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Transcription:

Safe Harbor Statement Forward-Looking Information This presentation includes forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are statements that are not historical facts including statements about our beliefs and expectations and statements, and may contain the words may, could, would, should, believe, expect, anticipate, plan, estimate, target, project, intend, foresee, and similar expressions. There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements made herein, including but not limited to, the application of quarter-end and year-end accounting procedures and adjustments, risks related to the Company s liquidity and financial position, 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 outcome of our HyperSound strategic review process, and the other factors discussed in our public filings, including the section entitled Risk Factors in our most recent Quarterly Report on Form 10-Q, our Annual Report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission (the SEC ) and available on the SEC s website, www.sec.gov. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this presentation. Except as required by law, Turtle Beach Corporation (the Company ) undertakes no obligation to publicly release any revision to its forward-looking statements to reflect events or circumstances after the date of this presentation. All of the forward-looking statements in this presentation are qualified by such cautionary statements, and subject to the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. This presentation also contains trademarks and trade names that are property of their respective owners. Non-GAAP Financial Measures This presentation contains certain financial measures, including adjusted EBITDA and non-gaap earnings per share ( EPS ), that are not calculated under the standards or rules of U.S. GAAP, which are referred to as "non-gaap financial measures." These non-gaap financial measures, as calculated by the Company, are not necessarily comparable to similarly titled measures reported by other companies. Additionally, these non-gaap financial measures are not measurements of financial performance or liquidity under GAAP and should not be considered an alternative to the Company s other financial information determined under GAAP. Management believes that these 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. Non-GAAP EPS is defined as EPS less $0.01 per diluted share in business transition charges. The Adjusted EBITDA outlook for the second quarter and full year 2017 has not been reconciled with the Company s net loss outlook for the same periods 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. 2017 Turtle Beach Corporation. All Rights Reserved. 1

Q1-17 Results Exceeded Revenue, EPS & Adj. EBITDA Outlook (vs. prior year period) Net revenue of $14.4M vs. $24.0M. Reflects anticipated impact from higher holiday 16 channel inventory. Gross margin up 140 basis points to 15.4%. Headset gross margin of 19.5% versus 19.9%. Positives: supply chain cost improvements, favorable new-gen mix (92% vs. 86% in year-ago quarter). Negatives: 250 basis points from fixed costs that were not absorbed due to lower sales. Operating expenses down 22% to $10.3M. Switched HyperSound to licensed model. Headset cost management initiatives. Net loss improved to $9.9M or $(0.20) per share, vs. net loss of $12.0M or $(0.26) per share. Continued focus on cost management across the business Adjusted EBITDA improved to $(6.2)M compared to $(6.3)M¹. Reflects lower revenue but lower OpEx (better adj. EBITDA margins). 1) See appendix for a reconciliation of non-gaap measures. 2

Financial Overview 2016 2017 $ in millions (except per share data) Q1 Q1 YOY Revenue $24.0 $14.4-40% Gross Profit $3.4 $2.2-34% Gross Margin 14.0% 15.4% +140bps Headset Gross Margin 19.9% 19.5% -40bps Operating Expenses $13.1 $10.3 Reduced 22% Operating Income (Loss) ($9.8) ($8.1) +$1.7 Headset Operating Income ($5.3) ($7.1) -$1.8 GAAP Net Income (Loss) ($12.0) ($9.9) +$2.1 GAAP EPS Diluted ($0.26) ($0.20) +$0.06 Non-GAAP Net Income (Loss) 1 ($11.8) ($9.3) +$2.5 Non-GAAP EPS Diluted¹ ($0.26) ($0.19) +$0.07 Adj. EBITDA¹ ($6.3) ($6.2) +$0.1 Headset Adj. EBITDA ($3.2) ($5.6) -$2.4 1) See appendix for a reconciliation of non-gaap measures. 3

Balance Sheet Capitalization @ 3-31-16 @ 3-31-17 Cash & Equivalents $3.2M $3.6M Debt Revolver (asset-based loan) $0.5M $0M Term Loans $17.2M $14.4M Subordinated Notes $17.8M $20.0M Balance Sheet Highlights Revolver typically peaks in Q4 and lowest in Q1 after holiday receipts $49.0M federal, $21.0M state net operating losses @ Dec 31, 2016 offset taxable income (not scheduled to expire until 2029) Full availability on $60M line of credit and expectation to be significantly more profitable on consolidated basis provides sufficient capital to fund our plan Total Debt $35.5M $34.4M Series B - Preferred Stock¹ $16.5M $17.8M 1) Due in October 2030 and has 8% per annum PIK interest. 4

Dominant Gaming Audio Provider with Continued Leading Market Share #1 gaming headset provider for Xbox and PlayStation All 5 of the top 5 selling 3 rd party headsets are Turtle Beach Our Recon 50X is the highest-selling 3rd party headset followed by XO1 in 2016 5 of the top 10 sellers overall (1 st and 3 rd party) are from Turtle Beach Xbox One: 3 of the top 5 headsets 4 of the top five 3 rd party headsets and the top selling 3 rd party headset PlayStation 4: 3 of the top 5 headsets 4 of the top five 3 rd party headsets Source: The NPD Group, Inc., Video Games Update 01.12.17. Data measured for full year 2016. 5

Strong Expected New Gen Console Growth Still to Come Platform Cumulative Sales (Current 2020 est.) 29M 59M Cumulative new gen console sales totaled 80M as of 12/31/16 New gen console sales are up 40% vs. old gen at same time in cycle Over 24M new gen consoles expected to be sold worldwide in 2017 51M 105M New gen cumulative console sales projected to exceed 164M worldwide in 2020 (# of consoles) 120M 100M 80M 60M 40M 20M 0M 3.0 4.6 10.9 18.0 20.0 34.6 29.0 51.0 2013 2014 2015 2016 2017E 2018E 2019E 2020E Xbox One PS4 Sources: DFC Intelligence Forecasts: Worldwide Console Forecast, Preliminary February 2017. Cumulative Console Sales (in millions) 37.7 66.7 45.6 80.8 52.5 93.7 58.9 105.4 6

AAA Game Titles to Launch in Second Half of 2017 Title Expected Release Date Nov 3, 2017 Sept 8, 2017 All three of these titles represent highly successful franchises that have the potential for strong headset attachment rates Nov 17, 2017 7

Q2 2017 Outlook Q2-17¹ YoY 2 Management Commentary & Assumptions Revenue $17-$18M (40)% Adj. EBITDA $(5.5)M 13% EPS $(0.17)-$(0.19) 22%³ - Lingering impact of weak holiday 16 sales - Higher-than-normal post-holiday channel inventory - New Q3 product launches expected to impact Q2 as company pulls back sales to prep for launch of replacement models - Reflects anticipated lower revenue but lower opex. (better adj. EBITDA margins) - Profit expected to increase despite weak operating environment highlights strong expense management 1) Guidance effective on May 9, 2017. 2) Delta reflects midpoint of the outlook. 3) Assumes Q2-16 EPS of $(0.23), which excludes a $0.63 non-cash goodwill impairment charge. 8

Unchanged From Prior 2017 Outlook ($ in millions) 2017¹ % ² Management Commentary & Assumptions Revenue: New-Gen $149-$154 (5)% Holiday 16 inventory carryover impacts first half 2017 revenue Old-Gen $- NA Old-gen business wound down to essentially zero in 2017 Other $6 (8)% Longer term opportunity for PC & international growth HyperSound $- NA No material revenue, immaterial expenses Total Revenue $155-$160 (9)% Headset Gross Margin ~30% Up from 24.5% in 16 Lower operations costs, continued COGS improvements, some loss of operating leverage due to lower revenue EPS³ $(0.08)-$(0.12) $(0.33) in 16³ Based upon 49.3M shares Adjusted EBITDA: Headsets ~$12 (17)% Heightened channel inventory in early 2017 impacts full-year sales HyperSound ~$(1) $(10.4)M 16 Significant cost reductions enable consolidated adj. EBITDA improvement Consol. Adj. EBITDA $10-$12 162% $4M in 2016 1) Guidance reiterated and effective on May 9, 2017. 2) Delta reflects midpoint of the outlook. 3) Excludes intangible asset amortization costs associated with HyperSound Clear 500P launch, $7.1M in inventory reserves associated with HyperSound restructuring and $0.6M for other restructuring charges in 2016 9

Key Takeaways Q1-17 ahead of expectations despite continued gaming headwinds, 2017 outlook unchanged Effective expense management 2017 will be focused on improving profitability and strengthening the balance sheet Supported by expectation of EBITDA more than doubling in 2017 Significant long-term growth opportunities in PC gaming, China expansion, virtual reality and live-streaming microphones Chinese and VR markets are still in their infancy We anticipate our investments to pursue them will be more significant in 2018 (along with a healthier balance sheet) 10

Contact Us Contact Information Investor Relations: Cody Slach Media Contact: Maclean Marshall Liolios Turtle Beach Corporation 949.574.3860 858.914.5093 HEAR@Liolios.com Maclean.Marshall@turtlebeach.com C O M PA N Y W E B S I T E S www.turtlebeachcorp.com www.turtlebeach.com www.hypersound.com 11

Appendix

Reconciliation of GAAP and Non-GAAP Measures Three Months Ended March 31, 2017 March 31, 2016 Net Income (Loss) GAAP Net Income (Loss) $ (9,926) $ (12,011) Business transition charges 651 225 Non-GAAP Earnings (9,275) (11,786) Diluted Earnings Per Share GAAP - Diluted $ (0.20) $ (0.26) Business transition charges $ 0.01 $ Non-GAAP - Diluted $ (0.19) $ (0.26) 13

GAAP to Adjusted EBITDA Reconciliation (three months ended) As Reported Adj Depreciation Three Months Ended Adj Amortization March 31, 2017 Adj Stock Compensation Other (1) Adj EBITDA Net Revenue $ 14,352 $ $ $ $ $ 14,352 Cost of Revenue 12,136 (122) 85 (353) 11,746 Gross Profit 2,216 122 (85) 353 2,606 Operating Expense 10,308 (647) (84) (471) (298) 8,808 Operating loss (8,092) 769 84 386 651 (6,202) Interest expense 1,840 Other non-operating income, net (51) (51) Loss before income tax expense (9,881) Income tax expense 45 Net loss $ (9,926) Adjusted EBITDA $ (6,151) (1) Other includes business transition costs and restructuring charges. 14