Turtle Beach Corporation · NASDAQ:TBCH
Turtle Beach — Investor Presentation (March 2019)
38 slides from Turtle Beach's investor presentation, Mar 19, 2019
Slide 1: Investor Presentation March 2019
Investor Presentation March 2019
Slide 2: Safe Harbor Statement
SAFE HARBOR STATEMENT 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
Slide 3: Who We Are
WHO WE ARE • Key player in $148 billion gaming market • Market leader in gaming headsets – by far • Strong brand with high consumer loyalty • Global distribution & partnerships • Full line of differentiated products • Critical accessory provider to esports fans & players • Innovative & valuable pate
Slide 4: Key Player in $148B Global Gaming Market
KEY PLAYER IN $148B GLOBAL GAMING MARKET Console Gaming: $41.8B 9.2% YOY Growth1 Esports: $1,096.1M 26.7% YOY Growth1 $7B Opportunity(2) $148B Global Gaming Opportunity1 PC Gaming: $34.4B Mobile Gaming: $72.0B 2.7% YOY Growth1 13.9% YOY Growth1 Virtual Reality: $6.4B 2018 73% YOY Growth2 1. Newzoo –
Slide 5: Audio Headsets Are a Critical Accessory for Gamers
AUDIO HEADSETS ARE A CRITICAL ACCESSORY FOR GAMERS They Are Harder & More Differentiated Gaming Headsets Provide… Than Music Headphones • Durability and comfort for long gaming sessions • Good audio quality at all price points • Excellent microphone with easy mute capabilities • Mid- and high-tier c
Slide 6: Console Headsets Are Largest Gaming Accessory Segment
CONSOLE HEADSETS ARE LARGEST GAMING ACCESSORY SEGMENT With over 816M Gamers Sales 80%+ Brick & Mortar Console Headsets are $1.8B Addressable Market and 195M esports fans in Retail Driven3 Global Gaming Accessory Market $4,658M1 the Americas and Europe2 Keyboards $684M Console Mice Headsets $597M $1,
Slide 7: We Are the Leader in Console Gaming Headsets by Far
WE ARE THE LEADER IN CONSOLE GAMING HEADSETS BY FAR #1 GAMING HEADSET HIGHER REVENUE SHARE PROVIDER FOR XBOX & PLAYSTATION THAN NEXT 4 PLAYERS COMBINED STRONG BRAND & REPUTATION Among Gamers, Retailers, Gaming Industry PRODUCT FOR EVERY GAMER Entry level to Professional PRODUCT INNOVATIONS And uniqu
Slide 8: Great Products for Every Level of Console Gamer
GREAT PRODUCTS FOR EVERY LEVEL OF CONSOLE GAMER Major TB Key Features ASP Sample Products Step-Ups New 2018 • Professional-grade game & chat audio performance • Patented ProSpecs glasses friendly design Esports MSRP: Pro-level • Cooling gel-infused memory foam ear cushions > $150 $249.95 Headset • B
Slide 9: We Are Expanding into PC Headsets to Increase Our TAM
WE ARE EXPANDING INTO PC HEADSETS TO INCREASE OUR TAM 2nd Largest Segment In $4.7B Accessory Market And Have a Dominant, Growing Share of the Combined Markets Global Gaming Accessory Market $4,658M1 Keyboards $684M Mice Console $597M Headsets $1,802M PC Headsets $1,575M Americas and Europe are over
Slide 10: Expanded Line-up for Every Level of PC Gamer
EXPANDED LINE-UP FOR EVERY LEVEL OF PC GAMER Major TB Key Features ASP Sample Products Step-Ups New 2018 • Professional-grade game & chat audio performance Esports > $150 MSRP: Pro Quality & • Cooling gel-infused memory foam ear cushions $249.95 Connectivity • Bluetooth connectivity w/app-based cont
Slide 11: We Partner with Leading Esports Teams and Influencers
WE PARTNER WITH LEADING ESPORTS TEAMS AND INFLUENCERS OpTic Gaming Ali-A (14+ Million Subs) Dr DisRespect (Face of Twitch) Siefe (#1 on Mixer) Castro_1021 (#1 FIFA Streamer) Archonaut (Top 5 on Mixer) Obey Alliance Scump (2.3+ Million Subs) Official Audio Partner EA Sports FIFA 19 Champions Cup Titl
Slide 12: ROCCAT Acquisition
ROCCAT ACQUISITION TURTLE BEACH ANNOUNCES AGREEMENT TO ACQUIRE ROCCAT 12
Slide 13: ROCCAT Overview
ROCCAT OVERVIEW • Hamburg & Taipei-based provider of PC mice, keyboards, headsets & software with strong brand in Germany • Full line of mice & keyboards with unique innovations, integrated lighting & associated PC software • Product & engineering personnel with deep experience & innovations in PC m
Slide 14: Strategic Rationale & Addressable Market Size Impact
STRATEGIC RATIONALE & ADDRESSABLE MARKET SIZE IMPACT ü Establishes immediate product line & capability in PC keyboards, mice & PC software, plus added headsets Global Gaming Accessory Market $4,658M1 ü Expands our total addressable market (TAM) from $1.8B to $4.7B à targeting to build $100M+ increme
Slide 15: Comprehensive Combined Product Portfolio
COMPREHENSIVE COMBINED PRODUCT PORTFOLIO GLOBAL GAMING ACCESSORY MARKET $4,658M Turtle Beach Portfolio¹ ROCCAT Portfolio¹ Mice 9 Mice Including 7 RGB Models $597M $29 - $139 MSRP Keyboards 8 Keyboards Including 4 RGB Models $684M $79-$159 MSRP PC 5 Headsets 5 Headsets Including 1 USB Wireless Model
Slide 16: Leverage of Turtle Beach Brand in PC Headsets
LEVERAGE OF TURTLE BEACH BRAND IN PC HEADSETS COUNTRY SCOPE Purchase Funnel Analysis1 US UK FR DE ü Turtle Beach has strong PC headset purchase funnel metrics among competitive core PC gamers in our core markets ü Among the top PC Headset brands, these metrics rank Turtle Beach as: • Tied for 4th in
Slide 17: Turtle Beach + ROCCAT in PC Mice/Keyboards
TURTLE BEACH + ROCCAT IN PC MICE/KEYBOARDS COUNTRY SCOPE Top 5 Leading PC Accessories Brands Purchase Funnel Analysis1 US UK FR DE ü Turtle Beach has strong Purchase Consideration among its large installed based of headset owners in its core markets: • Tied for 1st for mice • Tied for 2nd for keyboa
Slide 18: ROCCAT Financials and Plan
ROCCAT FINANCIALS AND PLAN 1 Millions 2019 2020 Partial Year Fully combine the Revenues $20 to 24 Well over $30 companies and integrate PC accessories businesses Gross Margin % 25 - 28% 32 - 35% Purchase Accounting Impact Q2-Q3 (PC headsets, keyboards, mice) Operating Expenses Build $100M+ increment
Slide 19: 2018 Financials and 2019 Outlook
2018 FINANCIALS AND 2019 OUTLOOK 19
Slide 20: Full Year Financial Overview
FULL YEAR FINANCIAL OVERVIEW YOY ∆ Commentary $ in millions (except per-share data) 2017 2018 Strong market demand & an increase in market Revenue $149.1 $287.4 93% share Favorable product & customer mix, fixed cost Gross Margin 34.2% 37.8% 360bps leverage & fewer promos Increases in marketing spend
Slide 21: Balance Sheet
BALANCE SHEET Capitalization 2018 Balance Sheet Improvements At At • Renegotiated term loans and sub-debt in 12-31-17 12-31-18 March, reducing interest rates and eliminating certain covenants Cash & Equivalents $5.2M $7.1M Debt • Extended maturity of term loans, sub-debt and working capital line to
Slide 22: Expected Console Headset Market Dynamics in 2019
EXPECTED CONSOLE HEADSET MARKET DYNAMICS IN 2019 Simplified Market Model¹ US & Canada Console Gaming Headset Sell-Through Installed base of console headset users grew significantly Millions of Units in 2018 driven by Battle Royale games 14.7 14 Recent survey results indicate consumer intent to Incre
Slide 23: 2019 Outlook
2019 OUTLOOK¹ Q1-19 2019 Commentary & Assumptions Number of new gaming headset users returns to more normal Net ~$42M $240-$248M rate; 2019 includes ~8 months’ of revenue from ROCCAT Revenue (estimated to be $20-$24M) Gross Reduced operating leverage, increases in promotional ~32% 33%-34% Margin all
Slide 24: Revenue Profile
REVENUE PROFILE Company Revenues (1) Company Product Retail Sell-Through in US & Canada Markets (2) Millions Millions $350 $350 $322 $313 $300 $287 $300 $240-$248 $250 $250 $200 $200 $179 $163 $174 $174 $175 $149 $150 $150 Channel Inventory Adjustments $100 $100 $50 $50 $0 $0 (3) 2015 2016 2017 2018
Slide 25: EBITDA Profile
EBITDA PROFILE Adjusted EBITDA1 2016: Millions Returned headset business to profitability. Converted HyperSound to licensing model. Entered esports, VR, $70.0 streaming mic categories. $57.7 $60.0 2017: $50.0 Focused on core headset business and continued profitability improvements. Positioned the C
Slide 26: Strong Free Cash Flow Growth
STRONG FREE CASH FLOW GROWTH Free Cash Flow1 Millions $60.0 $50.0 $47.0 Strong free cash flow generation… $40.0 Positioned the Company to amend and improve $30.0 $23-$27 debt agreements in March and pay off all $20.0 remaining long-term debt in January $10.0 $5.2 Enable company to pursue growth inve
Slide 27: Long-Term Financial Targets
LONG-TERM FINANCIAL TARGETS Maintain dominant position in Metric Target Console gaming headsets Revenue $ 10-20% CAGR Drive growth in PC gaming Gross Margins % Mid 30s’ headsets, keyboards, and mice (leveraging ROCCAT) EBITDA $ 15-30% CAGR Maintain disciplined spending with investments for growth Le
Slide 28: Key Takeaways
KEY TAKEAWAYS § #1 console gaming headset brand with leading share based on innovative product portfolio for all levels of gamers § Competing in the largest portion of a $4.7B global market in gaming peripherals § Disruptive, cutting-edge technologies & patents § Strong market share gains in a healt
Slide 29: Investor Relations and Media Contacts
Investor Relations: Media Contact: Cody Slach Maclean Marshall Liolios Turtle Beach Corporation 949.574.3860 858.914.5093 HEAR@Liolios.com Maclean.Marshall@turtlebeach.com
Slide 30: Appendix
APPENDIX
Slide 31: Experienced Board of Directors
EXPERIENCED BOARD OF DIRECTORS Ron Doornink • Former Chairman & CEO of Activision Publishing (NASDAQ: ATVI) Chairman • Operating partner of Stripes Group, LLC • Founder & principal of Erasmus Equity Investments Juergen Stark • COO of Motorola Mobility’s mobile business CEO & Director • 10 years as P
Slide 32: Experienced Management Team
EXPERIENCED MANAGEMENT TEAM • COO of Motorola Mobility’s mobile business • 20+ years in consumer electronics • 10 years as principal at McKinsey & Company • 12 years at Plantronics engineering audio headsets Juergen Stark Joe Stachula CEO CTO & VP Development • EVP & CFO at Dialogic • 20+ years of b
Slide 33: Share Count Bridge
SHARE COUNT BRIDGE Weighted average diluted shares outstanding – Q4 2017 12,364 Weighted average common shares issued in exchange for Series B preferred stock 1,307 Weighted average common shares issued upon exercise of stock options and warrants 594 Incremental dilutive effect of outstanding stock
Slide 34: GAAP to Adjusted EBITDA Reconciliation – Three Months Ended December 31, 2018
GAAP TO ADJUSTED EBITDA RECONCILIATION – THREE MONTHS ENDED DECEMBER 31, 2018 Three Months Ended December 31, 2018 Adj As Adj Adj Stock Adj Reported Depreciation Amortization Compensation Other (1) EBITDA Net Revenue $ 111,319 $ — $ — $ — $ — $ 111,319 Cost of Revenue 68,428 (260 ) — 111 — 68,279 Gr
Slide 35: GAAP to Adjusted EBITDA Reconciliation – Year Ended December 31, 2018
GAAP TO ADJUSTED EBITDA RECONCILIATION – YEAR ENDED DECEMBER 31, 2018 Year Ended December 31, 2018 Adj As Adj Adj Stock Adj Reported Depreciation Amortization Compensation Other (1) EBITDA Net Revenue $ 287,437 $ — $ — $ — $ — $ 287,437 Cost of Revenue 178,738 (627 ) — (289 ) — 177,822 Gross Profit
Slide 36: GAAP to Adjusted EBITDA Reconciliation – Three Months Ended December 31, 2017
GAAP TO ADJUSTED EBITDA RECONCILIATION – THREE MONTHS ENDED DECEMBER 31, 2017 Three Months Ended December 31, 2017 Adj As Adj Adj Stock Adj Reported Depreciation Amortization Compensation Other (2) EBITDA Net Revenue $ 79,696 $ — $ — $ — $ — $ 79,696 Cost of Revenue 49,748 (99 ) — — 120 49,769 Gross
Slide 37: GAAP to Adjusted EBITDA Reconciliation – Year Ended December 31, 2017
GAAP TO ADJUSTED EBITDA RECONCILIATION – YEAR ENDED DECEMBER 31, 2017 Year Ended December 31, 2017 Adj As Adj Adj Stock Adj Reported Depreciation Amortization Compensation Other (2) EBITDA Net Revenue $ 149,135 $ — $ — $ — $ — $ 149,135 Cost of Revenue 98,132 (578 ) — 66 79 97,699 Gross Profit 51,00
Slide 38: GAAP to Adjusted EBITDA Reconciliation
GAAP TO ADJUSTED EBITDA RECONCILIATION December 31, 2018 December 31, 2017 December 31, 2016 December 31, 2015 Consolidated Net Income (Loss) 39,190 (3,248) (87,182) (82,907) Depreciation 3,954 4,075 5,066 5,901 Amortization of intangibles 303 349 4,128 2,015 Interest 5,335 7,916 7,447 5,099 Taxes 1