INVESTOR PRESENTATION - March 2020 - Public now
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INVESTOR PRESENTATION March 2020
SAFE HARBOR Forward-Looking Information This presentation includes forward-looking information and statements within the meaning of the federal securities laws. Except for historical information contained in this release, statements in this release may constitute forward-looking statements regarding assumptions, projections, expectations, targets, intentions or beliefs about future events. Statements containing the words “may”, “could”, “continue”, “would”, “should”, “believe”, “expect”, “anticipate”, “plan”, “goal”, “estimate”, “accelerate”, “target”, “project”, “intend” and similar expressions constitute forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. Forward-looking statements are based on management’s current belief, as well as assumptions made by, and information currently available to, management. While the Company believes that its expectations are based upon reasonable assumptions, there can be no assurances that its goals and strategy will be realized. Numerous factors, including risks and uncertainties, may affect actual results and may cause results to differ materially from those expressed in forward-looking statements made by the Company or on its behalf. Some of these factors include, but are not limited to, risks related to the substantial uncertainties inherent in the acceptance of existing and future products, the difficulty of commercializing and protecting new technology, the impact of competitive products and pricing, general business and economic conditions, including the impact of coronavirus on consumer demands and manufacturing capabilities, the Company's partnerships with influencers, athletes and esports teams. risks associated with the expansion of our business including the implementation of any businesses we acquire, the integration of such businesses within our internal control over financial reporting and operations, our indebtedness, the Company’s liquidity, and other factors discussed in our public filings, including the risk factors included in the Company’s most recent Annual Report on Form 10-K, Quarterly Report on Form 10-Q and the Company’s other periodic reports. Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the Securities and Exchange Commission, the Company is under no obligation to publicly update or revise any forward-looking statement after the date of this release whether as a result of new information, future developments or otherwise. This presentation also contains trademarks and trade names that are property of their respective owners. Non-GAAP Financial Measures This presentation contains certain financial measures, including adjusted EBITDA, that the Securities and Exchange Commission defines as “non-GAAP financial measures.” Management believes that such non-GAAP financial measures, when read in conjunction with the Company's reported results, can provide useful supplemental information for investors analyzing period-to-period comparisons of the Company's results. “Adjusted EBITDA” is defined by the Company as net income (loss) before interest, taxes, depreciation and amortization, stock-based compensation (non-cash), and certain special items that we believe are not representative of core operations (e.g., the integration and transaction costs related to the ROCCAT acquisition and the mark-to-market adjustment for the financial instrument obligation and). Non-GAAP financial measures are presented because management uses non-GAAP financial measures to evaluate the Company’s operating performance, to perform financial planning, and to determine incentive compensation. Therefore, the Company believes that the presentation of non-GAAP financial measures provides useful supplementary information to, and facilitates additional analysis by, investors. The presented non-GAAP financial measures exclude items that management does not believe reflect the Company’s core operating performance because such items are inherently unusual, non- operating, unpredictable, non-recurring, or non-cash. See a reconciliation of non-GAAP results in the appendix. © 2020 Turtle Beach Corporation. All Rights Reserved. 2
In 2019, Turtle Beach acquired ROCCAT, a leading PC gaming accessories brand, to bring their award-winning product portfolio to more gamers globally.
#1
IN GAMING AUDIO
The Global Market Leader In
Console Gaming Headsets for 10 years Broad Portfolio
of PC Gaming Accessories
40 Million+
Headsets Sold Since 2010
Award Winning Design
and Build Quality
Industry Leading Innovations
INNOVATION AT
EVERY PRICE POINT Titan Click – Titan Switch – AIMO Intelligent Lighting 3
TURTLE BEACH
#1 CONSOLE GAMING
HEADSET BRAND
IN THE $1.4B1 CONSOLE HEADSET MARKET
Best-selling, innovative product portfolio for all levels of gamers
with 150+ associated patents
Expanded into PC gaming headsets, keyboards & mice to grow
addressable market to $2.7B1
~$235M business generated ~$23M of EBITDA & ~$20M of free
cash flow² in 2019
Healthy balance sheet with no long-term debt
Highly experienced board and management team
1Newzoo 2019 Peripheral Market estimates –
The best-selling headset of 2019 3
updated in October 2019
2Free cash flow defined as consolidated adjusted EBITDA less capital expenditures, less cash interest.
3The NPD Group/Retail Tracking Service/Video Games/Dollars/U.S. & Canada/January-December 2019
4
THE LEADER IN CONSOLE GAMING HEADSETS
#1 GAMING HEADSET HIGHER REVENUE SHARE STRONG BRAND & REPUTATION
PROVIDER FOR XBOX & PLAYSTATION THAN NEXT 3 PLAYERS COMBINED Among Gamers, Retailers, Gaming Industry
PRODUCT FOR EVERY GAMER
Entry Level to Professional
PRODUCT INNOVATIONS
And Unique Features - Many patented
US & CANADA CONSOLE
Other
GAMING HEADSET
REVENUE SHARE
WHY & HOW 260K+ POINTS OF DISTRIBUTION
56.6% 2019 43.4%
50 Countries
STRONG PARTNERSHIPS
With Leading Esports Teams & Influencers
OVER 10 YEARS EXPERIENCE
Gaming Headsets & with Xbox & PlayStation
4 OF TOP 5 SELLERS 13 OF TOP 20 SELLERS
OVERALL ARE TURTLE BEACH OVERALL ARE TURTLE BEACH 154 ISSUED PATENTS
60 Pending1
Source: The NPD Group/Retail Tracking Service/Video Games/Dollars/U.S. & Canada/January-December 2019
1Counts only patents related to headsets (not including additional patents from ROCCAT and HyperSound)
5
CONSOLE HEADSETS:
Console Headsets: $1.4B Addressable Market 260+K Points of Distribution Across 50 Countries
Brick & Mortar Accounts For 80%+ Retail Sales2
TURTLE BEACH IS ALREADY AMONG THE TOP 4 PLAYERS
Where Consumers Can Try The Headsets
IN THE $4.1B GLOBAL GAMING ACCESSORY MARKET
Keyboards
$765M
Console
Headsets
$1,388M
GLOBAL GAMING
ACCESSORY
Mice MARKET
$689M
$4,135M1
PC Headsets
$1,292M
Americas & Europe are 65% of the market
1Newzoo October 2019 Peripheral Market estimates
2Turtle Beach estimates 80+% of North American console industry headset sales are via brick & mortar retailers
6
GREAT HEADSETS
"One of the best wireless headsets you
can own for Xbox One."
- WIRED
"This $40 headset is worth every penny."
- Windows Central "9/10. A quality piece of hardware
that justifies its price."
- Game Informer 7
2020 XBOX & PS4 HEADSET LINEUP
STEP-UP FEATURE FROM
PREVIOUS SERIES
XBOX ONE | PS4™ PRO | PS4™
NINTENDO SWITCH ™ | MOBILE
- All headsets compatible with next-gen consoles
XBOX ONE
$129.95 MSRP*
$149.95 MSRP
50mm Nanoclear™ Drivers
XBOX ONE
Active Noise-
Cancellation
XBOX ONE | PS4™ PRO | PS4™
$99.95 MSRP Cooling Aerofit™
NINTENDO SWITCH ™ | MOBILE
Bluetooth® with Cushions
XBOX ONE | PS4™ PRO | PS4™ App Control
NINTENDO SWITCH ™ | MOBILE $79.95 MSRP* Xbox Wireless
Metal Headband
Xbox Wireless
$59.95 MSRP* Windows Sonic
ProSpecs™ Surround Sound
Windows Sonic Floating Headpad
XBOX ONE | PS4™ PRO | PS4™
NINTENDO SWITCH ™ | MOBILE Amplified Surround Sound
XBOX ONE | PS4™ PRO | PS4™ Superhuman Hearing®
NINTENDO SWITCH ™ | MOBILE 50mm Drivers
XBOX ONE | PS4™ PRO | PS4™ Superhuman Hearing® TruSpeak™ Pro
$39.95 MSRP* Bass Boost
NINTENDO SWITCH ™ | MOBILE ProSpecs™ Gaming Mic
$24.95 MSRP*
EQ Modes
ProSpecs™
$29.95 MSRP* Flip-to-Mute Mic Memory Foam 50mm Drivers Elite Two-Year Warranty
40mm Drivers
XBOX ONE | PS4™ PRO | PS4™
40+ Hour Battery 50mm Drivers
NINTENDO SWITCH ™ | MOBILE Stereo Synthetic Leather Metal-Reinforced
Synthetic Leather EQ Modes
Swappable Deco Plates
EQ Modes
Amplified
$14.95 MSRP* Removable Microphone Lightweight Design Mic Monitoring Amplified
Lightweight Design
Amplified ProSpecs™
Metal-Reinforced
40mm Driver Inline Controls 40mm Drivers 12+Hour Battery Mic Monitoring
Removable Microphone Mic Monitoring
Mobile Multifunction Mic Monitoring Inline Controls
Open Earcup Inline Controls High-Sensitivity Mic Flip-to-Mute Mic Flip-to-Mute Mic
Button Flip-to-Mute Mic
Mono 10mm Drivers Stereo Stereo 40mm Drivers Flip-to-Mute Mic 15+ Hour Battery Stereo
10+ Hour Battery
Entry-Level Gamer Casual Gamer Enthusiast Gamer Core Gamer
Esports
< 4 hours per week 4-6 hours per week 7-15 hours per week 16+ hours per week
8
*MSRP subject to change.
FIRM HANDSHAKES FROM THE BEST,
ROCCAT TO THE BEST FROM DR DISRESPECT
ROCCAT is Turtle Beach's brand of gaming mice, keyboards, headsets
& software for PC gamers
ROCCAT acquisition added good base of award-winning mice &
keyboards with unique innovations, integrated lighting & PC software
ROCCAT's Hamburg, Germany-based studio has an innovative
product & engineering team with deep experience in PC mice &
keyboards
ROCCAT has strong brand presence in Germany, good awareness
across EU, & is currently expanding in NA & major Asian markets
Turtle Beach plans to invest ~$9M over next two years in portfolio
expansion & ROCCAT brand development
FEB. 2020 – ROCCAT Partnership
9
9
"The best all-around gaming mouse on
the market today."
- T3.com (Feb. 2020)
"4.5/5. A piece of beauty."
- Tech Radar (Oct. 2019)
10INVESTING TO DRIVE GROWTH
GLOBAL GAMING ACCESSORY MARKET: $4,135M
8 Mice
Mice Expand Portfolio
$689M 2020-2021 $2.7B Market To
Further Penetrate
4 Keyboards
Keyboards Expand Portfolio
Plans to Invest ~$9M
$765M 2020-2021 In Portfolio Expansion
And ROCCAT Brand
Development
PC Headsets 2 Headsets Goal Is To Build
Revise and Expand Incremental
$1,292M 3 Headsets
Portfolio
2020-2021 $100M Business
$1.4B In Historic TB
Addressable Market
Console Headsets
We lead this market by
$1,388M 20 Headsets
far
Goal Is To Continue
Leadership
Source (for market sizes): Newzoo Report 2019 Peripheral Market estimates 11
Note: model counts above represent core models only, not all variants or SKUs.GLOBAL GAMING
TAM GROWTH
2019 – 2021
$4.9B Strong overall gaming
+18% accessories growth
5.0
4.5 $4.1B 1.0m Expanding keyboard
+24% lineup and geographies
4.0
0.8m
Expanding mouse
3.5 0.9m +25% portfolio and geographies
3.0 0.7m
2.5
1.5m Building into
2.0 1.3m
+20% PC headset category
1.5
1.0
Turtle Beach #1 in
1.4m 1.5m
0.5 +10% console gaming audio
today
0.0
2019 2021
CONSOLE PC MICE KEYBOARDS
Source: Newzoo Peripheral Revenue Forecasts October 2019 12WE PARTNER WITH LEADING TEAMS
Over 821M Gamers and 195M esports fans in the Americas and Europe1
Dr. Disrespect Mr Savage (5M+ Reach) Castro_1021
Ali-A (28M+ Reach)
(7.5M+ Reach) (5.5M+ Reach)
Houston Outlaws Astralis Chicago Huntsmen
Franchise team in Activision 4-time Major Champions and Franchise team in
Blizzard’s OWL #1 CS:GO team Activision Blizzard’s CDL
Romelu Lukaku Kevin De Bruyne Josh Hart Kevin Porter Jr.
(Inter Milan & Belgium, (Man City & Belgium, (New Orleans Pelicans, (Cleveland Cavaliers,
11M Reach) 16M Reach) 1.1M Reach) 375k Reach)
TIDAL Partnership
Official Audio Partner Exclusive Gaming Partner
Free Subscriptions w/Purchase At
EA Sports FIFA 20 Champions Cup Jay Z’s Made In America Festival
TurtleBeach.com
HECZ Scump MrBBoy45 Mae Titles shown represent games played by our partner esports teams and influencers and do not indicate a partnership with the publisher
(2.5M+ Reach)
13
(5.8M Reach) (2.5M+ Reach) (1M+ Reach) 1Newzoo 2020 Global Esports and Global Games Market Report QU January 2020GEN 8 CONSOLE
Gen 7 Xbox (Nov 2013) Gen 8 Xbox (2020) Gen 7 PlayStation (Nov 2013) Gen 8 PlayStation (2020)
Xbox Series X (announced E3/June 2019) PlayStation 5/PS5 (announced April 2019)
Release: Holiday 2020 (expected November) Release: Holiday 2020 (expected November)
Price: $499 (expected) Price: $499
• Backward compatibility • Backward compatibility (to be confirmed by Sony)
• Major power increase/faster game access/reduced load times • Major power increase/faster game access/reduced load times
• Will support up to 8K resolution • Will support up to 8K resolution
• 3D Spatial Sound (to be confirmed by MSFT, headset required) • 3D Spatial Sound (headset required)
• Project xCloud game streaming service • PlayStation Now streaming/focus on AAA titles
14
Source: Microsoft and Sony announcementsXBOX AND PLAYSTATION
PlayStation and Xbox Console Unit Sales “With the launch of new systems and continued sales for existing console
we forecast Microsoft and Sony combined hardware sales will set records
40
in 2021 and 2022”
David Cole, Head DFC Intelligence, Video games industry analyst
• Console transition has typically created a market decline the year prior
to transition, an increase late in the year of new console launch, and
30
then several years of accelerated growth post-launch
Hardware Unit Sales (in millions)
• Accessories typically follow same pattern with some lag as some
users will wait on new accessory purchases, particularly at the high-
20 end prior to launch and then upgrading accelerates post-launch
• Turtle Beach expects the console gaming headset market to be down
~11% in 2020, followed by mid to high single digit growth in 2021 and
2022
10
• DFC predicts the combined XB and PS hardware unit sales for Gen 7
and Gen 8 in the first three years of launch to be higher than the
combined sales of Gen 6 and Gen 7 in the first three years, setting
0 another record
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
• DFC predicts Active Installed Base (AIB) of Gen 8 in the first four years
Gen 6 Gen 7 Gen 8
of launch to be slightly higher than AIB of Gen 7
Source : DFC Intelligence September 2019 Worldwide Video Game Market Forecasts • Nintendo is not included; a new system core from Nintendo could
substantially increase overall market potential 15REVENUE & ADJUSTED EBITDA PROFILE
Company Revenues¹ Adjusted EBITDA2
Millions Millions
$287M $57.7M
$214M-
$235M
$224M
$149M
$22.8
Includes ~$9M
of growth
investments
$11.6M
$5-$10M
2017 2018 2019 2020E¹ 2017 2018 2019 2020E¹
1Guidance updated on March 10, 2020.
2See appendix for a reconciliation of non-GAAP measures.
16BALANCE SHEET
Capitalization Balance Sheet Improvements
At 12-31-18 At 12-31-19 • Fully repaid all term loans and
subordinated notes in Dec 2018 with
operating cash flow.
Cash & Equivalents $7.1M $8.2M
• ROCCAT purchase price of $12.7M
Inventories $49.5M $45.7M
funded with cash and borrowings
under revolver.
Revolver (asset-based) $37.4M $15.7M • Repurchased 271,300 shares for
$2.5M, or average of $9.30 per share
since April 2019.
Total Debt $37.4M $15.7M
• Inventory decline driven by revenue
trends, channel inventories believed to
be appropriate.
Leverage Ratio¹ 0.1x 0.4x
1Defined as total term loans outstanding and average trailing twelve month revolving debt, divided by consolidated trailing twelve month adjusted EBITDA. 172020 OUTLOOK¹
Overall Assumptions:
2020 2020 Commentary
• Console gaming headset market declines
Console gaming headset market decline ahead of new console roughly 11% with softer market ahead of
Net
$214-$224M launches, partially offset by continued growth in our PC & other expected new Xbox and PlayStation
Revenue
gaming accessory revenues console launches and then growth in Q4
after launch (and into 2021-2022)
Gross Increased freight, continued tariffs on some products, & ~1%
Low 30%
Margin impact of NRE/certification costs for new product development • Expected supply recovery from
Coronavirus based on current, forward-
Includes ~$9M investment to expand PC product portfolio,
Adj. looking supply commitments with some
$5M-$10M continue ROCCAT brand development & expansion into new
EBITDA cushion for increased freight costs
geographies
factored in
Diluted
~15.0M • Gross margin reflects increased freight,
Shares
continued tariffs impacting some
Reflects above factors including growth investment, also
products, and accommodate higher NRE
GAAP EPS $(0.13)-$(0.46) and certifications for new product
anticipates modest provision for income taxes.
launches
Reflects above factors, excludes ROCCAT transaction &
Adj. EPS² $(0.12)-$(0.45) integration costs, also anticipates modest provision for income • Investment of ~$9 million to expand PC
taxes. portfolio over the next two years and
build ROCCAT brand
1Guidance updated on March 10, 2020.
18LONG-TERM FINANCIAL TARGETS
Metric Maintain leadership position in
Target
console gaming headsets
Drive growth in PC gaming
Revenue $ 10-20% CAGR headsets, keyboards, and mice
(leveraging ROCCAT brand and
portfolio)
Gross Margins % Mid 30’s Maintain disciplined spending with
investments for growth
Leverage brand, skills, and global
EBITDA $ 15-30% CAGR footprint to enter new categories
over time (organic and M&A)
19CONTACT US INVESTOR RELATIONS: PR/Media Contact: Cody Slach/Sean McGowan Maclean Marshall Gateway Turtle Beach 949.574.3860 858.914.5093 HEAR@gatewayir.com maclean.marshall@turtlebeach.com COMPANY WEBSITES www.turtlebeachcorp.com | www.turtlebeach.com | www.roccat.org
APPENDIX
217EXPERIENCED BOARD OF DIRECTORS
- COO of Motorola Mobility’s mobile business
Juergen Stark
- 10 years as Principal at McKinsey & Company, Inc.
Chairman & CEO - MBA, Harvard Business School
- Former CFO of Qualcomm Incorporated (NASDAQ: QCOM)
William Keitel - During his tenure, Qualcomm grew revenues from ~$800M to ~$25B
Lead Independent Director - Held senior financial roles at Nortel (OTC: NRTLQ) & Pepsico (NYSE: PEP)
Dr. Andrew Wolfe, PhD - Founder & principal of Wolfe Consulting
Director - Former Chief Technology Officer for SONICblue, Inc.
- Expert in IP strategy and licensing
Gregory Ballard - General partner with Eleven Ventures
Director - Former senior VP for mobile & social games at Warner Bros.
- Former CEO of Glu Mobile, former board member with DTS
- Former SVP and COO, Samsclub.com
Kelly Thompson - Former SVP Merchandising, Planning, and Marketplace for Walmart.com
Director - 10 years in management positions at Gap, Inc.
22EXPERIENCED MANAGEMENT TEAM
Rene Korte General Manager, PC Products
Rene Korte General Manager, PC Products
Juergen Stark Chairman & CEO • Founder of ROCCAT GmbH and CEO for 12 years
- Founder of ROCCAT GmbH and CEO for 12 years
- COO Of Motorola Mobility’s Mobile Business • VP Europe for RAZER
- VP Europe for RAZER
- 10 Years As Principal At Mckinsey & Company • Professional gamer and founder of MTW esports team
- Professional gamer and founder of MTW esports team
John Hanson CFO Matt Seymour VP, Product Management
- 20+ years in the Consumer Electronics industry
- EVP & CFO at Dialogic
- Previously with Sony leading television portfolio
- CFO at One Communications Corp
planning & development, product marketing
Cris Keirn SVP, Global Sales
- Led headset transition as VP of business planning & strategy
Joe Stachula CTO & VP, Product Development
- 17 years with Motorola in product management, operations, - 20+ years in consumer electronics
quality & customer relations - 12 years at Plantronics engineering audio headsets
Megan Wynne General Counsel Jose Rosado SVP, Global Operations
- 5 years with I-Flow, a Kimberly-Clark Health Care - Former Sr. Director, Global Supply Chain Operations for HP
Company
- 22 years of supply chain management with Motorola, ON
- 13 years with Morris Polich & Purdy law firm Semiconductor, HP, Cisco
Andrew Lilien VP, Marketing
- 20+ years of brand, consumer & retail marketing experience
- Past experience at ESPN, Fleer Trading Cards & National
Media GroupGAAP TO ADJUSTED EBITDA RECONCILIATION
December 31, 2019 December 31, 2018 December 31, 2017
Consolidated
Net Income (Loss) 17,944 39,190 (3,248)
Depreciation 4,556 3,954 4,074
Amortization of intangibles 642 303 348
Interest 929 5,335 7,916
Taxes (6,237) 1,737 593
Stock Compensation 3,558 1,877 1,430
Restructuring Expense - - 533
Goodwill Impairment - - -
Business Transaction Expense 3,516 - (79)
Change in Fair Value of Contingent Consideration (471) - -
Unrealized loss on financial instrument obligation (1,601) 5,291 -
Adj EBITDA 22,836 57,687 11,567
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