Q3 2023 Turtle Beach Corp Earnings Call

Okay.

Speaker 1: Welcome to the Turtle Beach third quarter 2023 conference call. My name is Michelle and I'll be your operator for today's call. At this time all participants are in a listen-only mode. Later we will conduct a question answer session.

Welcome to the Turtle Beach third quarter 2023 Conference call. My name is Michelle and I'll be your operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question answer session.

Speaker 1: During the question and answer session, if you have a question, please press star 11 on your touchstone telephone. Delivering today's prepared remarks are chairman of the board, Terry Jimenez, interim chief executive officer, and senior vice president of Global Sales, Chris Kern, and chief financial officer, John Hanson. Following their prepared remarks, the management team will open the call up for any questions. As a reminder, the conference is being recorded. I'll now turn the call over to Alex Thompson from Investor Relations. Alex, you may begin.

During the question and answer session. If you have a question. Please press star one one and you touched on telephone delivering today's prepared remarks are chairman of the board Terry Jimenez interim Chief Executive Officer, and senior Vice President of Global sales, Chris Kearney, and Chief Financial Officer, John Hanson.

Following their prepared remarks, the management team will open the call up for any questions. As a reminder, the conference is being recorded I will now turn the call over to Alex Thomson from Investor Relations. Alex you may begin.

Speaker 2: Thank you, Michelle. On today's call, we will be referring to the press release file this afternoon that details the company's third quarter 2023 results, which can be downloaded from the Investor Relations page at corpus.turtlebeach.com, where you'll also find the latest earnings presentation that supplements the information discussed on today's call. Finally, a recording of the call will be available on the events and presentation section of the company's website later today.

Thank you Michele on today's call, we will be referring to the press release filed this afternoon that details the company's third quarter 2023 results, which can be downloaded from the Investor Relations page at corporate up Turtle Beach Dot Com, where you'll also find the latest earnings presentation that supplements. The information discussed on today's call finally, a record.

The call will be available on the events and presentations section of the company's website later today.

Speaker 2: Please be aware that some of the comments made during this call may include forward-looking statements within the meaning of the federal securities laws. Statements about the company's beliefs and expectations containing words such as may, will, could, believe, expect, anticipate, and similar expressions constitute forward-looking statements.

Please be aware that some of the comments made during this call may include forward looking statements within the meaning of the federal Securities laws statements about the company's beliefs and expectations containing words, such as May will could believe expect anticipate and similar expressions constitute forward looking statements. These statements involve risks and uncertainties regarding the company's operations and future.

Speaker 2: These statements involve risks and uncertainties regarding the company's operations and future results that could cause Turtle Beach Corporation's results to differ materially from management's current expectations.

Your results that could cause turtle beach corporations results to differ materially from management's current expectations. While the company believes that its expectations are based upon reasonable assumptions numerous factors may affect actual results and may cause results to differ materially. So the company encourages you to review the safe Harbor statements and risk factors contained in today's press release and in its filings.

Speaker 2: While the company believes that its expectations are based upon reasonable assumptions, numerous factors may affect actual results and may cause results to differ materially. So the company encourages you to review the safe harbor statements and risk factors contained in today's press release and in its filings with the Securities and Exchange Commission, including without limitation its annual report on form 10K and other periodic reports, which identify specific risk factors that also may cause actual results or events to differ materially from those described in our four-looking statement.

With the Securities and Exchange Commission, including without limitation. Its annual report on Form 10-K, and other periodic reports, which identifies specific risk factors that also may cause actual results or events to differ materially from those described in our forward looking statements.

Speaker 2: The company does not undertake to publicly update or revise any forward-looking statements after this conference call.

The company does not undertake to publicly update or revise any forward looking statements. After this conference call.

Speaker 2: The company also notes that on this call it will be discussing non- GAAP financial information. The company is providing that information as a supplement to information prepared in accordance with accounting principles generally accepted in the United States or GAP. You can find a reconciliation of these metrics that the company's reported GAP results and the reconciliation tables provided in today's earnings release and presentation. And now, turn the call over to Terry Hamenez, the company's chairman of the board.

The company also notes that on this call I'll be discussing non-GAAP financial information. The company is providing that information as a supplement to information prepared in accordance with accounting principles generally accepted in the United States or GAAP.

You can find a reconciliation of these metrics that the company has reported GAAP results in the reconciliation tables provided in today's earnings release and presentation and now I will turn the call over to Terry Jimenez, the company's chairman of the board.

Speaker 3: Thank you, Alex. I'm excited to be here today, and I'm very pleased with our board in the Management Teams recent progress, energy and focus.

Thank you Alex I am excited to be here today, and I'm very pleased with our board and the management team's recent progress energy and focus as a management team will discuss shortly we believe that today's results clearly point to a company now heading in the right direction.

Speaker 3: As the management team will discuss shortly, we believe that today's results clearly point to a company now heading in the right direction.

Speaker 3: Our cost structure has improved dramatically in very short order. We have taken share in our core markets. We've grown share in outpaced category growth and other key markets, and our people and our products are winning.

Our cost structure has improved dramatically in very short order, we are taking share in our core markets, we've grown share and outpaced category growth in other key markets and our people and our products are winning youll.

Speaker 3: You will hear from Chris and John regarding the company's results and are improved forecast shortly, but first a few comments regarding the previously announced permanent CEO search and the value enhancing committees on going review.

You will hear from Chris and John regarding the company's results and our improved forecasts shortly but first a few comments regarding the previously announced permanent CEO search and the value enhancing activities ongoing review.

Speaker 3: Firstly, as previously disclosed, the board is conducting an extensive and well-organized search process for the permanent CEO position.

Firstly as previously disclosed the board is conducting an extensive and well organized search process for the permanent CEO position, Chris Carne are long time global head of sales has served as our interim CEO. Since July one as you can see from our results the board's confidence in Christmas ability to lead in this transition time has been well placed.

Speaker 3: Chris Kern, our long-time global head of sales has served as our interim CEO since July 1st. And as you can see from our results, the board's confidence and Chris's ability to lead in this transition time has been well placed. Andy remains a candidate for the permanent CEO position.

Andy remains I can't candidate for the permanent CEO position.

Speaker 3: The board has met with several strong candidates, and we expect to conclude the CEO search ahead of our next earnings call, and we will notify the investment community at the appropriate time regarding the results of our comprehensive search.

The board has met with several strong candidates and we expect to conclude the CEO search ahead of our next earnings call and we will notify the investment community at the appropriate time regarding the results of our comprehensive search.

Speaker 3: Next, I'd like to comment on the Value Enhancement Committee of the Board, which continues to review any and all ways to drive value for our shareholders and stakeholders, in conjunction with the full Board and the Management Team. Significant progress...

Next I'd like to comment on the value Enhancer Committee of the board, which continues to review any and all ways to drive value for our shareholders and stakeholders in conjunction with the full board and the management team.

Significant progress has been made to date.

Speaker 3: The committee has been working closely with the company's new financial advisors since they were hired a number of months ago, and we continue to be encouraged with our progress.

The committee has been working closely with the company's new financial advisers since they were higher number of months ago, and we continue to be encouraged with our progress while we cannot provide any formal update at this time. The committee continues to be fully engaged and we will notify the market once that process is concluded.

Speaker 3: While we cannot provide any formal update at this time, the committee continues to be fully engaged and will notify the market once that process has been.

Speaker 3: While I'm proud of the progress to date, our work is not done, and we will continue to drive a clear path to near and long-term value creation.

While I'm proud of the progress to date, our work is not done and we will continue to drive a clear path to near and long term value creation.

Speaker 3: We look forward to sharing more developments at the appropriate time and we appreciate your investment and support of CERTA-B.

We look forward to sharing more developments at the appropriate time and we appreciate your investment and support of Turtle Beach, I believe that the prospects and potential for Turtle Beach continues to get stronger every day.

Speaker 3: I believe that the prospects and potential for turtle beads continues to get stronger every day. With that, I will hand it over to Chris Kern, our interim chief executive officer, Chris.

With that I will hand, it over to Chris Connor, our interim Chief Executive Officer, Chris.

Speaker 4: Thanks, Terry. And good afternoon, everyone. Thank you for joining us to discuss our third quarter 2023 results.

Thanks, Terry and good afternoon, everyone and thank you for joining us to discuss our third quarter 2023 results.

Speaker 4: We showcase strong operational and financial execution in the quarter with our third quarter sales and adjusted EBITDA results of significantly compared to a year ago.

We showcased strong operational and financial execution in the quarter with our third quarter sales and adjusted EBITDA results up significantly compared to a year ago. Our revenue results were in line with our expectations and track well towards our 10% to 12% revenue growth guidance for 2023 supported by over 13% growth.

Speaker 4: Our revenue results were in line with our expectations and track well towards our 10 to 12% revenue growth guidance for 2023, supported by over 13% growth in revenue year to date.

Speaker 4: During the quarter, revenue grew 15% year over year, driven by share gains across key categories and geographies, which exceeded overall market performance.

Revenue year to date during the quarter revenue grew 15% year over year, driven by share gains across key categories, and geographies, which exceeded overall market performance.

Speaker 4: We delivered positive adjusted EBITDA of $1,000,000.

We delivered positive adjusted EBITDA of $1 million.

Speaker 4: An improvement from the 6.9 million negative adjusted EBITDA in the year a grow quarter. This significant improvement was driven by higher revenue, lower freight costs, a more normal promotional environment, and margin benefits from value creating initiatives outlined on our previous earnings call.

An improvement from the $6 9 million negative adjusted EBITDA in the year ago quarter.

This significant improvement was driven by higher revenue lower freight cost.

More normal promotional environment and margin benefits from value, creating initiatives outlined on our previous earnings call.

Speaker 4: Overall, gaming accessories markets continue to perform in a similar trend to second quarter dynamics with slight variations depending on the category. Year-to-date U.S. consumer spending across gaming hardware, software, and accessories was 2 percent higher than a year ago and up 10 percent in September .

Overall gaming accessories market has continued to perform in a similar trend to the second quarter dynamics with slight variations depending on the category year to date U S consumer spending across gaming hardware software and accessories was 2% higher than a year ago and up 10% in September.

Speaker 4: The U.S. console headset market is up 2% year-to-date, including year-to-year growth in the last month of the quarter, which continues to support the expected momentum in the gaming industry as we head into the holiday season.

The U S console headset market is up 2% year to date, including year over year growth in the last month of the quarter, which continues to support the expected momentum in the gaming industry as we head into the holiday season. During the month of September our outperformance was especially apparent as the market was only up <unk>, 8% year.

Speaker 4: During the month of September , our outperformance was especially apparent as the market was only up 0.8% year-a-year, while Turtle Beach was up 7.4% for the month.

Year over year, while Turtle Beach was up seven 4% for the month, we expect to continue beating the headset category with new and exciting console gaming headsets. The gamers love as demonstrated by the nearly $1 billion in U S. Retail sales that the three of our top sellers still 600700 and <unk>.

Speaker 4: We expect to continue leading the headset category with new and exciting console gaming headsets that gamers love, as demonstrated by the nearly one billion in US retail sales that the three of our top sellers, Stel 600, Stel 700, and Recon 70, have collectively delivered since their respective launch.

<unk> have collectively delivered since their respective launches.

Speaker 4: In key non-console headset categories, we continue to take share and demonstrate growth. Per Cercana, the US flight simulation category is down 11% year-to-date, but our year-over-year growth and value share both exceed 20% in the category.

And key non console headset categories, we continue to take share and demonstrate growth per second of the U S. Flight simulation category is down 11% year to date, but our year over year growth and value share both exceed 20% in the category like.

Speaker 4: Like last quarter, US PC gaming accessories markets continue to be challenged and are still down roughly 12% near to date. However, we are well positioned to benefit when PC categories return to growth with launches like Vulcan 2 Mini and Vulcan 2 Mechanical keyboards in the third quarter. IGN recently named our full size Vulcan 2 as their choice for best mechanical gaming keyboard. While PC World gave our Vulcan 2 Mini Air, the publications coveted Editor's Choice Designation.

Like last quarter U S. PC gaming accessories market continue to be challenged or still down roughly 12% year to date. However, we are well positioned to benefit when PC categories returned to growth with launches like Vulcan too many and Vulcan to mechanical keyboards in the third quarter IGN recently named our full sized Vulcan to Azure.

Joyce for best mechanical gaming keyboard, while PC World gave our Vulcan too many error that publications coveted editors choice designation.

Speaker 4: We also announced the availability of the mobile Adam Controller for iPhones in Q3, which comes on the heels of the previously announced Adam Controller for Android. As we continue to launch exciting new products across these categories in the coming months, we believe there are further opportunities to extend our growth runaway in PC gaming, simulation and controllers.

We also announced the availability of the mobile Adam controller for iphones in Q3, which comes on the heels of the previously announced Adam controller for Android as we continue to launch exciting new products across these categories in the coming months. We believe there are further opportunities to extend our growth runway in PC gaming simulation.

Speaker 4: Before I turn it over to John to walk through our financials in more detail, I'd like to cover the progress we've made against the Profit Improvement Initiatives we outlined during our second quarter conference call and how this positively impacts our 2023 adjusted EBITDA guide.

And controllers before I turn it over to Jon to walk through our financials in more detail I'd like to cover the progress we've made against our profit improvement initiatives, we outlined during our second quarter conference call and how this positively impacts our 2023 adjusted EBITA guidance. These initiatives include SKU rationalization.

Speaker 4: These initiatives include skew rationalization, portfolio optimization, platform product development for a range of cost improvements and more. Due to the strong progress that we've made on these profitability initiatives during the quarter, we are raising our full year 2023 adjusted EBITDA guidance to the range of 8 million to 10 million.

<unk> portfolio optimization platform product development for a range of cost improvements and more due to the strong progress that we've made on these profitability initiatives during the quarter. We are raising our full year 2023, adjusted EBITDA guidance to the range of eight to 10 million. Additionally, we now expect.

Speaker 4: Additionally, we now expect to exit 2023 with a run rate EBITDA of approximately 28 million to 33 million up from the previously communicated range of 25 million to 30 million. We are thrilled to report this continued progress.

To exit 2023, with a run rate EBITDA of approximately $28 million to $33 million up from the previously communicated range of 25 million to $30 million. We are thrilled to report this continued progress.

Speaker 4: While formal earnings guidance for 2024 will be provided next year, as is consistent with our past practice, and after we receive complete visibility on an important Q4, we felt it appropriate to highlight the work completed to date that has gone into developing opportunities ahead in 2024. I'll now pass it over to John to cover the financials. John .

While formal earnings guidance for 2024 will be provided next year as is consistent with our past practice and after we receive complete visibility on an important Q4, we felt it appropriate to highlight the work completed to date that has gone into developing opportunities ahead in 2024.

I will now pass it over to John to cover the financials John.

Speaker 5: Hey, thanks, Chris, and good afternoon, everyone. For the third quarter, we reported revenue of $59.2 million, a 15% year-over-year increase compared to 51.3 million a year ago.

Hey, Thanks, Chris and good afternoon, everyone for the third quarter, we reported revenue of $59 2, million% to 15% year over year increase compared to $51 3 million a year ago. The.

Speaker 5: The increase was primarily driven by strong performance in console headset and simulation products year over year.

The increase was primarily driven by strong performance in console headset and stimulation products year over year.

Speaker 5: Additionally, channel inventories increased during the third

Additionally, channel inventories increased during the third quarter due to holiday loaded.

Speaker 5: due to holiday loadings, which we believe is a positive sign from retailers for the fourth quarter.

Which we believe is a positive sign from retailers for the fourth quarter.

Speaker 5: Brost margin in the third quarter improved to 29.9% the highest level in the past six quarters compared to 14.1% in the year ago period.

Gross margin in the third quarter improved to 29, 9%.

Highest level in the past six quarters compared to 14, 1% in the year ago period.

Speaker 5: This increase was primarily driven by lower freight cost and promotional spend.

This increase was primarily driven by lower freight costs and promotional spend.

Speaker 5: Just to remind everyone, last year we recorded a $5.3 million incremental inventory provision related to the pandemic-driven supply chain challenge.

Just to remind everyone last year, we recorded a $5 $3 million incremental inventory provision related to the pandemic driven supply chain challenges.

Speaker 5: Excluding the provision, adjusted gross margin was 24.5% a year ago.

Excluding the provision adjusted gross margin was 24, 5% a year ago.

Speaker 5: 540 basis point margin improvement year over year.

540 basis point margin improvement year over year.

Speaker 5: Operating expenses in the third quarter were $20.2 million compared to $21 million in the year-ago quarter. The third quarter recurring operating expenses have declined 7% year-over-year, which was primarily driven by continued proactive expense management.

Operating expenses in the third quarter were $20 2 million compared to $21 million in the year ago quarter. The third quarter recurring operating expenses have declined 7% year over year, which was primarily driven by continued proactive expense management our.

Speaker 5: Our third quarter adjusted EBITDA improved to a positive $1 million compared to a negative $6.9 million in the year-ago period. The year-over-year improvement is primarily driven by higher revenue, improved margins, and lower expenses resulting from proactive expense control. We are on track to deliver positive adjusted EBITDA for 2023.

Our third quarter, adjusted EBITDA improved to a positive $1 million.

Compared to a negative $6 9 million in the year ago period, the year over year improvement is primarily driven by higher revenue improved margins and lower expenses, resulting from proactive expense control. We are on track to deliver positive adjusted EBITDA for 2023 on an.

Speaker 5: On an LTM basis, Adjusted EBITDA has improved approximately $18 million this year and is slightly below breakeed.

LTM basis, adjusted EBITDA has improved approximately $18 million this year and is slightly below breakeven.

Speaker 5: Turning to the balance sheet. At September 30th, 2023, we had 12.3 million of cash and 13.3 million outstanding on our revolving credit line.

Turning to the balance sheet at September 32023, we had $12 $3 million of cash and $13 3 million outstanding on our revolving credit line.

Speaker 5: Inventories of September 30, 2023 were 76 million compared to 118.4 million at September 30, 2022. Cash flow from operations was 7.9 million, which was a 77.5 million improvement year over year on a year-to-date basis.

Inventories at September 32023 were $76 million compared to $118 4 million at September 30 of 2022.

Cash flow from operations was seven 9 million, which was a $77 five.

$5 million improvement year over year on a year to date basis ethical.

Speaker 5: As the global supply chain continues to normalize, we expect inventories to decline further.

As the global supply chain continues to normalize we expect inventories to decline further.

Speaker 5: Now I'll turn the call back over to Chris for additional comments.

Now I'll turn the call back over to Chris for additional comments, Chris. Thanks.

Speaker 4: Thanks, John . We are pleased with our third quarter results and believe the positive trends in gaming will support increased accessories demand through the end of this year and end of 2024. While some aggressive competitive discounting still exists, the scope of these promotions continues to decline across success.

Thanks, John we are pleased with our third quarter results and believe the positive trends in gaming will support increased accessories demand through the end of this year and into 2024, while some aggressive competitive discounting still exist. The scope of these promotions continues to decline.

Speaker 4: Demand for gaming accessories is normalizing higher than pre-pandemic levels, as expected, and the replacement cycle for pandemic accessory purchases is expected to drive ongoing demand into 2024.

Cross accessories.

Demand for gaming accessories is normalizing higher than pre pandemic levels as expected and the replacement cycle for pandemic accessory purchases is expected to drive ongoing demand in the 2024.

Speaker 4: Console hardware supply is strong and there are promotions already running as we head into holiday that will drive new hardware sales and new games are performing well with an exciting lineup to close out the year. With these points in mind, all the industry drivers for accessory sales growth are in place and Turtle Beach is well positioned to capitalize on these positive conditions.

Console hardware supply is strong and there are promotions already running as we head into holiday that will drive new hardware sales.

And new games are performing well with an exciting lineup to close out the year with these points in mind all the industry drivers for accessories sales growth are in place and Turtle Beach is well positioned to capitalize on these positive conditions.

Speaker 4: We remain committed to maintaining our leadership in gaming headsets and driving growth in adjacent categories and remain confident that our value-creating initiatives, including SKU rationalization, portfolio optimization, and platform product development, will continue to result in profitability improvement.

We remain committed to maintaining our leadership in gaming headsets and driving growth in adjacent categories and remain confident that our value, creating initiatives, including SKU rationalization portfolio optimization and platform product development will continue to result in profitability improvements.

Speaker 4: We're energized by the trends throughout our business and I would like to thank the entire Turtle Beach team for performing at such a high level in this dynamic environment.

We're energized by the trends throughout our business and I would like to thank the entire turtle Beach team for performing at such a high level in this dynamic environment, we remain highly focused on driving enhanced value for our gamers retailer partners and shareholders.

Speaker 4: we remain highly focused on driving enhanced value for our gamers, retailer partners, and shareholders. And with that, let's

And with that let's turn to our Q&A.

Speaker 1: Thank you. We will now begin the question and the intercession. If you have a question, please press star 11 on your touchstone telephone. If you wish to be removed from the queue, please press star 111 again. If you're using a speaker phone, you may need to pick up the hands at first before pressing the numbers. Once again, if you have a question, please press star 11 on your touchstone phone.

Thank you we will now begin the question and answer session. If you have a question. Please press star one one on your Touchtone telephone.

If you wish to be removed from the queue. Please press star one again.

Using a speakerphone you may need to pick up the handset first before pressing the numbers. Once again, if you have a question. Please press star one one on your Touchtone phone.

Speaker 1: Our first question comes from Mark Argento with Lake Street Capital Markets. Mark, your line is open.

Our first question comes from Mark Argento with Lake Street Capital markets Mark Your line is open.

Speaker 5: Yeah, hey guys, Mark or Jent are here at Lake Street. Just a couple quick ones. Gross margins looked kicked up nicely, and I apologize if you broke it out already, but I know freight, obviously, benefiting from a better freight environment. Can you guys kind of peel the onion a little bit on what you're seeing in the gross margin line?

Yeah, Hey, guys Mark Argento here at Lake Street.

Just a couple of quick ones.

Our gross margins.

It ticked up nicely.

And I apologize if you broke it out already but.

I know freight obviously benefiting from a better freight environment.

You guys got to Peel, the onion, a little bit on what youre seeing in the gross margin line.

Speaker 5: Yeah, so, and thanks Mark. Yeah, certainly. So the improvement is certainly driven by lower freight costs, at least seen the freight costs returning to near pre-pandemic levels, but still slightly elevated, as well as a lower promotional spend. You know, in terms of the quarter, for the quarter, we realized, that lower freight year over year was...

Yes, so thanks.

Thanks, Mark Yes, certainly so the improvement is certainly driven by.

By lower freight costs, and we've seen the freight costs returning.

To near pre pandemic levels, but still slightly elevated as well as.

As well as a lower promotional spend.

In terms of the quarter for the quarter.

We realized.

The lower freight year over year was <unk>.

Speaker 5: you know, several million dollars of value and benefit to the margin line. And we expect our freight cost to continue to improve over the next several quarters, and which is also a key part of the exit 2023 Adjusted even that run rate that we increased here this quarter on the call.

Several million dollars of.

Value and benefit to the margin line and we expect our freight costs to continue to improve.

Over the next several quarters and which is also a key part of the exit 2023 <unk>.

Adjusted EBITDA run rate that we've that we increased here this quarter on the call. In addition to that Martin Thanks for the question.

Speaker 4: Yeah, in addition to that, Mark, thanks for the question. You know, the improvements that we've seen with some of the actions we took last quarter and have been taking on the ski rationalization and some of the portfolio changes we're seeing a better mix. And so that's also helping.

The improvements that we've seen with some of the actions we took last quarter and have been taking on the SKU rationalization and some of the portfolio changes, we're seeing a better mix and so that's also helping us.

Speaker 5: That's super helpful. And then in terms of obviously really strong revenue to this quarter kept before your guide in line.

Well, let's see.

Super helpful and then in terms of.

Obviously really strong revenue this quarter kept the full year guide in line.

Speaker 6: Obviously you've been dogguied up a little bit, which is nice to see. But are we, you know, the re-through here that you, you know, maybe pulled in some orders?

The EBITDA guide up a little bit, which is nice to see but the read through here.

Maybe pulled in some orders.

Speaker 6: into Q3. What kind of retail buying patterns are you seeing right now?

Into Q3.

Retail buying patterns that you're seeing right now.

Speaker 4: Yeah, great question. When you look at where retailers are coming up for holiday, we did see some orders coming in sooner in September to load in for holiday. We take that as a really good sign how retailers are feeling going into the holiday with with all the great things that are going on.

Yes, great question, when you look at where retailers are coming up for holiday, we did see some orders coming in sooner.

In September to loading for holiday, we take that as a really good sign how retailers are feeling going into the holiday with with all the great things that are going on.

Speaker 4: You know, between the games that are out there, the console supply, the promotional environment, just a really good time for the accessories business. So I think retailers are also anticipating, you know, a good holiday, and that's why we saw those earlier orders.

Between the games that are out there the console supply the promotional environment, just a really good time for the accessories business. So I think retailers are also anticipating.

A good holiday and that's why we saw those earlier orders there is still a lot of the quarters ago. As you know, it's 40% of our year. So we.

Speaker 4: There's still a lot of the quarter to go, as you know, you know, it's 40% of our year. So, you know, we feel like at this point, we wanted to hold hold revenue there, despite the fact that we got some of those orders in a bit sooner than expected.

We feel like at this point, we wanted to hold hold revenue there. Despite the fact that we got some of those orders in a bit sooner than expected.

Speaker 4: But we're pleased to see how that's progressing and

But we're pleased to see how thats progressing and.

Speaker 4: You know, expect to realize that 265 to 270 for the year.

Expect to realize that $2 65 to $2 70 for the year.

Speaker 6: Great, thanks guys, we'll hop back in the queue.

Yes.

Alright, Thanks, guys I'll hop back in the queue.

Great. Thanks, Mark Thank you Mark.

Speaker 1: As a reminder to ask a question, please press store 111.

As a reminder to ask a question. Please press star one one.

Speaker 1: Our next question comes from Jack Van Der Ark with Maxim Group. Your line is open.

Our next question comes from Jack Vander Ark with Maxim Group. Your line is open.

Speaker 7: Okay, great. Hey, Chris, John . Strong results. Great to see. Strong outlook as well. Thanks for taking my question.

Okay, Great, Hey, Chris Hey, John.

Strong resolve its great to see strong outlook as well thanks for taking my questions.

Speaker 7: Chris, can you maybe, can you maybe just speak to the the ski rationalization a bit more? Maybe as a relates to all of your product categories, is there any sort of target number or a range of skews that you believe is optimal? Or just any added color there will be helpful. Thanks. Sure. Sure. Hey Jack. Thanks for the question.

So Chris can you maybe can you maybe just speak to the SKU rationalization a bit more.

Maybe as it relates to fill all of your product categories is there any sort of target number or a range of skus that you believe is optimal or just any added color. There would be helpful. Thanks sure sure Hey, Jack Thanks for the question.

Speaker 4: Yes, I think when you look at the categories that we operate in, we've expanded pretty quickly over the last several years. You know, we've invested into the new spaces, we've learned, you know, from our experiences there, which products are really, you know,

Yes, I think when you look at the categories that we operate in we've expanded pretty quickly over the last several years, we've invested into the new spaces, we've learned from.

Our experiences there which products are really.

Speaker 4: tracking with customers, and we've seen some that aren't, and so we've taken action on those over the last couple of quarters.

Tracking with customers and we've seen some of that art and so we've taken action on those over the last couple of quarters to really.

Speaker 4: to really right size, I would say, our portfolios in those areas, to the point where we're seeing the sales consolidate into the higher performing skews that we've selected to move forward with. So there's no number per say per category that we're targeting. We're really just looking to see from a margin mix.

Right size I would say our portfolio is in those areas.

To the point, where we're seeing the sales consolidate into the higher performing skus that we've selected to move forward with so there is no. There is no number per se per category that we're targeting we're really just looking to see from a margin mix and from a sales mix whats really resounding with those gamers out there.

Speaker 4: And from a sales mix, you know, what's really resounding with those gamers out there and consolidating our portfolio to those products. There's other categories where we still continue to grow. You look at the simulation categories.

And consolidating our portfolio to those to those products.

There is other categories, where we still continue to grow you look at the stimulation categories.

Speaker 4: And controllers, you know, we're adding skews there because we've seen good success and we've seen, you know, good performance in those categories So it's something that we're looking at very closely You've got a really sharp focus on that moving forward to ensure that we've got the right mix

And controllers, we're adding skus there because we've seen good success and we've seen good performance in those categories. So it's something that we're looking at very closely you have got a really sharp focus on that moving forward to ensure that we've got the right mix.

Speaker 7: Okay, great, that's helpful. And then maybe just in terms of, if we can review, I think in the past, you know, you guys have provided more of a granular or specific update on non-console versus console revenue mix. I know you haven't been doing that routinely or consistently, but just wondering if you could speak in general as you look into 2024, given the skew rationalization.

Okay, Great that's helpful.

And then maybe.

Just in terms of if we can review I think in the past you guys have provided more more about it.

Our granular specific update on non console versus console revenue mix I know you have been doing that routinely are consistently but just wondering if you could speak in general as you look into 2024, given the SKU rationalization.

Speaker 7: in some of your comments about the PC market in general. Can you talk about maybe just how you expect your revenue mix to evolve as you head into 2024 between console and non-comple?

And some of your comments about the PC market in general can you talk about maybe just how you expect your revenue mix or.

Paul as you head into 2024 between comparable and non comparable.

Speaker 7: Great question. The mix that we're seeing now is somewhere in that 20% range is looking like non-concil.

Sure absolutely.

Great question the mix that we're seeing now is somewhere in that 20% range is looking like non console.

Speaker 3: I know we've said, you know, before it was 20 to 25 percent. We've seen some real strength in the console business this year. If you look at the markets and how they're performing, you know, the U.S. console business is up 2 percent. You know, we're up more than that. We've picked up some share there. But you know, the rest of...

I know, we've said before is 20% to 25% we've seen some real strength in the console business. This year. If you look at the markets and how they're performing the U S console business is up 2% were up more than that.

We've picked up some share there, but the rest of the categories are down.

Speaker 4: the categories are down, you know. So flight simulation is a good example. You know, it's down pretty significantly. I think 11%, we're up, you know, 20% in that category. So.

No.

Flight simulation is a good example.

Im pretty significantly I think 11% we're up 20%.

Speaker 4: Um, you know, and controllers as well, you know, the third party controller market is, you know, roughly flat to slightly down

That category so.

And controllers as well the third party controller market is roughly flat to slightly down.

Speaker 4: despite the growth in controllers this year. So we're really seeing some strong results in the headset space.

The growth in controllers. This year. So so we're really seeing some strong results in the headset space.

Speaker 4: and we're taking actions to mitigate some of those markets that are maybe not performing quite as well. And so that's why you see the mix shifting a bit more towards the console space for this year. Looking at the next year, we've got some really exciting launches in these other categories that I believe are gonna drive our share even further. And I think you'll see that mix continue to expand from that 20-ish level from the show.

And we're taking actions to mitigate some of those those markets that are maybe not performing quite as well and so that's why you see the mix shifting a bit more towards the console space.

For this year looking into next year.

Got some really exciting launches in these other categories that I believe are going to drive our share even further and I think youll see that mix continue to expand from that 20 ish level from this year.

Speaker 7: Okay, great. And then just one more question, if I might. So, looking at 2024 and just given, you know, I know you can provide formal guidance, I think, next quarter, but you are exiting the year at a higher adjusted EBITDA run rate level. So, maybe just, if you could just talk about how does gross margin versus improved OPEX control kind of factor into that higher adjusted EBITDA exit run rate?

Okay, Great and then just one more question if I might.

Looking at 2024, and just given I know you can provide formal formal guidance I think next quarter.

But you did you are exiting the year at a higher adjusted EBITDA run rate level.

Maybe just if you could just talk about how does that how does gross margin versus.

Improved opex control kind of factor into that higher adjusted EBITDA exit run rate.

Speaker 4: Yeah, it's a bit of both. When you look at the mix, we're focused on all areas here that we can go in and drive profit improvements. And there are certainly opportunities.

Yes.

It's a bit of both.

When you look at the mix, we're focused on all areas here that we can go in and drive profit improvements and there are certainly opportunities in each.

Speaker 4: The platform product development that we've shared over the last couple of calls, that's going to drive a lot of really great improvements in our gross margin.

<unk> platform product development that we've shared over the last couple of calls that's going to drive a lot of really great improvements in our gross margin.

Speaker 4: You know, we've got, again, some very exciting new products coming out next year on some new platforms that bring a lot of efficiencies and they bring a lot of great features for gamers.

We've got again, some very exciting new products coming out next year on some new platforms that bring a lot of efficiencies and they bring a lot of great features for gamers as well. So we're excited about that on the Opex side.

Speaker 4: as well. So we're excited about that. On the OPEC side, you know, we've taken a very close look.

Speaker 4: You know, on how that's shaping up for the company, where we're headed over the next two to three years and what the structure of the business needs to be. And so we've taken actions there as well.

We've taken a very close look.

On how that's shaping up for the company, where we're headed over the next two to three years and what the structure of the business needs to be and so we've taken actions there as well.

Speaker 4: And we'll continue to look at that. So it's coming from both fronts, really. And we're excited on where we're headed.

We'll continue to look at that so so it's coming from both fronts really and we're excited on where we're headed there.

Speaker 7: Okay, great. Nice work, John and Chris. I appreciate the time. Thanks. Thanks, Jerry. Thanks, Jerry.

Okay, Great Nice work, John and Chris I appreciate the time. Thanks, yes, thanks, Jerry Thanks Jack.

Speaker 1: Thank you. We have no further questions at this time. Now I'll turn the call back over to Chris Curran for closure remarks. Chris?

Thank you we have no further questions at this time now I'll turn the call back over to Chris <unk> for closing remarks, Chris.

Speaker 4: Thank you, Michelle, and thank you everyone for your participation and interest in Turtle Beach. Thank you.

Thank you Michelle and thank you everyone for your participation and interest in Turtle Beach.

Have a great day.

Speaker 1: Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.

Okay.

Okay.

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Okay.

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