revenues time. maintain ahead. Our we to to positioned headsets that, gaming, while diligent Beach product earnings extend generate Q&A us expanding very for Turtle With strong grow Thank entire revenues and drives the of leadership and with well and sticking market team. tailwinds the segments future, team. terms to collective you both efforts my significantly execution

Operator

you. Thank

We Instructions] Argento from the will session. question comes And question answer now our Lake Markets. [Operator the line first of and Capital Mark begin with Street

Mark Argento

some a you typically some some margins. next of typically that on promotional when sales, gross consoles, thinking about in current seen kind you you pricing, are gen been Are to have activity transition guys gross from we’ve there’s gen margins weighs some,

of should period? of holiday but next guidance? in Given kind you that about environment, anticipate margin relative during how highly the your And inventory guys transition, that seeing we’re promotional what gross just think not we activity type

Juergen Stark

the starts more been very have for conservative. expect normal activity margins promotional. mentioned Sure, very, the in to coming second plus and reflective gross which as That by plan high going we to the than bit significant, of impacted by this be inventory to we lower lower on this later higher do want come to freight That’s the in rates that margins expect gross sell into year rates that Competitors promotional leverage in are with so and XXXX. half. revenues reiterate, down to been mid half year through, more operating that’ll protecting this as way. the of second position quarter. XXs. over is And down the see I our lean bit time. we’ve benefit margins we impact costs a year a But obviously, the lower we then reasons is And market gross But the per have in

Mark Argento

basis Good here? a But revenue kind FX I of moving hard on it’s should what supplement, know how given impact shifting to quantify a guidance? your impact. the relative target. on on FX it’s call impact this do just of guys it amount mean, does a you seeing I anticipate we that constant thoughts currency thoughts

John Hanson

our It’s U.S. Mark. pretty of businesses Yes, us. so dollars minimal It’s thanks, today. on impact in been John. Segment portion

others impact type the roughly So on it’s as it of not several millions.

Mark Argento

business, from goal non-console there? about as then What much of think expect. long you this, think but want mentioned be house? headsets would in it’s Thanks. are a more term And year the to I obviously you on going PC quarter. little PC consoles I to the, might in of the side the more when came hear that a much are the impact in like know, constrained. How grow be good you you you to aggressive just that terms pivoting That’s of XX% the sales as

Juergen Stark

the environment. look mid maybe this over other on We rapid and they’re target time. of gross current comment return gross XXs margins expect our one reflective and margins Sure, to to year do a recovery

counsel way I XX%. at the by we mentioned, around as that non last the around On year headset Year-to-date QX and been ended have XX%. revenues,

actually the in guidance good categories, our QX driven to be some headsets in QX headset QX, in non-console expansion reflect QX. over by with and expect also We mostly our in revenues XX growth wireless in in the performance by supplemental in

new So, in long the continue of to the simulation our simulation, for business will continue the way, Not and to term by target a is expand other look year time. by goal over to driven we and the diversification terms increase controllers other that would PC but categories XX% the just plus over to of categories went ultimately time. end flight

Operator

Thank you.

comes Maxim question from Aarde next with Group. Vander Our of line Jack

open. Your line is

Jack Vander Aarde

Appreciate can the update Hope guys. you hear me.

my taking revenue, XX% non-console second the the a for Juergen up million on the of of essentially quarter business. maybe kind which XX Thanks aspects questions. is follow just question, Okay. sales. quick of in

sales? then Just get prior this sales the of revision the for One, year. to non-console non-console million was versus that be year and also tough kind is guidance to to sense plus makes target clear, XXX imagine to console related this I how was much true, it of

Juergen Stark

nice Sure, on. you Jack, have to

sentiment that. board. conditions million The market consumer headset, non-counsel down surrounding everything So have given really that right affecting won’t XXX shot the now is across at the a that we hitting the

percent year revenue, probably So contribute target increases to for nicely headset to continues while realistic this XX% and our as that mentioned to I as business XX%. is closer of a non-console

to XX million. Sorry, XX million

Jack Vander Aarde

okay. Understood. in to XX then helpful actually. That’s million remarks. hear And just follow comments your to good to million one your prepared maybe and of a it’s up XX

you think a from mentioned headsets for I but sales console down. it’s were maybe the whole NPD data, as market

guys you basis? a relative basis? to is to declining Because year-to-date I numbers you that then think I good put guess Was that also that on sounds said Or market. month XX%. that like up it a

Is Just true? market. a that challenging

Juergen Stark

as console better down bit I at QX. is mentioned, PC for did U.S. QX little accessories, for Yes. for NPD a and The gaming XX% around XX% accessories,

Operator

Thank you.

comes question Granda Franco of next Our a D.A. from line with Davidson.

Your open. line is

Franco Granda

questions everyone. Hi, for a good couple Thanks taking here. afternoon,

peripherals wanted and releasing to used on So the of really could market is question. towards hardware support What PC. the moving sort do what overtime? ask first be Seems across just like platform to and overall view components is TAM console could with your picture platforms; that big multi mobile,

Juergen Stark

said you TAM That’s due overall over a great question Franco. the time? And to

Franco Granda

correct. That’s

Juergen Stark

question that consoles. playing are and It’s we wireless There a of way on segment actually. many on clearly and PC are consoles launched is playing the growing a multi great are And consumers multiple headsets by the that platform.

strategy and the that are platform and driven started frankly, mice the in really has So vice headsets on models our used XXXX because and PC to keyboards repeat both successful well multi in being alongside updates versa we focus category as for console be now, upgrades the ecosystem. the wireless to the you and need as headsets, PC

think that continue grow. TAM we will So to overall

are the true to expect individual TAMs Newzoo global that we continue over will think in I utilize they the markets growth as time gaming strong that collectively. as play we and and can the well for mentioned, As forecasting

Franco Granda

topic And share. makes back defending then sense. touching on of That of the market kind

promotional ramping ASPs increased up in terms Can efforts second to in versus your speak the you half. of to like about You that’ll marketing spoke conventional channels? activity look discounted what

Juergen Stark

there it EBITDA. benefits multiple the the up, And across are It’s suddenly through accrue like XXXX disproportionately Franco. periods to market with of and the when kind goes to contrasts board, that P&L and XXXX

everybody in category. the For

promotions as, year, have might competitors active be those periods. supply like would running you high those do, retailers of sales. the normal means going the where That not you through doing demand promotional normally margins promotional well, conservative we’ve we’ve but with the more paying a as which the we and will everybody’s Well, impacted year. lower this constrained our bit actively stores retailers. above as for believe inventories the less and of at second promotional revenue is be the also range been One period well by again get things a more discounting That and the half guidance it in But there and reflects activity us in boom means in and be is reflected front environment fully promotional normal tended buying the and additional of and shippers into even has what now roof guidance to level. in all because participated levels. as shippers competing than rest in been And going both that for forms; gross

Franco Granda

All time. right, Thanks, for Juergen

Operator

you. time. Thank Instructions] further We no [Operator have at questions this

Now to call Juergen. the back I’ll over Juergen Stark closing comments. turn for

Juergen Stark

look investors Thank shareholders. QX. fellow with speaking support again the and our you. We forward to in analysts your your as Thank appreciate company interest and We you. following

Operator

Thank and This conference. today’s concludes participating. gentlemen. you for Thank you ladies

You disconnect. may now

Turtle Beach (TBCH) 9 Aug 222022 Q2 Earnings call transcript