Turtle Beach Corporation Q1 FY2026 earnings call

• The quarter was impacted by a temporary dip in channel inventories due to retail partners managing stock levels. • The company is laying groundwork for a meaningful step-up in new product introduction cycle with over 50% year-over-year growth in new product launches planned for 2026. • Launched Stealth Pro 2 flagship headset with features like Japan Audio Society certified high-res audio, patented dual drivers, Dolby Atmos Spatial Audio, etc. • Initiated brand transformation with The Last Ninja campaign for Stealth Pro 2 launch. • Restructured credit facilities to enhance capital return flexibility with $56 million remaining on share repurchase authorization. • Focus on optimizing cost structure, accelerating product innovations, and preparing for industry catalysts like GTA VI launch and console refresh cycles.

In Q1 2026, revenue was $42.2 million compared to $63.9 million in the prior year. Gross margin was 26.8% versus 36.6% in the prior year. The simulator products, like race and flight sim, saw year-over-year share gains in Q1 but are a low single-digit contributor to overall revenue. Headsets make up north of 60% of the business. There's strong demand in the high end of the price ranges, with people trading up to higher price tiers.

• Reaffirmed full year 2026 revenue guidance of $335 million to $355 million and adjusted EBITDA guidance of $44 million to $48 million. • Anticipate sequential improvement starting in the current quarter as new products launch and gain traction. • Q2 is expected to be approximately 17%-18% of full year revenue. • Second half of the year to see significant acceleration driven by Nintendo Switch 2 momentum, new product releases, the anticipated November launch of GTA VI, and a strong holiday season.

• Market conditions and channel inventory dynamics could affect results. • Risks related to forward-looking statements, including factors that might cause actual results to differ from expectations. • Potential impact of rising fuel costs on shipping and the supply chain. • Uncertainty regarding the balance between console and PC new product launches and their impact on the business. • Impact of changes in the consumer hardware market and gaming platform shifts on product demand and sales.

Q: Discuss simulator products demand and comparison to headset business.

A: Simulator products like race and flight sim saw year-over-year share gains in Q1 but are a small part of the total business, while headsets account for north of 60% of the business.

Q: Trade down behavior with premium products.

A: There's strong demand on the high end of the price ranges, with people trading up to higher price tiers.

Q: Impact of Nintendo Switch 2 production cut on planogram.

A: Switch 2 sales are strong, with sequential increasing comps in Q1 and new placements expected in Q2.

Q: 2Q revenue commentary and lower updated view.

A: Q1 was slower than expected with some margin hit flowing to Q2, but the second half is expected to be robust.

Q: Inventory and building for sales.

A: Keeping a close eye on inventory, which is down year-over-year, and building for the second half.

Q: Exposure to rising fuel costs.

A: Small increases, not material yet.

Q: Circana data on accessories category.

A: 5% increase in the accessories category is a good sign, though headsets and controllers were slightly down in Q1.

Q: GTA VI launch impact on channel activities.

A: Possible impact with a potential ramp in Q3 similar to GTA V.

Q: Managing balance between console and PC new product launches.

A: Factoring into product planning, focusing on multiplatform support, and console activity to increase with GTA VI.

Q: Relationship with Xbox.

A: Great relationship, no shift, excited about Project Helix.

Q: GTA VI impact start and tailwind.

A: Possible early ramp in Q3, with tailwinds potentially being multiyear like GTA V.

Q: Channel inventory and net basis.

A: Channel inventory dipped in Q1, with guidance assuming flat channel inventory year-over-year