Diego, CA – November
10, 2016 – Turtle Beach Corporation (NASDAQ: HEAR), a leading audio technology company, reported financial
the third quarter ended September 30, 2016.
Quarter Summary vs. Same Year-Ago Quarter:
revenue increased 7% (8% in constant currency) to $38.4 million with new-gen headset
sales up 41%.
a charge related to the HyperSound
restructuring, gross margin was 10.2% compared to 26.7%. Excluding the charge,
gross margin increased 200 basis points to 28.7% with headset gross margin up
550 basis points to 33.3%.
$0.81 per share in charges related to the HyperSound
restructuring, net loss was $(44.8) million or $(0.91) per share, compared to a
loss of $(15.9) million or $(0.38) per share. Excluding the charges, net loss in the third quarter
of 2016 improved to $(4.7) million or $(0.10) per share.
adjusted EBITDA improved to $0.5 million compared to $(3.3) million, with
headset adjusted EBITDA improving to $3.4 million compared to $0.3 million.
third quarter was yet again driven by strong gains in our new-gen headset
portfolio, led by continued demand for our entry-level RECON series gaming headsets and initial sell-in of the STEALTH 520 wireless headset,” said Juergen Stark, CEO, Turtle Beach
Corporation. “In fact, new-gen headset sales were up
41%, highlighting the continued strength of our portfolio, considering the
year-ago quarter represented a significant new-gen sell-in period.
NPD data confirms that we continued to increase our market share. Year-to-date,
the console market is up 17% on a unit basis, while Turtle Beach is up 26%. On
a retail dollar basis, the market is up 12% and we are up 14%. Given this
performance, as well as our entrance into two burgeoning new markets in Virtual
Reality (VR) and Livestreaming with our STEALTH
350VR and STREAM MIC products, we
believe we are well-positioned to capitalize on the upcoming holiday season
with the most expansive portfolio in our history.
our HyperSound business, as
previously disclosed, we have taken aggressive but necessary steps to align
costs with our revenue. We are working to evolve HyperSound to a licensing business and currently have multiple
conversations underway. Our goal remains to get the business to net cash burn
breakeven by the end of the second quarter of 2017. Ultimately, we believe this
reduction will further highlight the strength of our core headset results in
2017 and beyond.”
Third Quarter 2016 Financial Results
Net revenue in
the third quarter increased 7% (8% in constant currency)to $38.4 million compared to
in the year-ago quarter. The increase was attributable to a 7% increase in headset sales due to
continued robust sell-through of the new-gen headset portfolio.
a $7.1 million charge for inventory
reserves associated with the HyperSound
restructuring, gross margin in the third quarter
was 10.2% compared to 26.7% in the year-ago quarter. Excluding the reserves,
consolidated gross margin increased 200 basis points to 28.7%. Gross margin in
the headset segment increased 550 basis points to 33.3% as higher margin
new-gen headsets contributed 92% of revenues in the third quarter, up from 70% during
the same period in 2015.
Including an intangible asset impairment charge and
certain reserves related to the HyperSound
restructuring, operating expenses in the third quarter were $46.7 million
compared to $15.3 million in the year-ago quarter. Excluding the impairment
charge and reserves, operating expenses in the third quarter were reduced by 11%
to $13.6 million due to continued cost management across the business.
the $0.65 per diluted share intangible asset impairment charge and $0.16 per diluted
share HyperSound-related reserves, net loss in the third quarter
was $(44.8) million or $(0.91) per
diluted share, compared to a net loss of $(15.9) million or $(0.38) per
diluted share in the year-ago quarter. Excluding the impairment charge and
reserves, net loss in the third quarter of 2016 improved to $(4.7) million
or $(0.10) per diluted
share, compared to a loss of $(5.4) million or $(0.13) per diluted
share in the year-ago quarter, which excluded a $0.25 per diluted share tax
valuation allowance. The third quarter of 2016 included approximately 6.9
million incremental shares compared to the year ago quarter, primarily due to
the February 2016 follow-on public offering of common stock and concurrent
Adjusted EBITDA (as defined below in “Non-GAAP Financial
Measures”) on a consolidated basis improved to $0.5 million compared to $(3.3)
million in the year-ago quarter. The improvement was primarily driven by strong
new-gen headset sales and successful business improvement initiatives. Adjusted
EBITDA for the headset business improved to $3.4 million in the third quarter
compared to $0.3 million in the year-ago quarter.
Balance Sheet Highlights
At September 30, 2016, the Company had approximately $3.3
million of cash and cash equivalents compared to $3.1 million at September 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 September 30, 2016, total outstanding debt
principal was $59.9 million
to $56.3 million at September
HyperSound Strategic Options Exploration
addition to exploring new, more consumer/retail-oriented sales channels for HyperSound Clear 500P and developing the
Tinnitus capability for hearing healthcare professionals, the Company continues
to evaluate HyperSound business model
modifications. As such, the Company continues to work with Piper
Jaffray & Co. in evaluating strategic alternatives.
Increased 2016 Outlook
reported on September 26, actions have been taken to significantly reduce HyperSound operating expenses beginning
in October and monthly net cash burn related to the HyperSound segment is expected to be below $350,000 by January
2017. Turtle Beach is targeting to be net cash burn breakeven with respect to
its HyperSound segment by the end of
the second quarter of 2017. The outlook provided below factors in these
considerations and is based on a variety of business assumptions.
the fourth quarter of 2016, Turtle Beach expects net revenue to range between $78-$86 million
to $84.6 million in the fourth
quarter of 2015.
Adjusted EBITDA is expected to increase 31%-51% and range between $13-$15
million compared to $9.9 million in the fourth
quarter of 2015. Net income for the fourth quarter is expected to
range between $0.13-$0.17 per diluted share,
compared to a net loss of $(1.09) per diluted share in the fourth quarter of 2015. The fourth
quarter of 2015 included a $49.8 million goodwill impairment charge. Excluding
this charge, net income in the fourth quarter of 2015 was $0.08 per diluted
the full year 2016, Turtle Beach now expects net revenue to increase 4%-9% and range
between $170-$178 million (up from $168-$178 million in its August 8, 2016
outlook) compared to $162.7 million in 2015. The Company now expects to generate
$1.0-$3.0 million in consolidated adjusted EBITDA in 2016 (up from $0.5-$2.5
million in the August 8, 2016 outlook) compared to $(11.4) million in 2015. Net
loss in 2016 is expected to range between $(1.87)-$(1.91) per diluted share
based upon 48.6 million diluted shares outstanding, compared to a net loss of
$(1.96) per diluted share in 2015. Excluding $1.45 per diluted share in year-to-date
goodwill impairment charges and inventory reserves
associated with the HyperSound
restructuring, net loss is now expected to range between $(0.42)-$(0.46)
per diluted share (up from $(0.45)-$(0.49) per diluted share in the August outlook).
This would be comparable to a net loss in
2015 of $(24.6) million or $(0.58) per diluted share, which excludes a tax
valuation expense and goodwill impairment.
With respect to the Company's adjusted EBITDA outlook
for the fourth quarter and full year 2016, a reconciliation to its net 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 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 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
10, 2016, at 2:00 p.m. Pacific time (5:00
p.m. Eastern) to discuss its
third quarter 2016 results.
CEO Juergen Stark and CFO John Hanson will host the call, followed by a question and
Date: Thursday, November 10, 2016
Time: 2:00 p.m. PT / 5:00 p.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
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.
replay of the conference call will be available after 8:00 p.m. PT on the same
day through November 17, 2016.
Toll-Free Replay Number: (855) 859-2056
Number: (404) 537-3406
Replay ID: 3042340
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 September
30, 2016 and
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
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.