Turtle Beach Reports Record Fourth Quarter And Full Year 2020 Results

Rhea-AI Summary

Turtle Beach Corporation (Nasdaq: HEAR) reported exceptional financial results for the fourth quarter and full year 2020, with net revenue hitting $360.1 million, a 53% increase from 2019. Net income surged 116% to $38.7 million, or $2.37 per diluted share. Adjusted EBITDA grew 169% to $61.4 million. The company attributed growth to rising demand for gaming accessories and successful launches of new products. Looking ahead, Turtle Beach anticipates revenue of approximately $370 million for 2021, driven by further expansion in PC accessories and new product categories.

Positive

• Net revenue in 2020 reached $360.1 million, up 53% from 2019.
• Net income increased 116% to $38.7 million, or $2.37 per diluted share.
• Adjusted EBITDA rose 169% to $61.4 million.
• Cash flow from operations was $51.0 million, a 29% increase year-over-year.
• Expected revenue of approximately $370 million in 2021, reflecting continued growth.

Negative

• Fourth quarter net income decreased to $16.3 million from $20.4 million year-over-year.
• Operating expenses in 2020 increased to $84.6 million, up from $68.3 million in 2019.

WHITE PLAINS, N.Y., March 4, 2021 /PRNewswire/ -- Turtle Beach Corporation (Nasdaq: HEAR), a leading gaming accessory business, reported financial results for the fourth quarter and full year ended December 31, 2020.

2020 Full-Year Summary vs. 2019:

• Net revenue was $360.1 million ($357.9 million in constant currency), an increase of 53% compared to $234.7 million;
• Net income of $38.7 million, or $2.37 per diluted share, compared to net income of $17.9 million, or $1.04 per share, reflecting an increase of 116% in net income and 127% in EPS;
• Adjusted EBITDA was $61.4 million, up 169% compared to $22.8 million; and
• Cash flow from operations was $51.0 million, up 29% compared to $39.4 million.

Fourth Quarter Summary vs. Year-Ago Quarter:

• Net revenue was $132.9 million ($131.2 million in constant currency) versus $101.8 million;
• Net income of $16.3 million, or $0.93 per diluted share, compared to net income of $20.4 million, or $1.29 per diluted share;
• Adjusted EBITDA was $23.6 million, compared to $16.6 million; and
• Cash flow from operations was $18.4 million, compared to $12.1 million.

"As indicated in our recent pre-announcement, our 2020 sales and adjusted EBITDA were the highest in our company's history," said Juergen Stark, Chairman and CEO, Turtle Beach Corporation. "A great portfolio of products and our leading brand combined with excellent operational execution enabled us to outpace the rest of the console headset market as that market experienced significant growth from both existing and new gamers last year. That plus more than doubling our ROCCAT PC accessories business both through expansion of the portfolio and further development of that brand enabled us to deliver record results.  

"While the gaming accessories market may slow a bit in 2021 because of how strong growth was in 2020, we expect that our continued growth in PC accessories, as well as entry into new categories will allow us to grow revenues to record levels in 2021. And we plan to continue to invest in product and brand development throughout 2021 to position ourselves for continued growth and further expand our leadership position in gaming accessories."

2020 Financial Results

Net revenue in 2020 reached the highest level of annual sales in Turtle Beach's history, at $360.1 million, up 53% compared to $234.7 million in 2019. The revenue increase was driven by strong demand for gaming accessories among both new and existing gamers as well non-gaming usage of headsets by people working and learning from-home, especially following stay-at-home orders initiated in March of last year. Quick reaction to rapid increases in demand, excellent supply chain execution, and strong coordination with retail partners globally contributed significantly to the Company's ability to capture the surge in market demand. In addition, the launches of new console video game console systems from Sony PlayStation and Microsoft Xbox helped spark additional consumer demand. The launch of new PC accessories led to a more than doubling of sales of ROCCAT PC headsets, mice and keyboards. On a constant currency basis, revenue in 2020 was $357.9 million.

Gross margin in 2020 was 37.2% compared to 33.5% in 2019. The increase in gross margin was driven by significantly lower than normal promotional spending due to strong demand and industrywide supply constraints, a favorable business mix and better fixed cost leverage, partially offset by higher air freight costs.

Operating expenses in 2020 were $84.6 million compared to $68.3 million in 2019 due primarily to sales and marketing costs that drove revenue growth, R&D investments in new categories, higher general and administrative costs resulting from the inclusion of ROCCAT for the full year of 2020 and higher performance-based expenses. As a percentage of net revenue, operating expenses in 2020 were 23.5% compared to 29.1% in 2019.

Net income in 2020 was $38.7 million, or $2.37 per diluted share, compared to $17.9 million or $1.04 per diluted share in 2019. Excluding a number of adjustments to net income in both periods (as summarized below in Table 4), adjusted net income (as defined below in "Non-GAAP Financial Measures") in 2020 was $36.3 million, or $2.22 per diluted share, compared to $11.6 million or $0.74 per diluted share, and increase of over 200%. The full-year weighted average diluted share count for 2020 was 16.4 million compared to 15.7 million in 2019.

Adjusted EBITDA (as defined below in "Non-GAAP Financial Measures") in 2020 was $61.4 million compared to $22.8 million in 2019.

Fourth Quarter 2020 Financial Results

Net revenue in the fourth quarter of 2020 was $132.9 million, up 31% compared to $101.8 million in the year-ago quarter. The growth was strong across both console headsets as well as PC accessories, and in all geographies. Drivers of this growth were the same factors that drove the full-year increase in sales.  On a constant currency basis, revenue in the fourth quarter of 2020 was $131.2 million.

Gross margin in the fourth quarter of 2020 was 35.8% compared to 35.1% in the fourth quarter of 2019. The increase in gross margin was the result of lower promotional spending, favorable business mix and leverage of fixed operating costs, partially offset by higher air freight costs.

Operating expenses in the fourth quarter of 2020 were $27.6 million compared to $22.3 million in the 2019 period due primarily to sales and marketing costs that drove revenue growth and increased R&D investments in new categories designed to drive future growth. As a percentage of net revenue, operating expenses in the fourth quarter of 2020 were 20.8% compared to 21.9% in the fourth quarter of 2019.

Net income in the fourth quarter of 2020 was $16.3 million, or $0.93 per diluted share, compared to $20.4 million, or $1.29 per diluted share in the year-ago quarter. Excluding a number of adjustments in both periods (as summarized below in Table 4), adjusted net income (as defined below in "Non-GAAP Financial Measures") in the fourth quarter of 2020 was $14.8 million, or $0.84 per diluted share, compared to $13.0 million, or $0.83 per share, in the corresponding period in 2019. For the fourth quarter, the weighted average diluted share count was 17.6 million for 2020 compared to 15.7 million for 2019.  The year-over-year increase in the diluted share count is primarily the result of lower assumed shares repurchased under the treasury method for calculating diluted shares.

Adjusted EBITDA (as defined below in "Non-GAAP Financial Measures") in the fourth quarter of 2020 was $23.6 million, an increase of 42% compared to $16.6 million in the year-ago quarter.

Balance Sheet and Cash Flow Highlights

At December 31, 2020, the Company had $46.7 million of cash and cash equivalents with no outstanding debt, including under its revolving line of credit. This compares to $8.2 million of cash and cash equivalents with $15.7 million of outstanding debt under its revolving credit facility at December 31, 2019, reflecting a $54 million improvement in net cash. The company delivered cash flow from operations of $51.0 million in 2020, which marks the third consecutive year of at least $39 million of cash flow from operations.

2021 Outlook         

For the full year 2021, the Company expects revenue to be approximately $370 million reflecting the target of continued growth from our 2020 record revenue levels. Adjusted EBITDA is expected to be approximately $45 million, reflecting a category-leading target of 12% EBITDA margin while enabling significant investments to expand the Company's market share in the PC accessories market, including the newly entered microphone market, and position the company for continued growth. Adjusted net income per diluted share is expected to be approximately $1.35.

For the first quarter of 2021, the Company expects revenue to be approximately $88 million. Like 2020, revenue phasing in 2021 is expected to be somewhat unusual, with a higher percentage of full year revenue in the first quarter compared to an unusually low percentage of revenue in the first quarter of 2020. Adjusted EBITDA is expected to be approximately $14.0 million. Adjusted net income per diluted share is expected to be approximately $0.45.  

Certain non-GAAP measures included in our financial outlook were not reconciled to the comparable GAAP financial measures because the GAAP measures are not accessible on a forward-looking basis. We are unable to reconcile these forward looking non-GAAP financial measures to the most directly comparable GAAP measures without the investment of undue time, cost and other resources because we are currently unable to predict with a reasonable degree of certainty as a result of the variability, complexity, and lack of visibility with respect to certain items that would be expected to impact GAAP measures for these periods but would not impact the non-GAAP measures. Such items may include other income (expense), provision for income taxes and stock-based compensation and other items. The unavailable information 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 4, 2021, at 2:00 p.m. Pacific Time (5:00 p.m. Eastern) to discuss its fourth quarter and full year 2020 results.

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

Conference Call Details:
Date: Thursday, March 4, 2021
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: 6695389

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 11, 2021.

Toll-Free Replay Number: (855) 859-2056
International Replay Number: (404) 537-3406
Replay ID: 6695389

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 acquisitions, (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, 2020 and 2019.

About Turtle Beach Corporation

Turtle Beach Corporation (https://corp.turtlebeach.com) is one of the world's leading gaming accessory providers. The Turtle Beach brand (www.turtlebeach.com) is known for pioneering first-to-market features and patented innovations in high-quality, comfort-driven headsets for all levels of gamer, making it a fan-favorite brand and the market leader in console gaming audio for the last decade. Turtle Beach's ROCCAT brand (www.roccat.org) combines detail-loving German innovation with a genuine passion for designing the best PC gaming products. Under the ROCCAT brand, Turtle Beach creates award-winning keyboards, mice, headsets, mousepads, and other PC accessories. Turtle Beach's Neat Microphones brand (www.neatmic.com) creates high-quality USB and analog microphones for gamers, streamers, and professionals that embrace cutting-edge technology and design. 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, 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.

All trademarks are the property of their respective owners.

Turtle Beach Corporation
Condensed Consolidated Balance Sheets
(in thousands, except par value and share amounts)
Table 1.
	December 31,				December 31,
	2020				2019
	(unaudited)
ASSETS	(in thousands, except par value and share amounts)
Current Assets:
Cash and cash equivalents	$	46,681			$	8,249
Accounts receivable, net		43,867				44,530
Inventories		71,301				45,711
Prepaid expenses and other current assets		8,127				4,057
Total Current Assets		169,976				102,547
Property and equipment, net		6,575				3,962
Deferred income taxes		6,946				7,439
Goodwill		8,178				8,515
Intangible assets, net		5,138				6,011
Other assets		6,640				2,877
Total Assets	$	203,453			$	131,351
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving credit facility	$	—			$	15,655
Accounts payable		42,529				22,511
Other current liabilities		36,122				26,422
Total Current Liabilities		78,651				64,588
Deferred income taxes		128				153
Other liabilities		8,275				3,223
Total Liabilities		87,054				67,964
Commitments and Contingencies
Stockholders' Equity
Common stock, $0.001 par value - 25,000,000 shares authorized; 15,475,504 and 14,488,152 shares issued and outstanding as of December 31, 2020 and 2019, respectively		15				14
Additional paid-in capital		190,568				176,776
Accumulated deficit		(74,773)				(113,519)
Accumulated other comprehensive income		589				116
Total Stockholders' Equity		116,399				63,387
Total Liabilities and Stockholders' Equity	$	203,453			$	131,351

 

Turtle Beach Corporation
Condensed Consolidated Statements of Operations
(in thousands, except per-share data)
(unaudited)
Table 2.
	Three Months Ended								Twelve Months Ended
	December 31,				December 31,				December 31,				December 31,
	2020				2019				2020				2019
Net revenue	$	132,912			$	101,764			$	360,093			$	234,663
Cost of revenue		85,272				66,052				226,305				155,950
Gross profit		47,640				35,712				133,788				78,713
Operating expenses:
Selling and marketing		17,715				14,053				46,779				38,634
Research and development		3,577				2,468				12,265				7,856
General and administrative		6,345				5,739				25,577				21,796
Total operating expenses		27,637				22,260				84,621				68,286
Operating income		20,003				13,452				49,167				10,427
Interest expense		112				334				467				929
Other non-operating expense (income), net		(2,237)				(779)				(3,757)				(2,209)
Income before income tax		22,128				13,897				52,457				11,707
Income tax expense (benefit)		5,825				(6,489)				13,711				(6,237)
Net income	$	16,303			$	20,386			$	38,746			$	17,944
Net income per share
Basic	$	1.07			$	1.41			$	2.62			$	1.24
Diluted	$	0.93			$	1.29			$	2.37			$	1.04
Weighted average number of shares:
Basic		15,272				14,501				14,801				14,483
Diluted		17,573				15,748				16,365				15,688

 

Turtle Beach Corporation
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Table 3.
	Year Ended
	December 31, 2020				December 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES	$	51,049			$	39,374
CASH FLOWS FROM INVESTING ACTIVITIES		(5,663)				(14,579)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on revolving credit facilities		323,593				219,910
Repayment of revolving credit facilities		(339,248)				(241,640)
Proceeds from sale of equity securities		4,373				-
Proceeds from exercise of stock options and warrants		4,195				330
Repurchase of common stock		-				(2,525)
Repurchase of common stock to satisfy employee tax withholding obligations		(325)				(255)
Net cash used for financing activities		(7,412)				(24,180)
Effect of exchange rate changes on cash and cash equivalents		458				556
Net increase in cash and cash equivalents		38,432				1,171
Cash and cash equivalents - beginning of period		8,249				7,078
Cash and cash equivalents - end of period	$	46,681			$	8,249

 

Turtle Beach Corporation
Reconciliation of GAAP and Non-GAAP Measures
(in thousands, except per-share data)
(unaudited)
Table 4.
	Three Months Ended								Year Ended
	December 31, 2020				December 31, 2019				December 31, 2020				December 31, 2019
Net Income
GAAP Net Income	$	16,303			$	20,386			$	38,746			$	17,944
Adjustments, net of tax:
Gain on financial instrument obligation		—				—				—				(1,601)
Release of valuation allowance		—				(7,439)				—				(7,439)
Gain on acquisition-related settlement		—				—				(1,702)				—
Change in fair value of contingent consideration		(1,631)				(422)				(1,121)				(422)
Acquisition integration costs		124				499				405				3,154
Non-GAAP Earnings	$	14,796			$	13,024			$	36,328			$	11,636
Diluted Earnings Per Share
GAAP- Diluted	$	0.93			$	1.29			$	2.37			$	1.04
Gain on financial instrument obligation		—				—				—				—
Release of valuation allowance		—				(0.47)				—				(0.47)
Gain on acquisition-related settlement		—				—				(0.10)				—
Change in fair value of contingent consideration		(0.09)				(0.03)				(0.07)				(0.03)
Acquisition integration costs		0.01				0.03				0.02				0.20
Non-GAAP- Diluted	$	0.84			$	0.83			$	2.22			$	0.74

 

Turtle Beach Corporation
GAAP to Adjusted EBITDA Reconciliation
(in thousands)
(unaudited)
Table 5.
	Three Months Ended
	December 31, 2020
										Adj
	As			Adj			Adj			Stock						Adj
	Reported			Depreciation			Amortization			Compensation			Other (1)			EBITDA
Net revenue	$	132,912		$	-		$	-		$	-		$	-		$	132,912
Cost of revenue		85,272			(537)			-			(305)			-			84,430
Gross Profit		47,640			537			-			305			-			48,482
Operating expenses		27,637			(520)			(224)			(1,268)			(168)			25,457
Operating income		20,003			1,057			224			1,573			168			23,025
Interest expense		112
Other non-operating expense (income), net		(2,237)												1,631			(606)
Income before income tax		22,128
Income tax expense		5,825
Net income	$	16,303								Adjusted EBITDA						$	23,631
	Year Ended
	December 31, 2020
										Adj
	As			Adj			Adj			Stock						Adj
	Reported			Depreciation			Amortization			Compensation			Other (1)			EBITDA
Net revenue	$	360,093		$	-		$	-		$	-		$	-		$	360,093
Cost of revenue		226,305			(2,365)			-			(928)			-			223,012
Gross Profit		133,788			2,365			-			928			-			137,081
Operating expenses		84,621			(1,994)			(889)			(4,621)			(550)			76,567
Operating income		49,167			4,359			889			5,549			550			60,514
Interest expense		467
Other non-operating expense (income), net		(3,757)												2,823			(934)
Income before income tax		52,457
Income tax expense		13,711
Net income	$	38,746								Adjusted EBITDA						$	61,448

(1)	Other includes certain business acquisition costs, gain on an acquisition-related settlement and change in fair value of contingent consideration.

 

Turtle Beach Corporation
GAAP to Adjusted EBITDA Reconciliation
(in thousands)
(unaudited)
Table 5. (continued)
	Three Months Ended
	December 31, 2019
										Adj
	As			Adj			Adj			Stock						Adj
	Reported			Depreciation			Amortization			Compensation			Other (2)			EBITDA
Net revenue	$	101,764		$	-		$	-		$	-		$	-		$	101,764
Cost of revenue		66,052			(601)			-			(74)			-			65,377
Gross Profit		35,712			601			-			74			-			36,388
Operating expenses		22,260			(478)			(229)			(929)			(555)			20,070
Operating income		13,452			1,079			229			1,003			555			16,317
Interest expense		334
Other non-operating expense (income), net		(780)												471			(309)
Income before income tax		13,897
Income tax benefit		(6,489)
Net income	$	20,386								Adjusted EBITDA						$	16,626
	Year Ended
	December 31, 2019
										Adj
	As			Adj			Adj			Stock						Adj
	Reported			Depreciation			Amortization			Compensation			Other (2)			EBITDA
Net revenue	$	234,663		$	-		$	-		$	-		$	-		$	234,663
Cost of revenue		155,950			(1,950)			-			(150)			-			153,850
Gross Profit		78,713			1,950			-			150			-			80,813
Operating expenses		68,286			(2,606)			(642)			(3,408)			(3,516)			58,114
Operating income		10,427			4,556			642			3,558			3,516			22,699
Interest expense		929
Other non-operating expense (income), net		(2,209)												2,072			(137)
Income before income tax		11,707
Income tax benefit		(6,237)
Net income	$	17,944								Adjusted EBITDA						$	22,836

(2)	Other includes certain business acquisition costs and a gain (loss) on financial instrument obligation.

 

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SOURCE Turtle Beach Corporation

FAQ

What were Turtle Beach's financial results for 2020?

Turtle Beach reported a net revenue of $360.1 million for 2020, a 53% increase from 2019, with a net income of $38.7 million.

What is Turtle Beach's expected revenue for 2021?

Turtle Beach expects revenue to be approximately $370 million for the full year 2021.

How did Turtle Beach's net income in Q4 2020 compare to Q4 2019?

Net income in Q4 2020 was $16.3 million, down from $20.4 million in Q4 2019.

What is Turtle Beach's expected adjusted EBITDA for 2021?

Turtle Beach anticipates an adjusted EBITDA of approximately $45 million for 2021.

How much did Turtle Beach's cash flow from operations increase in 2020?

Cash flow from operations increased by 29% to $51.0 million in 2020.