Turtle Beach Reports Fourth Quarter And Full Year 2019 Results

SAN DIEGO, March 10, 2020 /PRNewswire/ — Turtle Beach Corporation (Nasdaq: HEAR), a leading gaming audio and accessory brand, reported financial results for the fourth quarter and full year ended December 31, 2019. Fourth Quarter Summary vs. Year-Ago Quarter:

• Net revenue was $101.8 million ($102.1 million in constant currency) versus $111.3 million;
• Net income of $20.4 million, or $1.29 per diluted share (includes $7.4 million benefit from the release of valuation allowances on deferred tax assets), compared to net income of $24.6 million, or $1.33 per diluted share; and
• Adjusted EBITDA was $16.6 million compared to $25.0 million.

2019 Full-Year Summary vs. 2018:

• Net revenue was $234.7 million ($236.5 million in constant currency) versus $287.4 million;
• Net income of $17.9 million, or $1.04 per diluted share (includes $7.4 million benefit from the release of valuation allowances on deferred tax assets), compared to net income of $39.2 million, or $2.74 per share; and
• Adjusted EBITDA was $22.8 million compared to $57.7 million.

“As indicated in our pre-announcement, our 2019 sales were the second highest in our history, with 2019 playing out close to our expectations,” said Juergen Stark, CEO, Turtle Beach Corporation. “While we expect the console gaming market to be soft as consumers prepare for Sony and Microsoft’s new consoles slated to launch this fourth quarter, we expect the market to return to growth in 2021. We anticipate continued growth in our PC gaming accessories sales in 2020 and plan to invest in product and brand development to increase our share in this attractive portion of the market.”

Fourth Quarter 2019 Financial Results
Net revenue in the fourth quarter of 2019 was $101.8 million compared to $111.3 million in the year-ago quarter. While consumer demand remained above historic levels, this decrease was the result of the expected decline from the record levels of demand 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 fourth quarter of 2019 was $102.1 million.

Gross margin in the fourth quarter of 2019 was 35.1% compared to 38.5% in the fourth 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 during the battle royale boom of 2018, as well as increased tariff costs and product mix, partially offset by lower standard freight costs.

Operating expenses in the fourth quarter of 2019 were $22.3 million compared to $17.4 million in the 2018 period due primarily to incremental costs associated with the ROCCAT acquisition.

Net income in the fourth quarter of 2019 was $20.4 million compared to $24.6 million in the year-ago quarter. Net income in the fourth quarter of 2019 included a $7.4 million benefit from the release of valuation allowances on deferred tax assets in certain jurisdictions. The decline was driven by lower gross profit because of the expected decline in revenue and the increase in operating expenses.

Net income per share in the fourth quarter of 2019 was $1.29 on 15.7 million weighted average diluted shares outstanding, compared to net income per share of $1.33 on 16.2 million weighted average diluted shares outstanding in the year-ago quarter.

Adjusted net income (as defined below in “Non-GAAP Financial Measures”) in the fourth quarter of 2019 was $13.0 million, or $0.83 per diluted share, compared to $21.5 million, or $1.33 per share, in the corresponding period in 2018.

Adjusted EBITDA (as defined below in “Non-GAAP Financial Measures”) in the fourth quarter of 2019 was $16.6 million compared to $25.0 million in the year-ago quarter.

2019 Financial Results
Net revenue in 2019 was $234.7 million compared to $287.4 million in 2018, which is the second highest year of sales in Turtle Beach’s history. The expected revenue decline for the full year was driven by the decline from 2018’s record levels of demand from new headset users buying their first headset for battle royale games. On a constant currency basis, revenue in 2019 was $236.5 million.

Gross margin in 2019 was 33.5% compared to 37.8% in 2018. Margins were impacted by a more normal level of promotions, product mix, increased refurbishment and warehouse costs, as well as a decline in volume-based fixed cost leverage, partially offset by lower standard freight costs.

Operating expenses in 2019 were $68.3 million compared to $54.7 million in 2018 due primarily to the addition of ROCCAT operating costs, ROCCAT transaction and integration costs, and additional marketing initiatives, partially offset by decreases in revenue-based compensation as compared to the 2018 period.

Net income in 2019 was $17.9 million compared to $39.2 million in 2018. Net income in 2019 included a $7.4 million benefit from the release of valuation allowances on deferred tax assets in certain jurisdictions. The decline was driven by lower gross profit because of the expected decline in revenue and the increase in operating expenses.

Net income per share in 2019 was $1.04 on 15.7 million weighted average diluted shares outstanding, compared to net income per share of $2.74 on 14.3 million weighted average diluted shares outstanding in 2018.

Adjusted net income (as defined below in “Non-GAAP Financial Measures”) in 2019 was $11.6 million, or $0.74 per diluted share, compared to $44.5 million, or $3.05 per diluted share, in 2018.

Adjusted EBITDA (as defined below in “Non-GAAP Financial Measures”) in 2019 was $22.8 million compared to $57.7 million in the year-ago quarter.

Balance Sheet Highlights
At December 31, 2019, the Company had $8.2 million of cash and cash equivalents with $15.7 million of outstanding debt under its revolving line of credit. This compares to $7.1 million of cash and cash equivalents with $37.4 million of outstanding debt under its revolving credit facility at December 31, 2018.

Since Turtle Beach’s share repurchase program was announced on April 10, 2019, the Company has repurchased 271,300 shares for $2.5 million, or an average of $9.30 per share.

2020 Outlook         
For the first quarter of 2020, the Company expects revenue to range between $29 million and $31 million. Adjusted EBITDA is expected to range between $(6.5) million and $(7.5) million. Net loss per diluted share is expected to range between $(0.73) and $(0.81), and Adjusted loss per diluted share is expected to range between $(0.72) and $(0.80), both reflecting the aforementioned revenue and EBITDA forecasts. Despite the anticipation of a pretax loss, the Company expects to have a modest tax provision because of taxes in various jurisdictions.

For the full year 2020, the Company expects revenue to range between $214 million and $224 million. Adjusted EBITDA is expected to range between $5 million and $10 million, reflecting an incremental investment of approximately $9 million to expand the Company’s market share in the PC accessories market. Net loss per diluted share is expected to range between $(0.13) and $(0.46), and adjusted net loss per diluted share is expected to range between $(0.12) and $(0.45), both reflecting the aforementioned revenue and EBITDA forecasts. Despite the anticipation of a pretax loss, the Company expects to have a modest tax provision because of taxes in various jurisdictions.

With respect to the Company’s adjusted EBITDA outlook for the full year 2020, 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, March 10, 2020, at 2:00 p.m. Pacific Time (5:00 p.m. Eastern) to discuss its fourth quarter and full year 2019 results.

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

Conference Call Details:

Date: Tuesday, March 10, 2020

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: 5092316
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 March 17, 2020.

Toll-Free Replay Number: (855) 859-2056
International Replay Number: (404) 537-3406
Replay ID: 5092316

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 (i) integration and transaction costs related to the acquisition of the ROCCAT business, (ii) the effect of the mark-to-market requirement of the financial instrument obligation, (iii) any change in fair value of contingent consideration and (iv) the release of valuation allowances on deferred tax assets. “Adjusted EBITDA” is defined by the Company as net income (loss) before interest, taxes, depreciation and amortization, stock-based compensation (non-cash), and certain non-recurring items that we believe are not representative of core operations (e.g., the integration and transaction costs related to the ROCCAT acquisition, the mark-to-market adjustment for the financial instrument obligation and the change in fair value of contingent consideration). “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 each of the three months and years ended December 31, 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 and market leader in console audio for 10 years running. In 2019 Turtle Beach acquired ROCCAT, a leading PC accessories brand that combines detail-loving German innovation with a genuine passion for designing the best PC gaming products. Under the ROCCAT brand, Turtle beach provides award-winning keyboards and mice for PC gamers. 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 including the impact of coronavirus on consumer demands and manufacturing capabilities, 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.
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SOURCE Turtle Beach Corporation Investors, Cody Slach or Sean McGowan, Gateway Investor Relations On Behalf of Turtle Beach, 949.574.3860, HEAR@gatewayir.com; or Media, MacLean Marshall, Sr. Director – Brand & PR/Communications, Turtle Beach Corp., 858.914.5093, maclean.marshall@turtlebeach.com