–
Fourth Quarter Sees Record Profitability Since Becoming Public in 2014 –
San
Diego, CA – March 6, 2018 –
Turtle Beach Corporation (NASDAQ: HEAR), a leading gaming
headset and audio accessory company, reported
financial results for the
fourth quarter and full year ended December
31, 2017.
Fourth
Quarter Summary vs. Year-Ago Quarter:
· Net
revenue of $79.7 million versus $82.2 million, down slightly due to channel
inventory reductions.
· Gross
margin up 90 basis points to a record 37.6%.
· Operating
expenses were reduced by 6% to $14.0
million.
· Net
income up 17% to a record $14.2 million, or $0.29 per share, compared to $12.2 million,
or $0.25 per share.
· Adjusted
EBITDA up 7% to a record $17.2 million.
· Leverage
ratio declined to 2.1x versus 7.4x.
2017
Summary vs. 2016:
· Net
revenue of $149.1 million versus $174.0 million, down due to channel inventory
reductions and under-ordering by several retailers.
· Gross
margin up 970 basis points to a record 34.2%.
· Operating
expenses were reduced 18% to $46.2 million from
$56.4 million (excluding $63.9 million in HyperSound
impairment and restructuring charges in 2016).
· Net
loss improved significantly to $3.2 million, or $(0.07) per share, compared to
a net loss of $87.2 million, or $(1.79) per share.
· Nearly
tripled adjusted EBITDA, reporting $11.6 million versus $4.0 million.
“As reported in February, we experienced strong sales
of Turtle Beach headsets in the fourth quarter, which helped drive our leading
market share higher,” said Juergen Stark, CEO, Turtle Beach. “Healthy consumer
demand and retailer restocking early in the first quarter of 2018 has more than
closed a $6-7 million sales shortfall compared to our 2017 outlook, caused by
cautious retail ordering in the fourth quarter.”
“In fact, NPD data shows we are outpacing a very
strong market in the first quarter, with North American console gaming headset
sell-through in January up 61% on a revenue basis and Turtle Beach up 79%. We
believe this is being driven by the blockbuster Fortnite and PlayerUnknown’s Battlegrounds releases that are fueling
strong headset sales, as well as an overall robust gaming market.”
“Underlying our strong sales performance were market
share gains in both North America and the U.K., which we believe show Turtle
Beach continues to be the undisputed market leader in gaming headsets—a
position we have held for eight years in a row. As we look to 2018, we intend
to leverage this leadership position by continuing to develop our growing
eSports presence and laying the groundwork for future growth in the $1.1
billion gaming peripherals market.”
“Looking to 2018, having met our goal of
significantly increasing adjusted EBITDA and earnings in 2017, we believe Turtle
Beach is well-positioned to make selective investments to drive future growth.
Given today’s announcement regarding the improvements to our financing agreements,
we are also expecting to lower our debt-related expenses and increase our financial
flexibility.”
Fourth Quarter 2017 Financial Results
Net revenue in
the fourth quarter of 2017 was $79.7 million compared to $82.2 million in the year-ago quarter. The decline was largely due to under-ordering by several
retailers in December, which was more than covered by restocking orders in
January 2018.
Gross
margin in the fourth quarter
of 2017 increased by 90 basis points to a record 37.6% compared to 36.7% in the
2016 period. This is the Company’s highest level of gross
margin for any fourth quarter since becoming public in 2014. The increase was due to a mix-shift toward higher margin headsets, as well as
on-going supply chain and logistics-driven product cost improvements.
Operating expenses in the fourth quarter of 2017 were
reduced by 6% to $14.0 million compared to $14.9 million in the 2016 period due
to a continued focus on cost management across the business.
Net
income in the fourth quarter of 2017 increased 17% to a record $14.2 million,
or $0.29 per diluted share, compared to $12.2 million, or $0.25 per diluted share,
in the 2016 period. This is the Company’s highest level of net income for any
quarter since becoming public in 2014.
The improvement was primarily driven by the higher gross margin and lower
operating expenses.
Adjusted EBITDA (as defined below in “Non-GAAP Financial
Measures”) in the fourth quarter of 2017 increased 7% to $17.2 million compared
to $16.1 million in the year-ago quarter. This is the Company’s highest level
of quarterly adjusted EBITDA since becoming public in 2014.
Full Year 2017 Financial Results
Net revenue in 2017 was $149.1 million compared to $174.0
million in 2016. A significant portion of the revenue decline was driven by
channel inventory reductions in 2017 and under-ordering by several retailers this
past December that was more than covered by restocking orders in January 2018.
Gross margin in 2017 improved 970 basis points to 34.2% from
24.5% in 2016. This is the Company’s highest level of annual gross margin since
becoming public in 2014. The increase was due to the higher margin headset mix-shift
and supply chain and logistics-driven product cost improvements, as well as the
transition of HyperSound to a license
model.
Operating expenses in 2017 declined significantly to $46.2
million compared to $120.3 million in 2016. The decline was primarily driven by
HyperSound impairment charges in 2016
of $63.2 million that did not reoccur, as well as continued cost management
across the business. Excluding HyperSound-related
impairment and restructuring charges, operating expenses in 2016 were $56.4
million.
Net loss in 2017 improved significantly to $3.2 million,
or $(0.07) per diluted share, compared to a net loss of $87.2 million, or $(1.79)
per diluted share in 2016, which included the HyperSound-related impairment and restructuring charges.
Adjusted EBITDA (as defined below in “Non-GAAP Financial
Measures”) was up significantly in 2017 to $11.6 million compared to $4.0
million in 2016. This is the highest level of adjusted EBITDA the company has
reported since becoming public in 2014.
Balance Sheet
Highlights
At December 31, 2017, the Company had approximately $5.2
million of cash and cash equivalents, compared to $6.2 million one year ago. As
a result of its borrowings under a $60 million revolving credit facility,
Turtle Beach generally does not hold a large cash balance.
Total outstanding
debt principal at December 31, 2017, was $72.1 million compared to $69.7 million
at December 31, 2016. The debt consisted of $38.5 million of revolving debt, $21.9
million in subordinated debt, and $11.7 million in term loans. The Company’s
leverage ratio, defined as total term
loans outstanding and average trailing twelve month revolving debt, divided by
consolidated trailing twelve month adjusted EBITDA, improved significantly to 2.1x
at December 31, 2017, compared to 7.4x one year ago.
As announced in
a separate press release today, Turtle Beach has amended its financing
agreements with its lenders. The improved terms and covenants include a
reduction in the interest rate of the revolving credit facility and term loans,
a reduction in the interest rate on the subordinated debt, the ability to use
term loan funds to reduce the subordinated debt, the elimination of EBITDA
coverage covenants on the term loans, and the extension of the loans to March
2023. The net effect of the changes is expected to be interest savings of at
least $3.5 million over the next five years.
2018 Outlook
For
the first quarter of 2018, Turtle Beach expects net revenue to increase 102% to approximately $29 million
compared
to $14.4 million in the first quarter of 2017. Net loss for the first quarter of 2018 is expected to
improve to approximately $0.12 per share
compared to a loss of $0.20 per share in the 2017 period. Adjusted EBITDA in the first quarter of 2018 is expected to improve to approximately $(1.5) million compared
to
$(6.2) million in the 2017 period.
For the full year 2018, Turtle Beach expects
net revenue to increase 5% to approximately $157 million compared to $149.1
million in 2017. This mid-single-digit increase assumes the mix of quarterly
revenues will be shifted earlier in the year (similar to 2016) and the slate of
AAA console games to be released for holiday 2018 will not match the
exceptionally strong retail sales seen in holiday 2017. Full details on the
2018 slate will be revealed throughout the year, including at the Electronic
Entertainment Expo show in mid-June, and full-year industry expectations will
be updated accordingly. Net loss in 2018 is expected to improve
to approximately $0.03 per share based upon 49.4 million expected diluted
shares outstanding. This is compared to a net loss of $0.07 per share in 2017. Adjusted EBITDA in 2018 is expected to
improve to approximately $12 million and includes several million dollars of
investments intendend to drive future growth.
A
table summarizing this outlook has been provided at the end of this release.
With respect to
the Company’s adjusted EBITDA outlook for the first quarter and full year 2018,
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, March
6, 2018, at 2:00 p.m. Pacific time (5:00
p.m. Eastern) to discuss its
fourth quarter and full year 2017 results.
CEO Juergen Stark and CFO John Hanson will host the call, followed by a question and
answer session.
Conference
Call Details:
Date: Tuesday, March 6,
2018
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: 3799958
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 Liolios 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 corp.turtlebeach.com.
A
replay of the conference call will be available after 8:00 p.m. ET on the same
day through March 13, 2018.
Toll-Free
Replay Number: (855) 859-2056
International
Replay Number: (404) 537-3406
Replay
ID: 3799958
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 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 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 and twelve months ended December
31, 2017.
About Turtle
Beach Corporation
Turtle Beach (www.turtlebeach.com) has been revolutionizing console multiplayer gaming since the very
beginning with its wide selection of industry-leading, 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 audio
quality, clear communication, lightweight and comfortable designs, and
ease-of-use are just a few features that have made Turtle Beach a fan-favorite
brand for gamers the world over. Made for Xbox and PlayStation® consoles as
well as for PC, Mac®, and mobile/tablet devices, having a Turtle Beach gaming
headset in your arsenal gives you the competitive advantage. The Company’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”, “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
Company’s continued listing on the Nasdaq, 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.
For Investor Information, Contact:
Cody Slach
Investor Relations
Liolios
949.574.3860
HEAR@liolios.com
For Media Information, Contact:
MacLean
Marshall
Sr.
Director – Brand & PR/Communications
Turtle
Beach Corp.
858.914.5093
maclean.marshall@turtlebeach.com
|
Table 5.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1 18
|
Q1 17
|
|
FY 18
|
FY 17
|
|
|
Guidance
|
Actual
|
|
Guidance
|
Actual
|
|
|
|
|
|
|
|
|
Net
Revenue
|
~$29
|
$14.4M
|
|
~$157
|
$149.1M
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA
|
~$(1.5)
|
$(6.2)M
|
|
~$12
|
$11.6M
|
|
|
|
|
|
|
|
|
EPS
|
~$(0.12)
|
$(0.20)
|
|
~$(0.03)
|
$(0.07)
|
Table 5.
|
Q1 18
Guidance |
Q1 17
Actual |
FY 18
Guidance |
FY 17
Actual |
| Net Revenue |
~$29 |
$14.4M |
~$157 |
$149.1M |
| Adjusted EBITDA |
~$(1.5) |
$(6.2)M |
~$12 |
$11.6M |
| EPS |
~$(0.12) |
$(0.20) |
~$(0.03) |
$(0.07) |