雅虎香港財經 Turtle Beach Corporation (NASDAQ:HEAR) Q1 2024 Earnings Call Transcript
Turtle Beach Corporation (NASDAQ:HEAR) Q1 2024 Earnings Call Transcript May 7, 2024
Turtle Beach Corporation beats earnings expectations. Reported EPS is $0.00799, expectations were $-0.16. Turtle Beach Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome to the Turtle Beach First Quarter 2024 Conference Call. My name is Didi, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session [Operator Instructions]. Delivering today's prepared remarks are Cris Keirn, Chief Executive Officer; and John Hanson, Chief Financial Officer. Following their prepared remarks, the management team will open the call up for any questions. As a reminder, the conference is being recorded. I will now turn the call over to Alex Thompson from Investor Relations. Alex, you may begin.
Alex Thompson: Thank you, Operator. On today's call, we will be referring to the press release filed this afternoon that details the company's first quarter 2024 results, which can be downloaded from the Investor Relations page at corp.turtlebeach.com, where you'll also find the latest earnings presentations that supplements the information discussed on today's call. Finally, a recording of the call will be available on the Events and Presentations section of the company's Web site later today. Please be aware that some of the comments made during this call may include forward-looking statements within the meaning of the federal securities laws. Statements about the company's beliefs and expectations containing words such as may, will, could, believe, expect, anticipate and similar expressions constitute forward-looking statements.
These statements involve risks and uncertainties regarding the company's operations and future results that could cause Turtle Beach Corporation's results to differ materially from management's current expectations. While the company believes that its expectations are based upon reasonable assumptions, numerous factors may affect actual results and may cause results to differ materially. So the company encourages you to review the Safe Harbor statements and risk factors contained in today's press release and in its filings with the Securities and Exchange Commission, including, without limitation, its annual report on Form 10-K and other periodic reports, which identify specific risk factors that also may cause actual results or events to differ materially from those described in our forward-looking statements.
The company does not undertake to publicly update or revise any forward-looking statements after this conference call. The company also notes that on this call, we will be discussing non-GAAP financial information. The company is providing that information as a supplement to information prepared in accordance with accounting principles generally accepted in the United States or GAAP. You can find a reconciliation of these metrics to the company's reported GAAP results in the reconciliation tables provided in today's earnings release and presentation. And now, I'll turn the call over to Cris Keirn, CEO of Turtle Beach. Cris?
Cris Keirn: Thank you all for joining us today on our first quarter 2024 earnings call. I'm very pleased with our continued progress in a transformative year for the company. As expected, we have made significant progress on multiple strategic initiatives to drive profitable and sustainable growth. While we are in the early stages of integration for our recent acquisition of PDP, this infusion of additional talent and expertise has further energized our team and we are executing to achieve both revenue and cost synergies. We look forward to maximizing the benefits of our increased scale and enhanced product portfolio in 2024 and beyond. First quarter revenue was $55,8 million, up roughly 9% year-over-year, which included incremental revenue contribution in the back half of March from our acquisition of PDP.
We also realized improved profitability in the quarter, delivering $1.4 million of adjusted EBITDA compared to an adjusted EBITDA loss of $2.8 million a year ago. As we've previously communicated, we continue to see year-over-year improvements in profitability through our portfolio optimization, SKU rationalization and platform product development initiatives, all of which are coming into full effect throughout this year. Following market gains that started in December of 2023, both the US gaming headset and gaming controller markets continued to climb with double digit year-over-year revenue growth in Q1. First Circana, combined console and PC headset markets were up 18% and gaming controllers were up nearly 20% by revenue. Third party controllers exceeded revenue growth compared to first party controllers, driven by our new Stealth Ultra controller and increased sales of PDP models.
We remain optimistic for continued growth in the gaming accessory markets and have an exceptional lineup of new Turtle Beach products launching in just a few weeks and then again before the holidays. Q1 demonstrated that accessory sales at this point in the console cycles are growing as gamers remain highly engaged with a strong lineup of titles over the last year. We believe another contributor to market growth in Q1 was a result of a replacement cycle lift from pandemic era accessory purchases, especially with a new generation of accessories in the market that offer upgrades to technology and features. As mentioned in previous calls, we anticipated that pandemic era replacement purchases would contribute to gaming accessory market growth in 2024.
Double digit market growth for key gaming accessory categories in Q1 was a good indicator that these replacement purchases are underway and we believe replacement purchases will continue to support market performance in future quarters. In our headset and PC categories, we proactively reduced channel inventory and promotional activity in Q1 ahead of our significant new headset and PC product launches in Q2. Channel load in for our new headsets and PC products is occurring now and channel inventory is projected to return to normalized levels once the new load in of new products is completed in Q2. We are eager to bring these fantastic new products to our gaming customers and are confident they will deliver strong results for the business. Our new controller and simulation models, including the Premium Stealth Ultra controller and VelocityOne simulation products drove Q1 share gains for Turtle Beach.
Our revenue share of the US flight simulation market grew from 20% in Q1 2023 to 25% in Q1 2024 as reported by Circana. With additional products in development, we anticipate continued share growth over time in simulation categories. Additionally, we are pleased with the extraordinary preorders and ongoing post launch demand for the PDP RIFFMASTER Guitar Controller. The RIFFMASTER launch was timed to Fortnite Festival's recent update, which added guitar controller capability with the game. Demand has greatly exceeded our initial supply and our teams are working diligently to expedite deliveries of additional goods. We remain highly focused on delivering value to our shareholders and gaming customers everywhere through launching our innovative new products, maximizing the extensive benefits from the PDP acquisition and driving our initiatives for profit enhancement and growth.
John will now take us through the financials in more detail. John?
John Hanson: Thanks, Cris. And good afternoon, everyone. As Cris noted, our first quarter 2024 revenue was $55.8 million, that's an increase of approximately 9% compared to the year ago period, driven by increased sales of our controller and simulation products and incremental revenue from the PDP acquisition. Console headset revenue was down year-over-year as we intentionally reduced channel inventory levels in Q1 ahead of the launch of our new wireless headsets and rebranded PC accessories. We are currently reloading the channel to support the launch of these products in Q2. Gross margin in the first quarter was 31.8% compared to 27.5%, that is a 430 basis point improvement from the year ago period. The increase resulted from lower freight costs, product costs, promotional spend and return reserves and is driven by the various profit improvement initiatives we have been executing over the past months.
Operating expenses in the first quarter were $23.5 million compared to $20.6 million a year ago and include $5 million in costs related to the acquisition of PDP in March of this year. First quarter cash based recurring operating expenses declined approximately 6% year-over-year, primarily driven by ongoing proactive expense management. Our first quarter adjusted EBITDA improved to $1.4 million compared to an adjusted EBITDA loss of $2.8 million in the year ago period. The $4.3 million year-over-year improvement is primarily driven by the revenue increase, margin improvement and cash based recurring operating expense reductions. Our first quarter net income was a positive $0.2 million or $0.01 per diluted share compared to a net loss of $6.7 million or $0.40 per diluted share a year ago.
Turning to the balance sheet. At March 31, 2024, we had $17.8 million of cash and no outstanding borrowings on our revolving credit line. The company secured a $50 million term loan for the PDP acquisition and our net debt was $32.1 million at quarter end. Inventories at March 31, 2024, were $69.5 million compared to $65.2 million at March 31, 2023. And the increase resulted from the addition of $23.8 million in inventory for PDP, partially offset by a $19.5 million reduction in Turtle Beach inventory. Cash flow from operations was $27.3 million compared to $29 million at March 31, 2023. Free cash flow was $26.6 million. Our ability to generate strong free cash flow from revenue growth and operational efficiency opens the door for a variety of value creating opportunities.
And now, I'll turn the call back over to Cris for some additional comments. Cris?
Cris Keirn: Thanks, John. As I've mentioned, we are pleased with our progress for the first quarter of 2024. We've continued our focus on driving profitable growth and are excited about our upcoming product launches and the demonstrated success of our multiple profit improvement initiatives. From this, we are maintaining our full year 2024 outlook. Net revenues are expected to be in the range of $370 million to $380 million with growth driven primarily by the acquisition of PDP, gaming accessory market growth and our expected outperformance of gaming markets with compelling new accessory launches in 2024. Including synergies from the PDP acquisition, we expect pro forma combined adjusted EBITDA to be between $51 million and $54 million, which incorporates approximately nine months of operations from PDP.
I want to thank our entire team at Turtle Beach for their excellent efforts and contributions, which have delivered a strong quarter to start this very exciting year. We have a lot in store for the remainder of 2024 and remain confident about our renewed growth strategy and execution for this year and beyond to drive value for our shareholders and gaming customers. And with that, let's turn to Q&A.
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