Q1 2025 Turtle Beach Corp Earnings Call

Speaker Change: [music].

Greetings and welcome to Turtle Beach Q1, 25 earnings Conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

Operator: Greetings and welcome to Turtle Beach Q125 Earnings Conference Call. At this time, all participants are in a listen-only mode.

Operator: A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Speaker Change: As a reminder, this conference is being recorded it is now my pleasure to introduce your host Mr. Jeff Connolly Investor Relations. Thank you Mr. Conway you may begin.

Operator: It is now my pleasure to introduce your host, Mr. Jack Corney. In this relation, thank you Mr. Corney.

Jack Corney: You may be Thank you, operator.

Speaker Change: Thank you operator on today's call, we'll be referring to the press release filed this afternoon that details the company's first quarter 2025 results.

Jack Corney: On today's call, we'll be referring to the press release filed this afternoon that details the company's first quarter 2025 results. is available on the press releases pages of the company's investor relations website. .turtlebeach.com where you'll also find the latest earnings presentation that supplements the information discussed on today's.

Speaker Change: It is available on the press releases pages of the company's Investor Relations website.

Speaker Change: Corp, Dot Turtle Beach Dot 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 presentations section of the company's Investor Relations website later today. Please.

Operator: Finally, a recording of the call will be available on the events and presentation section of the company's Investor Relations website later today. Please be aware.

Unknown Executive: Some of the comments made during this call may include forward-looking statements within the meaning of the federal security Statements about the company's beliefs and expectations containing words such as may, will, could, believe. Respect, 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 Identify specific risk factors. also may cause actual results or events to differ materially from those described in our forward-looking slides.

Speaker Change: 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.

Speaker Change: While the company believes that its expectations are based upon reasonable assumptions,

Numorous Factors May Effect

Speaker Change: Actual Results and May Cause Results 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,

Speaker Change: It's 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 forward-looking statements.

Unknown Executive: The company does not undertake to publicly update or revise any forward-looking statements after this conference. company also notes.

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

Unknown Executive: that on this call it will be discussing non-GAP financial.

Speaker Change: The company also notes that on this call it will be discussing non-GAAP financial information.

Speaker Change: 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.

Unknown Attendee: Unknown Attendee, Jack Aarde, Zhihua Yang, Cristopher Keirn, Andrew Northcutt, Jack Codera, hosting the call today for Chris Kern, Chief Executive Officer. and Mark Weinswig, Chief Financial Officer.

Speaker Change: You can find a reconciliation of these metrics to the company's reported gap results and the reconciliation tables provided in today's earnings release and presentation.

Speaker Change: Hosting the call today, for Chris Kern, Chief Executive Officer, and Mark Weinswig, Chief Financial Officer. With that, I'll turn the call over to Chris. Chris?

Chris Kern: With that, I'll turn the call over to Chris. Thanks, Chuck. Good afternoon, everyone.

Chris Kern: And welcome to our first quarter 2025 earnings call. Our Q1 results and strong year-on-year growth reflect the focused execution of our entire organization in the face of external challenges. In the first quarter and going forward, we are realizing the combined benefits of our March 2024 acquisition of PDP and continued progress on our Margin Improvement Initiative. First quarter revenue grew by 14% year-over-year to $63.9 million, and adjusted EBITDA increased to $4.1 million, up from $1.4 million a year ago. Our accretive M&A execution and expanded portfolio of next-generation gaming accessories have resulted in growth for both our revenue and profitability.

Chris Keirn: Thanks, Chuck. Good afternoon, everyone, and welcome to our first quarter 2025 earnings call.

Speaker Change: Our Q1 results and strong urine-your-growth reflect the focus execution of our entire organization in the face of external challenges.

Speaker Change: In the first quarter, and going forward, we are realizing the combined benefits of our March 2024 acquisition of PDP and continued progress on our margin improvement initiatives.

Speaker Change: First quarter revenue grew by 14% year-over-year to 63.9 million and adjusted EBITDA increased to 4.1 million up from 1.4 million a year ago.

Speaker Change: Our accretive M&A execution and expanded portfolio of next generation gaming accessories have resulted in growth for both our revenue and profitability.

Chris Kern: Notably, we grew revenue despite a 16% year-over-year decline in the U.S. gaming accessories markets in Q1, according to Cercana, and our gross margins improved substantially by nearly 470 basis points year-on-year to 36.6%. Our continued improvements in business performance are driven by several key factors. First, this quarter included a full quarter of PDP contribution compared to just two weeks in the prior year. We also lowered our promotional spend as a percentage of revenue for the first quarter on the continued strength of our next-generation headset product introductions in 2024. This disciplined promotional approach has improved our profitability.

Speaker Change: Notably, we grew revenue despite a 16% year-over-year decline in the U.S. gaming accessories markets in Q1, according to Serkana, and our gross margins improved substantially by nearly 470 basis points year-on-year, the 36.6%.

Speaker Change: A continued improvements in business performance are driven by several key factors.

Speaker Change: First, this quarter included a full quarter of PDP contribution compared to just two weeks in the prior year.

Speaker Change: We also lowered our promotional spend as a percentage of revenue for the first quarter on the continued strength of our next generation headset product introductions in 2024. This discipline promotional approach has improved our profitability profile.

Chris Kern: Finally, those same next-generation models, including our top-selling Stealth Wireless.

Speaker Change: Finally, those same-next-generation models, including our top-selling self-wireless headsets, are platformed on the latest chipsets that provide significant performance and cost benefits over our previous generation of products.

Chris Kern: are platformed on the latest chipsets that provide significant performance and cost benefits over our previous generation of While our business performance for Q1 reflects the comprehensive improvements in our fundamentals, the broader economic environment has shifted significantly. introducing some lack of visibility for the full year. The evolving external landscape, particularly the challenges posed by tariffs, has added complexities that we must, and will, navigate successfully. We remain committed to addressing these challenges head-on, and we are confident we will manage through them with minimal long-term effects on our positive trajectory and growth. To start the year, we proactively increased our inventory levels in anticipation of possible tariffs, which will provide near-term benefits to margins.

Speaker Change: While our business performance for Q1 reflects the comprehensive improvements in our fundamentals, the broader economic environment has shifted significantly.

Speaker Change: Introducing some lack of visibility for the full year. The evolving external landscape, particularly the challenges posed by tariffs, has added complexities that we must and will navigate successfully.

Speaker Change: We remain committed to addressing these challenges head on, and we are confident we will manage through them with minimal long-term effects on our positive trajectory and growth.

Speaker Change: To start the year, we proactively increased our inventory levels in anticipation of possible tariffs, which will provide near-term benefits to margins and is enabled us to accelerate our adjustments when tariffs were recently announced.

Chris Kern: and has enabled us to accelerate or adjust. when tariffs were recently in With the quick and decisive actions of our team, less than 10% of our U.S. supply will be produced in China after Q1. For the rest of 2025, products for the U.S. market will be primarily produced in Vietnam. And within this dynamic environment, we are assessing further supply chain diversification. Our production capabilities in China are primarily dedicated to producing goods for non-U.S. shipments that are not impacted by the tariff. As part of our comprehensive mitigation activities, we are also evaluating pricing across all our product lines and selectively making necessary adjustments.

Speaker Change: With the quick and decisive actions of our team, less than 10% of our US supply will be produced in China after Q-1.

Speaker Change: For the rest of 2025, products for the US market will be primarily produced in Vietnam. And within this dynamic environment, we are assessing further supply chain diversification.

Speaker Change: Our production capabilities in China are primarily dedicated to producing goods for non-US shipments that are not impacted by the tariffs.

Speaker Change: As part of our comprehensive mitigation activities, we are also evaluating pricing across all our product lines and selectively making necessary adjustments.

Chris Kern: In addition to the tariff issues, it was noted last week that the Grand Theft Auto 6 release has been moved out to the spring of 2026, which we expect will delay the anticipated increased demand for new accessories. However, even without the launch of GTA 6 in 2025, we project that market comps to 2024 will progressively improve throughout the year, accelerated by growth drivers like the introduction of the Nintendo Switch 2 and a full slate of new games. Pre-orders on Switch 2 were widely reported to have sold out in hours, a proof point for the resiliency of gaming customers even in these economic conditions.

Speaker Change: In addition to the tariff issues, it was noted last week that the Grand Theft Auto 6 release has been moved out to the spring of 2026, which we expect will delay the anticipated increase demand for new accessories.

Speaker Change: However, even without the launch of GTA 6 in 2025, we project that market comps to 2024 will progressively improve throughout the year, accelerated by growth drivers like the introduction of the Nintendo Switch 2 and a full slate of new games.

Speaker Change: Priors on Switch 2 were widely reported to have sold out in hours, a proof point for the resiliency of gaming customers even in these economic conditions.

Chris Kern: While full-year gaming accessories markets may remain down for 2025, we expect to return to robust growth in 2026 and beyond, fueled by the strong underlying fundamentals of a growing gamer base and expanding engagement with next-generation systems and game releases. with the expected benefit of ongoing demand for Switch2Access. and a spring 2026 launch for GTA 6 and other exciting titles like Battlefield. We anticipate a return to growth for the gaming accessories space.

Speaker Change: With the expected benefit of ongoing demand for switch to accessories and a spring 2026 launch for GTA 6 and other exciting titles like Battlefield, we anticipate a return to growth for the gaming accessories space.

Chris Kern: To that end, we're focusing on the key growth drivers within our control. From a cost and OPEX perspective, we are mitigating the impacts these external changes will have on our business. While this is a dynamic situation, our updated guidance considers all of these known factors. Our focus remains on expanding our industry-leading gaming accessories portfolio to propel our success over the long run and capitalize on industry growth drivers, including the upcoming launch of the Nintendo Switch 2. This past week, we announced new products set to roll out this spring, including a new wave of officially licensed Nintendo Switch headsets and controllers, as well as new accessories designed specifically for Xbox.

Speaker Change: From a cost and op-ex perspective, we are mitigating the impacts these external changes will have on our business, while this is a dynamic situation, our updated guidance considers all of these known factors.

Speaker Change: Our focus remains on expanding our industry-leading gaming accessories portfolio to propel our success over the long run and capitalize on industry growth drivers, including the upcoming launch of the Nintendo Switch 2.

Speaker Change: This past week, we announced new products set to roll out the spring, including a new wave of officially licensed Nintendo switch headsets and controllers, as well as new accessories designed specifically for Xbox.

Chris Kern: We remain dedicated to expanding our market leadership and enhancing value for our shareholders with sustainable growth and long-term success. Another demonstration of this commitment was our execution of the largest share repurchase program in our history over the last year, repurchasing nearly $30 million worth of stock. During the first quarter, we were limited in our ability to maintain the same pace we had over the past three quarters due to covenants on our debt.

Speaker Change: We remain dedicated to expanding our market leadership and enhancing value for our shareholders with sustainable growth and long-term success.

Speaker Change: Another demonstration of this commitment was our execution of the largest share we purchased program in our history over the last year, repurchasing nearly $30 million worth of stock.

Speaker Change: During the first quarter, we were limited in our ability to maintain the same pace we had over the past three quarters due to the covenants on our dead. Mark will touch on this more.

Chris Kern: Mark will touch on this. Share repurchases will continue to be a part of our capital allocation plans as they underscore our unwavering confidence in Turtle Beach's future and our dedication to returning capital shareholders while making strategic investments to grow the company.

Speaker Change: Sherry purchases will continue to be a part of our capital allocation plans as they underscore our unwavering confidence in Turtle Beach's future and our dedication to returning capital shareholders while making strategic investments to grow the company.

Chris Kern: As such, we've announced today that the company has authorized a new share repurchase program of up to $75 million over the next two years. Moving forward, we will maintain a sharp focus on capital allocation, ensuring that our financial strategies align with our goal of delivering sustained value and growth.

Speaker Change: As such, we've announced today that the company has authorized a new share repurchase program of up to $75 million over the next two years.

Speaker Change: Moving forward, we will maintain a sharp focus on capital allocation, ensuring that our financial strategies align with our goal of delivering sustained value and growth. Mark will now take us through the financials. Mark.

Mark Weinswig: Mark will now take us through the financials. Thank you, Chris. Good afternoon, everyone. As Chris mentioned, our first quarter 2025 revenue was $63.9 million, up 14% from the prior year, driven by a full quarter of revenue from the PDP acquisition, which closed on March 13, 2024. In addition to the strong revenue performance, we continue to drive efficiencies and operational improvements leading to gross margin expansion. Our gross margin for the first quarter improved by 470 basis points over the prior year to 36.6%. Operating expenses of $21.8 million, or 34% of revenue, compared to 42% in the prior year.

Mark Weinswig: Thank you, Chris. Good afternoon, everyone. As Chris mentioned, our first quarter 2025 revenue was 63.9 million of 14% from the prior year, driven by a full quarter of revenue from the PDP acquisition, which closed on March 13, 2024.

Mark Weinswig: In addition to the strong revenue performance, we continue to drive efficiencies and operational improvements, leading to gross margin expansion. Our gross margin for the first quarter improved by 470 basis points over the prior year to 36.6%.

Mark Weinswig: Operating expenses of $21.8 million were 34% of revenue compared to 42% in the prior year.

Mark Weinswig: We continue to focus on expanding our operating leverage, so as we grow in the future, we will generate higher levels of income. During the quarter, we realized a $3.4 million insurance recovery related to the inventory loss in transit from the fourth quarter, offsetting the prior quarter's loss. Our revenue growth, combined with cost efficiencies, resulted in a significant improvement in adjusted EBITDA over the prior year. Our first quarter of 2025 Adjusted EBITDA of $4.1 million increased 180% from the prior year's Adjusted EBITDA of $1.4 million, illustrating the strong operating leverage in our business. Turning to our balance sheet, as of March 31st, net debt was $43.6 million, comprised of $55.2 million of outstanding debt and $11.7 million of cash.

Mark Weinswig: We continue to focus on expanding our operating leverage, so as we grow in the future we will generate higher levels of income.

Mark Weinswig: During the quarter, we realized a $3.4 million insurance recovery related to the inventory loss in transit from the fourth quarter, offsetting the prior quarter's loss.

Mark Weinswig: Our revenue growth, combined with cost efficiencies, resulted in the significant improvement in adjusted EBITDA over the prior year.

Mark Weinswig: Our first quarter of 2025 adjusted EBITDA, a 4.1 million, increased 180% from the prior years adjusted EBITDA of 1.4 million, illustrating the strong operating leverage in our business model.

Mark Weinswig: Turning to our balance sheet, as of March 31, net debt was 43.6 million comprised of 55.2 million of outstanding debt and 11.7 million of cash.

Mark Weinswig: The debt balance includes $6.6 million outstanding under our revolving credit line and $48.6 million outstanding on the terminal. In the first quarter, we made some investments in inventory, which will provide short-term benefits to our margins in the current environment. One highlight of this quarter was our strong cash flow generation. During the first quarter, our cash flow from operations grew by nearly 50% year-over-year to over $40 million. This was one of the highest cash flow generating quarters in the company's history and points to the strength of our business.

Mark Weinswig: The debt balance includes 6.6 million outstanding under our revolving credit line and 48.6 million outstanding on the term loan.

Mark Weinswig: In the first quarter, we made some investments in inventory which will provide short term benefits to our margins in the current environment.

Mark Weinswig: One highlight of this quarter was our strong cash flow generation. During the first quarter, our cash flow from operations grew by nearly 50% year-over-year to over $40 million and $20 million.

Mark Weinswig: This was one of the highest cashflow generating quarters in the company's history and points to the strength of our business.

Mark Weinswig: Moving to our capital allocation activity. During the first quarter, we returned another $1.8 million to shareholders through our Share Repurchase Program. Over the past year, the company has repurchased nearly $30 million in stock, the largest buyback in its In addition, as noted in today's release, we also announced a new stock repurchase authorization of up to $75 million over the next two years, marking another record for the company.

Mark Weinswig: Moving to our capital allocation activities, during the first quarter, we returned another 1.8 million to shareholders through our share repurchase program. Over the past year, the company has repurchased nearly 30 million in stock, the largest buyback in its history.

Mark Weinswig: In addition, as noted in today's release, we also announced a new stock repurchase authorization of up to 75 million over the next two years marking another record for the company.

Mark Weinswig: Now turning to guidance. As Chris mentioned, the evolving landscape and macroeconomic environment requires a revision in our 2025 financial outlook. The range of outcomes is wider given the macroeconomic uncertainty.

Mark Weinswig: Now turning to guidance. As Chris mentioned, the evolving landscape and macroeconomic environment requires a revision in our 2025 financial outlook.

Mark Weinswig: The range of outcomes is wider given the macroeconomic uncertainties. As a result, we are revising four-year 2025 revenue to be in the range of 340 million to 360 million.

Mark Weinswig: As a result, we are revising full year 2025 revenue to be in the range of $340 million to $360 million. We expect our full year 2025 adjusted EBITDA to now be in the range of $47 to $53 million. Our updated outlook reflects the information as of today.

Mark Weinswig: We expect our full year 2025 Adjusted EBITDA to now be in the range of 47 to 53 million.

Mark Weinswig: Our updated outlook reflects the information as of today. The environment continues to be dynamic, which raises the possibility of additional market updates that could further impact our expected results.

Mark Weinswig: The environment continues to be dynamic, which raises the possibility of additional market updates that could further impact our expected results.

Mark Weinswig: In terms of seasonality, it's important to note that we typically see the majority of our revenues in the second half of the year coinciding with the holiday season. We believe the second half of this year we will see an even larger portion of revenues than prior years due to the anticipated launch of Nintendo Switch 2 and the current consumer environment. As such, we expect the second quarter to account for approximately 16-17% of full-year revenues and for two-thirds of our full-year revenue to occur in the second half of the year.

Mark Weinswig: In terms of seasonality, it's important to note that we typically see the majority of our revenues in the second half of the year coinciding with the holiday season.

Mark Weinswig: We believe the second half of this year we will see an even larger portion of revenues than prior years due to the anticipated launch of Nintendo Switch 2 and the current consumer environment.

Mark Weinswig: As such, we expect the second quarter to account for approximately 16 to 17% of full-year revenues and for two-thirds of our full-year revenue to occur in the second half of the year.

Mark Weinswig: Overall, we are happy with our performance in the first quarter. Our team's quick actions and strong execution has Turtle Beach well-positioned to be successful within this dynamic environment.

Mark Weinswig: Overall, we are happy with our performance in the first quarter. Our team's quick actions and strong execution has Turtle Beach well positioned to be successful within this dynamic environment. With that, I would turn the call back to Chris. Chris?

Chris Kern: With that, I will turn the call back to Chris. Thanks, Mark. As we discuss our outlook, we believe it is important to provide our shareholders with our best views of guidance based on all available data at this time. As such, we are providing updated guidance and reaffirming that our profitability profile and cash flow model remain robust, thanks to the transformation of the company over the past year and our rapid response to the recent tariff We are energized by our Q1 results and our comprehensive strategy for continued innovation, execution and growth. While the macroeconomic environment remains challenging, our agile and proactive work so far puts us in a position with low exposure to China tariff risk.

Thanks Mark.

Mark Weinswig: As we discuss our outlook, we believe it is important to provide our shareholders with our best views of guidance based on all available data at this time. As such, we're providing updated guidance and reaffirming that our profitability profile and cash flow model remain robust. Thanks to the transformation of the company over the past year and our rapid response to the recent tariff risks.

Mark Weinswig: We are energized by our Q1 results and our comprehensive strategy for continued innovation, execution and growth.

Mark Weinswig: While the macroeconomic environment remains challenging, our agile and proactive work so far puts us in a position with low exposure to China tariff risk.

Chris Kern: This may prove to be a competitive advantage and provide potential upsides in a dynamic environment.

Mark Weinswig: This may prove to be a competitive advantage and provide potential upsides in the dynamic environment. As always, I'd like to recognize and thank our amazing team at Turtle Beach for their dedication and contributions to our success.

Chris Kern: As always, I'd like to recognize and thank our amazing team at Turtle Beach for their dedication and contributions to our success. We are eager to capitalize on the many opportunities that the gaming industry and our leading position in accessories will provide.

Mark Weinswig: We are eager to capitalize on the many opportunities that the gaming industry and our leading position in accessories will provide.

Operator: With that, Operator, we can open the call for Q&A. Thank you. We will now be conducting a question and answer session.

With that operator, we can open the call for Q and A.

Transcription by ESO. Translations by —

Speaker Change: Thank you. We will now be conducting a question on our session.

Operator: If you would like to ask a question, please press star 1 on your telephone keyboard. The confirmation tone will indicate your line is in the question.

Mark Weinswig: If you would like to ask a question, please press star one on a telephone k-pad.

Operator: You may press star 2 if you would like to remove your questions from the For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. One moment please while we poll for questions.

Mark Weinswig: A confirmation tone will indicate your line isn't a question cue. You may plus start to, if you would like to remove your questions from the cue.

Mark Weinswig: For participants using speaker equipment, it may be necessary to pick up your handset before replacing the stock keys.

One moment please, by the poll for questions.

Anthony Storrs: The first question comes from the line of Anthony Storrs. with Craig Hullum. Good afternoon, guys. Um, a couple questions.

The first question comes on the line of Anthony Stoss.

with Craig Hullum. Please go ahead.

Chris Kern: So maybe if you could help shed a little bit more light on the $50 million reduction in revenues, how much of that is kind of slated from the GTA 6 pushout versus tariff and macro? And then, Mark, maybe you can comment on expectations for gross margins, maybe the June, June quarters and the remainder of the year. Hey, Tony, thanks for the question. And great to have you here. The revised guidance is really a function of our adjusted views on what the accessories markets are going to do for the full year. And there's several factors in there, GTA VI is part of them, but it's really a combination of factors.

Speaker Change: Good afternoon guys, a couple questions. So maybe if you could help channel a little bit more light on the $50 million reduction in revenues, how much of that is kind of...

Mark Weinswig: Flated from the GTA, Six push out versus tariff and macro, and then Mark, maybe you can comment on expectations for gross margins, maybe the June , June quarter is in the remainder of the year. Thanks.

Speaker Change: Hey Tony, thanks for the question and great to have you here. The revised guidance is really a function of our adjusted views on what the accessories markets are going to do for the full year.

Speaker Change: and there's several factors in there. GTA 6 is part of them, but it's really a combination of factors. Let me talk you through those a little bit.

Mark Weinswig: Let me talk you through those a little bit. When we issued our initial guidance, you know, we believe Q1 would be down kind of mid single digits, you know, year over year, from a market perspective in the US. And what we've seen is the broader accessories markets down 16% for Q1. And headsets and third party controllers are actually down more than 20% through Q1. So gross margins in the first quarter were very strong. We came in at over 36%. Looking forward to the rest of the year, we put out our long-term financial targets saying that our goal is to be at mid to high 30s.

Speaker Change: When we issued our initial guidance, we believed Q1 would be down kind of mid-single digits, you know, year over year, from a market perspective in the U.S. and what we've seen

Speaker Change: is the broader accessories markets down 16% for Q1, and headsets in third party controllers are actually down more than 20% through Q1.

When we think about...

Starting from that basis on Q1 going forward.

Speaker Change: Remember, we guided prior to the tariff sitting, prior to a lot of the consumer sentiment data that's come out and we think that those challenges have to be considered as we look at the full year. So that being said, we do think the market's going to improve as we go through the year from a con perspective. So that's what we're going to do.

Speaker Change: and if you look at how the model is built, we think that Q2's cops will improve to, you know, being down sort of in the mid teens, year-over-year, on accessories, and that's going to be driven by Nintendo Switch 2, launching in June .

Speaker Change: And then when you look at the back half of the year, Q3, Q4, we've got that modeled now of being down mid single digits on a percentage basis.

Speaker Change: versus up mid-single digits on a percentage basis year-over-year. So when you put all those quarters together, it puts the year down about 10 to 12 percent for the gaming accessories markets that we play in here in the US.

and, you know, that's about a 15% difference.

Speaker Change: from what we had planned, of being up kind of mid.

Speaker Change: load amid single digits from a market perspective in 25. So that's the driver in that 50 million.

Speaker Change: You know, the set of drivers that are combining to make that, that being said, we feel great about 26 and when you look ahead to what is happening in the gaming market,

Speaker Change: You're going to have, you know, the full effect of Switch 2. It'll be rolling at that point. You're going to have games like Battlefield and GT6 coming in in the spring of next year. So this isn't any kind of a long term. This is more of a delay in what that demand list is going to look like, but it does impact 25 and that's...

Mark Weinswig: That's why you see the adjustment in the numbers. And I'll turn it over to Mark here for comments on the gross margin.

Mark Weinswig: So gross margins in the first quarter were very strong. We came in at over 36% looking forward to the rest of the year. We put out our long term financial targets saying that our goal was to be at mid to high 30s. We still expect those levels. In the second quarter, there will be a little bit of pressure as we see lower revenue. We do expect to see some impact from tariffs. In addition, there will be some one-time costs or some additional investments associated with the moves that we mentioned today. But one-

Mark Weinswig: We still expect those levels. In the second quarter, there will be a little bit of pressure as we see lower revenue. We do expect to see some impact from tariffs. In addition, there will be some one-time costs or some additional investments associated with the moves that we mentioned today. But one really important note is that we moved very, very quickly once everything happened on tariff day. And we have executed extremely well to put us in a great position to be able to recover on the margin side throughout the rest of this year. Mark, does that put June at?

Mark Weinswig: Another important note is that we moved very, very quickly once everything happened on Terrific Day and we have executed extremely well to put us in a great position to be able to recover on the margin side throughout the rest of this year.

Mark Weinswig: 34%, 33%, 35%, what are you guys targeting? Yeah, we should be down to the low 30s in the in the second quarter with us being able to build up from there through Q3 and Q4. Got it.

Unknown Speaker

Unknown Speaker: Mark, does that put June at like 34%, 33%, 35? What would you guys target in?

Mark Weinswig: We should be down to the low 30s in the second quarter with us being able to build up from their through Q3 and Q4.

Mark Weinswig: And then lastly, is the company taking any further cost controls or cost cuts given kind of the renewed look at 2025? Yeah, we've been on a, you know, executing on that strategy for some time now. We do think there's more opportunities. You know, when we did the acquisition of PDP last year, we were able to recognize, you know, synergies above our original projections. And I really have to give credit to our team of really finding those opportunities to drive cost synergies. And as we look forward, you know, it is a very dynamic environment with the transfers that we're making in our production.

Speaker Change: Got it. And then lastly, is the company taking any further cost controls or cost cuts, given kind of the renewed look at 2025?

Speaker Change: Yeah, we've been on, you know, executing on that strategy for some time now. We do think there's more opportunities. You know, when we did the acquisition of PDP last year, we were able to recognize, you know, synergies above our original projections. And I really have to give credit to our team of really finding those opportunities to drive cost synergies.

Speaker Change: And as we look forward, you know, it is a very dynamic environment with the transfers that we're making in our production and we believe that there's going to be opportunities there as we make those moves to really find more reductions and we factor that into our guidance, but we'll continue down that same path.

Mark Weinswig: And we believe that there's going to be opportunities there as we make those moves to really find more reductions. And we factor that into our guidance. But we'll continue down that same path.

Mark Weinswig: And two items to note, which is we do expect strong growth for 2026. So we want to make sure that we have the, you know, the team and the investments there. And then second of all, is that in the second quarter, based on the actions that we've taken, there will be a little bit of investment in Q2 as we, you know, finish up the plans to migrate some of the manufacturing and make sure that we're set up to be able to execute for the second half of the year.

Speaker Change: And two items to note, which is we do expect strong growth for 2026, so we want to make sure that we have the team and the investments there, and then second of all is that in the second quarter, based on the actions that we've taken, there will be a little bit of investment in Q2 as we finish up the plans to migrate some of the manufacturing and make sure that we're set up to be able to execute for the second half of the year.

Anthony Storrs: Pretty good, guys. Best of luck. Thanks, Tony. Thank you.

Pretty good guys, best of luck.

Thanks, Tony.

Sean McGowan: Next question comes from the line of Sean McGowan with the Roth Capital Partners. Hi guys, thanks. Yeah, I'm going to focus on a couple of things too on the on the guidance reduction.

Unknown Speaker

Speaker Change: Thank you. Next question comes to the line of Sean McGowan with the Roth Capital Partners, please go ahead.

Sean McGowan: Hi guys, thanks. Yeah, I'm going to focus on a couple of things, too, on the on the guidance reduction. So, you know, some of these things that are affecting your outlook, I'm sure are...

Chris Kern: So, you know, some of these things that are affecting your outlook, I'm sure are you know and not only out of your control but like there's no way they're reversing you know GTA 6 isn't coming back into this year but the impact of tariffs and Hi, Sean, great question. And we are ready to go should that happen. You know, we mentioned that we stocked up on some inventory. So we're in a very strong inventory position right now, if anything happens short term, because at any day, there could be a tariff announcement that provides some relief.

Sean McGowan: You know and not only out of your control but like there's no way they're reversing you know GTA 6 isn't coming back into this year but the impact of tariffs and the

Sean McGowan: You related impact on consumer sentiment, that could be fluid. So the question is to what extent are you able to

Sean McGowan: Kind of recover with production and shipments, if there is a positive switch to some of those factors, or at some point you can't make it anymore, but what kind of flexibility do you have to rebound if there's change?

Sean McGowan: Hi, Sean. Great question. And we are ready to go. Should that happen? You know, we've mentioned that we stocked out bonds in the inventory, so we're in a very strong inventory position right now. If anything happens short-term, because at any day there could be a tariff announcement that provides some relief.

Chris Kern: So we wanted to give you the color on our assumptions on the market, being down 10 to 12% for accessories for the full year and the categories that we play. Because if it does improve, clearly, we'll be recovering, you know, you know, some of that adjustment in the guidance. But at this point, without that visibility, we felt that we wanted to give you the assumptions behind the change. And then as we go through the year, and we see those adjustments, we'd be ready to go. But as far as a supply, you demand increase coming in from from markets improving, we would be completely ready to go for that should that occur.

Sean McGowan: So we wanted to give you the color on our assumptions on the market, being down 10 to 12% for accessories for the full year and the categories that we play because if it does improve, clearly we'll be recovering some of that adjustment in the guidance.

But at this point, without that visibility.

Sean McGowan: We felt that we wanted to give you the assumptions behind. [inaudible]

Unknown Speaker, Mark Weinswig, Unknown Attendee

Sean McGowan: That's helpful, isn't it?

Chris Kern: You map out your planning, and I appreciate how difficult this is when any day there could be a switch. Ha, right. Yeah, what is the tariff assumption for Vietnam that you are baking into your own projection? Anything like what has been proposed or are you assuming something different? Great question. It's exactly what we have today. So what's in the guidance are today's tariff conditions. And that includes what we're seeing in Taiwan right now and the exemptions that are in place in Taiwan right now. If that were to change, we stand ready with our mitigation plans ready to go.

Okay, that's all for energy.

Sean McGowan: What is the tariff assumption for Vietnam that you are baking into your own projections at this point? Is it anything like what has been proposed or are you assuming something different?

Thank you very much. Thank you.

Sean McGowan: Great question. It's exactly what we have today. So what's in the guidance are today's tariff conditions and that includes what we're seeing in Taiwan right now and the exemptions that are in place in Taiwan right now.

Sean McGowan: If that were to change, we stand ready with our mitigation plans ready to go. And we know exactly the actions we would take should those decrease or increase. So that's one of those that, you know, once, once, once,

Chris Kern: And we know exactly the actions we would take, should those decrease or increase. So that's one of those that, you know, once the tariff is concluded, I guess the negotiations are concluded, we stand ready to go to make those adjustments. Okay, you're not assuming the rate. originally thrown out there in that voodoo mask, you're assuming what was actually in place. It's what we have today. That's correct. And you know, when we look at the relative risk, you know, between Vietnam and China, we feel like we're in a strong position, taking that approach that we're executing to now.

Sean McGowan: The tariff is concluded. I guess the negotiations are concluded. We stand ready to go to make those adjustments.

Speaker Change: Okay, you're not assuming the rape that was originally thrown out there in that voodoo in the math, you're assuming what was actually in place.

Speaker Change: It's what we have today, that's correct. And you know, when we look at the relative risk between Vietnam and China, we feel like we're in a strong position, taking that approach that we're executing to now. But if it were to go back up at a higher rate, we stand ready to go with our mitigation plans there.

Chris Kern: But if it were to go back up at a higher rate, we stand ready to go with our mitigation plans there. Okay, that's helpful.

Sean McGowan: One other question. On a pro forma basis, they were pretty much along the lines of the market, right? So the market, as we mentioned, was down over 20%, you know, for those key categories that PDP products were playing in, particularly controllers, third-party controllers were down over 20%. They were right in line with the performance of the market. Thank you very much. Thanks, Sean.

Speaker Change: Okay, that's all for one other question. Was PDP up during the quarter on a pro-format basis?

Speaker Change: On a pro-forma basis, they were pretty much along the lines of the market. So the market, as we mentioned, was down over 20% for those key categories.

Speaker Change: That PDP products were playing in particularly controllers, third party controllers were down over 20%. They were right in line with the performance of the market.

Okay, thank you very much, appreciate it.

Thanks, Sean.

Martin Young: Next question comes from the line of Martin Young with Oppenheimer & Co. Please go ahead. All right, thank you for taking my question. Some of the, my question regarding TAVR is having answers. So I asked about pricing. So is the current revised guidance imply any potential pricing adjustments throughout the year?

Speaker Change: Thank you. Next question comes to the line of Martin Yang with Open Eimer and Co. Please

Unknown Speaker

Martin Young: All right. Thank you for taking my question. Some of the questions we've learned have having answered, so I asked about pricing. So is the current revised guidance in fly any potential pricing adjustments throughout the year.

Mark Weinswig: Hi Martin, thanks for the question. It does include the pricing adjustments that we've already gone out and communicated with our partners. So we took quick action on that and there will be some pricing adjustments going into place to mitigate the tariffs that are currently in place. And that's why you don't see really from a margin standpoint and from an EBITDA perspective, it's pretty much in line with the revenue drop, taking into consideration our fixed cost leverage. So there's no real changes from what we announced in our initial guidance to the impact of the tariffs for us and that's a combination of the cost reduction activities the team's taking in addition to these pricing adjustments.

Unknown Speaker

Hi, Martin. Thanks for the question.

Speaker Change: It does include the pricing adjustments that we've already gone out and communicated with our partners. So we've took quick action on that and there will be some pricing adjustments going into the place to mitigate the tariffs that are currently in place.

Speaker Change: And that's why, you know, you don't see really from a...

from a margin standpoint, and from an EBITOP perspective.

Speaker Change: So, there's no real changes from what we announced in our initial guidance to the impact of the tariffs for us and that's a combination of the cost reduction activities that teams taking in addition to these pricing adjustments. But those pricing adjustments are already in the guidance.

Mark Weinswig: But those pricing adjustments are already in the guidance.

Mark Weinswig: If there's changes to the current tariff situation, we'll be taking additional actions on price to address those. Can you share with us the range of pricing adjustments you have communicated? Yeah, it's really, you know, we hate raising prices. This is not a situation that we want to be in. But unfortunately, we're really in the left with no choice. It really varies category by category. And we look at it holistically. So there's not really a range I can give you. It does vary. There's some products where we're absorbing the entirety of the hit. And there's other products where we have to share some of that, you know, impact from the tariff.

Speaker Change: If there's changes to the current terror situation, we'll be taking additional actions on price to address those.

Speaker Change: Can you share with us some of the range of pricing adjustments you have communicated?

Unknown Speaker

Speaker Change: Yeah, it's really, you know, we hate raising prices. This is not a situation that we want to be in, but unfortunately

We're really in the left with no choice. It really varies.

Speaker Change: Category by Category and we look at it holistically so there's not really a range I can give you it does vary there's some products where we're absorbing the entirety of the hit and there's other products where we have to share some of that you know impact from the tariff.

Mark Weinswig: So it really varies by category. Got it.

Mark Weinswig: Thank you.

So it really varies by category. [inaudible]

Unknown Executive: Another question on the supply chain, you talk about the swift transition to Vietnam. Unseen Host in Canada. Skip to the middle of the slide.

Speaker Change: God, thank you. Another question on the supply chain, you talk about the swift transition to the numb.

Speaker Change: Sipping to US as potentially a competitive advantage. Can you broadly talk about what goes into your swift decision and execution and how others may not be able to do so?

Chris Kern: Sure, yeah, I can speak for Turtle Beach. We've been really tracking this for years. The first administration, we took many steps five or six years ago to diversify our supply chain, particularly to Vietnam. And as we saw the potential for tariffs coming late last year, we started to put into place some additional purchases to make sure that we had a sufficient stock if we needed to bridge any transitions. So that turned out to be a very good decision and a great action by the team to do that. And then immediately when the sort of Liberation Day tariffs went into effect, we took the decision to then go ahead and action the mitigation plans that we had in place to shift those products and to move that production.

Unknown Speaker

Speaker Change: Sure, I could speak for Turtle Beach. We've been really tracking this for years, you know, the first administration we took

Speaker Change: Many steps five or six years ago to diversify our supply chain particularly the Vietnam.

Speaker Change: and as we saw the potential for tariffs coming last year or late last year, we started to put into place some additional purchases to make sure that we had a sufficient stock if we needed to bridge any transitions.

Speaker Change: So that turned out to be a very good decision and a great action by the team to do that. And then immediately when the sort of liberation day tariffs went into effect.

Speaker Change: We took the decision to then go ahead and action the mitigation plans that we had in place.

Speaker Change: to shift those products and to move that production. And that's why, you know, really starting with the end of Q1, if you look at our Go Forward purchases, it's less than 10% is coming from China for the U.S.

Chris Kern: And that's why really starting with the end of Q1, if you look at our go-forward purchases, it's less than 10% is coming from China for the U.S. this year. And I think I've seen some of the other numbers out there. I'm not sure anyone else is able to move that quickly. This is one great thing about our team here. We're a global team, but we're still a fairly small team, and we can move very, very quickly and make those decisions and action them.

Unknown Attendee

Chris Kern: And I'm just so proud of what the team has been able to do here to put us in that position.

Martin Young: Thank you, Chris. Thanks, Martin. Thank you.

Thank you, Chris. That's up for me.

Operator: A reminder to all the participants that you may press star and one to ask a question.

Thanks, Martin.

Speaker Change: Thank you, a reminder to all the participants that you may press star in one to ask a question.

Jack Codera: Next question comes from the line of Jack Van Der Aarde with Maxim Group LLC. Please go ahead. Hi, this is Jack Codera calling in for Jack van der Aarde, thanks for taking my questions. Can you guys provide any additional color on what you're expecting in terms of the scope of the one-time costs? And then, I think you mentioned you guys have already transitioned, so if I remember correct, less than 10% of products are going to be produced in China, can you give any color on that existing chunk? Is that chunk going to have any lasting impact on gross margin?

Speaker Change: Next question comes on the line of Jack Wander Aarde, with Maxim Group, LL50 Squad.

Speaker Change: Hi, this is Jack Codera calling in for Jack Van Der Rhyg. Thanks for taking my questions.

Speaker Change: And then, I think you mentioned you guys have already transitioned. So, if I put the numbers correct, less than 10% of products are going to be produced in China. You know, can you give any color on that existing chunk? Is that chunk going to have any lasting impact on gross margin? Thank you.

Mark Weinswig: Thank you. Sure, yeah, the one-time costs, there's some transition costs in there. We do have some tariff impact, as we mentioned in the call, in Q1, or Q4 call, is that there's several million dollars of tariff impact that we're continuing to carry, it's 150 basis points or so kind of hit there that you'll see in the numbers. So those are really the extent of those charges.

Speaker Change: Sure, yeah, the one-time cost, there's some transition costs in there. We do have some tariff impact as we mentioned in the Q4 call, is that there's several million dollars of tariff impact that we're continuing to carry. It's 150 basis points or so, you know, kind of hit there that you'll see in the numbers. So those are really the extent to those charges.

Mark Weinswig: And can you repeat the second part of your question, Jack? Yeah, so I guess the the remaining part of products that I don't know if you just haven't transitioned them out of China, or you expect that they'll stay in there, do you expect any lasting impact on gross margin from those products? Sure. You know, it depends on how the tariff situation plays out, obviously, but that's about 6% of our total, you know, purchases globally now is kind of what that works out to. So it's a very small, you know, portion of our portfolio. I don't anticipate that there would be any long lasting impacts if the tariffs were to remain there.

Speaker Change: And can you repeat the second part of your question, Jack?

Speaker Change: You know, it depends on how the tear situation plays out obviously, but that's about 6% of our total, you know, purchases globally now is kind of what that works out too. So it's a very small, you know, portion of our portfolio.

Speaker Change: I don't anticipate that there would be any long lasting impacts if the tariffs were to remain there. Those are in categories that I believe competitively there's going to be a lot of folks that are in that same boat.

Mark Weinswig: Those are in categories that I believe competitively, there's going to be a lot of folks that are in that same boat. So no, I don't anticipate any long term gross margin impacts from that remaining 10% or under 10% production in China for the US.

Speaker Change: So no, I don't want to anticipate any long-term gross margin impacts from that remaining 10% or under 10% production in China for the US.

Mark Weinswig: Okay, that's helpful. And then, you know, one more question, you mentioned kind of back half loaded seasonality. Um, but you know, given that we're already a bit through to Q, you know, do you have any view qualitatively how consumer dynamics are changing? Are they being more cautious? You know, are they buying to avoid increased costs? Any color there would be helpful. Sure, seasonality wise, you know, I do believe it's going to look more like last year. We started initially looking at the year prior to the tariff announcements, prior to what we've seen in Q1. You know, we kind of looked at this as something that would be more like a 2019 pre-pandemic seasonality, but with some acceleration in the back half of the year.

Speaker Change: Okay, that's helpful. And then, you know, one more question. You mentioned kind of back half loaded seasonality, but, you know, given that we're already a bit through to Q, you know, do you have any view qualitatively how consumer dynamics are changing? Are they being more cautious? Are they vying to avoid increased costs? Any color there would be helpful?

Sure.

Seasonality wise

Speaker Change: You know, I do believe it's going to look more like last year. We started initially looking at the year prior to the terror announcements prior to what we've seen in Q1. You know, we kind of looked at this as something that would be more like a 2019 pre-pandemic.

Mark Weinswig: What we're seeing looks much more like last year. I do think we'll see some lift, and that's why we're saying we think the market is going to improve each quarter this year because of Switch 2 and what that's going to bring to gaming, and the other game releases that are going to be coming out here this year. So that should continue to improve, but I think seasonality wise, I would look to last year, and that's roughly what we're assuming we're going to see with some benefit in the back half. As far as consumer behavior, we haven't really seen, as you can see from the Q1 numbers, not really seeing a lot of folks buying ahead.

Speaker Change: Seasonality, but with some acceleration in the back half of the year. What we're seeing looks much more like last year I do think we'll see some lift and that's why we're saying we think the market is going to improve each quarter this year because of switch two and what that's going to bring to gaming and the other game releases are going to be coming out here this year. So.

Speaker Change: That should continue to improve, but I think seasonality wise, I would look to last year and that's roughly what we're assuming we're going to see with some benefit in the back half.

Speaker Change: As far as consumer behavior, we haven't really seen, as you can see from the Q1 numbers, not really seeing a lot of folks buying ahead. Those are before the tariff purchases, of course, or the tariff announcements, rather.

Mark Weinswig: Those are before the tariff purchases, of course, or the tariff announcements, rather. And so when you look at April, we haven't really seen a lot of behavior either from consumers or retailers sort of buying ahead of tariffs at this point.

Speaker Change: And so when you look at April , we haven't really seen a lot of in behavior either from consumers or retailers sort of buying ahead of tariffs at this point.

Mark Weinswig: Okay, that's helpful. Thank you. Thanks, Jack.

That's helpful. Thank you.

Sean McGowan: Next question comes from the line of Sean McGowan with Roth Capital Partners. Please go ahead. So I wanted to talk a little bit about your comments regarding, I think you said taking some products. You know, kind of in anticipation of the tariffs or just the general comment. is getting ready to move quickly. How do I square that with the fact that your inventory is really not up that much year over year? And that's one of the ways you're able to generate so much cash. Is there an inventory sitting with suppliers? Now, a key factor, Sean, and it's a great point, is that a lot of the inventory we had last year was directly after the PDP acquisition.

Thanks Jeff.

No.

Speaker Change: Thank you. Next question comes on the line of Sean McGowan with Roth Capital Partners, please

Hey, I'm back.

Speaker Change: I think you said taking some product in, you know, kind of an anticipation of the tariffs or just the general comment you've made about being ready to move quickly if there if there is a change in.

Speaker Change: in the outlook. How do I square that with the fact that your inventory is really not up that much?

Speaker Change: Year Over Year, you know, and that's one of the ways you're able to generate so much cash. But, you know, is there inventory sitting with suppliers? It's not on your books like how can you have that flexibility if you don't have the inventory?

No, a key factor, Sean, and it's a great point.

Speaker Change: is that a lot of the inventory we had last year was directly after the PDP acquisition. A lot of that inventory was product that we're no longer selling, so there was some slow moving

Mark Weinswig: A lot of that inventory was product that we're no longer selling, so there were some slow-moving goods. Any time you do an acquisition like that, you end up clearing through a good portion of that inventory that's not really a replenishment good, and we've done a lot of that work over the last year. So, how we would characterize it is the inventory we have now is, by and large, highly replenishment-based inventory, and we don't have a lot of that slow-moving really left with us. We've cleared a lot of that in the past year. So, the quality of inventory we have at this point, and the categories that we leaned into, knowing what the situation might look like if we needed to move, that's where we've leaned into from an inventory purchases standpoint.

Speaker Change: Any time you do an acquisition like that, you end up clearing through a good portion of inventory that's not really a replenishment good and we've done a lot of that work over the last year. So how it would characterize it is the inventory we have now.

is Biomarge.

Speaker Change: Highly replenishment based inventory and we don't have a lot of that slow moving really left with us We've cleared a lot of that in the past year so the quality of inventory we have at this point

Speaker Change: and the categories that we leaned into knowing what the situation might look like if we needed to move, that's where we've leaned into from an inventory purchase standpoint. So I would say that the product mix of that inventory is much more favorable for us at this point.

Mark Weinswig: So, I would say that the product mix of that inventory is much more favorable for us at this point.

Sean McGowan: Coming sort of fast for Thanks, John. Thank you.

That makes a lot of sense, clarifying accuracy.

Thanks, Sean.

Operator: Ladies and gentlemen, we have reached the end of question and answer session.

Speaker Change: Thank you. Ladies and gentlemen, we have reached the end of question and answer session. I would now like to turn the floor over to Chris Keirn for closing comments.

Chris Kern: I would now like to turn the floor over to Chris Kern for closing. Thank you everyone for joining our call today. We appreciate your interest in the company and have a great day. Thank you.

Chris Keirn: Thank you everyone for joining our call today. We appreciate your interest in the company and have a great day.

Operator: This concludes our today's teleconference. You may disconnect your lines at this time. Thank you for your participation. Copyright © 2020, New Thinking Allowed Foundation Copyright © 2020, New Thinking Allowed Foundation Copyright © 2020, New Thinking Allowed Foundation Copyright © 2020, New Thinking Allowed Foundation

Speaker Change: Andrew Crum, John Hanson, Mark Weinswig, Sean McGowan