Current Leadership Has Reaped an Estimated
$65+ Million in Compensation Since Juergen Stark Became
Public Company CEO – More Than 25% of the Company’s Current
Enterprise Value
During the Same Period, Turtle Beach Share
Price Has Declined More Than 65%, Revenue Growth Has Flatlined, and
the Company Has Written Down Over $100 Million of Stark-Led
Investments
The Board Has Once Again Raised Management
Compensation and Approved Management’s Payment of Nearly Full,
On-Target Bonuses Despite Dramatic Underperformance in 2021
Urges All Shareholders to Vote Now on the
WHITE Proxy Card to Elect The Donerail
Group’s Full Slate
The Donerail Group LP (together with its affiliates, "Donerail,"
"we" or "us"), which is one of the largest shareholders of Turtle
Beach Corporation (NASDAQ: HEAR) ("Turtle Beach" or the "Company")
and together with the other participants in its solicitation,
beneficially owns approximately 8.5% of the outstanding shares of
the Company, today issued the below letter to shareholders. Please
visit www.ResetTurtleBeach.com to learn about Donerail’s campaign
and obtain information for how to vote on the WHITE proxy card.
***
Dear Fellow Shareholders,
As the definitive proxy materials for the Company’s 2022 Annual
Meeting of the Shareholders (the “Annual Meeting”) have been
finalized and will be distributed to you shortly, shareholders will
now have the ability to elect the group of individuals they deem
most appropriate to lead Turtle Beach into the future as members of
the Company’s Board of Directors (the “Board”).
There are several objective facts that, when presented alone,
have led us to conclude that this management team and Board are
unable to effectively manage and have failed as fiduciaries of
shareholders’ capital.
Since Juergen Stark was named as public company CEO:
- The Company’s total shareholder return (TSR) has underperformed
its own industry peer set by more than 200%1
- EBITDA margin, a widely regarded metric for corporate
profitability, has been cut in half2
- Revenue growth has slowed to 0% at the midpoint of the guided
annual range3
- The Company has written down more than $100 million of various
investment initiatives4
- The sum of the Company’s executive and Board compensation, the
Company’s cash flow burn from non-console headset businesses and
its various asset impairments from non-console headsets is
approximately equal to the Company’s current enterprise value5
Simply put, there appears to be no credible case by which the
management team – and the Board that has seemingly refused to hold
the management team accountable – should continue to lead the
Company.
To make matters worse, in our research we have uncovered several
highly concerning findings that we, as shareholders, are simply
deeply uncomfortable with and believe point to a Board that is
entirely misaligned with shareholders.
As you process the evidence that we will be providing over the
next few weeks, we are confident that you will come to the same
conclusion as us – that the current Board of
Directors simply cannot be trusted:
I. Management and
the Board have received an estimated $65+ million in compensation
under Mr. Stark, accounting for greater than 25% of the current
enterprise value of the Company.6
Despite the abysmal share price performance
and destruction of shareholder capital since Mr. Stark took over as
public company CEO in 2014, the Board has authorized and approved
egregiously high compensation.
Together with the senior management team, the
current Board has compensated themselves an estimated $65+ million
in cash, stock options, restricted stock units and other forms of
payment. Not only is this level of
compensation astounding and highly inappropriate, but it also is a
direct affront to shareholders. Given the disastrous share
performance over the past eight years, shareholders have the right
to be outraged.
The facts tell a disappointing story. To
substantiate its ongoing payments to management, the Board points
to a number of “industry peers” that it has modeled compensation
after, which is a typical industry practice.
The problem is that we do not think that the
Board’s approved “industry peers” are industry peers at all: the
companies that have been chosen as “peers” are, on average, over
3.5x the size of the enterprise value of Turtle Beach, and only one
of the 13 publicly traded companies that Turtle Beach lists as a
“peer” also lists Turtle Beach as a peer in its most recent annual
proxy.
We believe that the Turtle Beach Board has
consciously and intentionally sought to pay management and itself
in line with companies exponentially larger than Turtle Beach.
How can shareholders trust this Board to be
good fiduciaries?
II. Notwithstanding
the abysmal underperformance of Turtle Beach shares and wild miss
to earnings expectations, the Board approved a raise in
compensation for senior management and paid management nearly full,
on-target bonuses for 2021.
In its most recent earnings report,
management reported full year 2021 EBITDA of $36.6 million, missing
its full year EBITDA guidance by almost 27%. The Turtle Beach share
price has declined 38% in the past year as, we believe, management
has proven unable to execute and, unfortunately, lost credibility
with its investor base.7
Yet, it appears that the current Board is
pleased with management’s performance, as it authorized a raise for
both the Company’s CEO and CFO in 2021.8 Moreover, notwithstanding
the poor performance of both the Company’s equity or the management
team’s operating performance, the CEO and CFO were both nearly paid
full, on-target bonuses for 2021.9
We question whether a Company that misses
earnings estimates by nearly 30% or witnesses its share price
decline by nearly 40% should be paying its executives anything
close to full, on-target bonuses.
How can shareholders trust this Board to be
good fiduciaries?
In the coming weeks, we will continue to detail the findings of
our research to shareholders. Our detailed findings will reveal: i)
the clear operating mishaps by management; ii) the clear misguided
strategy by the Board that has cost shareholders greatly; iii) a
shocking and egregious number of governance actions that have
startled us and mandated that we seek to replace the entire Board;
and iv) an exciting, vibrant and clear path forward to elect a
Board of independent, experienced executives that shareholders can
trust as fiduciaries.
If it is not yet clear to you, we
believe that by the Annual Meeting on June 7, it will be
overwhelmingly evident that the current Board has lost its way and
must be replaced to end the status quo of poor governance and
underperformance.
We thank you for your support and, as always, we are standing by
to discuss any ideas on shareholder value creation that any
shareholder may have.
Sincerely,
William Z. Wyatt Managing Partner The Donerail Group
LP
***
We urge you to vote the WHITE proxy card to send the message to Turtle
Beach Corporation’s leadership and Board that shareholders deserve
better. Vote the WHITE proxy
card TODAY to support a superior slate of highly qualified
individuals, who will be better stewards of your investment. Please
vote each and every WHITE proxy
card you receive, as you may own shares in more than one account.
If you voted a Blue card from Turtle Beach, you have every right to
change your vote by voting on the enclosed WHITE proxy card. Only your latest dated vote
counts.
***
About Donerail
The Donerail Group LP is a Los Angeles-based investment adviser
that employs a value-oriented investment lens focusing on special
situations and event driven investments.
1 Per Bloomberg. Proxy peer group includes 2021 Peer Group
companies listed in Company’s 2022 proxy statement that were public
when Parametric Sound completed its merger with Turtle Beach.
2 Per the Company’s March 2, 2022 press release guiding to 9% - 11%
EBITDA margins for 2022, compared to Turtle Beach’s 2012 EBITDA
margins of over 22%, per the Company’s September 26, 2013 investor
presentation. 3 Per the Company’s March 2, 2022 press
release. 4 Per the Company’s 2016 10-K related to its
HyperSound business. 5 Company filings and Donerail
estimates. 6 Includes total compensation for Named Executive
Officers and the Board since each executive or Board member joined
Turtle Beach. 7 Turtle Beach shares closed Friday, April 22,
2022 at $18.18 per share versus the April 23, 2021, closing price
of $29.38. 8 Pursuant to the Company’s Definitive Proxy filed
April 21, 2021, CEO Juergen Stark’s Base Salary Increased from
$500,000 per year in 2020 to $600,000 per year in 2021. CFO John
Hanson’s Base Salary Increased from $365,000 per year in 2020 to
$375,000 per year in 2021. 9 Pursuant to the Company’s
Definitive Proxy filed April 21, 2021, CEO Juergen Stark was paid
88% of his Target Bonus; CFO John Hanson was paid 84% of his Target
Bonus.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220424005087/en/
For Media: Longacre Square Partners Greg Marose / Ashley
Areopagita, 646-386-0091 gmarose@longacresquare.com /
aareopagita@longacresquare.com For Investors: Saratoga Proxy
Consulting LLC John Ferguson / Joe Mills, 212-257-1311
jferguson@saratogaproxy.com / jmills@saratogaproxy.com
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