• Revenue: $76.5 million, up 59% year over year.
• Gross Margin: 30.2%, a 540 basis point improvement from last year.
• Adjusted EBITDA: $3 million, an improvement of $8.7 million compared to the same quarter last year.
• Operating Expenses: $27.2 million, including $1.4 million in acquisition-related costs.
• Net Debt: $61.2 million, comprised of $73.6 million of outstanding debt and $12.5 million of cash.
• Inventory: $73.3 million at quarter end, with PDP contributing $23.8 million.
• Share Repurchase: Approximately $15.2 million repurchased, nearly 1 million shares at an average price of $15.97 per share.
• Full Year Revenue Guidance: Expected between $370 million and $380 million.
• Full Year Adjusted EBITDA Guidance: Raised to a range of $53 million to $56 million.

• Warning! GuruFocus has detected 9 Warning Signs with HEAR.

Release Date: August 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Turtle Beach Corp (NASDAQ:HEAR) reported a robust revenue growth of 59% year over year for the second quarter, reaching $76.5 million.
• The company's acquisition of PDP has contributed significantly to its revenue growth and diversification, with non-PDP revenue also growing by 15%.
• Gross margin improved by 540 basis points to 30.2% compared to the previous year, driven by lower product costs and efficient promotional spending.
• The company raised its full-year 2024 adjusted EBITDA guidance to a range of $53 million to $56 million, reflecting strong profitability.
• Turtle Beach Corp (NASDAQ:HEAR) executed the largest share repurchase in its history, buying back approximately $15 million of its stock, indicating confidence in its future trajectory.

Negative Points

• The integration of PDP, while ahead of schedule, still involves ongoing costs and efforts, which may impact short-term financials.
• The gaming hardware market, particularly for Nintendo, is experiencing a slowdown, which could affect PDP's performance in the near term.
• Despite the strong revenue growth, the company still carries a net debt of $61.2 million, which includes a term loan for the PDP acquisition.
• The company's share in the headset market dipped slightly in the first half of the year due to channel inventory adjustments.
• There are ongoing integration-related expenses expected throughout 2024, which could affect the company's operating expenses.

Q & A Highlights

Q: Cris, would you say that the retail inventory now is balanced? Or could we see some additional inventory kind of restock flowing into the third quarter as well? A: Cristopher Keirn, CEO: The retail channel is in a healthy shape. We've transitioned in Q2 by straining and then reloading it with new wireless and PC products. The RIFFMASTER inventory is balanced globally. Retailers are comfortable with current levels, and any changes will likely occur at the end of Q3 and into Q4.

Q: How much additional transaction expense and additional inventory step-up is left to flush through the P&L for the balance of the year? A: John Hanson, CFO: The PDP inventory step-up was $1.3 million in Q2, with about $900,000 to $1 million remaining for the year. The Q2 gross margins, excluding the PDP step-up, were 31.8%, and after adjusting for nonrecurring items, they were 34%.

Q: Should we be looking for additional transaction expenses to be run through the P&L from this point forward? A: John Hanson, CFO: Yes, integration-related expenses will continue throughout 2024 as we sort out real estate and other matters.

Q: Any specifics on the PDP integration being ahead of schedule, and is this influencing your guidance upgrade for EBITDA? A: John Hanson, CFO: The integration work with PDP is ahead of schedule due to collaborative efforts, system integration, and portfolio optimization. This progress has contributed to the EBITDA guidance upgrade.

Q: Can you provide more color on the different segments, particularly the headset market share and other categories? A: Cristopher Keirn, CEO: Headsets remain our strongest revenue contributor, but controllers are growing. Our core business is now about 50-55% of revenue, with the rest from other categories. Accessories are performing well, with headsets up 12% and controllers up 15% year-over-year. We are gaining share in these segments.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.