Turtle Beach Reports Third Quarter 2019 Results
SAN DIEGO, Nov. 7, 2019 /PRNewswire/ -- Turtle Beach Corporation (Nasdaq: HEAR), a leading gaming audio and accessory brand, reported financial results for the third quarter ended September 30, 2019.
Third Quarter Summary vs. Year-Ago Quarter:
-- Net revenue was $46.7 million ($47.1 million in constant currency)
versus $74.4 million;
-- Net loss of $3.1 million, or $(0.22) per share, compared to net income
of $14.9 million, or $0.91 per share; and
-- Adjusted EBITDA was $0.3 million compared to $17.6 million.
"As was the case in the first half of the year, our results for the third quarter tracked closely to our expectations, with revenue stronger than any other third quarter outside of last year," said Juergen Stark, CEO, Turtle Beach Corporation. "This confirms that many new gamers remain in the market and are joining the headset replacement cycle. We are also pleased with the progress we are making in the PC accessories business, with ROCCAT's gaming mice, keyboards and headsets supplementing our own Atlas line of PC headsets, which we began a year ago.
"Looking forward, we remain uniquely positioned to capitalize on the continued growth in video gaming around the globe, as consumers increasingly rely on our headsets and accessories to enhance their gameplay and improve the entertainment experience."
Third Quarter 2019 Financial Results
Net revenue in the third quarter of 2019 was $46.7 million compared to $74.4 million in the year-ago quarter. While consumer demand remains above historic levels, this decrease was the result of the expected decline in demand from the record levels in the prior year driven by new headset users buying their first headset for Battle Royale games. On a constant currency basis, revenue in the third quarter of 2019 was $47.1 million.
Gross margin in the third quarter of 2019 was 32.2% compared to 41.0% in the third quarter of 2018. This expected decrease was primarily due to a more normal level of promotional activity compared to 2018 when less promotional effort was necessary in the record-setting period, as well as product mix, a decline in volume-based fixed cost leverage as a result of the decrease in revenue, and the impact of purchase accounting inventory step-up costs from the ROCCAT acquisition.
Operating expenses in the third quarter of 2019 increased as planned to $17.6 million from $14.0 million in the 2018 period due primarily to incremental ROCCAT operating costs, ROCCAT transaction and integration costs, and digital marketing and sponsorship initiatives, partially offset by decreases in revenue-based compensation as compared to the 2018 period.
Net loss in the third quarter of 2019 was $3.1 million compared to net income of $14.9 million in the year-ago quarter. The loss was driven by lower gross profit because of the expected decline in revenue and the increase in operating expenses.
Net loss per share in the third quarter of 2019 was $0.22 on 14.5 million weighted average diluted shares outstanding, compared to net income per share of $0.91 on 16.2 million weighted average diluted shares outstanding in the year-ago quarter.
Adjusted net loss (as defined below in "Non-GAAP Financial Measures") in the third quarter of 2019, which excludes transaction and integration costs incurred related to the acquisition of the ROCCAT business, was $2.6 million, or $(0.18) per share, compared to net income of $14.7 million, or $0.91 per share, in the corresponding 2018 period.
Adjusted EBITDA (as defined below in "Non-GAAP Financial Measures") in the third quarter of 2019 was $0.3 million compared to $17.6 million in the year-ago quarter.
Balance Sheet Highlights
At September 30, 2019, the Company had $7.0 million of cash and cash equivalents with $26.6 million of outstanding debt under its revolving line of credit. This compares to $6.2 million of cash and cash equivalents and $31.4 million of outstanding debt at September 30, 2018, which consisted of $15.4 million in subordinated notes, $12.5 million in term loans and $3.5 million of revolving debt.
Since Turtle Beach's share repurchase program was announced on April 10, 2019, the Company has repurchased approximately 206,000 shares for $1.9 million, or an average of $9.43 per share.
Updated 2019 Outlook
The Company expects revenue to range between $236 million and $242 million. Adjusted EBITDA is expected to range between $23 million and $25 million reflecting a $1 million to $1.5 million tariff impact and a decision to increase investments in the fourth quarter to market and promote the Turtle Beach brand and products. Earnings per diluted share is expected to range between $0.50 and $0.60, and adjusted earnings per share is expected to range between $0.65 and $0.75, both reflecting the aforementioned revenue and EBITDA forecasts and a higher estimated tax rate.
With respect to the Company's adjusted EBITDA outlook for the 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, November 7, 2019, at 2:00 p.m. Pacific time (5:00 p.m. Eastern) to discuss its third 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, November 7, 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: 3895117
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 November 14, 2019.
Toll-Free Replay Number: (855) 859-2056
International Replay Number: (404) 537-3406
Replay ID: 3895117
Non-GAAP Financial Measures
In addition to its reported results, the Company has included in this earnings release certain financial results, including adjusted EBITDA, adjusted net income, and constant currency revenue, 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). "Constant currency revenue" is defined by the Company as revenue excluding the impacts of fluctuations in exchange rates from prior periods. 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 nine months ended September 30, 2019 and 2018.
About Turtle Beach Corporation
Turtle Beach (www.turtlebeach.com) is a leading gaming audio and 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. In 2019 Turtle Beach acquired ROCCAT, a leading PC accessories maker 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.
September 30, December 31,
2019 2018
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $
7,037 $
7,078
Accounts receivable, net 28,468 52,797
Inventories 67,032 49,472
Prepaid expenses and other current assets 5,500 4,469
Total Current Assets 108,037 113,816
Property and equipment, net 4,909 5,856
Goodwill 9,096
Intangible assets, net 4,836 1,036
Other assets 3,719 1,212
Total Assets $
130,597 $
121,920
LIABILITIES AND STOCKHOLDERS
'
EQUITY
Current Liabilities:
Revolving credit facility $
26,561 $
37,385
Accounts payable 37,490 17,724
Other current liabilities 20,489 18,488
Total Current Liabilities 84,540 73,597
Deferred income taxes 187 187
Financial instrument obligation 7,848
Other liabilities 4,264 2,792
Total Liabilities 88,991 84,424
Commitments and Contingencies
Stockholders' Equity
Common stock, $0.001 par value -
100,000,000 shares authorized; 14,512,599
and 14,268,184 shares issued and
outstanding as of September 30, 2019 and
December 31, 2018, respectively 15 14
Additional paid-in capital 176,295 169,421
Accumulated deficit (133,905) (131,463)
Accumulated other comprehensive loss (799) (476)
Total Stockholders' Equity 41,606 37,496
Total Liabilities and Stockholders' Equity $
130,597 $
121,920
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, September 30, September 30, September 30,
2019 2018 2019 2018
Net revenue $
46,723 $
74,427 $
132,899 $
176,118
Cost of revenue 31,680 43,925 89,898 110,310
Gross profit 15,043 30,502 43,001 65,808
Operating expenses:
Selling and marketing 10,150 8,517 24,581 21,264
Research and development 2,198 1,400 5,388 4,056
General and administrative 5,214 4,063 16,057 11,911
Total operating expenses 17,562 13,980 46,026 37,231
Operating income (loss) (2,519) 16,522 (3,025) 28,577
Interest expense 240 1,093 595 4,356
Other non-operating expense
(income), net 302 99 (1,430) 8,883
Income (loss) before income tax (3,061) 15,330 (2,190) 15,338
Income tax expense 63 398 252 762
Net income (loss) $
(3,124) $
14,932 $
(2,442) $
14,576
Net income (loss) per share
Basic $(0.22) $1.07 $(0.17) $1.10
Diluted $(0.22) $0.91 $(0.17) $1.05
Weighted average number of shares:
Basic 14,506 14,019 14,477 13,263
Diluted 14,506 16,229 14,477 13,828
Turtle Beach Corporation
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Table 3.
Nine Months Ended
September 30, 2019 September 30, 2018
CASH FLOWS FROM OPERATING ACTIVITIES $
27,304 $
43,358
CASH FLOWS FROM INVESTING ACTIVITIES (14,295) (2,046)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on revolving credit
facilities 148,087 205,810
Repayment of revolving credit
facilities (158,911) (240,753)
Proceeds of term loan 3,265
Repayment of term loan (2,485)
Repayment of subordinated notes -
related party (8,265)
Settlement of Series B Preferred
Stock (1,390)
Proceeds from exercise of stock
options and warrants 214 4,097
Repurchase of common stock (1,941)
Repurchase of common stock to satisfy
employee tax withholding obligations (201) (141)
Debt financing costs (405)
Net cash used for financing
activities (12,752) (40,267)
Effect of exchange rate changes on
cash and cash equivalents (298) (114)
Net increase (decrease) in cash and
cash equivalents (41) 931
Cash and cash equivalents -beginning
of period 7,078 5,247
Cash and cash equivalents -end of
period $
7,037 $
6,178
Turtle Beach Corporation
Reconciliation of GAAP and Non-GAAP Measures
(in thousands, except per-share data)
(unaudited)
Table 4.
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2019 2018 2019 2018
Net Income (Loss)
---
GAAP Net Income (Loss) $
(3,124) $
14,932 $
(2,442) $
14,576
Adjustments, net of tax:
Loss (gain) on financial
instrument obligation (209) (1,601) 8,410
Acquisition integration
costs 543 2,603
Non-GAAP Earnings $
(2,581) $
14,723 $
(1,440) $
22,986
Diluted Earnings Per Share
GAAP- Diluted $
(0.22) $
0.91 $
(0.17) $
1.05
Gain on financial
instrument obligation (0.11) 0.51
Acquisition integration
costs 0.04 0.18
Non-GAAP- Diluted $
(0.18) $
0.91 $
(0.10) $
1.56
Turtle Beach Corporation
GAAP to Adjusted EBITDA Reconciliation
(in thousands)
(unaudited)
Table 5.
Three Months Ended
September 30, 2019
Adj
As Adj Adj Stock Adj
Reported Depreciation Amortization Compensation Other (1) EBITDA
Net revenue $
46,723
$
$
$
$ $
46,723
Cost of revenue 31,680 (570) (108) 31,002
Gross Profit 15,043 570 108 15,721
Operating expenses 17,562 (728) (192) (922) (618) 15,102
Operating income
(loss) (2,519) 1,298 192 1,030 618 618
Interest expense 240
Other non-operating
expense (income),
net 302 302
Income (loss) before
income tax (3,061)
Income tax expense 63
Net loss $
(3,124) Adjusted EBITDA $
316
Nine Months Ended
September 30, 2019
Adj
As Adj Adj Stock Adj
Reported Depreciation Amortization Compensation Other (1) EBITDA
Net revenue $
132,899
$
$
$
$ $
132,899
Cost of revenue 89,898 (1,349) (76) 88,473
Gross Profit 43,001 1,349 76 44,426
Operating expenses 46,026 (2,129) (413) (2,479) (2,961) 38,044
Operating income
(loss) (3,025) 3,477 413 2,555 2,961 6,382
Interest expense 595
Other non-operating
expense (income),
net (1,429) 1,601 172
Income (loss) before
income tax (2,190)
Income tax expense 252
Net loss $
(2,442) Adjusted EBITDA $
6,210
Other includes certain
business acquisition costs
and a gain (loss) on
financial instrument
(1) obligation.
Turtle Beach Corporation
GAAP to Adjusted EBITDA Reconciliation
(in thousands)
(unaudited)
Table 5. (continued)
Three Months Ended
September 30, 2018
Adj
As Adj Adj Stock Adj
Reported Depreciation Amortization Compensation Other (2) EBITDA
Net revenue $
74,427
$
$
$
$ $
74,427
Cost of revenue 43,925 (137) (70) 43,718
Gross Profit 30,502 137 70 30,709
Operating expenses 13,980 (603) (74) (518) 12,786
Operating income 16,522 740 74 587 17,923
Interest expense 1,093
Other non-operating
expense (income), net 99 209 308
Income before income tax 15,330
Income tax expense 398
Net income $
14,932 Adjusted EBITDA $
17,615
Nine Months Ended
September 30, 2018
Adj
As Adj Adj Stock Adj
Reported Depreciation Amortization Compensation Other (2) 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 expenses 37,231 (2,577) (230) (1,009) 33,415
Operating income 28,577 2,944 230 1,409 33,160
Interest expense 4,356
Other non-operating
expense (income), net 8,883 (8,410) 473
Income before income tax 15,338
Income tax expense 762
Net income $
14,576 Adjusted EBITDA $
32,687
(2) Other includes a gain (loss)
on financial instrument
obligation.
View original content to download multimedia:http://www.prnewswire.com/news-releases/turtle-beach-reports-third-quarter-2019-results-300954303.html
SOURCE Turtle Beach Corporation
