Delivered Record First Half Results and
Maintained 2021 Outlook for Record Year
Leading gaming accessory maker Turtle Beach Corporation (Nasdaq:
HEAR), reported financial results for the second quarter ended June
30, 2021. The Company is also providing year-to-date performance
alongside its second quarter summary results given the unusual
quarterly dynamics in 2020 and 2021.
Second Quarter and First Half 2021 Summary vs. Year-Ago
Period:
- Second quarter net revenue was $78.6 million compared to $79.7
million a year ago; first half 2021 net revenue was up 50%;
- Second quarter net income of $1.7 million, or $0.09 per diluted
share, compared to net income of $8.2 million, or $0.51 per diluted
share; first half 2021 net income was up 127%;
- Second quarter adjusted EBITDA was $5.0 million compared to
$12.9 million; first half 2021 adjusted EBITDA was up 98%; and
- Cash balance grew to $56.2 million compared to $21.2 million as
of June 30, 2020.
Management Commentary
“Our excellent second quarter performance exceeded our net
revenue and adjusted EBITDA outlook and produced a record first
half, showcasing our ability to execute across our business even
against tough comps where we outperformed the market in the year
ago quarter,” said Juergen Stark, CEO, Turtle Beach. “Our results
continue to demonstrate skillful execution across our business as
demand for our console gaming headsets and PC accessories remain
strong. We did this while launching many new products across our
console headsets and PC accessories during the quarter. Further,
our announced entry into game controllers and gaming simulation
hardware has been well-received and expands our portfolio into two
rapidly growing markets, providing us with a significant
opportunity to drive additional growth.
“We are riding on multiple, positive long-term trends as gaming
accessory demand remains strong. Both Microsoft and Sony announced
that the new consoles set records despite supply constraints. NPD
reported that US sales of PC headsets, keyboards, and mice rose
approximately 40% in the first half of 2021 year-over-year, and
ROCCAT grew by approximately 200%1 during the same time, reflecting
the impact of our expanding line of PC accessories and strength of
our market presence.”
“We continue to believe that we’re well-positioned to capitalize
in the back half of the year as we expect continued strong demand
for console headsets and our offerings in PC and new categories are
expected to continue on their strong growth trajectory and become
an increasingly meaningful part of our overall business. As we
expand into new categories and increase our addressable market,
we’ll continue our commitment to delivering high quality products
with patented features that gamers love.
“We are confident in this strategy given our decade-long
leadership position in gaming headsets, as well as the early
momentum we are seeing in our new categories. From this, we are
focused on our long-term revenue CAGR target of 10% to 20% while
delivering category-leading EBITDA margins and maintaining a strong
balance sheet. Ultimately, we believe these to be the cornerstones
of our strategy to increase shareholder value.”
Second Quarter 2021 Financial Results
Net revenue in the second quarter of 2021 was $78.6 million
compared to $79.7 million in the year-ago quarter. The slight
decline versus the year-ago quarter was driven by our
outperformance of the market and competitors during last year’s
surge in demand brought on by the stay at home orders. Given the
unusual factors in the comparative year-ago period, we believe that
it is instructive to show second quarter sales compared to the same
quarter in 2019. Net revenue was up 90% in the second quarter of
2021 compared to the $41.3 million generated in Q2 2019, and we
believe this provides a more normalized growth rate and
demonstrates the staying power and longer-term demand trends of the
business.
Gross margin in the second quarter of 2021 was 36.5%,
essentially flat versus 36.7% in the second quarter of 2020. Lower
air freight costs and fixed cost leverage were offset by changes in
business mix, a return to a more normalized level of promotional
spend and higher regular freight costs.
Operating expenses in the second quarter of 2021 were $28.3
million compared to $19.3 million in the same 2020 period, with the
increase primarily driven by the Company’s revenue run rate that is
60% higher than in 2019, as well as volume-related selling costs, a
shift in marketing spend timing to align to new product launches,
and investments to expand the Company’s portfolio in PC,
controllers, and flight simulation.
Net income in the second quarter of 2021 was $1.7 million, or
$0.09 per diluted share (on 18.3 million weighted average diluted
shares), compared to net income of $8.2 million, or $0.51 per
diluted share in the year-ago quarter. Excluding a number of
adjustments to net income in both periods (as summarized below in
Table 4), adjusted net income (as defined below in “Non-GAAP
Financial Measures”) in the second quarter of 2021 was $2.6
million, or $0.14 per diluted share, compared to $6.8 million or
$0.42 per diluted share. The weighted average diluted share count
for the second quarter of 2021 was 18.3 million compared to 16.2
million in 2020.
Adjusted EBITDA (as defined below in “Non-GAAP Financial
Measures”) in the second quarter of 2021 was $5.0 million compared
to $12.9 million in the year-ago quarter reflecting the above cited
factors.
Balance Sheet Overview
At June 30, 2021, the Company had $56.2 million of cash and cash
equivalents with no outstanding debt under its revolving credit
facility. This compares to $21.2 million of cash and cash
equivalents at June 30, 2020, and $46.7 million of cash and cash
equivalents at December 31, 2020, with no outstanding revolving
debt in either prior period. Inventories increased to over $80
million given intentional actions to pull forward shipments given
global supply constraints as well as higher revenues and new
products.
2021 Outlook
For the full year 2021, the Company continues to expect revenue
to be approximately $385 million, up 7% from record $360 million in
2020 and constrained by anticipated semiconductor shortages. This
anticipated growth is driven by continued strong sell through of
the Company’s core products, the expansion of its PC accessories
business, and additional revenues from new market entries. Adjusted
EBITDA is expected to be approximately $50 million, reflecting a
13% EBITDA margin despite increased investments to drive current
and future growth. While the Company is maintaining its $50 million
adjusted EBITDA outlook, the Company acknowledges and continues to
monitor the dynamic ocean and land-based freight cost increases,
which remain variable and prone to short-notice changes. Adjusted
net income per diluted share is expected to be approximately $1.55,
an increase from prior guidance of $1.50 based on the expected
lower effective tax rate. For the full year we expect the effective
tax rate to be approximately 20% a reduction from our approximately
27% estimate last quarter. Per share figures for the full year 2021
assume approximately 18 million diluted shares outstanding.
For the second half of 2021, the Company expects revenue to be
approximately $213.4 million and adjusted EBITDA to be
approximately $29.7 million. Adjusted net income per diluted share
is expected to be approximately $0.88.
With respect to the Company's adjusted EBITDA outlook for the
full year and second half of 2021, 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 5, 2021, at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time)
to discuss its second quarter 2021 results.
Chairman and CEO Juergen Stark and CFO John Hanson will host the
call, followed by a question and answer session.
Conference Call
Details: Date: Thursday, August 5, 2021
Time: 5:00 p.m. ET / 2:00 p.m. PT Toll-Free Dial-in
Number: (800) 708-4540 International Dial-in Number:
(847) 619-6397 Conference ID: 50199322
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.
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. “NonGAAP Earnings” is defined
as net income excluding (i) integration and transaction costs
related to acquisitions, (ii) the effect of the mark-to-market
requirement of the financial instrument obligation, (iii) any
change in fair value of contingent consideration and (iv) the
release of valuation allowances on deferred tax assets. “Adjusted
EBITDA” is defined by the Company as net income (loss) before
interest, taxes, depreciation and amortization, stock-based
compensation (non-cash), and certain non-recurring items that we
believe are not representative of core operations (e.g., the
integration and transaction costs related to acquisitions, the
mark-to-market adjustment for the financial instrument obligation
and the change in fair value of contingent consideration). 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 each of the three months and six months
ended June 30, 2021 and 2020.
About Turtle Beach
Corporation
Turtle Beach Corporation (https://corp.turtlebeach.com) is one
of the world’s leading gaming accessory providers. The Turtle Beach
brand (www.turtlebeach.com) is known for pioneering first-to-market
features and patented innovations in high-quality, comfort-driven
headsets for all levels of gamer, making it a fan-favorite brand
and the market leader in console gaming audio for the last decade.
Turtle Beach’s ROCCAT brand (www.roccat.com) combines detail-loving
German innovation with a genuine passion for designing the best PC
gaming products. Under the ROCCAT brand, Turtle Beach creates
award-winning keyboards, mice, headsets, mousepads, and other PC
accessories. Turtle Beach’s Neat Microphones brand
(www.neatmic.com) creates high-quality USB and analog microphones
for gamers, streamers, and professionals that embrace cutting-edge
technology and design. 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 capital
markets activities, 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, the impact of the coronavirus
(COVID-19) pandemic on consumer demands and manufacturing
capabilities; delays or disruptions in the supply of components for
our products; risks relating to, and uncertainty caused by or
resulting from, the COVID-19 pandemic, general business and
economic conditions, risks associated with the expansion of our
business including acquisitions, 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
Statements of Operations
(in thousands, except per-share
data)
(unaudited)
Table 1.
Three Months Ended
Six Months Ended
June 30,
June 30,
June 30,
June 30,
2021
2020
2021
2020
Net revenue
$
78,564
$
79,680
$
171,617
$
114,687
Cost of revenue
49,854
50,453
108,052
74,675
Gross profit
28,710
29,227
63,565
40,012
Operating expenses:
Selling and marketing
15,678
9,559
27,223
17,207
Research and development
4,416
3,001
8,409
5,428
General and administrative
8,173
6,710
15,210
12,433
Total operating expenses
28,267
19,270
50,842
35,068
Operating income
443
9,957
12,723
4,944
Interest expense
73
83
170
252
Other non-operating expense (income),
net
(65
)
(1,616
)
514
(1,419
)
Income before income tax
435
11,490
12,039
6,111
Income tax expense (benefit)
(1,286
)
3,286
1,480
1,462
Net income
$
1,721
$
8,204
$
10,559
$
4,649
Net income per share
Basic
$
0.11
$
0.56
$
0.67
$
0.32
Diluted
$
0.09
$
0.51
$
0.58
$
0.30
Weighted average number of shares:
Basic
15,920
14,581
15,737
14,538
Diluted
18,329
16,229
18,204
15,363
Turtle Beach
Corporation
Condensed Consolidated Balance
Sheets
(in thousands, except par value
and share amounts)
Table 2.
June 30,
December 31,
2021
2020
(unaudited)
ASSETS
(in thousands, except par value
and share amounts)
Current Assets:
Cash and cash equivalents
$
56,197
$
46,681
Accounts receivable, net
28,025
43,867
Inventories
81,931
71,301
Prepaid expenses and other current
assets
19,418
8,127
Total Current Assets
185,571
169,976
Property and equipment, net
6,917
6,575
Deferred income taxes
7,047
6,946
Goodwill
10,686
8,178
Intangible assets, net
6,442
5,138
Other assets
6,090
6,640
Total Assets
$
222,753
$
203,453
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current Liabilities:
Revolving credit facility
$
—
$
—
Accounts payable
47,909
42,529
Other current liabilities
32,835
36,122
Total Current Liabilities
80,744
78,651
Income tax payable
3,328
3,146
Other liabilities
4,989
5,257
Total Liabilities
89,061
87,054
Commitments and Contingencies
Stockholders’ Equity
Common stock, $0.001 par value -
25,000,000 shares authorized; 16,065,231 and 15,475,504 shares
issued and outstanding as of June 30, 2021 and December 31, 2020,
respectively
16
15
Additional paid-in capital
197,207
190,568
Accumulated deficit
(64,214
)
(74,773
)
Accumulated other comprehensive income
(loss)
683
589
Total Stockholders’ Equity
133,692
116,399
Total Liabilities and Stockholders’
Equity
$
222,753
$
203,453
Turtle Beach
Corporation
Condensed Consolidated
Statements of Cash Flows
(in thousands)
(unaudited)
Table 3.
Six Months Ended
June 30, 2021
June 30, 2020
CASH FLOWS FROM OPERATING ACTIVITIES
$
12,448
$
31,842
CASH FLOWS FROM INVESTING ACTIVITIES
(5,816
)
(2,303
)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on revolving credit
facilities
120,858
48,426
Repayment of revolving credit
facilities
(120,858
)
(64,081
)
Proceeds from exercise of stock options
and warrants
3,262
59
Repurchase of common stock to satisfy
employee tax withholding obligations
(463
)
(108
)
Net cash provided by (used for) financing
activities
2,799
(15,704
)
Effect of exchange rate changes on cash
and cash equivalents
85
(878
)
Net increase in cash and cash
equivalents
9,516
12,957
Cash and cash equivalents - beginning of
period
46,681
8,249
Cash and cash equivalents - end of
period
$
56,197
$
21,206
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, 2021
June 30, 2020
June 30, 2021
June 30, 2020
Net Income (Loss)
GAAP Net Income (Loss)
$
1,721
$
8,204
$
10,559
$
4,649
Adjustments, net of tax:
Non-recurring business costs
851
—
1,402
—
Gain on acquisition-related settlement
—
(1,702
)
—
(1,702
)
Change in fair value consideration
—
223
—
238
Acquisition integration costs
76
44
216
244
Non-GAAP Earnings
$
2,648
$
6,769
$
12,177
$
3,429
Diluted Earnings Per Share
GAAP- Diluted
$
0.09
$
0.51
$
0.58
$
0.30
Non-recurring business costs
0.05
—
0.07
—
Gain on acquisition-related settlement
—
(0.10
)
—
(0.11
)
Change in fair value consideration
—
0.01
—
0.01
Acquisition integration costs
—
—
0.01
0.02
Non-GAAP- Diluted
$
0.14
$
0.42
$
0.67
$
0.22
Turtle Beach
Corporation
GAAP to Adjusted EBITDA
Reconciliation
(in thousands)
(unaudited)
Table 5.
Three Months Ended
June 30, 2021
Adj
As
Adj
Adj
Stock
Adj
Reported
Depreciation
Amortization
Compensation
Other (1)
EBITDA
Net revenue
$
78,564
$
-
$
-
$
-
$
-
$
78,564
Cost of revenue
49,854
(410
)
-
(90
)
-
49,354
Gross Profit
28,710
410
-
90
-
29,210
Operating expenses
28,267
(698
)
(322
)
(1,851
)
(1,075
)
24,321
Operating income
443
1,108
322
1,941
1,075
4,889
Interest expense
73
Other non-operating expense (income),
net
(65
)
-
(65
)
Income before income tax
435
Income tax benefit
(1,286
)
Net income
$
1,721
Adjusted EBITDA
$
4,954
Six Months Ended
June 30, 2021
Adj
As
Adj
Adj
Stock
Adj
Reported
Depreciation
Amortization
Compensation
Other (1)
EBITDA
Net revenue
$
171,617
$
-
$
-
$
-
$
-
$
171,617
Cost of revenue
108,052
(647
)
-
(487
)
-
106,918
Gross Profit
63,565
647
-
487
-
64,699
Operating expenses
50,842
(1,200
)
(625
)
(3,240
)
(1,876
)
43,901
Operating income
12,723
1,847
625
3,727
1,876
20,798
Interest expense
170
Other non-operating expense (income),
net
514
514
Income before income tax
12,039
Income tax expense
1,480
Net income
$
10,559
Adjusted EBITDA
$
20,284
(1) Other includes certain non-recurring business costs.
Turtle Beach
Corporation
GAAP to Adjusted EBITDA
Reconciliation
(in thousands)
(unaudited)
Table 5. (continued)
Three Months Ended
June 30, 2020
Adj
As
Adj
Adj
Stock
Adj
Reported
Depreciation
Amortization
Compensation
Other (2)
EBITDA
Net revenue
$
79,680
$
-
$
-
$
-
$
-
$
79,680
Cost of revenue
50,453
(593
)
-
(280
)
-
49,580
Gross Profit
29,227
593
-
280
-
30,100
Operating expenses
19,270
(435
)
(220
)
(1,126
)
(63
)
17,426
Operating income
9,957
1,028
220
1,406
63
12,674
Interest expense
83
Other non-operating expense (income),
net
(1,616
)
1,388
(228
)
Income before income tax
11,490
Income tax expense
3,286
Net income
$
8,204
Adjusted EBITDA
$
12,902
Six Months Ended
June 30, 2020
Adj
As
Adj
Adj
Stock
Adj
Reported
Depreciation
Amortization
Compensation
Other (2)
EBITDA
Net revenue
$
114,687
$
-
$
-
$
-
$
-
$
114,687
Cost of revenue
74,675
(1,184
)
-
(338
)
-
73,153
Gross Profit
40,012
1,184
-
338
-
41,534
Operating expenses
35,068
(877
)
(443
)
(2,067
)
(343
)
31,338
Operating income
4,944
2,061
443
2,405
343
10,196
Interest expense
252
Other non-operating expense (income),
net
(1,419
)
1,367
(52
)
Income before income tax
6,111
Income tax expense
1,462
Net income
$
4,649
Adjusted EBITDA
$
10,248
(2) Other includes certain business acquisition costs and change
in fair value of contingent consideration.
1 The NPD Group/Retail Tracking Service/Dollars and
Units/US- Tech POS Monthly/YTD 2021 update
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210805005998/en/
For Investor Information, Contact:
Cody Slach or Alex Thompson Gateway Investor Relations On Behalf of
Turtle Beach 949.574.3860 HEAR@gatewayir.com
For Media Information, Contact:
MacLean Marshall Sr. Director –PR/Communications Turtle Beach Corp.
858.914.5093 maclean.marshall@turtlebeach.com
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