Q3 Revenue Increased 15% Year-over-Year
Gross Margin % Continue to Improve; Delivers Highest Level in Six Quarters
Company Raises Run Rate Profitability Outlook
Third Quarter Summary vs.
-
Net revenue was
$59.2 million , an increase of 15.3% compared to$51.3 million a year ago; -
Net loss was
$3.6 million , or$0.21 per diluted share, compared to net loss of$12.0 million , or$0.73 per diluted share, a year ago; -
Adjusted EBITDA improved to
$1.0 million compared to an Adjusted EBITDA loss of$6.9 million a year ago.
Management Commentary
“With our sharp focus on improvements in execution, our third quarter sales and adjusted EBITDA results increased significantly compared to the year ago period. We outperformed gaming accessories markets due to share gains across key categories and geographies, in addition to the strong progress we’ve made on our profitability initiatives outlined last quarter,” said
“In fact, the execution against our strategic pillars and ongoing cost management initiatives are driving adjusted EBITDA improvements ahead of expectations, as demonstrated by the increase in our full-year 2023 adjusted EBITDA guidance to
“The overall operating environment continues to improve as we progress through the year, demonstrated by our improved margins due to lower freight and a more normalized promotional environment, as we anticipated. Additionally, we experienced an increase in channel inventories during the quarter as our channel partners prepare for the holidays, which we believe is a positive sign for retailer demand for our products in the upcoming holiday season. Gaming accessories markets performed similarly quarter-over-quarter, as the US console headset market was up 2% year-to-date in September while PC markets were down 12% year-to-date.
“We continue to maintain our historic leadership in console gaming headsets while also successfully driving growth in adjacent categories, demonstrated by the rapid year-over-year growth of over 20% in our US flight simulation business while that market is down 11% year-to-date. Our non-console gaming categories continue to perform well, a testament to our diversification strategy, and we look forward to unveiling more new products soon. Additionally, demand for gaming accessories has normalized at higher levels than pre-pandemic levels. This heightened normalized demand level was expected and helps create stable demand for our accessories. Further, we believe the positive trends in gaming will support increased accessories demand for the remainder of 2023 and into 2024, ultimately increasing our growth and profitability.”
Third Quarter 2023 Financial Results
Net revenue in the third quarter of 2023 was
Gross margin in the third quarter of 2023 increased to 29.9%, the highest level in the past six quarters, compared to 14.1% a year ago. This increase was driven primarily by lower freight costs and promotional spend. In the third quarter of 2022, we recorded a
Operating expenses in the third quarter of 2023 were
Net loss in the third quarter of 2023 was
Adjusted EBITDA (as defined below in “Non-GAAP Financial Measures”) in the third quarter of 2023 improved to
Balance Sheet and Cash Flow Summary
At
Outlook
The Company is pleased to report performance ahead of schedule and continues to execute on a number of initiatives to improve efficiency and profitability including SKU rationalization, portfolio optimization, platformed product development and more. As a result of the Company’s better than expected performance, the Company is raising its Adjusted EBITDA outlook for fiscal year 2023 and now expects to be in the range of
Additionally, given the improving line of sight into the impact of various cost savings initiatives, the Company now expects to exit 2023 with a run rate Adjusted EBITDA in the range of
Notwithstanding the continued softness in the PC market, down 12% year-to-date, based on key share gains in critical categories and other trends seen to-date, the Company reiterates its previous revenue outlook for fiscal year 2023, continuing to expect net revenues to be in the range of
Value Enhancement Committee Review
As stated previously, the Value Enhancement Committee was established to review a broad range of opportunities to maximize value for shareholders, including potential strategic transactions. In conjunction with the Company’s financial advisors, the Committee continues to be focused on a range of potential strategic paths to maximize value for shareholders.
The Company notes that there can be no assurances that the review will result in a transaction or announcement of any kind.
With respect to the Company’s adjusted EBITDA outlook, 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
In conjunction with this announcement,
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
About
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. The inclusion of such information should not be regarded as a representation by the Company, or any person, that the objectives of the Company will be achieved. 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 inflationary pressures, optimizing our product portfolio, reducing our cost of goods and operating expenses, reductions in logistic and supply chain challenges and costs, 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, including promotional credits and discounts, general business and economic conditions, risks associated with the future direction or governance of the Company, 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, 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
All trademarks are the property of their respective owners.
|
||||||||||||||||
Condensed Consolidated Statements of Operations |
||||||||||||||||
(in thousands, except per-share data) |
||||||||||||||||
(unaudited) |
||||||||||||||||
Table 1. |
||||||||||||||||
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Net revenue |
|
$ |
59,158 |
|
|
$ |
51,304 |
|
|
$ |
158,584 |
|
|
$ |
139,266 |
|
Cost of revenue |
|
|
41,469 |
|
|
|
44,046 |
|
|
|
114,884 |
|
|
|
110,097 |
|
Gross profit |
|
|
17,689 |
|
|
|
7,258 |
|
|
|
43,700 |
|
|
|
29,169 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Selling and marketing |
|
|
10,583 |
|
|
|
10,550 |
|
|
|
30,457 |
|
|
|
32,966 |
|
Research and development |
|
|
4,380 |
|
|
|
4,400 |
|
|
|
12,670 |
|
|
|
14,788 |
|
General and administrative |
|
|
5,243 |
|
|
|
6,006 |
|
|
|
25,375 |
|
|
|
24,773 |
|
Total operating expenses |
|
|
20,206 |
|
|
|
20,956 |
|
|
|
68,502 |
|
|
|
72,527 |
|
Operating loss |
|
|
(2,517 |
) |
|
|
(13,698 |
) |
|
|
(24,802 |
) |
|
|
(43,358 |
) |
Interest expense |
|
|
107 |
|
|
|
450 |
|
|
|
253 |
|
|
|
643 |
|
Other non-operating expense, net |
|
|
481 |
|
|
|
2,255 |
|
|
|
799 |
|
|
|
4,083 |
|
Loss before income tax |
|
|
(3,105 |
) |
|
|
(16,403 |
) |
|
|
(25,854 |
) |
|
|
(48,084 |
) |
Income tax expense (benefit) |
|
|
501 |
|
|
|
(4,392 |
) |
|
|
377 |
|
|
|
(11,771 |
) |
Net loss |
|
$ |
(3,606 |
) |
|
$ |
(12,011 |
) |
|
$ |
(26,231 |
) |
|
$ |
(36,313 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss per share |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
(0.21 |
) |
|
$ |
(0.73 |
) |
|
$ |
(1.54 |
) |
|
$ |
(2.21 |
) |
Diluted |
|
$ |
(0.21 |
) |
|
$ |
(0.73 |
) |
|
$ |
(1.54 |
) |
|
$ |
(2.21 |
) |
Weighted average number of shares: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
17,345 |
|
|
|
16,541 |
|
|
|
17,029 |
|
|
|
16,413 |
|
Diluted |
|
|
17,345 |
|
|
|
16,541 |
|
|
|
17,029 |
|
|
|
16,413 |
|
|
||||||||
Condensed Consolidated Balance Sheets |
||||||||
(in thousands, except par value and share amounts) |
||||||||
Table 2. |
||||||||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
|
2023 |
|
|
2022 |
|
||
|
|
(unaudited) |
|
|
|
|
||
ASSETS |
|
|
|
|||||
Current Assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
12,340 |
|
|
$ |
11,396 |
|
Accounts receivable, net |
|
|
33,816 |
|
|
|
43,336 |
|
Inventories |
|
|
76,024 |
|
|
|
71,252 |
|
Prepaid expenses and other current assets |
|
|
8,775 |
|
|
|
9,196 |
|
Total Current Assets |
|
|
130,955 |
|
|
|
135,180 |
|
Property and equipment, net |
|
|
4,828 |
|
|
|
6,362 |
|
|
|
|
10,686 |
|
|
|
10,686 |
|
Intangible assets, net |
|
|
1,976 |
|
|
|
2,612 |
|
Other assets |
|
|
7,858 |
|
|
|
8,547 |
|
Total Assets |
|
$ |
156,303 |
|
|
$ |
163,387 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
||
Current Liabilities: |
|
|
|
|
|
|
||
Revolving credit facility |
|
$ |
13,261 |
|
|
$ |
19,053 |
|
Accounts payable |
|
|
39,198 |
|
|
|
19,846 |
|
Other current liabilities |
|
|
22,014 |
|
|
|
25,433 |
|
Total Current Liabilities |
|
|
74,473 |
|
|
|
64,332 |
|
Income tax payable |
|
|
2,204 |
|
|
|
2,076 |
|
Other liabilities |
|
|
7,224 |
|
|
|
8,038 |
|
Total Liabilities |
|
|
83,901 |
|
|
|
74,446 |
|
Commitments and Contingencies |
|
|
|
|
|
|
||
Stockholders’ Equity |
|
|
|
|
|
|
||
Common stock |
|
|
17 |
|
|
|
17 |
|
Additional paid-in capital |
|
|
216,214 |
|
|
|
206,916 |
|
Accumulated deficit |
|
|
(142,829 |
) |
|
|
(116,598 |
) |
Accumulated other comprehensive loss |
|
|
(1,000 |
) |
|
|
(1,394 |
) |
Total Stockholders’ Equity |
|
|
72,402 |
|
|
|
88,941 |
|
Total Liabilities and Stockholders’ Equity |
|
$ |
156,303 |
|
|
$ |
163,387 |
|
|
||||||||
Condensed Consolidated Statements of Cash Flows |
||||||||
(in thousands) |
||||||||
(unaudited) |
||||||||
Table 3. |
||||||||
|
|
Nine Months Ended |
|
|||||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
$ |
7,944 |
|
|
$ |
(69,522 |
) |
|
|
|
|
|
|
|
||
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
(1,924 |
) |
|
|
(1,895 |
) |
|
|
|
|
|
|
|
||
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
||
Borrowings on revolving credit facilities |
|
|
149,995 |
|
|
|
91,945 |
|
Repayment of revolving credit facilities |
|
|
(155,787 |
) |
|
|
(47,327 |
) |
Proceeds from exercise of stock options and warrants |
|
|
1,718 |
|
|
|
626 |
|
Repurchase of common stock |
|
|
(974 |
) |
|
|
– |
|
Debt Issuance Costs |
|
|
(80 |
) |
|
|
– |
|
Net cash provided by (used for) financing activities |
|
|
(5,128 |
) |
|
|
45,244 |
|
Effect of exchange rate changes on cash |
|
|
52 |
|
|
|
(1,042 |
) |
Net increase (decrease) in cash |
|
|
944 |
|
|
|
(27,215 |
) |
Cash – beginning of period |
|
|
11,396 |
|
|
|
37,720 |
|
Cash – end of period |
|
$ |
12,340 |
|
|
$ |
10,505 |
|
|
||||||||||||||||
GAAP to Adjusted EBITDA Reconciliation |
||||||||||||||||
(in thousands) |
||||||||||||||||
Table 4. |
||||||||||||||||
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
|
|
|
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Net loss |
|
$ |
(3,606 |
) |
|
$ |
(12,011 |
) |
|
$ |
(26,231 |
) |
|
$ |
(36,313 |
) |
Interest expense |
|
|
107 |
|
|
|
450 |
|
|
|
253 |
|
|
|
643 |
|
Depreciation and amortization |
|
|
1,212 |
|
|
|
1,383 |
|
|
|
3,673 |
|
|
|
4,464 |
|
Stock-based compensation (1) |
|
|
1,625 |
|
|
|
2,208 |
|
|
|
8,554 |
|
|
|
5,775 |
|
Income tax expense (benefit) |
|
|
501 |
|
|
|
(4,392 |
) |
|
|
377 |
|
|
|
(11,771 |
) |
Inventory and component related reserves (2) |
|
|
— |
|
|
|
5,300 |
|
|
|
— |
|
|
|
5,300 |
|
Restructuring expense (3) |
|
|
1,104 |
|
|
|
— |
|
|
|
1,104 |
|
|
|
527 |
|
CEO transition related costs (4) |
|
|
— |
|
|
|
— |
|
|
|
2,874 |
|
|
|
— |
|
Proxy contest and other (5) |
|
|
94 |
|
|
|
114 |
|
|
|
2,513 |
|
|
|
6,613 |
|
Adjusted EBITDA |
|
$ |
1,037 |
|
|
$ |
(6,948 |
) |
|
$ |
(6,883 |
) |
|
$ |
(24,762 |
) |
(1) |
Increase in stock-based compensation in the nine months ended |
(2) |
Inventory and component related reserves includes (a) |
(3) |
Restructuring charges are expenses that are paid in connection with reorganization of our operations. These costs primarily include severance and related benefits. |
(4) |
CEO transition related expense includes one-time costs associated with the separation of its former CEO. Such costs included severance, bonus, medical benefits and the tax impact of accelerated vesting of stock-based compensation. |
(5) |
Proxy contest and other primarily includes one-time legal, other professional fees, as well as employee retention costs associated with proxy challenges presented by certain shareholder activists. |
View source version on businesswire.com: https://www.businesswire.com/news/home/20231107150526/en/
Sr. Director, Public Relations &
858.914.5093
maclean.marshall@turtlebeach.com
Investor Information:
949.574.3860
hear@gateway-grp.com
Source: