HEAR
$16.49
Turtle Beach
$.10
.61%
Earnings Details
3rd Quarter September 2018
Tuesday, November 06, 2018 4:05:00 PM
Tweet Share Watch
Summary

Turtle Beach Beats

Turtle Beach (HEAR) reported 3rd Quarter September 2018 earnings of $0.91 per share on revenue of $74.4 million. The consensus earnings estimate was $0.77 per share on revenue of $73.7 million. The Earnings Whisper number was $0.78 per share. Revenue grew 106.9% on a year-over-year basis.

The company said it expects fourth quarter earnings of approximately $1.02 per share on revenue of approximately $94.0 million. The current consensus earnings estimate is $1.02 per share on revenue of $90.4 million for the quarter ending December 31, 2018.

Turtle Beach Corp is an audio technology company. It develops audio products for consumer and commercial markets. It also designs & markets audio peripherals for video game consoles, personal computers and mobile devices under the brand Turtle Beach.

Results
Reported Earnings
$0.91
Earnings Whisper
$0.78
Consensus Estimate
$0.77
Reported Revenue
$74.4 Mil
Revenue Estimate
$73.7 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Turtle Beach Reports Record Third Quarter 2018 Results And Increases Fourth Quarter And 2018 Outlook

SAN DIEGO, Nov. 6, 2018 /PRNewswire/ -- Turtle Beach Corporation (Nasdaq: HEAR), the leading gaming headset and audio accessory brand, reported financial results for the third quarter ended September 30, 2018.

Turtle Beach ( http://www.turtlebeach.com ) designs and markets premium audio peripherals for video game, personal computer, and mobile platforms, including its acclaimed line of Ear Force gaming headphones and headsets crafted for Xbox 360 and PS3 game consoles and PC games. Turtle Beach's limited edition, Ear Force Tango wireless headset was recognized as an honoree by the 2013 International CES Innovations Awards. According to the NPD Group, Turtle Beach manufactures the top five best-selling third-party gaming headsets of all time when ranked in dollar sales. The Ear Force X12 wired headset is the No. 1 best-selling third-party gaming headset of all time. (PRNewsFoto/Turtle Beach Corporation) (PRNewsfoto/Turtle Beach Corporation)

Third Quarter Highlights vs. Year-Ago Quarter:

  • Net revenue increased 107% to $74.4 million from $36.0 million;
  • Gross margin increased 610 basis points to 41.0% from 34.9%;
  • Net income up significantly to $14.7 million, or $0.91 per diluted share, compared to a net loss of $0.5 million, or $(0.04) per share;
  • Adjusted EBITDA increased $14.3 million to $17.6 million from $3.3 million; and
  • Net revenue, net income and adjusted EBITDA were the highest levels for any third quarter since becoming public in 2014.

"As communicated in our pre-announcement, we delivered another quarter of considerable growth and record profits, both compared to last year and our prior outlook," said Juergen Stark, CEO, Turtle Beach Corporation. "This growth is driven by market share gains from a great portfolio of innovative products that enhance game play for all levels of gamers in a strong overall console gaming market.

"Our outperformance in a strong market can be seen in NPD's latest U.S. and Canada console headset update. Year-to-date through September 2018, our revenue share increased 490 basis points to 45.2% from 40.3% in the same period in 2017. In addition, while the gaming headset market was up 84% on a sell-through basis, Turtle Beach was up 106%, once again significantly outpacing the rest of the market.

"Given our impressive results, and our expectation of a continued strong console headset market in the upcoming holiday season, we are raising our fourth quarter and 2018 financial outlook. We believe these positive developments will position us to accelerate selective growth investments while fully repaying our subordinated notes by the end of March 2019."

Third Quarter 2018 Financial Results
Net revenue in the third quarter of 2018 increased 107% to $74.4 million compared to $36.0 million in the year-ago quarter. This was the result of strong market demand for console gaming headsets, driven by continuing increased usage of gaming headsets, particularly among "battle royale" players, along with the Company's increase in market share over 2017. Net revenue in the third quarter of 2018 slightly exceeded the high end of the Company's preliminary results of $74 million announced on October 11, 2018.

Gross margin in the third quarter of 2018 increased 610 basis points to 41.0% compared to 34.9% in the third quarter of 2017. The increase was primarily due to a favorable product and customer mix, continued higher volumes driving fixed cost leverage, a reduction in freight costs, and a less promotional environment.

Operating expenses in the third quarter of 2018 increased to $14.0 million from $10.7 million in the 2017 period due primarily to an increase in marketing spend primarily related to new product launches, revenue-driven sales-based commissions and expenses, and other operational performance-based compensation.

Net income in the third quarter of 2018 increased to $14.7 million, or $0.91 per diluted share, compared to a net loss of $0.5 million, or $(0.04) per diluted share, in the year-ago quarter. The improvement was primarily driven by the significant revenue growth and the corresponding increase in gross margins. Net income per diluted share in the third quarter of 2018 exceeded the high end of the Company's preliminary results announced on October 11, 2018, of $0.88 per diluted share, which includes $0.10 per diluted share that was disclosed as a potential increase pending the final determination of certain tax treatments for the quarter.

Adjusted EBITDA (as defined below in "Non-GAAP Financial Measures") in the third quarter of 2018 increased $14.3 million to $17.6 million compared to $3.3 million in the year-ago quarter.  Adjusted EBITDA in the third quarter of 2018 exceeded the Company's preliminary results of $17 million announced on October 11, 2018.

Balance Sheet Highlights
At September 30, 2018, the Company had $6.2 million of cash and cash equivalents with $3.5 million outstanding under its revolving credit facility, compared to $0.5 million of cash and cash equivalents with $24.8 million outstanding under its revolving credit facility at September 30, 2017. The increase in cash and the reduction in amounts outstanding under its revolving credit facility resulted primarily from the Company's improved operational performance in 2018. 

Total outstanding debt principal as of September 30, 2018, decreased to $31.4 million compared to $59.0 million at September 30, 2017. The debt at September 30, 2018, consisted of $15.4 million in subordinated notes, $12.5 million in term loans and $3.5 million of revolving debt.

On October 12, 2018, Turtle Beach repaid $5.0 million of its subordinated notes, bringing its subordinated notes balance to $10.4 million. Since March 31, 2018, the Company has been able to reduce its aggregate term loans, subordinated notes, and Series B preferred stock obligations by $28.2 million (or 55%) from $51.1 million to $22.9 million.  Such reduction was accomplished through repayments from operating cash flows and the issuance of common stock and fully-funded warrants in exchange for the outstanding Series B preferred stock at a discount in excess of 50% of the carrying value of the Series B preferred stock at the time of the exchange.

Cash Flow Highlights
Cash provided by operating activities in the first nine months of 2018 increased by $34.1 million from the corresponding 2017 period primarily as a result of higher gross receipts from the significant increase in revenue, partially offset by a resulting increase in inventory levels. Cash used in financing activities in the first nine months of 2018 increased by $27.7 million from the corresponding 2017 period primarily as a result of an increase in repayments of the Company's revolving credit facility and repayments of outstanding subordinated notes with operating cash flows and proceeds received upon the exercise of stock options and warrants.

Increased 2018 Outlook
For the fourth quarter of 2018, Turtle Beach expects net revenue to increase 18% to approximately $94 million compared to $79.7 million in the fourth quarter of 2017. Net income is expected to increase 18% in the fourth quarter of 2018 to approximately $16.7 million compared to $14.2 million in the prior year quarter.  Earnings per share is expected to be approximately $1.02 per diluted share based on 16.5 million estimated diluted shares outstanding for the fourth quarter of 2018 compared to earnings per share of $1.15 per diluted share based on 12.3 million diluted shares outstanding in the fourth quarter of 2017. The decline in earnings per share despite higher net income is primarily the result of an increase in the number of diluted shares and an increase in the estimated effective tax rate to approximately 9%. Adjusted EBITDA is expected to increase 22% to approximately $21 million compared to $17.2 million in the fourth quarter of 2017.

For the full year 2018, Turtle Beach now expects net revenue to increase 81% to approximately $270 million (up from $255 million in its August outlook) compared to $149.1 million in 2017. Earnings per share in 2018 is now expected to be approximately $2.55 per diluted share (up from net income of $1.95 per diluted share in its August outlook) based on 15.5 million estimated average diluted shares outstanding for the full year 2018. This is compared to a net loss of $(0.26) per diluted share in 2017. Adjusted EBITDA in 2018 is now expected to be approximately $54 million (up from $45 million in its August outlook) compared to $11.6 million in adjusted EBITDA in 2017.

A table summarizing this outlook has been provided at the end of this release.

With respect to the Company's adjusted EBITDA outlook for the fourth quarter and full year 2018, 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 available without unreasonable effort. 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, November 6, 2018, at 2:00 p.m. Pacific time (5:00 p.m. Eastern) to discuss its third quarter 2018 results.

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

Conference Call Details:
Date: Tuesday, November 6, 2018
Time: 2:00 p.m. PT / 5:00 p.m. ET
Toll-Free Dial-in Number: (877) 303-9855
International Dial-in Number: (408) 337-0154
Conference ID: 7168737

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 Liolios 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 corp.turtlebeach.com.

A replay of the conference call will be available after 8:00 p.m. ET on the same day through November 14, 2018.

Toll-Free Replay Number: (855) 859-2056
International Replay Number: (404) 537-3406
Replay ID: 7168737

Non-GAAP Financial Measures
In addition to its reported results, the Company has included in this earnings release certain financial results, including adjusted EBITDA, 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 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. See a reconciliation of GAAP results to adjusted EBITDA included below for the three and nine months ended September 30, 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. 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.

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", "project", "intend" and similar expressions 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, 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 Company's liquidity, 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 implementation of any businesses we acquire, our indebtedness, 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.



September 30,
2018


December 31,
2017

ASSETS

(unaudited)



Current Assets:




Cash and cash equivalents

$

6,178



$

5,247


Accounts receivable, net

28,995



50,534


Inventories

73,348



27,518


Prepaid expenses and other current assets

5,194



3,467


Total Current Assets

113,715



86,766


Property and equipment, net

4,019



4,677


Intangible assets, net

1,091



1,404


Other assets

698



1,404


Total Assets

$

119,523



$

94,251


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)




Current Liabilities:




Revolving credit facility

$

3,523



$

38,467


Term loans

750



4,173


Accounts payable

49,014



13,459


Other current liabilities

14,631



11,451


Total Current Liabilities

67,918



67,550


Term loans, long-term portion, net of unamortized debt issuance costs of $667 and $759

11,083



6,789


Series B redeemable preferred stock



18,921


Subordinated notes - related party, net of unamortized discount of $609 and $1,075

14,784



20,836


Other liabilities

2,313



2,312


Total Liabilities

96,098



116,408


Commitments and Contingencies




Stockholders' Equity




Common stock, $0.001 par value - 25,000,000 shares authorized; 14,229,736 and 12,349,449 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively

14



12


Additional paid-in capital

171,477



148,082


Accumulated deficit

(147,667)



(170,048)


Accumulated other comprehensive loss

(399)



(203)


Total Stockholders' Equity (Deficit)

23,425



(22,157)


Total Liabilities and Stockholders' Equity (Deficit)

$

119,523



$

94,251


 

Turtle Beach Corporation

Condensed Consolidated Statements of Operations

(in thousands, except per-share data)

(unaudited)


Table 2.



Three Months Ended


Nine Months Ended


September 30,
2018


September 30,
2017


September 30,
2018


September 30,
2017

Net revenue

$

74,427



$

35,975



$

176,118



$

69,439


Cost of revenue

43,925



23,437



110,310



48,384


Gross profit

30,502



12,538



65,808



21,055


Operating expenses:








Selling and marketing

8,517



5,586



21,264



15,564


Research and development

1,400



1,336



4,056



4,423


General and administrative

4,063



3,499



11,911



11,740


Restructuring charges


241





509


Total operating expenses

13,980



10,662



37,231



32,236


Operating income (loss)

16,522



1,876



28,577



(11,181)


Interest expense

1,093



2,042



4,356



5,717


Other non-operating expense (income), net

308



(252)



473



(517)


Income (loss) before income tax

15,121



86



23,748



(16,381)


Income tax expense

398



578



762



1,098


Net income (loss)

$

14,723



$

(492)



$

22,986



$

(17,479)










Net earnings (loss) per share:








Basic

$

1.05



$

(0.04)



$

1.73



$

(1.42)


Diluted

$

0.91



$

(0.04)



$

1.56



$

(1.42)


Weighted average number of shares:








Basic

14,019



12,347



13,263



12,332


Diluted

16,229



12,347



14,757



12,332


 

Turtle Beach Corporation

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


Table 3.



Nine Months Ended


September 30,
2018


September 30,
2017

CASH FLOWS FROM OPERATING ACTIVITIES

$                    43,358



$                      9,291






CASH FLOWS FROM INVESTING ACTIVITIES

(2,046)



(2,584)






CASH FLOWS FROM FINANCING ACTIVITIES




Borrowings on revolving credit facilities

205,810



98,165


Repayment of revolving credit facilities

(240,753)



(109,277)


Repayment of capital leases



(4)


Proceeds from term loan

3,265




Repayment of term loan

(2,485)



(1,443)


Repayment of subordinated notes - related party

(8,265)




Settlement of Series B redeemable preferred stock

(1,390)




Proceeds from exercise of stock options and warrants

4,097




Repurchase of common stock in the settlement of restricted stock

(141)




Debt financing costs

(405)




Net cash used for financing activities

(40,267)



(12,559)


Effect of exchange rate changes on cash and cash equivalents

(114)



142


Net increase (decrease) in cash and cash equivalents

931



(5,710)


Cash and cash equivalents - beginning of period

5,247



6,183


Cash and cash equivalents - end of period

$

6,178



$

473


 

Turtle Beach Corporation

Weighted Average Diluted Common Shares

(in thousands)

(unaudited)


Table 4.


Weighted average diluted shares outstanding – Q3 2017

12,347

Weighted average common shares issued in exchange for Series B preferred stock

1,307

Weighted average common shares issued upon exercise of stock options and warrants

365

Incremental dilutive effect of outstanding stock options and restricted stock

1,261

Incremental dilutive effect of outstanding warrants (1)

949

Weighted average diluted shares outstanding – Q3 2018

16,229


(1)  Includes 550,000 fully-funded warrants issued in connection with the exchange for Series B preferred stock.

 

Turtle Beach Corporation

GAAP to Adjusted EBITDA Reconciliation


Table 5.



Three Months Ended


September 30, 2018


(in thousands)
(unaudited)


As
Reported


Adj

Depreciation


Adj

Amortization


Adj

Stock
Compensation


Adj

EBITDA

Net revenue

$

74,427



$



$



$



$

74,427


Cost of revenue

43,925



(137)





(69)



43,719


Gross profit

30,502



137





69



30,708












Operating expense

13,980



(603)



(74)



(518)



12,785












Operating income (loss)

16,522



740



74



587



17,923












Interest expense

1,093










Other non-operating expense, net

308









308












Income (loss) before income tax

15,121










Income tax expense

398










Net income (loss)

$

14,723





Adjusted EBITDA


$

17,615


 

Table 5. (continued)



Nine Months Ended


September 30, 2018


(in thousands)

(unaudited)


As
Reported


Adj

Depreciation


Adj

Amortization


Adj

Stock
Compensation


Adj

EBITDA

Net revenue

$

176,118



$



$



$



$

176,118


Cost of revenue

110,310



(367)





(400)



109,543


Gross profit

65,808



367





400



66,575












Operating expense

37,231



(2,577)



(230)



(1,009)



33,415












Operating income (loss)

28,577



2,944



230



1,409



33,160












Interest expense

4,356










Other non-operating expense, net

473









473












Income (loss) before income tax

23,748










Income tax expense

762










Net income (loss)

$

22,986





Adjusted EBITDA


$

32,687


 

Table 5. (continued)



Three Months Ended


September 30, 2017


(in thousands)

(unaudited)


As
Reported


Adj

Depreciation


Adj

Amortization


Adj

Stock
Compensation


Other (1)


Adj

EBITDA

Net revenue

$

35,975



$



$



$



$



$

35,975


Cost of revenue

23,437



(165)





(20)



312



23,564


Gross profit

12,538



165





20



(312)



12,411














Operating expense

10,662



(623)



(88)



(350)



(241)



9,360














Operating income (loss)

1,876



788



88



370



(71)



3,051














Interest expense

2,042












Other non-operating income, net

(252)











(252)














Income (loss) before income tax

86












Income tax expense

578












Net income (loss)

$

(492)







Adjusted EBITDA


$

3,303



(1) Other includes business transition costs and restructuring charges.

 

Table 5. (continued)



Nine Months Ended


September 30, 2017


(in thousands)

(unaudited)


As
Reported


Adj

Depreciation


Adj

Amortization


Adj

Stock
Compensation


Other (1)


Adj

EBITDA

Net revenue

$

69,439



$



$



$



$



$

69,439


Cost of revenue

48,384



(479)





66



(41)



47,930


Gross profit

21,055



479





(66)



41



21,509














Operating expense

32,236



(2,521)



(259)



(1,253)



(509)



27,694














Operating income (loss)

(11,181)



3,000



259



1,187



550



(6,185)














Interest expense

5,717












Other non-operating income, net

(517)











(517)














Income (loss) before income tax

(16,381)












Income tax expense

1,098












Net income (loss)

$

(17,479)







Adjusted EBITDA


$

(5,668)



(1) Other includes business transition costs and restructuring charges.

 

Table 6.






FY 18



Q4 18

Q4 17


FY 18

Prior

FY 17


Guidance

Actual


Guidance

Guidance (1)

Actual








Net Revenue

~$94M

$79.7M


~$270M

~$255M

$149.1M








EPS

~$1.02

$1.15


~$2.55

~$1.95

$(0.26)








Adjusted EBITDA

~$21M

$17.2M


~$54

~$45

$11.6M


(1) Reported on August 6, 2018.

 

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SOURCE Turtle Beach Corporation