Leading gaming accessory maker Turtle Beach Corporation (Nasdaq:
HEAR), reported financial results for the second quarter ended June
30, 2022.
Second Quarter Summary vs Year-Ago
Period:
- Second quarter net revenue was $41.3 million, compared to $78.6
million a year ago, reflecting a challenging macroeconomic
environment vs. a near record quarter last year;
- Second quarter net loss was $(17.8) million, or $(1.08) per
diluted share, compared to net income of $1.7 million, or $0.09 per
diluted share; and
- Second quarter adjusted EBITDA was $(12.1) million compared to
$5.0 million.
Management Commentary
“While the underlying trends in the gaming market remain strong,
our second quarter results were impacted by ongoing macroeconomic
headwinds impacting many companies, including a decline in consumer
discretionary spending driven by rising inflation, channel
inventory reductions, global supply chain challenges, and a strong
dollar,” said Juergen Stark, CEO and Chairman, Turtle Beach
Corporation. “Despite these challenges, we are focused on what we
can control and have taken proactive actions to reduce operating
expenses while launching new products across our increasingly
diverse portfolio, consistent with our broader strategy. Our
business expansion across non-console headset categories continued
to show strong results as it grew to over 25% of overall net
revenue in the second quarter.
“Our industry-leading gaming products remain highly attractive
to gamers at all price points, and in the second quarter we
announced upgrades to our Stealth wireless gaming headsets which
have gained share in premium price tiers and contributed to a nice
share jump in June. We’ve also launched new products within our
ROCCAT PC accessories brand where we are seeing a meaningful
increase in recent sales with new in-line displays at Best Buy. As
the economic and operating challenges persist, we remain confident
in the gaming market as a whole and believe we can capitalize on
the strong, long-term secular trends over time. Gaming trends are
historically favorable in economic downturns and may lead to
pent-up demand that drives additional upswing when consumer
spending behavior recovers. Current retail inventory conservatism,
which is having a significant incremental impact on revenues, also
tends to create an incremental positive impact when consumer demand
swings up.
“We continue to have strong conviction that the gaming market
remains highly attractive with ample opportunities ahead, and we
expect to roll out new gaming products within our diverse portfolio
in the second half of 2022 that will position us to capture more
share as the gaming market improves. As we move forward, we remain
committed to delivering high-quality products with features that
gamers love, while diligently managing the business both for the
current environment and to position us for long-term success and
value creation.”
Second Quarter 2022 Financial
Results
Net revenue in the second quarter of 2022 was $41.3 million,
compared to a near record $78.6 million in the elevated period a
year ago, where strong demand for the Company’s products was driven
by stay-at-home orders, government stimulus payments and a strong
gaming accessories market.
Gross margin in the second quarter of 2022 was 19.1% versus
36.5% in the year-ago quarter. The decrease was primarily due to
higher promotional credits driven by more aggressive competitive
pricing actions to reduce inventory levels, business mix,
significantly higher freight costs, volume-driven fixed cost
deleveraging and higher warehouse costs to ensure product
supply.
Operating expenses in the second quarter of 2022 were $29.3
million compared to $28.3 million in the year-ago quarter,
including $6.8M of non-recurring costs which are primarily proxy
contest and related costs, which the Company is continuing to
incur. Excluding these non-recurring expenses, operating expenses
were 17% lower year-over-year reflecting proactive management
actions to reduce spending as well as lower revenue-driven
costs.
Net loss in the second quarter of 2022 was $(17.8) million, or
$(1.08) per diluted share, compared to net income of $1.7 million,
or $0.09 per diluted share, in the year-ago quarter. Excluding
several adjustments to earnings in both periods (as summarized
below in Table 4), adjusted net loss (as defined below in “Non-GAAP
Financial Measures”) in the second quarter of 2022 was $(12.7)
million, or $(0.77) per diluted share, compared to adjusted net
income of $2.6 million, or $0.14 per diluted share, in the year-ago
quarter. The weighted average diluted share count for the second
quarter of 2022 was 16.5 million compared to 18.3 million in the
year-ago quarter.
Adjusted EBITDA loss (as defined below in “Non-GAAP Financial
Measures”) in the second quarter of 2022 was $(12.1) million,
compared to adjusted EBITDA of $5.0 million in the year-ago period,
due to the factors stated above.
Balance Sheet and Cash Flow
Summary
At June 30, 2022, the Company had $10.9 million of cash and
$15.7 million outstanding on its revolver. This compares to $56.2
million of cash with no outstanding debt at June 30, 2021.
Inventories at June 30, 2022 were $120.7 million compared to $81.9
million in the year-ago period, a reflection of lower than expected
consumer demand and retail inventory levels and the Company’s
prioritization to maintain product availability amidst global
supply chain and logistical challenges.
Full Year 2022 Outlook
The Company is updating its full year 2022 outlook in light of
the aforementioned uncertain macroeconomic conditions and expects
revenue to be between the range of $250 million and $275 million.
The Company anticipates improving conditions in the second half and
year-over-year growth in the fourth quarter driven by new product
launches and a modestly stronger holiday season.
Gross margins are expected to improve in the second half of 2022
but finish the year in the mid 20’s percent range, reflecting
higher-than-normal promotional levels, higher freight costs and
lower operating leverage. Freight costs are trending down and the
Company expects to begin realizing this benefit later in the year
and into 2023.
Adjusted EBITDA is expected to be a loss of approximately $5 to
$15 million reflecting the above-cited factors. Adjusted earnings
per diluted share is expected to be a loss within the range of
$1.35 to $0.90 based upon 17.0 million diluted shares for 2022.
With respect to the Company's adjusted EBITDA outlook for the
full year 2022, 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 will host a conference call at 5:00 p.m. ET / 2:00
p.m. PT with the Company’s Chairman and CEO, Juergen Stark, and
CFO, John Hanson. A live webcast of the call will be available on
the “Events & Presentations” page of the Company’s website at
corp.turtlebeach.com. To access the call by phone, please go to
this link (registration link) and you will be provided with dial in
details. To avoid delays, we encourage participants to dial into
the conference call fifteen minutes ahead of the scheduled start
time. A replay of the webcast will also be available for a limited
time at corp.turtlebeach.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. “Non-GAAP Earnings” is
defined as net income excluding (i) integration and transaction
costs related to acquisitions and (ii) certain non-recurring
business costs. “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 special items that we believe are not representative
of core operations (e.g., proxy contest and related costs, the
integration and transaction costs related to acquisitions, 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 and six months ended
June 30, 2022 and 2021.
About Turtle Beach
Corporation
Turtle Beach Corporation (corp.turtlebeach.com) is one of the
world’s leading gaming accessory providers. The Company’s namesake
Turtle Beach brand (www.turtlebeach.com) is known for designing
high-quality, comfort-driven headsets for all gamers. Innovation,
first-to-market features, a broad range of products, and top-rated
customer support have made Turtle Beach a fan-favorite brand and
the market leader in console gaming audio for over a decade. In
2021, Turtle Beach expanded the best-selling brand beyond headsets
and successfully launched the first of its groundbreaking game
controllers and gaming simulation accessories. Turtle Beach’s
ROCCAT brand (www.roccat.com) combines detail-loving German
innovation with a genuine passion for designing the best PC gaming
products, including 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, professionals, and
students 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 beliefs 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 logistic
and supply chain challenges, 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 filed with the Securities and
Exchange Commission. 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,
2022
2021
2022
2021
Net revenue
$
41,300
$
78,564
$
87,962
$
171,617
Cost of revenue
33,418
49,854
66,051
108,052
Gross profit
7,882
28,710
21,911
63,565
Operating expenses:
Selling and marketing
11,587
15,678
22,416
27,223
Research and development
5,136
4,416
10,388
8,409
General and administrative
12,532
8,173
18,767
15,210
Total operating expenses
29,255
28,267
51,571
50,842
Operating income (loss)
(21,373
)
443
(29,660
)
12,723
Interest expense
84
73
193
170
Other non-operating expense (income),
net
1,109
(65
)
1,828
514
Income (loss) before income tax
(22,566
)
435
(31,681
)
12,039
Income tax expense (benefit)
(4,740
)
(1,286
)
(7,379
)
1,480
Net income (loss)
$
(17,826
)
$
1,721
$
(24,302
)
$
10,559
Net income (loss) per share
Basic
$
(1.08
)
$
0.11
$
(1.49
)
$
0.67
Diluted
$
(1.08
)
$
0.09
$
(1.49
)
$
0.58
Weighted average number of shares:
Basic
16,500
15,920
16,348
15,737
Diluted
16,500
18,329
16,348
18,204
Turtle Beach
Corporation
Condensed Consolidated Balance
Sheets
(in thousands, except par value
and share amounts)
Table 2.
June 30,
December 31,
2022
2021
(unaudited)
ASSETS
(in thousands, except par value
and share amounts)
Current Assets:
Cash
$
10,877
$
37,720
Accounts receivable, net
8,551
35,953
Inventories
120,694
101,933
Prepaid expenses and other current
assets
13,606
17,506
Total Current Assets
153,728
193,112
Property and equipment, net
6,144
6,955
Deferred income taxes
13,009
5,899
Goodwill
10,686
10,686
Intangible assets, net
5,126
5,788
Other assets
8,261
8,065
Total Assets
$
196,954
$
230,505
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current Liabilities:
Revolving credit facility
$
15,707
$
—
Accounts payable
31,030
40,475
Other current liabilities
19,456
37,693
Total Current Liabilities
66,193
78,168
Income tax payable
3,774
3,774
Other liabilities
7,334
7,194
Total Liabilities
77,301
89,136
Commitments and Contingencies
Stockholders’ Equity
Common stock, $0.001 par value -
25,000,000 shares authorized; 16,526,393 and 16,168,147 shares
issued and outstanding as of June 30, 2022 and December 31, 2021,
respectively
17
16
Additional paid-in capital
202,382
198,278
Accumulated deficit
(81,354
)
(57,052
)
Accumulated other comprehensive income
(loss)
(1,392
)
127
Total Stockholders’ Equity
119,653
141,369
Total Liabilities and Stockholders’
Equity
$
196,954
$
230,505
Turtle Beach
Corporation
Condensed Consolidated
Statements of Cash Flows
(in thousands)
(unaudited)
Table 3.
Six Months Ended
June 30, 2022
June 30, 2021
CASH FLOWS FROM OPERATING ACTIVITIES
$
(41,247
)
$
12,448
CASH FLOWS FROM INVESTING ACTIVITIES
(1,207
)
(5,816
)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on revolving credit
facilities
36,209
120,858
Repayment of revolving credit
facilities
(20,502
)
(120,858
)
Proceeds from exercise of stock options
and warrants
538
3,262
Repurchase of common stock to satisfy
employee tax withholding obligations
-
(463
)
Net cash provided by (used for) financing
activities
16,245
2,799
Effect of exchange rate changes on
cash
(634
)
85
Net increase (decrease) in cash
(26,843
)
9,516
Cash - beginning of period
37,720
46,681
Cash - end of period
$
10,877
$
56,197
Turtle Beach
Corporation
Reconciliation of GAAP and
Non-GAAP Measures
(in thousands, except per-share
data)
(unaudited)
Table 4.
Three Months Ended
Six Months
June 30, 2022
June 30, 2021
June 30, 2022
June 30, 2021
Net Income
(Loss)
GAAP Net Income (Loss)
$
(17,826
)
$
1,721
$
(24,302
)
$
10,559
Adjustments, net of tax:
Non-recurring business costs
5,123
851
5,295
1,402
Acquisition integration costs
—
76
58
216
Non-GAAP Earnings
$
(12,703
)
$
2,648
$
(18,949
)
$
12,177
Diluted Earnings Per Share
GAAP- Diluted
$
(1.08
)
$
0.09
$
(1.49
)
$
0.58
Non-recurring business costs
0.31
0.05
0.32
0.08
Acquisition integration costs
-
0.00
0.00
0.01
Non-GAAP- Diluted
$
(0.77
)
$
0.14
$
(1.16
)
$
0.67
Turtle Beach
Corporation
GAAP to Adjusted EBITDA
Reconciliation
(in thousands)
Table 5.
Three Months Ended
June 30, 2022
Adj
As
Adj
Adj
Stock
Adj
Reported
Depreciation
Amortization
Compensation
Other (1)
EBITDA
Net revenue
$
41,300
$
-
$
-
$
-
$
-
$
41,300
Cost of revenue
33,418
(601
)
-
(96
)
(1
)
32,720
Gross Profit
7,882
601
-
96
1
8,580
Operating expenses
29,255
(665
)
(311
)
(1,934
)
(6,793
)
19,552
Operating income (loss)
(21,373
)
1,266
311
2,030
6,794
(10,972
)
Interest expense
84
Other non-operating expense (income),
net
1,109
1,109
Income (loss) before income tax
(22,566
)
Income tax benefit
(4,740
)
Net loss
$
(17,826
)
Adjusted EBITDA
$
(12,081
)
Six Months Ended
June 30, 2022
Adj
As
Adj
Adj
Stock
Adj
Reported
Depreciation
Amortization
Compensation
Other (1)
EBITDA
Net revenue
$
87,962
$
-
$
-
$
-
$
-
$
87,962
Cost of revenue
66,051
(1,185
)
-
(122
)
(1
)
64,743
Gross Profit
21,911
1,185
-
122
1
23,219
Operating expenses
51,571
(1,273
)
(623
)
(3,445
)
(7,025
)
39,205
Operating income (loss)
(29,660
)
2,458
623
3,567
7,026
(15,986
)
Interest expense
193
Other non-operating expense (income),
net
1,828
1,828
Income (loss) before income tax
(31,681
)
Income tax benefit
(7,379
)
Net loss
$
(24,302
)
Adjusted EBITDA
$
(17,814
)
(1) Other includes certain
business acquisition costs and non-recurring business costs.
Turtle Beach
Corporation
GAAP to Adjusted EBITDA
Reconciliation
(in thousands)
Table 5. (continued)
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 Month 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 business
acquisition costs and non-recurring business costs.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220808005733/en/
MacLean Marshall Sr. Director, Public Relations
& Brand Communications Turtle Beach
Corporation 858.914.5093
maclean.marshall@turtlebeach.com
Investor Information:
Cody Slach or Alex Thompson Gateway Investor
Relations 949.574.3860 hear@gatewayir.com
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