Turtle Beach Announces Fourth Quarter and Full Year 2014 Results - Twice

Turtle Beach Announces Fourth Quarter and Full Year 2014 Results

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SAN DIEGO, March 16, 2015 /PRNewswire/ -- Turtle Beach Corporation (NASDAQ: HEAR) today announced financial results for the fourth quarter and full year ended December 31, 2014.

Highlights & Developments:

    --  Increased fourth quarter net revenue over 2013 by 7% to $92.3 million.

    --  Increased full year 2014 net revenue over 2013 by 4% to $186.2 million.

    --  Grew full year 2014 European revenues by 19%.

    --  Produced eight of the top 10 gaming headsets when measured by dollar

        share in the U.S. during the fourth quarter.

    --  Produced four of the top five Xbox One headsets when measured by unit

        share in the U.S. during the fourth quarter.

    --  Decreased net debt by 37% year-over-year to $36.7 million at December

        31, 2014.

    --  Replaced subordinated debt with lower cost financing.

    --  Further increased intellectual property asset base to 35 patents issued

        and 86 patents pending.

"Our fourth quarter top-line results represent a solid finish to the first year of the next generation gaming consoles," commented Juergen Stark, chief executive officer of Turtle Beach. "Several of our new Xbox One and PlayStation®4 headsets featured first-and-only innovations and were best-selling products in their category at retail during the holiday season. However, due to the West Coast port slowdown we were forced to expedite more shipments than planned to ensure timely deliveries which reduced margins during the quarter. The performance of our next generation headsets helped offset softer than expected demand for our previous generation portfolio, as the user base on Xbox 360 and PlayStation®3 has declined more rapidly at the start of the multi-year console transition cycle than initially projected by us and the industry."

Mr. Stark continued, "With the successful release of the broadest and most feature-rich portfolio of next generation console gaming headsets, we are well positioned to capitalize on the popularity and growth of the Xbox One and PlayStation®4 consoles.  Given our strong share in previous generation console headsets and the more rapid decline of that business than expected during 2014, we are balancing growth initiatives with programs aimed at improving operating efficiency and managing expenses going forward in an effort to produce higher net margins on our headset business.  These efforts include reconfiguring our supply chain in order to lower product costs and selective trimming of operating expenses.  At the same time, progress on HyperSound® healthcare channel and product development is progressing, and we believe that the upcoming launch of our HyperSound product later this year will provide the Company meaningful sales and margin expansion opportunities over the long-term."

Fourth Quarter and Full Year Review

Net revenue in the fourth quarter increased 7.1% to $92.3 million, compared to $86.1 million a year ago. The increase in revenue was primarily driven by strong consumer response to the Company's Xbox One and PlayStation4 compatible headsets, partially offset by a decline in sales of previous generation headsets. For the full year, revenue increased 4.3% to $186.2 million, compared to $178.5 million last year.

Gross profit for the fourth quarter was $25.8 million, compared to $26.7 million in the same period in 2013. Gross margin was 28.0% in the fourth quarter compared with 31.0% in the same period a year ago. The 300 basis point decline in gross margin was primarily driven by $1.5 million in incremental shipping costs resulting from West Coast port delays and a $1.5 million write-off of some legacy contracts. Excluding these costs, fourth quarter gross margin was 31.2%. Gross margin for the full year was 27.2% compared to 28.2% in 2013. Gross margin for 2014 reflected $2.5 million of costs related to the Xbox One chat adapter, $1.5 million in incremental shipping costs, and $1.5 million associated with the write-off of some legacy contracts. Excluding these additional costs, 2014 gross margin was 30.2%.

Operating expenses for the fourth quarter were $18.6 million compared to $15.7 million in the same period in 2013. The increase in operating expenses was primarily attributable to costs associated with being a public company, including additional headcount and higher stock-based compensation costs, and investments in personnel and product development of the Company's HyperSound technology. For the full year, operating expenses were $64.5 million compared to $48.7 million in 2013.

Net income for the fourth quarter was $2.4 million, or $0.06 per diluted share based on 42.0 million average shares outstanding, compared to net income of $0.9 million or $0.07 per diluted share based on 12.7 million average shares outstanding in the same period a year ago.  Excluding restructuring charges of $0.7 million, fourth quarter 2014 net income was $3.1 million, or $0.07 per diluted share. Net loss for the full year was ($15.5) million, or ($0.39) per diluted share based on 39.7 million average shares outstanding, compared to ($6.2) million, or ($0.49) per diluted share based on 12.7 million average shares outstanding in fiscal 2013. Excluding restructuring charges and business transaction costs, 2014 net loss was ($11.0) million, or ($0.28) per diluted share.

Adjusted EBITDA (as defined below) for the headset business totaled approximately $13.5 million in the fourth quarter compared to $15.1 million in the fourth quarter of 2013. Adjusted EBITDA on a consolidated basis was $10.4 million, reflecting investments of approximately $3.1 million in the HyperSound business during the quarter. For the full year, Adjusted EBITDA for the headset business totaled approximately $12 million in 2014 as compared to $13.9 million in 2013. Adjusted EBITDA on a consolidated basis was $2.0 million for the full year, reflecting investments of approximately $10 million in the HyperSound business.

Balance Sheet Review

The Company ended the quarter with approximately $7.9 million in cash and cash equivalents compared to $6.5 million as of December 31, 2013. As of December 31, 2014, the Company had cash, cash equivalents and available borrowings under its credit facility totaling $22.9 million. Outstanding debt at December 31, 2014 decreased 31.0% or $20.0 million to $44.6 million compared to $64.6 million at December 31, 2013. Total inventory as of December 31, 2014 decreased $11.2 million, or 22.6% to $38.4 million compared to the same period in 2013.

Fourth Quarter and Full Year Presentation The Company also announced it has posted a fourth quarter and full year business and earnings summary presentation on its corporate website. The presentation can be accessed at http://corp.turtlebeach.com/investor-relations.

Conference Call Details

Turtle Beach Corporation CEO Juergen Stark and CFO John Hanson will host a conference call and simultaneous webcast to discuss the fourth quarter and full year 2014 financial results and review the Company's outlook for the first quarter and full year 2015 today, March 16, 2015, at 1:30 PM Pacific Time / 4:30 PM Eastern Time.

To participate in the conference call, investors should dial (877) 303-9855 (domestic) or (408) 337-0154 (international), and provide the pass code 97638568, 10-minutes prior to the scheduled start of the call.  A simultaneous audio-only webcast of the call may be accessed on the Internet at www.turtlebeachcorp.com. An archive of the webcast will be available on the Company's website for approximately one year, and a recorded replay of the call will be available for one week at (855) 859-2056 and (404) 537-3406 and entering conference ID number 97638568.

10-K Update

The Company announced today that it has filed a Form 12b-25 with the Securities and Exchange Commission providing the Company an automatic 15 day grace period to file its Form 10-K for the year ended December 31, 2014. The Company experienced unanticipated delays in compiling certain necessary information for its annual financial statements and, consequently, for its auditors to complete the audit of the Registrant's financial statements and for the Registrant to prepare a complete filing of the Annual Report in a timely matter without unreasonable effort or expense.

Non-GAAP Financial Measures

In addition to its reported results, the Company has included in this earnings release certain financial results 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. These non-GAAP financial measures relate to presenting Adjusted EBITDA for the periods presented. "Adjusted EBITDA" is defined by the Company as net income (loss) before interest, taxes, depreciation and amortization, stock-based compensation (non-cash), non-cash amortization of payments to founders and certain business transaction expenses. Management adjusts net income (loss) for business transaction costs because it believes that such items are not representative of core operations. Please see a reconciliation of GAAP results to Adjusted EBITDA, which is included below for the three and twelve months ended December 31, 2014 and 2013.

About Turtle Beach Corporation

Turtle Beach Corporation (www.turtlebeachcorp.com) designs leading edge audio products for the consumer, commercial and healthcare markets. Under the Turtle Beach brand (www.turtlebeach.com), the Company markets a wide selection of quality gaming headsets catering to a variety of gamers' needs and budgets, for use with video game consoles, including officially-licensed headsets for the Xbox One and PlayStation 4, as well as for personal computers and mobile/tablet devices. Under the HyperSound brand (www.hypersound.com), the Company markets pioneering directed audio solutions that have applications in digital signage and kiosks, consumer electronics and healthcare. The company's shares are traded on the NASDAQ Exchange under the symbol: HEAR.

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. Forward looking statements are based on management's 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, the substantial uncertainties inherent in 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, and other factors discussed in our public filings, including the risk factors included in the Company's most recent 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 any 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

                                                                                                               Consolidated Balance Sheets

                                                                                                   (in thousands, except par value and share amounts)

    Table 1.

                                                                                                                                                            December 31,          December 31,

                                                                                                                                                                    2014                   2013

                                                                                                                                                                    ----                   ----

                                                                                      ASSETS                                                                (unaudited)

    Current Assets:

    Cash and cash equivalents                                                                                                                                              $7,908                          $6,509

    Accounts receivable, net                                                                                                                                      61,059                          48,542

    Inventories, net                                                                                                                                              38,400                          49,643

    Deferred income taxes                                                                                                                                          4,930                           2,214

    Prepaid income taxes                                                                                                                                           1,482                           2,925

    Prepaid expenses and other current assets                                                                                                                      3,818                           3,561

                                                                                                                                                                   -----                           -----

    Total Current Assets                                                                                                                                         117,597                         113,394

    Property and equipment, net                                                                                                                                    6,722                           7,369

    Goodwill                                                                                                                                                      80,974                               -

    Intangible assets, net                                                                                                                                        39,726                           3,972

    Deferred income taxes                                                                                                                                          1,128                             827

    Other assets                                                                                                                                                     821                           1,745

    Total Assets                                                                                                                                                         $246,968                        $127,307

                                                                                                                                                                         ========                        ========

                                                                          LIABILITIES, CONVERTIBLE PREFERRED STOCK AND

                                                                                   STOCKHOLDERS' EQUITY (DEFICIT)

    Current Liabilities:

    Revolving credit facilities                                                                                                                                           $36,863                         $39,736

    Term loan                                                                                                                                                      1,923                          14,500

    Accounts payable                                                                                                                                              35,546                          44,136

    Due to shareholders                                                                                                                                                -                          3,125

    Other current liabilities                                                                                                                                     14,525                           9,712

                                                                                                                                                                  ------                           -----

    Total Current Liabilities                                                                                                                                     88,857                         111,209

    Term loan, long-term portion                                                                                                                                   5,769                               -

    Series B redeemable preferred stock                                                                                                                           14,916                          13,713

    Deferred income taxes                                                                                                                                            648                             850

    Subordinated notes                                                                                                                                                 -                         10,342

    Other liabilities                                                                                                                                              5,592                           1,986

    Total Liabilities                                                                                                                                            115,782                         138,100

                                                                                                                                                                 -------                         -------

    Commitments and Contingencies

    Series A convertible stock, $0.01 par value - 50,000,000 shares authorized;                                                                                        -                         24,345

        48,689,555 shares issued and outstanding as of December 31, 2013

    Stockholders' Equity (Deficit)

    Common stock, $0.001 par value -50,000,000 shares authorized; 42,027,991 and 12,700,460 shares issued and outstanding as of December 31, 2014 and 2013,

     respectively                                                                                                                                                     42                              13

    Additional paid-in capital                                                                                                                                   128,084                        (54,031)

    Retained earnings                                                                                                                                              3,289                          18,775

    Accumulated other comprehensive income (loss)                                                                                                                  (229)                            105

                                                                                                                                                                    ----                             ---

    Total Stockholders' Equity (Deficit)                                                                                                                         131,186                        (35,138)

                                                                                                                                                                 -------                         -------

    Total Liabilities, Convertible Preferred Stock and Stockholders' Equity (Deficit)                                                                                    $246,968                        $127,307

                                                                                                                                                                         ========                        ========

                                                                               Turtle Beach Corporation

                                                                        Consolidated Statements of Operations

                                                                        (in thousands, except per-share data)

                                                                                     (unaudited)

    Table 2.

                                                                 Three Months Ended                                       Year Ended

                                                                 ------------------                                       ----------

                                                        December 31,              December 31,               December 31,             December 31,

                                                                2014                       2013                        2014                      2013

                                                                ----                       ----                        ----                      ----

    Net Revenue                                                         $92,267                                               $86,118                  $186,176   $178,470

    Cost of Revenue                                           66,456                                 59,382                                  135,509     128,141

    Gross Profit                                              25,811                                 26,736                                   50,667      50,329

                                                              ------                                 ------                                   ------      ------

    Operating expenses:

    Selling and marketing                                     10,782                                  9,862                                   33,442      31,645

    Research and development                                   2,534                                  1,634                                    9,400       4,873

    General and administrative                                 4,577                                  2,671                                   17,159       8,349

    Business transaction costs                                     -                                 1,577                                    3,744       3,864

    Restructuring charges                                        747                                      -                                     747           -

                                                                 ---                                    ---                                     ---         ---

    Total operating expenses                                  18,640                                 15,744                                   64,492      48,731

                                                              ------                                 ------                                   ------      ------

    Operating income (loss)                                    7,171                                 10,992                                 (13,825)      1,598

    Interest expense                                           1,048                                  2,046                                    7,209       6,626

    Other non-operating expense, net                             485                                  (211)                                     724          45

    Earnings (Loss) before income tax expense (benefit)        5,638                                  9,157                                 (21,758)    (5,073)

    Income tax expense (benefit)                               3,278                                  8,276                                  (6,272)      1,090

    Net income (loss)                                                    $2,360                                                  $881                 $(15,486)  $(6,163)

                                                                         ======                                                  ====                  ========    =======

    Net loss per share:

    Basic                                                                 $0.06                                                 $0.07                   $(0.39)   $(0.49)

    Diluted                                                               $0.06                                                 $0.07                   $(0.39)   $(0.49)

    Weighted average number of shares:

    Basic                                                     42,027                                 12,700                                   39,665      12,700

    Diluted                                                   42,027                                 12,700                                   39,665      12,700

                                                                                                           Turtle Beach Corporation

                                                                                                    GAAP to Adjusted EBITDA Reconciliation

                                                                                                                (in thousands)

                                                                                                                  (unaudited)

    Table 3.

                                                                                 Three Months Ended

                                                                                  December 31, 2014

                                                                                  -----------------

                                       As Reported                Adj                Adj                        Adj                                                     Adj

                                                           Depreciation        Amortization                  Stock

                                                                                                           Compensation                 Other (1)                     EBITDA

    Net Revenue                                    $92,267                                   $         -                                          $               -                      $    -            $ - $92,267

    Cost of Revenue                         66,456                         (72)                                     (24)                                       (91)                      -      66,269

                                            ------                          ---                                       ---                                         ---                     ---      ------

    Gross Profit                            25,811                           72                                        24                                          91                       -      25,998

    Operating Expense                       18,640                      (1,389)                                    (234)                                    (1,187)                  (747)      15,083

                                            ------                       ------                                      ----                                      ------                    ----       ------

    Operating income                         7,171                        1,461                                       258                                       1,278                     747       10,915

    Interest expense                         1,048

    Other non-operating expense, net           485                                                                                                                           485

                                               ---                                                                                                                           ---

    Earnings before income tax benefit       5,638

    Income tax expense                       3,278

                                             -----

    Net income                                      $2,360                                                                                        Adjusted EBITDA                $10,430

                                                    ======                                                                                                                       =======

                                                                                                                                  Year Ended

                                                                                                                               December 31, 2014

                                                                                                                               -----------------

                                                                                  As Reported                 Adj                 Adj                   Adj                                       Adj

                                                                                                         Depreciation         Amortization             Stock

                                                                                                                                                   Compensation   Other (1)                     EBITDA

    Net Revenue                                                                                 $186,176                                  $      -                          $               -                      $    -             $ - $186,176

    Cost of Revenue                                                                   135,509                           (227)                              (104)                        (310)                      -      134,868

                                                                                      -------                            ----                                ----                          ----                     ---      -------

    Gross Profit                                                                       50,667                             227                                 104                           310                       -       51,308

    Operating Expense                                                                  64,492                         (5,573)                              (962)                      (4,884)                (4,491)       48,582

                                                                                       ------                          ------                                ----                        ------                  ------        ------

    Operating income (loss)                                                          (13,825)                          5,800                               1,066                         5,194                   4,491         2,726

    Interest expense                                                                    7,209

    Other non-operating expense, net                                                      724                                                                                                          724

                                                                                          ---                                                                                                          ---

    Loss before income tax benefit                                                   (21,758)

    Income tax benefit                                                                (6,272)

                                                                                       ------

    Net loss                                                                                   $(15,486)                                                                   Adjusted EBITDA                 $2,002

                                                                                                ========                                                                                                    ======

    (1) Other includes Business transaction costs of $3,744 and Restructuring charges of $747.

    Table 3. (continued)

                                                                          Three Months Ended

                                                                           December 31, 2013

                                                                           -----------------

                                As Reported              Adj                 Adj                    Adj           Adj                          Adj

                                                    Depreciation         Amortization              Stock        Business

                                                                                               Compensation   Transaction

                                                                                                                Expense                      EBITDA

    Net Revenue                             $86,118                                  $       -                           $               -                         $    -            $ - $86,118

    Cost of Revenue                  59,382                         (58)                                   -                           (4)                         -      59,320

                                     ------                          ---                                  ---                           ---                        ---      ------

    Gross Profit                     26,736                           58                                    -                             4                          -      26,798

    Operating Expense                15,744                      (1,312)                               (211)                         (640)                   (1,577)      12,004

                                     ------                       ------                                 ----                           ----                     ------       ------

    Operating income                 10,992                        1,370                                  211                            644                      1,577       14,794

    Interest expense                  2,046

    Other non-operating expense

     (income), net                    (211)                                                                                                         (211)

                                       ----                                                                                                           ----

    Earnings before income tax

     benefit                          9,157

    Income tax expense                8,276

                                      -----

    Net income                                 $881                                                                      Adjusted EBITDA                   $15,005

                                               ====                                                                                                        =======

                                                                                                           Year Ended

                                                                                                       December 31, 2013

                                                                                                       -----------------

                                                       As Reported                    Adj                 Adj                   Adj       Other (2)                       Adj

                                                                                 Depreciation         Amortization             Stock

                                                                                                                           Compensation                                 EBITDA

    Net Revenue                                                       $178,470                                    $      -                          $               -                       $    -             $ - $178,470

    Cost of Revenue                                        128,141                              (183)                                  -                         (60)                       -      127,898

                                                           -------                               ----                                 ---                          ---                      ---      -------

    Gross Profit                                            50,329                                183                                   -                           60                        -       50,572

    Operating Expense                                       48,731                            (4,239)                              (923)                      (2,503)                 (4,391)       36,675

                                                            ------                             ------                                ----                        ------                   ------        ------

    Operating income                                         1,598                              4,422                                 923                         2,563                    4,391        13,897

    Interest expense                                         6,626

    Other non-operating expense, net                            45                                                                                                              45

                                                               ---                                                                                                             ---

    Loss before income tax expense                         (5,073)

    Income tax expense                                       1,090

                                                             -----

    Net loss                                                          $(6,163)                                                                     Adjusted EBITDA                 $13,852

                                                                       =======                                                                                                      =======

    (2) Other includes Business transaction costs of $3,864 and Payments to founders of $527.

SOURCE  Turtle Beach Corporation

Turtle Beach Corporation

CONTACT: Joshua Weisbord, Turtle Beach Corporation, (908) 768-4928, Joshua.Weisbord@turtlebeach.com; Anne Rakunas, ICR, (310) 954-1113, anne.rakunas@icrinc.com

Web Site: http://www.turtlebeachcorp.com

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