Net Revenue up 30%
to $29.4 Million; Gross Profit up 50% to $5.1 Million
2016 Outlook on Strong Headset Growth
Piper Jaffray to Explore Strategic Options for HyperSound
Diego, CA – August 8, 2016 – Turtle Beach Corporation (NASDAQ: HEAR), a leading audio technology company, reported financial
the second quarter ended June 30, 2016.
Quarter Summary vs. Same Year-Ago Quarter
revenue increased 30% to $29.4 million with headset net revenue up 29% to $29.1
profit increased 50% to $5.1 million with headset gross profit up 97% to $7.1 million
and headset gross margin up 840 basis points to 24.5%.
expenses were $45.6 million compared to $16.0 million, including a $31.2
million non-cash goodwill impairment charge related to the HyperSound acquisition. Excluding that charge, operating expenses
were reduced by 9% to $14.4 million.
loss was $42.6 million or $(0.86) per share, including the impairment that
increased Q2 2016 net loss by approximately ($0.63) per share, compared to a
loss of $9.9 million or $(0.23) per share in the year-ago quarter.
· Consolidated adjusted EBITDA improved to $(6.3) million
compared to $(8.2) million, with headset adjusted EBITDA improving to $(3.0)
million compared to $(5.2) million.
strong performance of our headset business has continued through our second
quarter,” said Juergen Stark, CEO, Turtle Beach
Corporation. “Not only was headset net revenue up 29%,
our new-gen sales grew by 80% versus the year-ago quarter. New-gen headsets also
comprised 91% of our net revenue in the second quarter and were the driver of an
840 basis point expansion in our headset gross margin.
of our new-gen portfolio continues to be strong both domestically and in
Europe. In fact, NPD data has confirmed that our performance continued to drive
our market share even higher. For the first half of 2016, the console market is
up a healthy 20% on a unit basis. Turtle Beach is up 27% on a units basis and
we own all five of the top five selling third party headsets. Given our
momentum, as well as our new-gen business that is expected to represent over
90% of our sales in 2016, we are raising our 2016 outlook and believe we remain
well-positioned as we approach our all-important holiday season.
our HyperSound business, we
experienced lower than expected sales due to the continued slower ramp in the
audiologist channel. However, we carefully managed our investment, continued to
refine the sales approach and evaluated additional sales channels to sell this breakthrough
early June, we achieved a significant breakthrough in our HyperSound technology, revealing that we are now able to create
directional audio using a transparent pane of glass. HyperSound Glass has the potential to significantly expand the market
size for our directed sound technology, and we are already beginning commercial
Second Quarter 2016 Financial Results
Net revenue in
the second quarter increased 30% to $29.4 million compared to
in the year-ago quarter. The increase was attributable to a 29% increase in headset sales due to
continued robust sell-through of the new-gen headset portfolio.
profit in the second quarter
increased 50% to $5.1 million compared to $3.4 million in the year-ago quarter.
Gross margin was 17.4% compared to 15.0% in the second quarter of 2015. An 840 basis
improvement in headset gross margin was partially offset by non-cash intangible
asset amortization costs associated with the launch of HyperSound Clear™ 500P. Higher margin new-gen headsets contributed 91%
of revenues in the second quarter, up from 65% during the same period in 2015.
Operating expenses in the second quarter were $45.6
million compared to $16.0 million in the year-ago quarter. In accordance with U.S.
GAAP accounting rules, the second quarter of 2016 included a $31.2 million non-cash
goodwill impairment charge due to an impairment test on the HyperSound acquisition. Excluding
impairment, operating expenses in the second quarter declined 9% to $14.4 million
compared to $16.0 million in the same period of 2015. The decrease was
attributable to continued cost management across the business.
loss in the second quarter was $42.6 million
or $(0.86) per diluted
compared to a net loss of $9.9 million or $(0.23) per
diluted share in the year-ago quarter. Excluding the $0.63 per share non-cash goodwill
impairment charge, net loss in the second quarter was $11.4 million
or $(0.23) per diluted
The year-ago quarter included a $3.1 million income tax benefit (approximately
$0.07 per diluted share) versus a $0.3 million benefit in the second quarter of
2016 due to the full valuation allowance recorded in the third quarter of 2015.
The second quarter of 2016 also included approximately 7 million incremental
diluted shares compared to the year ago quarter primarily due to the February
2016 follow-on public offering of common stock and concurrent private
Adjusted EBITDA (as defined below in “Non-GAAP Financial
Measures”) on a consolidated basis improved to $(6.3) million compared to $(8.2) million in the
The large improvement was primarily driven by strong new-gen headset sales and
cost reduction initiatives, partially offset by a $0.7 million impact from
foreign exchange. This was due to the sharp decline in the British Pound in
reaction to Britain’s June referendum to leave the European Union. Adjusted EBITDA for the headset
to $(3.0) million in the second quarter compared
to $(5.2) million in the year-ago quarter.
Balance Sheet Highlights
At June 30, 2016, the Company had approximately $1.2
million of cash and cash equivalents compared to $7.1 million at December 31,
2015. As a result of the Company’s $60 million revolving credit facility,
Turtle Beach generally does not hold a large cash balance.
As of June 30, 2016, outstanding debt principal was $41.5 million
to $68.1 million at December 31, 2015. The decrease in debt was due to a $25.3
million reduction in the Company’s revolving credit facility, which was driven
by cash receipts from strong holiday sales and the February 2016 follow-on
HyperSound Strategic Options Exploration
addition to exploring new, more consumer/retail-oriented sales channels for the
HyperSound Clear 500P product, and developing
and seeking FDA clearance with respect to the Tinnitus capability for the
hearing healthcare professional channel, the Company is evaluating business
model modifications. As such, Turtle Beach has engaged Piper
Jaffray & Co. to lead the exploration of strategic options for the Company’s
Stark commented: “Since acquiring HyperSound
two and a half years ago, it has become abundantly clear that the technology
provides superior audio solutions across a growing range of applications. The
initial product, focused on the hearing health market, has achieved a high
sales conversion rate among consumers who visit an audiologist’s office for a
demonstration, but that channel will require significantly more resources and
time to scale than we anticipated.
we remain convinced that there are significant opportunities for the healthcare
product, as well as the underlying HyperSound
technology, the level of capital requirements to fully pursue those
opportunities exceed our current resources. We are very cognizant of our
capital constraints, so our exploration of strategic options is to ensure that HyperSound Clear 500P has the time and
resources to realize its market potential.”
Beach does not intend to comment further regarding the review process unless or
until a specific option is approved by its board of directors or shareholders,
the review process is concluded, or it is otherwise determined that further
disclosure is appropriate or required by law. No decision has been made with
regard to any alternatives and there can be no assurance that the exploration
of strategic alternatives will result in any transaction.
Increased 2016 Outlook
is a wide range of possible outcomes following the completion of the HyperSound strategic review process, and
the Company believes all would result in significantly reduced spending going
forward. However, until the Company has clarity on the actual outcome, it is assumed
for purposes of the following outlook that the HyperSound business will continue to operate in its current form,
generating minimal revenue and losses not to exceed $12 million in 2016.
the third quarter of 2016, Turtle Beach expects net revenue to increase
4% to approximately $37.5 million compared to $35.9 million in the third quarter of 2015.
Adjusted EBITDA is expected to improve to approximately $(2) million compared to $(3.3) million in the third
quarter of 2015. Net loss for the third quarter is expected to be approximately $(0.16) per diluted share, compared to a net loss of $(0.38) per diluted share
in the third quarter of 2015. The third quarter of 2015 included a $10.5
million non-cash valuation allowance.
the full year 2016, Turtle Beach now expects net revenue to increase 3%-9% and range
between $168-$178 million (up from $165-$175 million in its May 10, 2016
outlook) compared to $162.7 million in 2015. The Company now expects to generate
$0.5-$2.5 million in consolidated adjusted EBITDA in 2016 (up from $0-$2
million in the May outlook) compared to $(11.4) million in 2015. Net loss in
2016 is expected to range between $(1.08)-$(1.12) per diluted share based upon
48.6 million shares outstanding. Excluding the $0.63 per share impairment, net
loss in 2016 is now expected to range between $(0.45)-$(0.49) per diluted share
(up from $(0.46)-$(0.50) per diluted share in the May outlook), compared to a
net loss of $(1.96) per diluted share in 2015.
Excluding the tax valuation expense and goodwill
impairment, net loss in 2015 was $24.6 million or $(0.58) per share.
Turtle Beach Corporation will hold a conference call on August
9, 2016 at 7:00 a.m. Pacific time (10:00
a.m. Eastern) to discuss its
second quarter 2016 results.
CEO Juergen Stark and CFO John Hanson will host the call, followed by a question and
Date: Tuesday, August 9, 2016
Time: 7:00 a.m. PT / 10:00 a.m. ET
Dial-in Number: (877)
Dial-in Number: (408)
Please dial-in 5-10 minutes prior to the start time of
the conference call and an operator will register your name and organization.
If you have any difficulty with the conference call, please contact Liolios at
The conference call will be broadcast
live and available for replay at http://edge.media-server.com/m/p/yc4cgqij and via the investor relations section
of the Company’s website at www.turtlebeachcorp.com.
replay of the conference call will be available after 10:00 a.m. PT on the same
day through August 16, 2016.
Toll-Free Replay Number: (855) 859-2056
Number: (404) 537-3406
Replay ID: 50721391
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
results, can provide useful supplemental information
for investors analyzing period to period comparisons
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 months ended June 30, 2016 and 2015.
adjusted EBITDA outlook for the third quarter and full year 2016 have not been
reconciled to the Company’s net loss outlook for the same periods because certain items
impact interest expense, provision for income taxes and stock-based
compensation, which are reconciling items between net loss and adjusted EBITDA, cannot be reasonably predicted. Accordingly, reconciliation of adjusted EBITDA outlook to net loss outlook for the
third quarter of and full year 2016 is not available without unreasonable effort.
About Turtle Beach
Beach Corporation (http://corp.turtlebeach.com)
designs innovative, market-leading audio products for the consumer, healthcare and
commercial sectors. Under its award-winning Turtle Beach brand (www.turtlebeach.com),
the Company has been the clear market share leader for the past five-plus years
with its wide selection of acclaimed gaming headsets for use with Xbox One
and PlayStation®4, as well as personal computers and mobile/tablet
devices. Under the HyperSound brand (www.hypersound.com),
the Company markets pioneering directed audio solutions that have applications
in hearing healthcare, digital signage and kiosks and consumer electronics. The
Company's shares are traded on the NASDAQ Exchange under the symbol: HEAR.
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, the outcome of
our HyperSound strategic review process 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 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.
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Turtle Beach Corp.