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Turtle Beach Reports Second Quarter 2019 Results

SAN DIEGO, Aug. 8, 2019 /PRNewswire/ -- Turtle Beach Corporation (HEAR), a leading gaming accessory brand, reported financial results for the second quarter ended June 30, 2019.

Turtle Beach (www.turtlebeach.com) is a leading gaming accessory brand offering a wide selection of cutting-edge, award-winning gaming headsets. Whether you're a professional esports athlete, hardcore gamer, casual player, or just starting out, Turtle Beach has the gaming headset to help you truly master your skills. Innovative and advanced technology, amazing high-quality gaming audio, crystal-clear communication, lightweight and comfortable designs, and ease-of-use are just a few features that make Turtle Beach a fan-favorite brand for gamers the world over. Designed for Xbox, PlayStation®, and Nintendo consoles as well as for PC, Mac®, and mobile/tablet devices, owning a Turtle Beach gaming headset gives you the competitive advantage. Hear Everything. Defeat Everyone.™ The Company's shares are traded on the Nasdaq Exchange under the symbol: HEAR. (PRNewsfoto/Turtle Beach Corporation)

Second Quarter Summary vs. Year-Ago Quarter (where applicable):

  • Net revenue was $41.3 million ($42.0 million in constant currency) versus $60.8 million;
  • Net loss of $2.4 million, or $(0.16) per share, compared to a net loss of $2.3 million, or $(0.17) per share;
  • Adjusted EBITDA was $1.6 million compared to $9.8 million; and
  • Repurchased approximately 156,000 shares for $1.5 million, or an average of $9.62 per share, as part of its $15 million share repurchase program, which was announced April 10, 2019.

"Our second quarter marked another period of strong relative consumer demand for our market-leading portfolio of gaming products," said Juergen Stark, CEO, Turtle Beach Corporation. "As we look at the console market and our position during the first half of 2019, as well as our growing presence in the PC gaming accessories market, things are tracking close to what we laid out in our initial outlook for 2019. This year is shaping up to be the second biggest year ever for console gaming headsets, second only to last year, and is driven by many new gamers remaining in the market and joining the headset upgrade and replacement cycle.

"Turtle Beach continues to lead the console headset market. Our growth in the PC gaming accessories market is going well, with our PC gaming headsets market share increasing significantly.

"Since completing the acquisition at the end of May, our integration of ROCCAT into the Turtle Beach organization is proceeding well.  We remain confident that the expertise of our ROCCAT PC team and the combination of their strong portfolio of PC gaming mice and keyboards, plus their PC gaming headsets and our own Atlas line of PC products, has us well-positioned to continue growing in this $2.9 billion market."

Second Quarter 2019 Financial Results

Net revenue in the second quarter of 2019 was $41.3 million compared to $60.8 million in the year-ago quarter. While consumer demand remains significantly above historic levels, this decrease was the result of the expected decline in demand from the record levels in the prior year driven by Battle Royale games. On a constant currency basis, revenue in the second quarter of 2019 was $42.0 million.

Gross margin in the second quarter of 2019 was 31.9% compared to 33.3% in the second quarter of 2018. This decrease was primarily due to product mix, a decline in volume-based fixed cost leverage as a result of the decrease in revenue, and increased refurbishing and warehouse costs, partially offset by a decline in freight costs. 

Operating expenses in the second quarter of 2019 increased as planned to $15.5 million from $12.0 million in the 2018 period due primarily to $1.6 million of ROCCAT transaction and related integration costs, incremental ROCCAT operating costs, sponsorships and digital marketing spend, and an increase in non-cash stock-based compensation. 

Net loss in the second quarter of 2019 was $2.4 million compared to a net loss of $2.3 million in the year-ago quarter, which included an unrealized loss of $8.6 million on a financial instrument obligation. Exclusive of this unrealized loss, the loss was driven by lower gross profit because of the decline in revenue and the increase in operating expenses, partially offset by a decline in interest expense. 

Net loss per share in the second quarter of 2019 was $0.16 on 14.6 million weighted average shares outstanding, compared to a net loss per share of $0.17 on 13.4 million weighted average shares outstanding in the year-ago quarter.

Adjusted net loss (as defined below in "Non-GAAP Financial Measures") in the second quarter of 2019, which excludes transaction and integration costs incurred related to the acquisition of the ROCCAT business, was $0.9 million, or $(0.06) per share, compared to net income of $6.3 million, or $0.40 per share, in the corresponding 2018 period. 

Adjusted EBITDA (as defined below in "Non-GAAP Financial Measures") in the second quarter of 2019 was $1.6 million compared to $9.8 million in the year-ago quarter.

Balance Sheet Highlights

At June 30, 2019, the Company had $3.4 million of cash and cash equivalents with $10.8 million of outstanding debt under its revolving line of credit. This compares to $9.1 million of cash and cash equivalents and $32.4 million of outstanding debt at June 30, 2018. The year-over-year debt reduction primarily resulted from the Company's improved operational performance, partially offset by the cash paid for the acquisition of the ROCCAT business in 2019.

2019 Outlook         

The Company is maintaining its full year outlook.


2nd Half '19

FY '19


Guidance

Guidance



Unchanged




Net Revenue

$154M-$162M

$240M-$248M




GAAP EPS

$0.76-$0.96

$0.70-$0.90




Adjusted EPS

$0.82-$1.02

$0.90-$1.10




Diluted Shares

-

15.7M




Adjusted EBITDA

$21M-$25M

$27M-$31M

With respect to the Company's adjusted EBITDA outlook for the second half and full year 2019, a reconciliation to its net income (loss) outlook for the same periods has not been provided because of the variability, complexity, and lack of visibility with respect to certain reconciling items between adjusted EBITDA and net income (loss), including other income (expense), provision for income taxes and stock-based compensation. These items cannot be reasonably and accurately predicted without the investment of undue time, cost and other resources and, accordingly, a reconciliation of the Company's adjusted EBITDA outlook to its net income (loss) outlook for such periods is not provided. These reconciling items could be material to the Company's actual results for such periods.

Conference Call Details

Turtle Beach Corporation will hold a conference call today, August 8, 2019, at 2:00 p.m. Pacific time (5:00 p.m. Eastern) to discuss its second quarter 2019 results.

CEO Juergen Stark and CFO John Hanson will host the call, followed by a question and answer session.

Conference Call Details:
Date: Thursday, August 8, 2019
Time: 5:00 p.m. ET / 2:00 p.m. PT
Toll-Free Dial-in Number: (877) 303-9855
International Dial-in Number: (408) 337-0154
Conference ID: 5961377

For the conference call, please dial-in 5-10 minutes prior to the start time and an operator will register your name and organization. If you have any difficulty with the conference call, please contact Gateway Investor Relations at (949) 574-3860.

The conference call will be broadcast live and available for replay here and via the investor relations section of the Company's website at www.turtlebeachcorp.com.

A replay of the conference call will be available after 8:00 p.m. ET on the same day through August 15, 2019.

Toll-Free Replay Number: (855) 859-2056
International Replay Number: (404) 537-3406
Replay ID: 5961377

Non-GAAP Financial Measures

In addition to its reported results, the Company has included in this earnings release certain financial results, including adjusted EBITDA and adjusted net income, that the Securities and Exchange Commission defines as "non-GAAP financial measures." Management believes that such non-GAAP financial measures, when read in conjunction with the Company's reported results, can provide useful supplemental information for investors analyzing period-to-period comparisons of the Company's results. "Adjusted Net Income" is defined as net income excluding integration and transaction costs related to the acquisition of the ROCCAT business and excluding the effect of the mark-to-market requirement of the financial instrument obligation. "Adjusted EBITDA" is defined by the Company as net income (loss) before interest, taxes, depreciation and amortization, stock-based compensation (non-cash), and certain special items that we believe are not representative of core operations (e.g., the integration and transaction costs related to the ROCCAT acquisition and the mark-to-market adjustment for the financial instrument obligation and). These non-GAAP financial measures are presented because management uses non-GAAP financial measures to evaluate the Company's operating performance, to perform financial planning, and to determine incentive compensation. Therefore, the Company believes that the presentation of non-GAAP financial measures provides useful supplementary information to, and facilitates additional analysis by, investors.  The presented non-GAAP financial measures exclude items that management does not believe reflect the Company's core operating performance because such items are inherently unusual, non-operating, unpredictable, non-recurring, or non-cash. See a reconciliation of GAAP results to Adjusted Net Income and Adjusted EBITDA included below for the three and six months ended June 30, 2019 and 2018.

About Turtle Beach Corporation

Turtle Beach (www.turtlebeach.com) is a leading gaming accessory brand, offering a wide selection of cutting-edge, award-winning gaming headsets, keyboards, mice, and more. Whether you're a professional esports athlete, hardcore gamer, casual player, or just starting out, Turtle Beach has the gaming headset to help you truly master your skills. Innovative and advanced technology, amazing high-quality gaming audio, crystal-clear communication, lightweight and comfortable designs, and ease-of-use are just a few features that make Turtle Beach a fan-favorite brand for gamers the world over. Designed for Xbox, PlayStation®, and Nintendo consoles as well as for PC, Mac®, and mobile/tablet devices, owning a Turtle Beach gaming headset gives you the competitive advantage. In 2019 Turtle Beach acquired the ROCCAT business, a leading PC accessories brand that combines detail-loving German innovation with a genuine passion for designing the best PC gaming products. Turtle Beach's shares are traded on the Nasdaq Exchange under the symbol: HEAR.

Cautionary Note on Forward-Looking Statements

This press release includes forward-looking information and statements within the meaning of the federal securities laws. Except for historical information contained in this release, statements in this release may constitute forward-looking statements regarding assumptions, projections, expectations, targets, intentions or beliefs about future events. Statements containing the words "may", "could", "would", "should", "believe", "expect", "anticipate", "plan", "estimate", "target", "goal", "project", "intend" and similar expressions, or the negatives thereof, constitute forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. Forward-looking statements are based on management's current belief and expectations, as well as assumptions made by, and information currently available to, management.

While the Company believes that its expectations are based upon reasonable assumptions, there can be no assurances that its goals and strategy will be realized. Numerous factors, including risks and uncertainties, may affect actual results and may cause results to differ materially from those expressed in forward-looking statements made by the Company or on its behalf. Some of these factors include, but are not limited to, risks related to, the substantial uncertainties inherent in the acceptance of existing and future products, the difficulty of commercializing and protecting new technology, the impact of competitive products and pricing, general business and economic conditions, risks associated with the expansion of our business including the integration of any businesses we acquire and the integration of such businesses within our internal control over financial reporting and operations, our indebtedness, the Company's liquidity, and other factors discussed in our public filings, including the risk factors included in the Company's most recent Annual Report on Form 10-K, Quarterly Report on Form 10-Q,  and the Company's other periodic reports. Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the Securities and Exchange Commission, the Company is under no obligation to publicly update or revise any forward-looking statement after the date of this release whether as a result of new information, future developments or otherwise.

All trademarks are the property of their respective owners.

Turtle Beach Corporation

Condensed Consolidated Balance Sheets

(in thousands, except par value and share amounts)


Table 1.



June 30,


December 31,


2019


2018


(unaudited)

ASSETS


Current Assets:






Cash and cash equivalents

$

3,446


$

7,078

Accounts receivable, net


18,402



52,797

Inventories


50,420



49,472

Prepaid expenses and other current assets


5,418



4,469

Total Current Assets


77,686



113,816

Property and equipment, net


5,717



5,856

Goodwill


5,940



Intangible assets, net


8,324



1,036

Other assets


4,158



1,212

Total Assets

$

101,825


$

121,920

LIABILITIES AND STOCKHOLDERS' EQUITY






Current Liabilities:






Revolving credit facility

$

10,803


$

37,385

Accounts payable


22,116



17,724

Other current liabilities


19,648



18,488

Total Current Liabilities


52,567



73,597







Deferred income taxes


187



187

Financial instrument obligation




7,848

Other liabilities


4,663



2,792

Total Liabilities


57,417



84,424

Commitments and Contingencies






Stockholders' Equity






Common stock, $0.001 par value - 100,000,000 shares authorized; 14,493,544 and 14,268,184 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively


14



14

Additional paid-in capital


175,644



169,421

Accumulated deficit


(130,781)



(131,463)

Accumulated other comprehensive loss


(469)



(476)

Total Stockholders' Equity


44,408



37,496

Total Liabilities and Stockholders' Equity

$

101,825


$

121,920

 

Turtle Beach Corporation

Condensed Consolidated Statements of Operations

(in thousands, except per-share data)

(unaudited)


Table 2.



Three Months Ended


Six Months Ended














June 30,


June 30,


June 30,


June 30,


2019


2018


2019


2018

Net revenue

$

41,330


$

60,805


$

86,176


$

101,691

Cost of revenue


28,159



40,528



58,218



66,385

Gross profit


13,171



20,277



27,958



35,306

Operating expenses:












Selling and marketing


7,550



6,818



14,431



12,747

Research and development


1,734



1,327



3,190



2,656

General and administrative


6,194



3,863



10,843



7,848

Total operating expenses


15,478



12,008



28,464



23,251

Operating income (loss)


(2,307)



8,269



(506)



12,055

Interest expense


111



1,258



355



3,263

Other non-operating expense (income), net


(70)



9,029



(1,732)



8,784

Income (loss) before income tax


(2,348)



(2,018)



871



8

Income tax expense


25



300



189



364

Net income (loss)

$

(2,373)


$

(2,318)


$

682


$

(356)













Net income (loss) per share












Basic

$

(0.16)


$

(0.17)


$

0.05


$

(0.03)

Diluted

$

(0.16)


$

(0.17)


$

(0.06)


$

(0.03)

Weighted average number of shares:












Basic


14,586



13,401



14,462



12,877

Diluted


14,586



13,401



15,699



12,877


(1) Net income for diluted earnings per share in the 2019 year-to-date period excludes a $1.6 million gain on the financial instrument obligation.

 

Turtle Beach Corporation

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


Table 3.



Six Months Ended


June 30, 2019


June 30, 2018







CASH FLOWS FROM OPERATING ACTIVITIES

$

38,172


$

46,341







CASH FLOWS FROM INVESTING ACTIVITIES


(13,674)



(402)







CASH FLOWS FROM FINANCING ACTIVITIES






Borrowings on revolving credit facilities


99,453



81,991

Repayment of revolving credit facilities


(126,036)



(120,458)

Repayment of term loan


-



(2,485)

Proceeds from exercise of stock options and warrants


94



734

Repurchase of common stock


(1,499)



-

Settlement of Series B Preferred Stock


-



(1,390)

Repurchase of common stock in the settlement of restricted stock


(145)



-

Debt financing costs


-



(405)

Net cash used for financing activities


(28,133)



(42,013)

Effect of exchange rate changes on cash and cash equivalents


3



(65)

Net increase (decrease) in cash and cash equivalents


(3,632)



3,861

Cash and cash equivalents - beginning of period

7,078


5,247

Cash and cash equivalents - end of period

$

3,446


$

9,108

 

Turtle Beach Corporation

Reconciliation of GAAP and Non-GAAP Measures

(in thousands, except per-share data)

(unaudited)


Table 4.



Three Months Ended


Six Months Ended


June 30,

2019


June 30,

2018


June 30,

2019


June 30,

2018

Net Income (Loss)












GAAP Net Income (Loss)

$

(2,373)


$

(2,318)


$

682


$

(356)













Adjustments, net of tax:












Loss (gain) on financial instrument obligation


-



8,619



(1,601)



8,619

Acquisition integration costs


1,477



-



2,214



-

Non-GAAP Earnings

$

(896)


$

6,301


$

1,295


$

8,263













Diluted Earnings Per Share












GAAP- Diluted

$

(0.16)


$

(0.17)


$

(0.06)


$

(0.03)













Gain on financial instrument obligation

-



0.57



-



0.59

Acquisition integration costs


0.10



-



0.14



-

Non-GAAP- Diluted

$

(0.06)


$

0.40


$

0.08


$

0.56

 

Turtle Beach Corporation

GAAP to Adjusted EBITDA Reconciliation

(in thousands)

(unaudited)


Table 5.



Three Months Ended


June 30, 2019











Adj








As


Adj


Adj


Stock





Adj


Reported


Depreciation


Amortization


Compensation


Other (1)


EBITDA

Net revenue

$

41,330


$

-


$

-


$

-


$

-


$

41,330

Cost of revenue


28,159



(427)



-



(93)



-



27,639

Gross Profit


13,171



427



-



93



-



13,691



















Operating expenses


15,478



(713)



(159)



(910)



(1,563)



12,133



















Operating income (loss)


(2,307)



1,140



159



1,003



1,563



1,558



















Interest expense


111
















Other non-operating income, net


(70)















(70)



















Income (loss) before income tax


(2,348)
















Income tax expense


25
















Net loss

$

(2,373)








Adjusted EBITDA


$

1,628






































Six Months Ended


June 30, 2019











Adj








As


Adj


Adj


Stock





Adj


Reported


Depreciation


Amortization


Compensation


Other (1)


EBITDA

Net revenue

$

86,176


$

-


$

-


$

-


$

-


$

86,176

Cost of revenue


58,218



(779)



-



32



-



57,471

Gross Profit


27,958



779



-



(32)



-



28,705



















Operating expenses


28,464



(1,401)



(221)



(1,557)



(2,343)



22,942



















Operating income (loss)


(506)



2,180



221



1,525



2,343



5,763



















Interest expense


355
















Other non-operating income, net


(1,732)












1,601



(131)



















Income before income tax


871
















Income tax expense


189
















Net income

$

682








Adjusted EBITDA


$

5,894


(1)  Other includes certain business acquisition costs and a gain (loss) on financial instrument obligation.

 

Turtle Beach Corporation

GAAP to Adjusted EBITDA Reconciliation

(in thousands)

(unaudited)


Table 5. (continued)



Three Months Ended


June 30, 2018











Adj








As


Adj


Adj


Stock





Adj


Reported


Depreciation


Amortization


Compensation


Other (1)


EBITDA

Net revenue

$

60,805


$

-


$

-


$

-


$

-


$

60,805

Cost of revenue


40,528



(110)



-



(313)



-



40,105

Gross Profit


20,277



110



-



313



-



20,700



















Operating expenses


12,008



(1,146)



(77)



(286)



-



10,499



















Operating income


8,269



1,256



77



599



-



10,201



















Interest expense


1,258
















Other non-operating income, net


9,029












(8,619)


410



















Income (loss) before income tax


(2,018)
















Income tax expense


300
















Net loss

$

(2,318)








Adjusted EBITDA


$

9,791






































Six Months Ended


June 30, 2018











Adj








As


Adj


Adj


Stock





Adj


Reported


Depreciation


Amortization


Compensation


Other (1)


EBITDA

Net revenue

$

101,691


$

-


$

-


$

-


$

-


$

101,691

Cost of revenue


66,385



(230)



-



(331)



-



65,824

Gross Profit


35,306



230



-



331



-



35,867



















Operating expenses


23,251



(1,974)



(156)



(491)



-



20,630



















Operating income


12,055



2,204



156



822



-



15,237



















Interest expense


3,263
















Other non-operating income, net


8,784












(8,619)



165



















Income before income tax


8
















Income tax expense


364
















Net loss

$

(356)








Adjusted EBITDA


$

15,072


(1)  Other includes a gain (loss) on financial instrument obligation.

 

Cision

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