Tuesday, March 14th 2023
Turtle Beach Reports Fourth Quarter and Full Year 2022 Results
Leading gaming accessory maker Turtle Beach Corporation (Nasdaq: HEAR) reported financial results for the fourth quarter and full year ended December 31, 2022. "We executed well in the fourth quarter, and despite the macro circumstances that impacted the industry throughout 2022, we are well-positioned for the inevitable gaming accessories market turnaround and remain encouraged by the strong underlying long-term trends in the gaming market," said Juergen Stark, CEO and Chairman, Turtle Beach Corporation. "Per Newzoo, the number of gamers continues to grow, and the global gaming market is projected to add another 335 million gamers by 2025. Although our profitability was impacted by macroeconomic conditions causing lower consumer demand, heavy competitive discounting as well as extraordinarily high freight costs, we believe the gaming market is recovering, freight costs have dropped significantly, and we anticipate that discounting will return to normal over time. We believe our brand leadership and diverse product portfolio positions us for continued success including revenue growth and a return to positive EBITDA in 2023 as the gaming and macro environments continue to improve."
"Our industry-leading console headset portfolio continued to expand and perform well, as our Stealth 600 wireless headset was the best-selling headset series in 2022 per NPD. We also launched our first $199 MSRP headsets, the Stealth 700 Max series, and took over 40% US retail sales share of that premium-price-tier. In fact, despite the extremely promotional competitive environment, we increased our console headset ASPs by over 7% in 2022, per US NPD. Additionally, we announced innovative new products across our award-winning PC portfolio, and our newest product categories of flight simulation, console and mobile controller product lines all expanded in the year, performing well relative to our expectations. In fact, our VelocityOne Flight became the #1 best-selling flight controller by dollar sales in the US in its first full year per NPD, and in total, our product diversification strategy delivered 25% of non-console headset revenues for the full year 2022.
Fourth Quarter Summary vs. Year-Ago Quarter:
Net revenue in the fourth quarter of 2022 was $100.9 million, or $105.5 million in constant currency, compared to $109.4 million a year ago, reflecting consumer spending caution and strong competitive pricing pressure across the industry, although showing a recovery relative to prior quarters given the modest year-over-year decline.
Gross margin in the fourth quarter of 2022 was 19.8% compared to 32.5% a year ago, which resulted from higher promotional credits driven by aggressive competitive pricing environment to reduce channel inventory levels, a $4.5 million charge for potential excess components and product inventory relating to pandemic-driven supply chain and logistics impacts, and continued pandemic-driven high freight costs.
Operating expenses in the fourth quarter of 2022 were $28.1 million, a decrease of 4% year over year. Recurring operating expenses declined ~16% year over year, a result of the proactive expense management programs that the Company initiated earlier in the year and alignment of expenses to market demand.
Net loss in the fourth quarter of 2022 was $23.2 million, or $1.40 per diluted share, compared to net income of $4.5 million, or $0.25 per diluted share, in the year-ago quarter. Excluding several adjustments to earnings in both periods (summarized below in Table 4), Non-GAAP net income (as defined below in "Non-GAAP Financial Measures") in the fourth quarter of 2022 was $1.6 million, or $0.10 per diluted share, compared to Non-GAAP net income of $2.8 million, or $0.16 per diluted share, in the year-ago period. The weighted average diluted share count for the fourth quarter of 2022 was 16.6 million compared to 18.3 million in the year-ago quarter.
Adjusted EBITDA (as defined below in "Non-GAAP Financial Measures") in the fourth quarter of 2022 was $6.0 million, compared to adjusted EBITDA of $9.6 million in the year-ago period, due to the factors stated above and including a $2.3 million positive impact from foreign exchange.
2022 Financial Results
Net revenue in 2022 was $240.2 million, or $249.3 million in constant currency, compared to $366.4 million in the elevated year ago period, reflecting lower demand driven by reduced consumers discretionary spend and retailer channel inventory compression. Additionally, 2021 was a record-year in the Company's history, as consumer demand for console headsets remained elevated early in the year and retailers increased channel inventory levels to ensure supply.
Gross margin in 2022 was 20.5% versus 35.0% a year-ago, impacted by higher promotional credits due to aggressive competitive pricing to reduce inventory levels, $9.8 million charge for potential excess components and product inventory relating to pandemic-driven supply chain and logistics impacts, higher pandemic-driven freight costs and volume-driven fixed cost deleveraging. Excluding the $9.8 million inventory provision, gross margin was 24.5% in the year. Additionally, higher freight costs relative to pre-pandemic levels impacted gross margin (and earnings) by approximately $11 million for the full year.
Operating expenses in 2022 were $100.7 million, a decrease of 7% year over year, and included $10.9 million in non-recurring items. Recurring operating expenses declined ~13% year over year, a result of the proactive expense management programs that the Company initiated earlier in the year and alignment of expenses to market demand.
Net loss in 2022 was $59.5 million, or $3.62 per diluted share, compared to net income of $17.7 million, or $0.97 per diluted share, in the year-ago period. Excluding several adjustments to earnings in both periods (summarized below in Table 4), Non-GAAP net loss (as defined below in "Non-GAAP Financial Measures") in 2022 was $(25.0) million, or $(1.52) per diluted share, compared to Non-GAAP net income of $20.2 million, or $1.11 per diluted share, in the year-ago period. The weighted average diluted share count for 2022 was 16.5 million compared to 18.3 million in the year-ago period.
Adjusted EBITDA loss (as defined below in "Non-GAAP Financial Measures") in 2022 was $18.7 million, compared to adjusted EBITDA of $36.6 million in the year-ago period, due to the factors stated above and including a $1.8 million negative impact from foreign exchange.
Balance Sheet and Cash Flow Summary
At December 31, 2022, the Company had $11.4 million of cash and $19.1 million outstanding on its revolver. This compares to $37.7 million of cash and no outstanding debt at December 31, 2021. Inventories at December 31, 2022 were $71.3 million compared to $101.9 million at December 31, 2021.
The Company intends to file its financial results on its Form 10-K pending completion of its 2022 audit and any adjustments, if any, may impact its balance sheet and GAAP Net Income and GAAP EPS accordingly.
Full Year 2023 Outlook
In light of the aforementioned market and operational conditions, the Company expects net revenues for fiscal year 2023 to increase approximately 10% (~$265 million) with the growth driven primarily by expected out-performance of the gaming markets in specific categories based on the Company's product plans for 2023. The Company expects adjusted EBITDA of approximately $5 million, a roughly $23 million year-over-year improvement, but including roughly $10 million of remaining negative impact of abnormally high competitive discounting and freight costs. Both items are expected to abate as we progress through the year.
"Our industry-leading console headset portfolio continued to expand and perform well, as our Stealth 600 wireless headset was the best-selling headset series in 2022 per NPD. We also launched our first $199 MSRP headsets, the Stealth 700 Max series, and took over 40% US retail sales share of that premium-price-tier. In fact, despite the extremely promotional competitive environment, we increased our console headset ASPs by over 7% in 2022, per US NPD. Additionally, we announced innovative new products across our award-winning PC portfolio, and our newest product categories of flight simulation, console and mobile controller product lines all expanded in the year, performing well relative to our expectations. In fact, our VelocityOne Flight became the #1 best-selling flight controller by dollar sales in the US in its first full year per NPD, and in total, our product diversification strategy delivered 25% of non-console headset revenues for the full year 2022.
- Net revenue was $100.9 million ($105.5 million in constant currency), compared to $109.4 million a year ago;
- Net loss was $23.2 million, or $1.40 per diluted share, compared to net income of $4.5 million, or $0.25 per diluted share, a year ago;
- Adjusted net income was $1.6 million, or $0.10 per diluted share, compared to adjusted net income of $2.8 million or $0.16 per diluted share, a year ago;
- Adjusted EBITDA was $6.0 million compared to adjusted EBITDA of $9.6 million a year ago;
- Recurring operating expenses were down ~16%, a result of proactive expense management the Company initiated earlier in the year.
- Net revenue was $240.2 million ($249.3 million in constant currency), compared to a record $366.4 million a year ago, reflecting lower consumer demand as a result of a challenging macroenvironment and channel inventory destocking at retailers;
- Net loss was $59.5 million, or $3.62 per diluted share, compared to net income of $17.7 million, or $0.97 per diluted share, a year ago;
- Adjusted net loss was $25.0 million, or $1.52 per diluted share, compared to adjusted net income of $20.2 million, or $1.11 per diluted share, a year ago;
- Adjusted EBITDA loss was $18.7 million compared to adjusted EBITDA of $36.6 million a year ago;
- Recurring operating expenses were down ~13% from proactive expense management the Company initiated earlier in the year.
Net revenue in the fourth quarter of 2022 was $100.9 million, or $105.5 million in constant currency, compared to $109.4 million a year ago, reflecting consumer spending caution and strong competitive pricing pressure across the industry, although showing a recovery relative to prior quarters given the modest year-over-year decline.
Gross margin in the fourth quarter of 2022 was 19.8% compared to 32.5% a year ago, which resulted from higher promotional credits driven by aggressive competitive pricing environment to reduce channel inventory levels, a $4.5 million charge for potential excess components and product inventory relating to pandemic-driven supply chain and logistics impacts, and continued pandemic-driven high freight costs.
Operating expenses in the fourth quarter of 2022 were $28.1 million, a decrease of 4% year over year. Recurring operating expenses declined ~16% year over year, a result of the proactive expense management programs that the Company initiated earlier in the year and alignment of expenses to market demand.
Net loss in the fourth quarter of 2022 was $23.2 million, or $1.40 per diluted share, compared to net income of $4.5 million, or $0.25 per diluted share, in the year-ago quarter. Excluding several adjustments to earnings in both periods (summarized below in Table 4), Non-GAAP net income (as defined below in "Non-GAAP Financial Measures") in the fourth quarter of 2022 was $1.6 million, or $0.10 per diluted share, compared to Non-GAAP net income of $2.8 million, or $0.16 per diluted share, in the year-ago period. The weighted average diluted share count for the fourth quarter of 2022 was 16.6 million compared to 18.3 million in the year-ago quarter.
Adjusted EBITDA (as defined below in "Non-GAAP Financial Measures") in the fourth quarter of 2022 was $6.0 million, compared to adjusted EBITDA of $9.6 million in the year-ago period, due to the factors stated above and including a $2.3 million positive impact from foreign exchange.
2022 Financial Results
Net revenue in 2022 was $240.2 million, or $249.3 million in constant currency, compared to $366.4 million in the elevated year ago period, reflecting lower demand driven by reduced consumers discretionary spend and retailer channel inventory compression. Additionally, 2021 was a record-year in the Company's history, as consumer demand for console headsets remained elevated early in the year and retailers increased channel inventory levels to ensure supply.
Gross margin in 2022 was 20.5% versus 35.0% a year-ago, impacted by higher promotional credits due to aggressive competitive pricing to reduce inventory levels, $9.8 million charge for potential excess components and product inventory relating to pandemic-driven supply chain and logistics impacts, higher pandemic-driven freight costs and volume-driven fixed cost deleveraging. Excluding the $9.8 million inventory provision, gross margin was 24.5% in the year. Additionally, higher freight costs relative to pre-pandemic levels impacted gross margin (and earnings) by approximately $11 million for the full year.
Operating expenses in 2022 were $100.7 million, a decrease of 7% year over year, and included $10.9 million in non-recurring items. Recurring operating expenses declined ~13% year over year, a result of the proactive expense management programs that the Company initiated earlier in the year and alignment of expenses to market demand.
Net loss in 2022 was $59.5 million, or $3.62 per diluted share, compared to net income of $17.7 million, or $0.97 per diluted share, in the year-ago period. Excluding several adjustments to earnings in both periods (summarized below in Table 4), Non-GAAP net loss (as defined below in "Non-GAAP Financial Measures") in 2022 was $(25.0) million, or $(1.52) per diluted share, compared to Non-GAAP net income of $20.2 million, or $1.11 per diluted share, in the year-ago period. The weighted average diluted share count for 2022 was 16.5 million compared to 18.3 million in the year-ago period.
Adjusted EBITDA loss (as defined below in "Non-GAAP Financial Measures") in 2022 was $18.7 million, compared to adjusted EBITDA of $36.6 million in the year-ago period, due to the factors stated above and including a $1.8 million negative impact from foreign exchange.
Balance Sheet and Cash Flow Summary
At December 31, 2022, the Company had $11.4 million of cash and $19.1 million outstanding on its revolver. This compares to $37.7 million of cash and no outstanding debt at December 31, 2021. Inventories at December 31, 2022 were $71.3 million compared to $101.9 million at December 31, 2021.
The Company intends to file its financial results on its Form 10-K pending completion of its 2022 audit and any adjustments, if any, may impact its balance sheet and GAAP Net Income and GAAP EPS accordingly.
Full Year 2023 Outlook
In light of the aforementioned market and operational conditions, the Company expects net revenues for fiscal year 2023 to increase approximately 10% (~$265 million) with the growth driven primarily by expected out-performance of the gaming markets in specific categories based on the Company's product plans for 2023. The Company expects adjusted EBITDA of approximately $5 million, a roughly $23 million year-over-year improvement, but including roughly $10 million of remaining negative impact of abnormally high competitive discounting and freight costs. Both items are expected to abate as we progress through the year.
1 Comment on Turtle Beach Reports Fourth Quarter and Full Year 2022 Results
We lost money in 2022.