Turtle Beach Corporation Q2 FY2025 earnings call

Key Points

• Turtle Beach executed on Q2 objectives: delivered results, advanced capital allocation (share repurchases), and completed a comprehensive refinancing.
• In Q2, teams enacted multiple tariff mitigations including optimization of cost structures, product mix, selective retail price adjustments, and expedited shift of some production to Vietnam; now anticipate less than 15% of total U.S. supply will be produced in China after Q1.
• Advanced capital allocation by announcing a $75 million share repurchase authorization, amending debt agreement to allow additional share repurchases, and repurchasing approximately $5 million of stock in Q2.
• Completed refinancing of term loan and credit facility with reduced interest rate, extended term, and greater operational flexibility; new facility is $150 million consisting of $90 million revolving credit and $60 million term loan.
• Second quarter gross margins improved, operating expenses reduced, and realized a $6 million insurance recovery related to inventory loss in transit.

No specific product segment breakdown provided. Second quarter revenue was $56.8 million. Gross margins for the second quarter were 32% compared to 30% in the prior year. Operating expenses in the second quarter were $18.6 million or 33% of revenue compared to 36% in the prior year period. Full year 2025 revenue is reiterated to be in the range of $340 million to $360 million, with adjusted EBITDA in the range of $47 million to $53 million.

Guidance

• Reiterated full year 2025 revenue in the range of $340 million to $360 million and adjusted EBITDA in the range of $47 million to $53 million.
• Modified supply outlook to anticipate less than 15% of total U.S. supply produced in China after Q1, factoring in Vietnam tariff rate of 20%.
• Refinancing provides lower cost of capital and enhanced financial flexibility, with annual dollar cost savings of over $2 million from reduced term loan interest rate.

Risks

• Forward-looking statements involve risks and uncertainties regarding operations and future results that could cause actual results to differ materially from expectations.
• Factors such as changes in U.S. tariff rates, macroeconomic conditions, and gaming market trends may affect actual results.
• Need to review safe harbor statements and risk factors in press releases and SEC filings as they may cause actual results to differ from forward-looking statements.

Q: Sean McGowan asked about how factors like the U.S. economy, tariffs, and GTA 6 release have changed since the last call.

A: Cristopher Keirn responded that the economy tracked as expected, tariff impact was factored in with revised guidance considering Vietnam's 20% tariff, and GTA 6 is a positive catalyst for future gaming accessory purchases.

Q: Anthony Stoss asked if market improvement is across all product lines.

A: Cristopher Keirn said there was across-the-board improvement in gaming accessories in Q2, with improvements seen in controllers, headsets, and other categories due to factors like Switch 2 launch.