Q4 2023 Turtle Beach Corporation Earnings Call
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Operator: Hello, and thank you for standing by. Welcome to the Turtle Beach fourth quarter 2023 conference call. At this time, all participants are in a listen-only mode.
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Speaker Change: Hello, and thank you for standing by welcome to the Turtle Beach fourth quarter 2023 conference call.
Speaker Change: At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone.
Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised.
Speaker Change: You will then hear an automated message advising your hand is raised.
Operator: To withdraw your question, please press star 11 again. I would now like to hand the conference over to Alex Thompson, Gateway Investor Relations. You may begin. Thank you, Tawanda.
Speaker Change: Withdraw your question. Please press star one again.
I would now like to hand, the conference over to Alex Thomson Gateway Investor Relations you may begin.
Alex Thompson: And today's prepared remarks are from Terry Jimenez, Chairman of the Board, Chris Kern, Chief Executive Officer, and John Hanson, Chief Financial Officer. During today's call, we will be referring to the press release filed this afternoon that details the company's fourth quarter and full year 2023 results, which can be downloaded from the investor relations page at corp.turtlebeach.com. We will also find the latest earnings presentations that supplement the information discussed on today's call. Finally, a recording of the call will be available on the events and presentations section of the company's website later today.
Thank you Wanda in today's prepared remarks are from carry a man as chairman of the Board, Chris Kearney, Chief Executive Officer, and John Hanson, Our Chief Financial Officer.
Alex Thompson: On today's call, we will be referring to the press release filed this afternoon that details the company's fourth quarter and full year 2023 results, which can be downloaded from the Investor Relations page at Corp, Dr Turtle Beach Dot com.
Alex Thompson: 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 presentations section of the company's website later today.
Unknown Executive: 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 results that could cause Turtle Beach Corporation's 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 with the Securities and Exchange Commission, including, The company does not undertake to publicly update or revise any forward-looking statements after this conference call.
Alex Thompson: 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 results that could cause.
Alex Thompson: 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 in.
Alex Thompson: It 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 10-K, and other periodic reports, which identifies specific risk factors that also may cause actual results or events to differ materially.
Alex Thompson: Really from those described in our forward looking statements. The company does not undertake to publicly update or revise any forward looking statements. After this conference call.
Unknown Executive: The company also notes that on this call, we'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 to the company's reported GAAP results in the reconciliation tables provided in today's earnings release and presentation. Now, I'll turn the call over to Terry Jimenez, the company's chairman of the board. Terry?
Alex Thompson: The company also notes that on this call, we'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 United States or GAAP you can find a reconciliation of these metrics to the Companys reported GAAP results in the reconciliation tables provided in today's earnings release and presentation.
Alex Thompson: And now I'll turn the call over to Terry Jimenez, the company's chairman of the board Jerry.
Terry Jimenez: Thanks Alex, and thank you all for your interest in Turtle Beach. On behalf of the Board of Directors at Turtle Beach, I would like to share a number of exciting announcements. These actions, we believe will fundamentally change Turtle Beach for the better. First, after a lengthy and comprehensive process of assessing strategic alternatives.
Terry Jimenez: Thanks, Alex and thank you all for your interest in Turtle Beach on behalf of the board of directors at Turtle Beach, I would like to share a number of exciting announcements today. These actions that we believe will fundamentally change turtle beach for the better.
Terry Jimenez: First after a lengthy and comprehensive process of assessing strategic alternatives, we have announced an acquisition that will provide a much larger more resilient and more diversified foundation on which to grow the business.
Terry Jimenez: We have announced an acquisition that will provide a much larger, more resilient, and more diversified foundation on which to grow the business. Today, we announce our acquisition of Performance Design Products, or PDP, as the industry knows. We acquired PDP for an enterprise value of $118 million in a combination consisting of roughly one-third stock and two-thirds cash. PDP is a leader in video game accessories, with market-leading shares in both controllers and other product categories.
Terry Jimenez: Today, we announced our acquisition of performance designed products or PDP as the industry knows it we've acquired P. P for an enterprise value of $118 million in a combination consisting of roughly one third stock and two thirds cash.
PDP is a leader in video game accessories, among market, leading share and controllers and other product categories with P. D P being a leader in controllers and Turtle Beach being the leader in console headsets, we believe that we've created a powerhouse gaming accessories platform.
Terry Jimenez: With PDP being a leader in controllers and Turtle Beach being a leader in console headsets, we believe that we've created a powerhouse gaming accessories platform. In addition to the significant scale benefits that come with diversifying our revenue base and tangential categories with the same partners and consumers, we believe we will realize significant cost savings in the deal. These synergies, alongside PDP's attractive standalone profile, have allowed Turtle Beach to acquire PDP at a highly attractive multiple, both on a pre- and post-synergy basis. We expect the first 12 months of the combined company to generate $390 to $410 million in revenue and between $60 million to $65 million of adjustment.
Terry Jimenez: In addition to the significant scale benefits that come with diversifying our revenue base and tangential categories with the same partners and consumers. We believe we will realize significant cost synergies in the deal.
Terry Jimenez: Synergies alongside PDP as attractive Standalone profile have allowed turtle beach to acquire PDP at a highly attractive multiple both on a pre and post synergy basis.
Terry Jimenez: We expect the first 12 months as a combined company to generate 390 $410 million in revenue and between 60 million to $65 million of adjusted EBITDA.
Terry Jimenez: This acquisition will significantly increase our profitability and free cash flow generation throughout the cycle, better minimize our earnings and free cash flow volatility, and create a global powerhouse in the gaming category. Additionally, we are pleased to have announced today our intention to launch a significant return of capital to shareholders by way of a reverse Dutch tender auction. We intend to repurchase up to $30 million of our common stock at a price range between $13.75 and $15 per share. This tender auction, which will end following our first quarter earnings results in May, is set to launch next month and will provide shareholders that are seeking liquidity a chance to sell some or all of their stock back to the company at a minimum premium of 25% from today's closing share price.
Terry Jimenez: This acquisition will significantly increase our profitability and free cash flow generation throughout the cycle better minimize our earnings and free cash flow volatility.
Terry Jimenez: Create a global powerhouse in the gaming category.
Terry Jimenez: Additionally, we are pleased to have announced our intention to launch a significant return of capital to shareholders by way of a reverse Dutch tender auction.
Terry Jimenez: We intend to repurchase up to $30 million of our common stock at a price range between $13.75 to.
Terry Jimenez: The $15 per share.
Terry Jimenez: This tender auction, which will end following our first quarter earnings results. In May is set to launch next month, and we will provide shareholders that are seeking liquidity a chance to sell some or all of their stock back to the company at a minimum premium of 25% from today's closing share price.
Terry Jimenez: The Versus, the former owners of PDP, as well as each member of the Turtle Beach management team and board of directors, have committed to not tender a single share of stock, highlighting the confidence that we all have that this deal will create significantly more value for shareholders than the top end of the tender range provides. We have listened to shareholders, and providing this equity option was an important consideration for our board. This is part of the transaction with PDP.
Terry Jimenez: Diverse as the former owners of PDP as well as each member of the Turtle Beach management team and board of directors have committed to not tender a single share of stock highlighting the confidence that we all have that this deal will create significantly more value to shareholders than the top end of the tender range provides we have listened to shareholders.
Terry Jimenez: Providing this liquidity option was an important consideration for our board.
Terry Jimenez: As part of the transaction with PDP, we've entered into a debt facility that will have less than one times leverage for the pro forma company at close assuming the tender of $30 million is fully utilized our net our net leverage level will sit at just 1.2 times next 12 months EBITDA.
Terry Jimenez: We have entered into a debt facility that will have less than one times leverage for the pro forma company at close. Assuming the tender of $30 million is fully utilized, our net leverage level will sit at just 1.2 times next 12-month EBITDA, and importantly, pro forma for the transaction. As we've detailed in our slide deck, Turtle Beach is currently trading at less than half its enterprise value over the next 12 months, even to multiple of its closest peers.
And importantly pro forma for the transaction as we have detailed in our slide deck Turtle Beach is currently trading at less than half the enterprise value.
Terry Jimenez: Over the next 12 months EBITDA multiple of its closest peers. We expect this gap to narrow over time as shareholders recognize the massive transformation that is happening.
Terry Jimenez: We expect this gap to narrow over time as shareholders recognize the massive transformation that has happened at the company over the past year, culminating with today's announcements, allowing significant value to be created for our shareholders as we now focus on execution. With the transaction comes a great set of complementary assets, products, and team members, as well as a new board member. We welcome Dave Muscatel to our board, and we are thrilled to have someone with such deep gaming market experience join our board. And finally, after a comprehensive and exhaustive search, we are pleased to announce Chris Kern as our next Chief Executive Officer. The board, guided by its search consultant, conducted a broad and sweeping review.
Terry Jimenez: And at the company over the past year, culminating with today's announcements, allowing significant value to be created for our shareholders as we now focus on execution.
Terry Jimenez: With the transaction comes a great set of complementary assets products and team members as well as a new board member, we welcomed Dave Muscatel to our board and we are thrilled to have someone with such deep gaming market experience joined our board.
Terry Jimenez: And finally after a comprehensive an exhaustive search we are pleased to announced Chris <unk> as our next Chief Executive Officer.
Terry Jimenez: The board got it by its search consultants ran a broad and sweeping a review.
Terry Jimenez: The external demand for this role was significant, and the board engaged deeply with a number of remarkable candidates. At the end of the search, it became quite clear that the board believed that Chris's deep understanding of the existing Turtle Beach business, his understanding of PDP, and his ability to execute on the company's strategy gave us the best chance to succeed both near and long-term. We are enthusiastic about this new, refreshed, and transformed Turtle Beach and its future prospects for shareholders, employees, and customers. The board has been hard at work over the past year, and we are excited about the future of the company and its shareholders. With that, I will turn it over to our Chief Executive Officer, Chris Keirn. Thanks, Terry.
Terry Jimenez: The external demand for this role was significant and the board engaged deeply with a number of remarkable candidates at the end of the search it became quite clear that the board believes that Christmas deep understanding of the existing throw of each business is understanding of PDP and his ability to execute on the company's strategy gave us the best chance to succeed both new.
Terry Jimenez: Here and long term.
Terry Jimenez: Our enthusiasm about this new refresh and transformed turtle beach, and its future prospects for shareholders employees and customers.
Terry Jimenez: <unk> has been hard at work over the past year and we are excited about the future for the company and its shareholders with that I will turn it over to our Chief Executive Officer, Chris Clark.
Cristopher Keirn: And thank you all for joining us today on our fourth quarter and full year 2023 earnings call. First, I'd like to thank the board for placing your trust in me to lead the business as CEO moving forward. Since assuming the interim CEO role last summer, we've worked closely together to best position Turtle Beach for future success. I also want to thank the great team that we have here at Turtle Beach and recognize their tremendous efforts.
Chris Clark: Thanks, Terry and thank you all for joining us today on our fourth quarter and full year 2023 earnings call first I'd like to thank the board for placing their trust in me to lead the business as CEO moving forward.
Chris Clark: Since assuming the interim CEO role last summer we've worked closely together to best position Turtle Beach for future success I also want to thank the great team that we have here at turtle Beach and recognize their tremendous efforts.
Cristopher Keirn: Together with the board and the entire team, I look forward to advancing our strategy to ultimately drive increased return for our shareholders. Next, I want to discuss the exciting news that we announced separately from our earnings release earlier today. As Terry noted, we announced the execution of a definitive agreement to acquire PDP, a leading gaming accessories provider. PDP is a leader in video game accessories, including controllers, headsets, power cases, and other categories.
Chris Clark: Together with the board and the entire team I look forward to advancing our strategy to ultimately drive increased return for our shareholders.
Speaker Change: Next I wanted to discuss the exciting news that we announced separately from our earnings release earlier today as Terry noted, we announced the execution of a definitive agreement to acquire PDP.
Speaker Change: Leading gaming accessories provider <unk>.
Speaker Change: PDP is a leader in video game accessories, including controllers headsets power cases in other categories. The transaction creates a powerhouse with a combination of industry, leading teams and expertise.
Cristopher Keirn: The transaction creates a powerhouse with a combination of industry-leading teams and expertise, significant product momentum, and proven track records of delivering profitable growth. Bringing PDP's leading gaming controller category to Turtle Beach will provide additional scale and create future development opportunities, in addition to an estimated $10 to $12 million in cost synergies and meaningful revenue. The acquisition of PDP adds significant financial benefits to Turtle Beach that fundamentally transforms the financial profile of the company.
Speaker Change: Significant product momentum and proven track records of delivering profitable growth.
Speaker Change: Bringing pdp's, leading gaming controller category to Turtle Beach will provide additional scale and create future development opportunities. In addition to an estimated $10 million to $12 million in cost synergies in meaningful revenue synergies.
Speaker Change: The acquisition of PDP adds significant financial benefits to Turtle Beach, there fundamentally transforms the financial profile of the company.
Speaker Change: Considering this transformational development, let me now state our full year 2024 outlook before recapping 2023.
Speaker Change: For the full year 2024, including the PDP contributions and synergies for nine months, we expect to generate revenue in the range of $370 million to $380 million and generate adjusted EBITDA in the range of $51 million to $54 million.
Cristopher Keirn: Considering this transformational development, let me now state our full year 2024 outlook before recapping 2023. And for the full year 2024, including the PDP contributions and synergies for nine months, we expect to generate revenue in the range of $370 to $380 million and generate adjusted EBITDA in the range of $51 to $54 million. Furthermore, in the first four quarters of operation, as in Q2 2024 through Q1 2025, the pro forma business expects net sales to be in the range of $390 to $410 million and adjusted EBITDA to be in the range of $60 to $65 million. This is a tremendous outcome, and I want to welcome the fantastic PDP team to Turtle Beach. We look forward to achieving great success together. I'll now move into the fourth quarter of my full year 2023 commentary.
Speaker Change: Further in the first four quarters of operation as in Q2 2024 through Q1 2025, the pro forma business expects net sales to be in the range of $390 million to $410 million and adjusted EBITDA to be in the range of $60 million to $65 million.
Speaker Change: This is a tremendous outcome and I want to welcome the fantastic PDP team to Turtle Beach, we look forward to achieving great success together.
Speaker Change: I'll now move into the fourth quarter and full year 2023 commentary.
Speaker Change: Turtle Beach's resilience and adaptability in 2023 has elevated our leadership position across gaming accessories. Our 2023 full year net revenue increased by seven 5% year over year as a result of significant share gains across multiple categories and geographies, including our core business of console gaming headset.
Speaker Change: With post print genic transitional effects to gaming markets and our business now behind US. We are looking forward to a strong era of exciting new products and growth.
Cristopher Keirn: Turtle Beach's resilience and adaptability in 2023 have elevated our leadership position across gaming accessories. Our 2023 full-year net revenue increased by 7.5% year-over-year as a result of significant share gains across multiple categories and geographies, including our core business of console gaming headsets. With the transitional effects of the pandemic on gaming markets and our business now behind us, we are looking forward to a strong era of exciting new products and growth. We also returned to profitability in 2023, generating $6.5 million of adjusted EBITDA compared to an adjusted EBITDA loss of $29.9 million a year ago.
Speaker Change: We also returned to profitability in 2023 generating $6 5 million of adjusted EBITDA compared to an adjusted EBIT loss of $29 9 million a year ago.
Speaker Change: Our share benefited from the temporary higher promotional spend.
Speaker Change: Our U S console headset value grew 300 basis points, our share grew 300 basis points year over year in the fourth quarter and was up for the full year 2023.
Speaker Change: The fourth quarter promotional spend was successful in preparing our inventory and the channel inventory levels for the significant upcoming new product launches throughout 2024, including groundbreaking new wireless models.
Speaker Change: <unk> has not continued in January and lower levels of promotional spend our projected through 2024 across categories.
Cristopher Keirn: Our share benefited from the temporary higher promotional spend as our U.S. console headset value grew 300 basis points; our share grew 300 basis points year over year in the fourth quarter and was up for the full year 2023. Our fourth quarter promotional spend was successful in preparing our inventory and the channel inventory levels for the significant upcoming new product launches throughout 2024, including groundbreaking new wireless models. Higher spend has not continued in January, and lower levels of promotional spend are projected through 2024 across categories.
Speaker Change: Despite reduced year over year promotional spend in January 2024, we're seeing continued share growth in key areas, including console gaming headsets positioning us well for our upcoming new product launches set to differentiate the gaming accessory accessories landscape in 2024.
Speaker Change: As an example, the launch of our highly acclaimed self ultra controller for Xbox and PC is just the beginning of what we believe will be a transformative year for turtle Beach.
Speaker Change: John will now take us through the financials in more detail John.
John: Hey, Thanks, Chris and good afternoon, everyone as Chris noted our full year 2023 revenue was $258 1 million, that's an increase of seven 5% compared to the year ago period, driven by revenue and share gains for both our console headset.
Cristopher Keirn: Despite reduced year-over-year promotional spend in January 2024, we're seeing continued share growth in key areas, including console gaming headsets, positioning us well for our upcoming new product launches set to differentiate the gaming accessories landscape in 2024. As an example, the launch of our highly acclaimed Stealth Ultra controller for Xbox and PC is just the beginning of what we believe will be a transformative year for Turtle Beach. John will now take us through the financials in more detail.
And stimulation products.
John: Fourth quarter revenues at $99 5 million were down slightly compared to the $100 9 million a year ago, driven by higher than expected promotional spend due to the softer than expected console gaming headset market.
John T. Hanson: Hey, thanks, Chris, and good afternoon, everyone. As Chris noted, our full year 2023 revenue was $258.1 million. That's an increase of 7.5% compared to the year-ago period, driven by revenue and share gains for both our console headset and simulation products. Fourth quarter revenues at $99.5 million were down slightly compared to the $100.9 million a year ago, driven by higher than expected promotional spend due to the softer than expected console gaming headset market. In 2023, our gross margin was 29.3% compared to 20.5% in 2022. The increase was a result of lower freight and promotional spending during the year.
John: In 2023, our gross margin was 29, 3% compared to 25% in 2022. The increase was a result of lower freight and promotional spending during the year as you'll recall in the year ago period, we recorded a $9 $8 million charge.
John: <unk> for potential excess components and finished goods relating to the pandemic driven supply chain impacts and a weak gaming market.
John: Excluding these nonrecurring items adjusted gross margin was 24, 6% in 2022.
John: Which reflects a 470 basis point improvement year over year.
John: Operating expenses for the full year 2023 were $91 9 million compared to 100.7 million in the year ago period recurring operating expenses declined 10, 6% a reflection of the proactive expense management initiatives, we undertook in mid 2000.
John T. Hanson: As you recall, in the year-ago period, we recorded a $9.8 million charge for potential excess components and finished goods relating to the pandemic-driven supply chain impacts and a weak gaming market. Excluding these non-recurring items, adjusted gross margin was 24.6% in 2022, which reflects a 470 basis point improvement year over year. Operating expenses for the full year 2023 were $91.9 million, compared to $100.7 million in the year-ago period.
John: 'twenty, two as well as the alignment of marketing to support demand and our product launches.
John: Our full year adjusted EBITDA improved significantly to $6 5 million compared to an adjusted EBITDA loss of $29 9 million in the year ago period. The year over year variance is primarily driven by the items I have covered above we continued to advance our.
John T. Hanson: Recurring operating expenses declined 10.6 percent, a reflection of the proactive expense management initiatives we undertook in mid-2022, as well as the alignment of marketing to support demand and our product launch. Our full-year adjusted EBITDA improved significantly to $6.5 million compared to an adjusted EBITDA loss of $29.9 million in the year-ago period. The year-over-year variance is primarily driven by the items I've covered above. We continue to advance our enhancements in profitability, and we expect to deliver strong adjusted EBITDA growth in 2024. Our full-year net loss improved to $17.7 million, or $1.03 per diluted share, compared to a net loss of $59.5 million, or $3.62 per diluted share a year ago.
John: Instruments and profitability and we expect to deliver strong adjusted EBITDA growth in 2024.
John: Our full year net loss improved to $17 7 million or $1 <unk> per diluted share compared to a net loss of $59 5 million or $3 62 per diluted share a year ago.
John: Turning to the balance sheet at December 31, 2023, we had $18 7 million of cash and no outstanding borrowings on our revolving credit line inventories at December 31, 2023 were $44 million compared to $71 3 million at December.
John T. Hanson: Turning to the balance sheet, at December 31, 2023, we had $18.7 million of cash and no outstanding borrowings on our revolving credit line. Inventories at December 31, 2023 were $44 million, compared to $71.3 million at December 31, 2022. Cash flow from operations was $27 million, which was a $68.9 million improvement year-over-year on a year-to-date basis. Additionally, and as we communicated in our separate press release today, along with the acquisition of PDP, Turtle Beach announced that we have commenced a modified Dutch auction tender offer to purchase, with cash, up to $30 million in value of our common stock at a price per share not less than $13.75 per On March 12th, 2024, the closing price of the common stock was $11.03 per share. The tender offer is anticipated to commence April 10th, 2024 and will expire at 12 midnight New York City time at the end of the day on May 10th, 2024 unless extended or terminated.
John: 31, 2022 cash flow from operations was $27 million, which was a $68 9 million dollar improvement year over year on a year to date basis.
John: Additionally, and as we communicated in our separate press release today, along with the acquisition of PDP Turtle Beach announced that we have commenced a modified Dutch auction tender offer to purchase with cash up to $30 million in value of our common stock at a price per share not less than <unk>.
John: $13 75 per share and not greater than $15 per share less any applicable withholding taxes and without interest using available cash on hand.
On March 12 month of 2024, the closing price of the common stock was $11 <unk> per share. The tender offer is anticipated to commence April 10th 2024.
John: <unk> will expire at 12 Midnight, New York City time at the end of the day on May 10, 2024, unless extended or terminated.
John: And now I'll turn the call back over to Chris for additional comments Chris.
Chris Clark: Thanks, John as mentioned the acquisition of PDP significantly benefits, our financial profile game.
Cristopher Keirn: And now I'll turn the call back over to Chris for additional comments. Thank you for watching, and I'll see you in the next video.
Chris Clark: Gaming portfolio and industry, leading team together, we are a stronger business with an industry, leading product portfolio poised for growth.
Operator: Thanks, John. As mentioned, the acquisition of PDP significantly benefits our financial profile, gaming portfolio, and industry-leading teams. Together, we are a stronger business with an industry-leading product portfolio poised for growth. As such, we're energized by the trends throughout our business, and I would like to thank the entire Turtle Beach team, including our new PDP colleagues, for their tremendous efforts and performance at such a high level in this dynamic environment. We should remain highly focused on driving enhanced value for our gamers, partners, and shareholders. With that said, let's turn to Q&A. Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star 1-1 on your telephone and then wait to hear your name announced. To withdraw your question, please press star 1-1 again.
Chris Clark: As such we're energized by the trends throughout our business and I would like to thank the entire turtle beach team, including our new PDP colleagues for their tremendous efforts and performing at such a high level in this dynamic environment. We should remain highly focused on driving enhanced value for our gamers partners.
Speaker Change: And shareholders with that let's turn to Q&A.
Speaker Change: Thank you, ladies and gentlemen, as a reminder to ask a question. Please press star one on your telephone and then wait to hear your name announced to withdraw your question. Please press star one again.
Speaker Change: Please standby, while we compile the Q&A Boston.
Speaker Change: Okay.
Speaker Change: Our first question comes from the line of Sean Mcgowan with Ross Your line is open.
Operator: Please stand by while we compile the Q&A roster. Our first question comes from the line of Sean McGowan with Roth. Your line is open. Thank you, guys. Hi, everybody.
Sean Patrick McGowan: Thank you guys, so everybody locked to digest today, so congratulations on multiple fronts, especially for you Chris.
Sean Patrick McGowan: A lot to digest today, so congratulations on multiple fronts, especially for you, Chris. Can you give us some sense of how much of PDP's business is in controllers versus headsets or anything else? Sure. And Sean, thanks so much.
Sean McGowan: Yeah.
Sean Patrick McGowan: Can you give us some sense of how much of PDP business isn't controllers versus headsets or anything else.
Sean Patrick McGowan: Sure.
Cristopher Keirn: And I appreciate the question. When you look at the combined business, you know, we've historically talked about trying to get outside of console headsets, you know, growing our other categories to be about 20 to 25%. We're looking at, on a standalone basis, about 25%. When you add in that PDP business, which is, you know, nearly 50%, you know, controllers, we're talking about 40% plus, you know, even pushing the mid-40s of our business being outside of that core, you know, console gaming headset category. That's a huge change for us, and it really helps us diversify. That's been one of the things that we've, you know, always been striving for.
Speaker Change: John Thanks, so much and I appreciate the question.
John: You look at the combined business.
John: We've historically talked about trying to get outside of console headsets growing our other categories to be about 20% to 25%. We're looking at about <unk> on a standalone basis about 25% when you add in that PDP business, which is nearly 50% controllers.
John: We're talking about 40% plus.
John: Even pushing mid mid forties.
John: Of our business being outside of that quarter.
John: Console gaming headset category.
John: That's a huge change for us.
John: And it really helps us diversify that's been one of the things that we've always.
John: <unk> been striving for and this is really a step change in diversification for us.
Cristopher Keirn: And this is really a step change in diversification for us. As you know, the categories can vary year to year on which ones may be up or down. And, and we really believe this gives us a much better balance across the, Okay, can you give us some sense of, you know, a ballpark figure of how much revenue they generate on an annual basis? And how do the margins there look relative to the rest of Turtle Beach, calculated on the same basis?
John: As you know the categories can vary year to year on on which ones, maybe maybe up or down and we really believe this gives us a much better balance across the business.
Speaker Change: Okay can you give us some sense of.
Speaker Change: Ballpark figure of how much revenue that did on an annual basis and how does the margins there look relative to the rest of the turtle Beach calculated on the same basis.
Speaker Change: Sure, yes, they're rough and tough looking at about 100 million net last year thereabouts.
Cristopher Keirn: Sure, yeah, they're rough and tough, you know, looking at about $100 million net last year, or thereabouts. When you look at the margin profile, you can see from our guidance, you know, we're guiding now to 14% adjusted EBITDA as a percent of revenue. And historically, we've guided more, you know; we've said our targets are more around 10. So, you can derive from that the programs we talked about in the last earnings call. So, the portfolio optimization that we've been going through, some of the skew rationalization, and the platform product development. We're seeing those now come into full effect in 2024.
Speaker Change: When you look at the margin profile.
Speaker Change: Can see from our guidance, we're guiding now to two.
Speaker Change: <unk> thousand 14% adjusted EBIT percentage as a percent of revenue historically, we've guided more we've set our targets are more around 10.
Speaker Change: So.
Speaker Change: What you can derive from that is the programs we've talked about in our last earnings call. So the portfolio optimization that we've been going through some of the SKU rationalization and the platform product development, we're seeing those now come into full effect in 2024.
Speaker Change: So our Standalone business has really fundamentally changed and its also generating an about 14%.
Cristopher Keirn: So, our standalone business has really fundamentally changed, and it's also generating about a 14% yield on EBITDA. PDP, once you bring their business in and we realize the synergies associated with that business, is also running at about that same 14% rate. Okay, that's helpful.
Speaker Change: Yield on EBITA PDP once you bring their business and we realize the synergies associated with that business. It's also running at about that same 14% rate.
Speaker Change: Okay.
Speaker Change: That's helpful. I guess, if I can squeeze one more in just a little comment on that.
Speaker Change: The fourth quarter and your existing business came in below last year below consensus certainly below my estimate was.
Cristopher Keirn: I guess if I can squeeze one more in, then just a little comment on the fourth quarter of your existing business came in below last year, below consensus, certainly below my estimate, but you cited promotional spend. Are you suggesting that it's just a reduction in price that drove the decrease in revenue, or was volume also lower than you would have thought? Yeah, that's a great question. It's a bit of both.
Speaker Change: But you cited promotional spend.
Speaker Change: Suggesting that it is.
Speaker Change: Just a reduction in price that drove the decrease in revenue.
Speaker Change: Well it was volume also lower than you would've thought.
Speaker Change: Yeah, Great question, it's a bit of both.
Speaker Change: When you look at the markets.
Speaker Change: Last holiday, we did see a pretty significant dip if you remember the gaming headset market was up about 2% year to date at the end of Q3, and then October November took a double digit percentage drop year over year. Fortunately, we've seen that recover in December was back to growth.
Cristopher Keirn: You know, when you look at the market, Last holiday, we did see a pretty significant dip. If you remember, the gaming headset market was up about 2% year-to-date at the end of Q3, and then October-November took a double-digit percentage drop year-over-year. Fortunately, we've seen that recover, and December was back to growth, but that did lead to some pressure from the market standpoint on revenue. As part of that, we have a ton of really great launches coming up this year, so we did take the action to go ahead and promote a bit more than we expected to make sure that those channels were clean, which they are, and that our own inventory is in good shape. And again, ahead of the new launches that we have coming here in 2024, Sean, which are very exciting, we mentioned the launch of our new wireless model. Okay, well, if I could just tack on to that margin commentary, then it sounds like without that promotional spending, which you said is not required, at least not right now, gross margins could have been quite a bit higher than what was reported in the fourth quarter.
Speaker Change: It did that did.
Speaker Change: Some some pressure from the market standpoint on the revenue.
Speaker Change: As part of that we have a ton of really great launches coming up this year and so.
Speaker Change: So we did take the action to go ahead and promote a bit more than we expected to make sure that those channels are clean, which they are and that our own inventories in good shape.
Speaker Change: And again well ahead of the new launches that we have coming here in 2020 for Sean which are very exciting we mentioned.
Speaker Change: The launch of our new wireless models.
Speaker Change: Okay, well, if I could just tack onto that margin commentary then it sounds like without that promotional spending which you said is not not required at least not right now gross margins could have been quite a bit higher than what was reported in the fourth quarter are you expecting kind of going forward gross margins to get back to that kind of.
Sean Patrick McGowan: Are you expecting, you know, kind of going forward gross margins to get back to that mid, you know, low to mid-30s level that we've seen and targeted before? Yeah, yeah, exactly right. Actually, for this year, we're looking at mid-30s for margin, even creeping up on the higher end of that. You know, we've always kind of had the goal of getting back to that mid-30 point, and we're looking more to the mid to high 30s for 2024. Very helpful. Thank you very much.
Speaker Change: Mid low to mid <unk> level.
Speaker Change: We see them in targeted before.
Yes, yes exactly right.
Speaker Change: For this year, we're looking at mid thirties for margin.
Speaker Change: Even creeping up on the higher end of that.
Speaker Change: We've always kind of had the goal of getting back to that mid 30 point and we're looking more to the mid to high <unk> for 2024.
Speaker Change: Okay very helpful. Thank you very much.
Speaker Change: Thank you Tom.
Sean Patrick McGowan: Thank you. Thank you. Please stand by for our next question. Our next question comes from the line of Drew Crum with Steeple.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the lineup drew Crum with Stifel. Your line is open.
Andrew Edward Crum: Your line is open. Hey guys, good afternoon. Question on the anticipated annual run rate cost synergies. I think you quantified it at 10 to 12 million. What is the timing of that? Would you expect to recognize all that in 24 hours?
Andrew Edward Crum: Okay. Thanks, Hey, guys good afternoon.
Andrew Edward Crum: Question on the anticipated annual run rate cost synergies I think you quantified it $10 million to $12 million. What is the timing of that would you expect to recognize all of that in 'twenty four or is that or is that over time. What is the source of those savings and then can you quantify the incremental revenue synergy.
Andrew Edward Crum: Or is that over time? What is the source of those savings? And then, you know, can you quantify the incremental revenue synergies you expect to get as well? And then I have a follow-up. Sure. Great question, Drew.
Speaker Change: <unk> do you expect to get as well and then I have a follow up.
Speaker Change: Sure Great question drew.
Cristopher Keirn: So, when you look at the 10 to 12, you know, we anticipate that's going to be run rate, and what's driving that is there are a variety of OPEX sort of line items there. There are a lot of common processes between our business and the PDP business. So, there are many opportunities there because the businesses are so complementary, with controllers being their main contributor and headsets being ours. There are a lot of common processes that we can consolidate. So, we'll be optimizing those over the next, you know, let's say 12 months. We do expect to realize that 10 to 12 sort of within that timeframe. And, you know, things like real estate. As an example, we've got two offices now in San Diego.
Speaker Change: When you look at the 10 to 12, we anticipate that's going to be run rate and what's driving that is a variety of.
Speaker Change: Opex.
Speaker Change: Sort of line items, there, there's a lot of common processes between our business and the PDP business. So.
Speaker Change: There is many opportunities there because of the businesses are so complementary from a controllers being the main contributor in headsets being ours.
Speaker Change: There are a lot of common processes.
Speaker Change: You can consolidate so.
Speaker Change: So we will be optimizing those over the next let's say 12 12 months, we do expect to realize that 10 to 12 sort of within that timeframe.
Speaker Change: And things.
Speaker Change: Things like real estate as an example.
Speaker Change: We've got two offices now in San Diego, So obviously will look down the road to consolidate that at some point.
Cristopher Keirn: So, obviously, we'll look down the road to consolidate that at some point. Those types of things are really the contributors there. So, I think for this year, for 2024, you know, we're looking at achieving roughly half of those synergies here for the calendar year and then the balance of those in the coming months after that. Got it.
Speaker Change: Those type of things are really the contributors there. So I think for this year for 2024.
Speaker Change: We're looking at achieving roughly half roughly half of those synergies here for the calendar year and then the balance of those in the coming months after that.
Cristopher Keirn: Any comment on revenue synergies? Oh, yeah, great, great point. The revenue synergies opportunities are pretty significant. And you know, we haven't really even built that in to that estimate to any great degree because, you know, that's going to take a lot of discussions with our partners, our customers.
Speaker Change: Got it up just any comment on the revenue synergies.
Speaker Change: Oh, yes, great great point.
Speaker Change: The revenue synergy opportunities are pretty significant.
Speaker Change: We haven't really even built that in to that estimate.
Speaker Change: To any great degree because.
Speaker Change: That's going to take a lot of discussions with our partners our customers.
Cristopher Keirn: We think there are opportunities on two fronts there. Number one, obviously, we have a lot of the same customers today. And we know each other's businesses well.
Speaker Change: We think theres opportunities on two fronts. There number one obviously, we have a lot of the same customers today.
Speaker Change: We know each other's business well and so.
Cristopher Keirn: And so, you know, we do believe there's going to be opportunities on that front. We also, you know, work with some of the same partners from a manufacturing standpoint. So we think there's cost synergies opportunities there. Again, it will take some time to realize these, but we do see, you know, many opportunities there to go in and pursue.
Speaker Change: We do believe there's going to be opportunities on that front. We also.
Speaker Change: Work with some of the same partners from a manufacturing standpoint. So we think there is cost synergy opportunities. There again these will take some time.
Speaker Change: To realize those but we do see.
Speaker Change: Many opportunities there to go and pursue.
Cristopher Keirn: On top of that, you know, we do see some benefits with our partners. So, you know, we have strong licensed partners, as a combined company across all the first party, you know, manufacturers, and, you know, we've got a terrific relationship with all three, and we look forward to working with the combined portfolio that we now have. It just makes it much more powerful for us as we're talking to retailers and to licensed partners about what we can offer as a company. Okay, perfect. And then, Chris, this is a follow-up, and you kind of address this in your preamble and in response to Sean's question, but can you discuss what your expectations are for the legacy business in 2024, setting aside PDP?
Speaker Change: On top of that we do see some benefits with our partners. So.
Speaker Change: We have strong licensed partners.
Speaker Change: As a combined company across all of the first party.
Speaker Change: Manufacturers and.
Speaker Change: We've got a terrific relationship with all three and we're looking with the combined portfolio that we now have.
It just it makes it much more powerful for us as we're talking to retailers and to licensed partners about what we can offer as a company.
Speaker Change: Okay, Perfect and then Chris just as a follow up and you kind of addressed this in your preamble and or in response to Sean's question, but can you discuss what your expectations are for the legacy business in 2020 for setting aside PDP.
Cristopher Keirn: You know, how do you know what you're assuming, as far as the core legacy business? Yeah, absolutely. In the last call, we talked about, you know, we believe our run rate EBITDA, well, we weren't guiding for 24, we talked about our run rate EBITDA being 28 to 33 million and in 30, 31 million in that range.
Speaker Change: Hi.
Chris Clark: What you're assuming as far as the core legacy business.
Chris Clark: Yes, absolutely.
Chris Clark: You know in the last call we talked about we believe our run rate EBITDA, while we werent guiding for 'twenty four we talked about a run rate EBITDA being 20% to $33 million.
Chris Clark: <unk>.
Chris Clark: $31 million in that range.
Cristopher Keirn: And, you know, when you look at that run rate, we've been able to realize those margin benefits sooner than we anticipated. So when you look at the profile, and we're running at 14% of revenue from an EBITDA standpoint, those have really come in as we expected, and even a bit earlier. So, you know, we're feeling good about how that is coming out. We're seeing, you know, mid to high-digit growth in the core business from a revenue perspective. And we're seeing significant growth on the profitability side, hitting that 14% number. Okay, I got it. Thanks, guys. Thanks Drew.
Chris Clark: <unk>.
Chris Clark: When you look at that run rate, we've been able to realize those margin benefits sooner than we anticipated. So when you look at the profile and we're running at 14%.
Chris Clark: Revenue from an EBITDA standpoint.
Chris Clark: It really come in as we expected and even a bit earlier so.
Chris Clark: We're feeling good about how that is coming out we're seeing mid to high digit.
Chris Clark: Sort of growth in the core business from a revenue perspective, and we're seeing significant growth on the profitability side hitting that 14% number.
Speaker Change: Okay got it thanks guys.
Andrew Edward Crum: Please stand by for our next question. As a reminder, ladies and gentlemen, that's Star 1-1 to ask the question. Our next question comes from the line of Jack Cordero with Maximum. Your line is open. Hi, how's it going?
Speaker Change: Thanks for taking thanks drew.
Speaker Change: Please standby for our next question.
Speaker Change: As a reminder, ladies and gentlemen, Thats star one to ask the question.
Speaker Change: Our next question comes from the line of Jack Cordero with Maxim Group. Your line is open.
Jack Vander Aarde: This is Jeff Adair, calling in for Jack Vander Lug. Congratulations on the acquisition. It seems, you know, really exciting. I wanted to ask...
Jack Cordero: Hi, How's it going thank you, Jeff and Eric calling in for Jack.
Jack Cordero: Congrats on the acquisition it seems really exciting.
Jack Vander Aarde: Given that you have kind of these two new anchor segments between like, Console Headsets, as well as the controllers, how should we be thinking about non-console versus console segments? I know in a prior quarter, it was kind of like flight simulation, and some of the other PC accessory segments were kind of really exciting. How should we be thinking about segmentation now?
Eric: I wanted to ask.
Speaker Change: Even that you have kind of these two new anchor segments between like comp.
Jack Cordero: Console headsets as well as the controllers, how should we be thinking about non console versus console segments I don't want to prior quarter. It was kind of like flight simulation and some of the other PC accessories segments were kind of really exciting how should we be thinking about segmentation now.
Cristopher Keirn: Totally, great question Jack. When you look across the segments, clearly headsets are, and will continue to do, quite well there. They'll continue to be the majority of the business, but not nearly as much as they used to be, right? We're probably going to be in the, you know, 55%-ish range of our business will be console headsets. Controllers, between controllers and other categories, you know, we were running about 20% with our existing controllers business, flight sim, PC, all the other categories that we've entered into over the last several years here. And so, as we're going forward, you're going to see a much more balanced portfolio from us and a much more balanced contribution across those different categories. So, you know, the controllers will probably be somewhere in the range, in total, of maybe 25-30%. Just off the top of my head here.
Speaker Change: Until a great great question Jack.
Speaker Change: When you look across the segments clearly headsets are.
We will continue to do quite well there they'll continue to be the majority of the business, but not nearly as much as they used to be right, we're going to be probably in the 55% ish range of our business will be console headsets.
Speaker Change: Controllers between controllers in the other categories, we were running about 20% with our existing controllers business flight Sim PC all the other categories that we've entered into over the last several years here.
Speaker Change: And so as we're going forward youre going to see a much more balanced portfolio from us in a much more balanced contribution across those different categories. So.
Speaker Change: The controllers will probably be somewhere in the range.
Speaker Change: In total of maybe 25% to 30%.
Cristopher Keirn: And then the balance of the rest would be our PC and sim categories. Okay, that's very, very helpful. And then I have one more kind of general industry question. I think you've mentioned a bit, but if you factor in historical levels and normal seasonality, could you give me more color on how the retail channel inventories are progressing in the early part of the year? And, you know, given the news today about... Dollar Tree and some of these other retail closures. Do you expect any headwinds from retail store closures? Thank you, Sure.
Speaker Change: Off the top of my head here and then the balance of the rest would be PC and some categories.
Speaker Change: Okay.
Speaker Change: Okay. That's very very helpful. And then I have one more just kind of general industry question.
Speaker Change: I think you've mentioned a bit, but if you factor in historical levels and normal seasonality.
Can you give me more color on how the retail channel inventories are progressing in the early part of the year and given the news today about kind of like dollar tree and some of these other retail closures do you expect any headwinds from retail retail stores closures.
Cristopher Keirn: You know, we're seeing really good results with our retail partners right now. The channel inventory is in a very good place. I would characterize it as lean, and it was lean even in Q4 and coming into Q1.
Speaker Change: Sure.
We're seeing really good results with our retail partners right now.
Speaker Change: The channel inventory is in a very good place.
Speaker Change: I'd characterize it as lean.
Speaker Change: And it was lean even in Q4 and coming into Q1.
Cristopher Keirn: So we're seeing good replenishments from our partners out there. It's good to be back in sort of, I would say, more of a normal rhythm. You know, now that we're done with the pandemic, we don't have those kind of lumpy inventory issues in the channel anymore. As we were trying to unwind that over the last few years, they're really in a very good place. As far as going forward with retail, we're really excited about, you know, what this transaction means for retailers as well because the amount of, you know, products that we're able to offer retailers across their categories, we have seen trends of retailers really consolidating. You know, when you think about gaming, gamers out there don't just game on one platform.
Speaker Change: So we're seeing good replenishment from our partners out there.
Speaker Change: It's good to be back in sort of.
Speaker Change: I would say more of a normal cadence.
Speaker Change: And with the pandemic that we don't have those kind of lumpy inventory issues in the channel anymore.
Speaker Change: We were trying to unwind that over the last few years.
They are really in a very good place.
Speaker Change: As far as go forward with retail we're really excited about.
Speaker Change: What this transaction means for retailers as well because of.
Speaker Change: The amount of.
Speaker Change: Products that we are able to offer retailers across their categories. We have seen trends of retailers really consolidating when you think about gaming gaming as gamers out there don't just game on one platform nearly everyone's gaming across multiple platforms and now we have.
Cristopher Keirn: Nearly everyone's gaming across multiple platforms, and now we have a portfolio that can address all those folks. And so it's really going to help us from a momentum standpoint, you know, with our retail partners, and we're seeing a good response from the market out there at retail. Thank you for the call. Hop back in the queue.
Speaker Change: Portfolio that can address all of those folks and so it's really going to help us from a momentum standpoint.
Speaker Change: With our retail partners and we're seeing a good response from the market out there at retail.
Speaker Change: Thank you for the color hop back in queue.
Jack Vander Aarde: Thanks, Jack. Please stand by for our next question. Our next question comes from the line of Martin Yang with OpCo. Your line is open. Hi, good afternoon.
Speaker Change: Thanks Jack.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Martin Yang with Opco. Your line is open.
Zhihua Yang: Thank you for taking my question. Congratulations on the deal. Doubling down on the console controller is exciting.
Zhihua Yang: Hi, Good afternoon. Thank you for taking my question.
Zhihua Yang: Congrats on the deal doubling down on console controller is.
Zhihua Yang: But can you maybe talk about the deal rationale aside from PDP being attractive assets? Is there any rationale related to your overall view on the future of the console market? Totally. Hey Martin, thanks for the question. You know, when you look at the rationale behind the deal, you know, one thing that we've always worked towards, and PDP has worked towards this same goal, is scale and diversification. Those two things are so key for us and for our investors that, you know, to have that diversification that you're not so single-threaded on console headsets, so that's why we've been developing this. This is a step change for us and for PDP, taking these two very complementary portfolios and combining them, not to mention the great expertise on the teams on both sides. It really gives us a competitive advantage, you know, in that space.
Zhihua Yang: Exciting.
Zhihua Yang: Can you maybe talk about the deal rationale aside from.
Zhihua Yang: Pete PDP being attractive assets is there.
Zhihua Yang: Any Russia related to your overall view on the feature of coastal market.
Zhihua Yang: Totally hey, Martin Thanks for the question.
Zhihua Yang: When you look at the rationale behind the behind the deal.
Zhihua Yang: One thing that we've always work towards in PDP as we work towards the same goal is.
Zhihua Yang: Scale and diversification those two items are so key for us and for our investors.
Martin Yang: Debt.
Martin Yang: To have that diversification that you are not so single threaded on console headset. So thats why we have been developing this this is a step change for us and for PDP, taking these two very complementary portfolios and combining them as I mentioned the great expertise on the teams on both sides of.
Martin Yang: It really gives us a competitive advantage.
Zhihua Yang: And, you know, we've seen very strong console demand out there. You know, we're in that middle part of the console cycle, you know, with all the consoles, frankly, all the first-party hardware, and we're continuing to see very strong demand, even in January and the early part of this year, from a year-over-year comp perspective. And the way we think about it is, we had this massive demand during the pandemic, and we know that that replacement cycle is about two years, so a little bit of the softness, I think, that we saw in the market last year has now recovered. There were so many great games out last year, and you could finally go and buy a console, and that was really the first year that that happened, you know, in this console cycle.
Martin Yang: In that space and we've seen very strong console demand out there.
Martin Yang: We're in that middle part of the console cycle.
With with.
Martin Yang: All the consoles frankly, all the first party hardware and we're continuing to see very strong demand even in January and early part of this year from a year over year comp perspective, and the way we think about it is we had this massive demand during the pandemic.
Martin Yang: And we know that that replacement cycle is about two years and a little bit of a softness I think that we saw in the market last year. That's now recovered.
Martin Yang: There were so many great games out last year and you could finally go and buy a console and that was really the first year that happened.
Cristopher Keirn: So a lot of those gamer dollars were headed towards their hardware, they were headed towards all these great games, and what we're seeing now in the market is a really great engagement level from gamers, and they're out there refreshing their console accessories. And part of that, too, is driven by all the great new products, right, that are coming out from us and from others, and we're seeing really great demand for those as we launch these new innovative headsets and controllers and simulation products and PC products just across the board. So we're feeling really good and optimistic about how the console market looks from an accessory standpoint for the next year with all these dynamics in place. Got it. Thank you.
Martin Yang: In this console cycle. So a lot of those gamer dollars, we're headed towards their hardware. They were headed towards all of these great games and what we're seeing now in the market as a really great engagement model from gamers and they're at they're refreshing their console accessories and part of that too is driven by all the great new products right that are coming out.
Martin Yang: From us and from others, and we're seeing really great demand on those as we launch these new innovative.
Martin Yang: Headsets and controllers and simulation products and PC products just across the board so.
Martin Yang: We're feeling really good.
Martin Yang: And optimistic about how that console market looks from an accessory standpoint for the next year with all those dynamics in play.
Martin Yang: The 10-Q.
Cristopher Keirn: Another question we did as a council is, you know, looking back at past generations, how do you feel about the mid-console upgrade, such as PS4 Pro? Do you usually try to leverage that as a catalyst for your new product releases? You know, how do you compare those mid-console hardware upgrades to exciting new gains as a driver for yourself?
Martin Yang: Another question related to counsel is looking back at past.
Martin Yang: Past generations.
Martin Yang: Do you feel about the mix also upgrades.
Martin Yang: <unk> PS four CRO.
Martin Yang: Do you usually try to leverage that as a catalyst for your product releases.
Martin Yang: How do you compare those mucosal hardware upgrades.
Two exciting new games.
Martin Yang: As a driver for your sales.
Cristopher Keirn: Yeah, great question. It really helps lift all boats. When you've got new hardware out there, you've got some excitement. Some people are looking at upgrading their systems. It gets people thinking about what they're going to play next and what they're going to use to play those games.
Speaker Change: Yes, great question and it really helps lift all boats when you've got a new new hardware out there you've got some excitement some people are looking at upgrading their systems.
Speaker Change: It gets people thinking about.
Speaker Change: What they are going to play next and what Theyre going to use to play those games. So it really does help sustain the we've seen this with each console cycle. It really helps to sustain that demand and carry through to that next.
Cristopher Keirn: It really does help sustain the, we've seen this with each console cycle, you know, it really helps to sustain that demand and carry through to the next, you know, because the next major release probably from Microsoft and Sony, at least, is still a few years out. And so having those midterm releases really helps keep the momentum moving. Thanks. One last question for me on the model. Can you give us a rough sense of the interest expense on the interline spaces you would incur from the new depth facility? The annualized expense.
Speaker Change: Because the next major release, probably from from Microsoft and Sony leases still a few years out and so having those those mid term releases really helps keep the momentum moving.
Speaker Change: Thanks last question for me on model can.
Speaker Change: Can you give us a rough sense of interest expense on an <unk> basis, you would incur.
Speaker Change: Our new debt facility.
The annualized.
John T. Hanson: So, from an interest perspective, cash interest expense. Yeah. That's right. Yeah, it's about seven and a half million for 2024. Unknown Attendee.
Speaker Change: So all from a interest perspective cash interest expense yes.
Speaker Change: Alright.
Speaker Change: Oh hold on.
Speaker Change: Yes, it's about $7 5 million for 2024.
John T. Hanson: That would be ABL and the terminal. Got it. Thank you. Thanks, Martin. Thank you. As a reminder, ladies and gentlemen, that's star 11 to ask the question.
Speaker Change: Mhm.
Speaker Change: That would be ABL and the term loan.
Speaker Change: Got it thank you.
Speaker Change: Mhm.
Speaker Change: Thanks Martin.
Speaker Change: Thank you.
Speaker Change: As a reminder, ladies and gentlemen that star one to ask the question.
Sean Patrick McGowan: Please stand by for our next question. Hmm. We have a follow-up question from the line of Sean McGowan with Roth. Your line is open. Thanks again. Yeah, a couple of model, you know, housekeeping kind of follow-ups here.
Speaker Change: Please standby for our next question.
Speaker Change: We have a follow up question from the line of Sean Mcgowan with Ross Your line is open.
Sean Patrick McGowan: Thanks, again, yeah, a couple of them.
Sean Patrick McGowan: Model housekeeping kind of follow ups here, so youre pegging that debt.
Sean Patrick McGowan: So you're pegging that, that guidance to the second quarter of 24. Is that when do you expect the deal to close? And when do you expect PDP to start contributing revenue?
Sean Patrick McGowan: <unk> second.
Sean Patrick McGowan: Second quarter 2004 is that when do you expect the deal to close and when do you expect PDP to start contributing revenue.
Cristopher Keirn: That's today, actually. Yeah, it's signed and closed. Yeah, so. All right, that's good. It's been a fun day, Sean. Yeah, it's a little busy. That's good. Congratulations on that, too! And so, can you give us some sense of the seasonality of PDP vis-a-vis the seasonality of Turtle Beach? I mean, I know it's a similar category, but a very different price point. So is this a little bit less concentrated in the fourth quarter?
Speaker Change: That's today actually yes.
Speaker Change: Signing close yet though.
Speaker Change: Oscar it's a bit of fun day, Sean.
Speaker Change: So a little busy.
Speaker Change: Congratulations on that too.
Speaker Change: Can you give us some sense of the seasonality of PDP views or be the seasonality of turtle Beach, I mean, I know similar category, but very different price points. So is this a little bit less concentrated in the fourth quarter can you give us some sense there.
Cristopher Keirn: Can you give us some sense there? Sure. It's very similar.
Cristopher Keirn: When you look at the kind of demand that comes in with the console cycles and the games that are out and when people are looking for new accessories, you know, from a modeling perspective, you're safe to use, you know, our seasonality historically, you know, from a phasing standpoint. That's helpful. And then, finally, can you give us a sense, John, of pro forma capex and free cash flow? Yeah, so, you know, for the next 12 months, if you look at, you know, full 12 months for each, based on our guidance, we're in the, If you take EBITDA less CAPEX, CAPEX is about $6 million in the combined business, so you're in the $54 or $59 million range.
Speaker Change: Sure it's very similar.
Speaker Change: When you look at the kind of the demand that comes in with the console cycle.
Speaker Change: Cycles and the games that are out and when people are looking for new accessories from a modeling perspective, you are safe to use.
Speaker Change: Our seasonality historically.
Speaker Change: Okay from a phasing standpoint, yeah.
Helpful.
Speaker Change: And then finally can you give us a sense John of pro forma Capex and free cash flow.
John: Yeah. So.
John: On a on a next 12 months if you look at a full 12 months for each.
John: Based on our guidance were in the.
John: If you take.
John: EBITDA less capex capex is about $6 million.
John: <unk> business. So you are in the $54 $59 million range.
John T. Hanson: Okay. Thank you very much... Thank you. I'm showing no further questions in the queue.
John: Yeah.
Speaker Change: Okay. Thank you very much appreciate it.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: I am showing no further questions in the queue.
Cristopher Keirn: I would now like to turn the call back over to Chris for closing remarks. Thank you, Tawanda, and thank you everyone for your participation and interest in Turtle Beach. Have a great day. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Shout out to all my fellow producers and friends, and quiet your mind here.
Speaker Change: I'd now like to turn the call back over to Chris for closing remarks.
Chris Clark: Thank you to Wanda and thank you everyone for your participation and interest in Turtle Beach.
Chris Clark: Have a great day.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Okay.
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