UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report: January 12, 2015 (Date of earliest event reported)
Turtle Beach Corporation
(Exact name of registrant as specified in its charter)
| Nevada | 001-35465 | 27-2767540 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification Number) |
100 Summit Lake Drive, Suite 100
Valhalla, New York 10595
(Address of principal executive offices)
914-345-2255
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 7.01 – Regulation FD Disclosure.
Juergen Stark, Chief Executive Officer of Turtle Beach Corporation (the “Company”), and John Hanson, Chief Financial Officer of Turtle Beach Corporation, are presenting at the 17th Annual ICR XChange Conference on Tuesday, January 13, 2015 at 10:30 a.m. and at the 17th Annual Needham Growth Conference on Wednesday, January 14, 2015 at 3:30 p.m. The presentation is attached as Exhibit 99.1 hereto.
The information in this report is being furnished pursuant to Item 7.01 and shall not be deemed to be “filed” for purposes of Section 17 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act.
Item 8.01 – Other Events.
On January 12, 2015, the Company issued a press release updating its full year sales outlook, a copy of which is filed herewith as Exhibit 99.2.
Item 9.01 – Financial Statements and Exhibits
| (d) | Exhibits |
| 99.1 | Turtle Beach Corporation Presentation at ICR XChange Conference and Needham Growth Conference. | |
| 99.2 | Press release dated January 12, 2015. | |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Dated: January 13, 2015 | TURTLE BEACH CORPORATION | |||||
| By: | ||||||
| /s/ John T. Hanson | ||||||
| John T. Hanson | ||||||
| Chief Financial Officer | ||||||
| Exhibit 99.1
|
Turtle Beach Corporation | NASDAQ: HEAR
ICR XChange Conference | January 13, 2015
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Safe Harbor Statement
This presentation includes “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements include, for example, statements regarding benefits of the recently completed merger, integration plans, expected synergies, market opportunities, future products and anticipated future financial and operating performance and results, including estimates for growth. There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements made herein. A discussion of some of these risks and uncertainties that could cause
Turtle Beach Corporation’s results to differ materially from those described in the forward-looking statements can be found in the prospectus supplement filed with the SEC by Turtle Beach Corporation on April 24, 2014 and in Turtle Beach’s most recent Annual Report on Form 10-K in the section entitled “Risk Factors,” filed with the SEC and available on the SEC’s website, www.sec.gov. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this presentation. Turtle Beach Corporation undertakes no obligation to publicly release any revision to its forward-looking statements to reflect events or circumstances after the date of this presentation. This presentation also contains trademarks and trade names that are property of their respective owners.
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Company Snapshot
Dominant console gaming headset brand in early stages of once-in-a-decade industry growth cycle
Disruptive technology with demonstrated success in commercial markets and pending launch of product for $5 billion hearing health category
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Brand and Product Overview
Console Gaming Headsets
PC Gaming Headsets
Mobile Headsets
Commercial
Healthcare
Consumer
Licensing
HIGHLIGHTS
Dominant gaming audio brand with ~ 50%
market share and large, loyal customer base
At the front end of a console gaming cycle
expected to fuel industry growth
Company well positioned given advantages in
products, retail distribution, and partnerships
Additional growth opportunities in PC gaming
headset category and international markets
Roughly $185m revenue business with EBITDA
margins in the high single digit range
HIGHLIGHTS
Unique, breakthrough audio technology that allows directed placement of sound
Patented technology with potential to disrupt multiple large audio markets
Viability in commercial markets demonstrated via recent national retail chain deployment
Preparing to launch product in 2015 into $5b hearing health market
Future opportunities in consumer markets and via licensing agreements
Strong and growing patent portfolio with over 30 issued and 80 pending patents
Unique combination of strong existing audio business and disruptive new audio technology
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Headsets
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Dominant Gaming Audio Provider
Overview
#1 gaming headset in 2013 by dollar share
49% of U.S. market
53% of U.K. market
Broad portfolio of console headsets for Xbox and PlayStation platform as well as growing offering of PC gaming headsets
Headsets in 27,000 storefronts in
44 countries at year-end 2013
Brand on the rise, with awareness among Xbox and PlayStation console gamers increasing 40% from 2012 to 2014
Turtle Beach accounted for 9 of the top 15 headsets sold in the U.S. during 2013
Leading Market Share
2013 U.S. Gaming Headset Dollar Market Share
Turtle Beach 49.1%
2.9%2.6%1.5% 2.8%
4.9%
5.7%
8.8%
10.6%
11.1%
Sources: U.S. data from The NPD Group, Inc. , July 2014 Turtle Beach Brand Awareness and Sentiment Study by The NPD Group, Inc.
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Console Transition Expected To Drive Growth
Global Console Hardware and Software Sales
Dollars in billions
$45
$40
$35
$30
$25
$20
$15
$10
$5
$0
2003 2006 2009 2012 2015 2018
Fifth-Gen
Sixth-Gen
Current
Today
In each past transition, total industry revenue reached new highs within three years
Console hardware and software sales are forecasted to increase 58% to $42 billion from 2013 to 2018
New Generation Console Sales
Cumulative Xbox One and PS4 sales in millions
81% of expected sales still to come*
19% of sales completed*
2013 2014 2015 2016 2017 2018
Current cycle is off to a strong start with new platform sales more than 70% higher than same period in prior cycle
Cycle is less than 20% completed to date with 80% of expected installed base growth yet to come
* Percentage of total cumulative expected Xbox One and PS4 unit sales through 2018 Source: DFC Intelligence Forecasts: Worldwide Console Forecast, October 2014
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2015 Marks Expected Crossover Point
Active Installed Base of Consoles
Millions
2013 2014 2015 2016 2017 2018
Crossover point: Next Gen active installed base exceeds Last Gen active installed base
Next Gen:
Xbox One, PS4
Last Gen: Xbox360, PS3
Source: DFC October 2014
PROJECTED IMPACT OF CONSOLE TRANSITION ON HEADSETS
2013:
Last Gen headset sales begin to slow
Last Gen headset portfolio is reduced (fewer models)
Next Gen console specs become available
Specs timing limits Next Gen headset portfolio
2014:
Last Gen headset sales continue to decline
Sales of first models of Next Gen headsets ramp
Last Gen product portfolio further narrowed
Next Gen headset portfolio increases (more models)
2015:
Next Gen ramp begins to offset Last Gen decline
Next Gen headset portfolio largely complete
2016-2017:
Next Gen headset sales exceed Last Gen sales
2nd round of Next Gen Headsets launched, adding sales
2018:
Next Gen installed base peaks after rapid growth
Normal industry growth trend expected after 2018
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Multiplayer Gaming Drives Headset Sales
The limited number of AAA multiplayer video game releases in the first half of 2014 contributed to the slow growth in attach rates for gaming headsets
3 Major multiplayer titles launched from January to September
An increase in multiplayer titles released in late 2014 will drive gaming headset attach rates
Major multiplayer titles to launch between October and December
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Major console multiplayer titles to
launch in 1H15 (delayed from 4Q14)
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Turtle Beach Has Differentiating Technology
Advanced Chat
A suite of chat technology including noise gate, chat boost, variable microphone monitor
Bluetooth
Dual-pairing Bluetooth in most wireless headsets for wireles chat, mobile gaming, audio calls and music streaming
DTS Headphone:X
The first gaming headsets with DTS 7.1 surround sound to provide incredibly accurate and immersive directional sound
Digital Signal Processing (DSP)
Advanced DSP for game audio and chat presets that can be customized using a new mobile app
Active Noise Cancellation
The first gaming headset to use noise cancellation for both inbound audio and outbound chat
Superhuman Hearing
Provides a competitive advantage by making important, quiet sounds louder and easier to hear
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Leading Products for Both New Platforms
Red = First and Only Innovations
Elite 800
Flagship Wireless Surround
Active Noise Cancellation
DTS 7.1 Headphone:X
Charging Stand & TX
Introduced October 2014
Stealth 500P
Wireless Surround
DTS 7.1 Headphone:X
DTS Surround Modes
EQ Presets
Introduced October 2014
Stealth 400
Wireless Stereo
Digital Stereo Sound
Universal PS4 Compatibility
EQ Presets
Introduced October 2014
P12
Wired Stereo
Single USB Connection
In-Line Amplifier
Mic Monitoring
Introduced July 2014
Elite 800X
Flagship Wireless Surround
Active Noise Cancellation
DTS 7.1 Headphone:X
Charging Stand & TX
Planned May 2015
Stealth 500X XO SEVEN Pro
Wireless Surround Wired to Controller
First true wireless XB1 Superhuman Hearing
DTS 7.1 Headphone:X Mic Monitoring
Genre-Specific Presets Game/Mic Presets
Introduced October 2015 Introduced Dec. 2015
XO FOUR Stealth XO One
Wired to Controller Wired to Controller
Game/Mic Presets Game/Mic Presets
Mic Monitoring Mic Monitoring
Introduced Dec. 2015 Variable Bass Boost
Introduced October 2015
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Exceptionally Strong Retail Distribution
Points of Distribution Retailers
Over 370,000 points of Strong retail relationships
distribution (POD)
3x increase in North U.S. and Canada
America since 2011
5x increase in
International since 2011
Added Chinese distribution
U.K. and Europe
Points of Distribution
North America
370,000
International
Asia
240,000
128,000
Latin America
EOY 2011 EOY 2012 EOY 2013
Interactive Kiosks
~18,000 interactive kiosks
Interactive retail displays allow consumers to sample headsets in store
Kiosks drive a meaningful increase in sell-through following deployment
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Unparalleled Strategic Relationships
Consoles
The only gaming headset brand that is officially licensed for all three major consoles
Software and
Entertainment
Partnerships with some
of the world’s leading
entertainment brands
Gaming and Streaming
Official audio partner of the world’s largest professional gaming league and most popular game streaming site
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Growth Opportunities In PC and International
PC Gaming Headsets International Markets
Growing market opportunity International markets
Expanded PC gaming headset portfolio, launching 8 new SKUs in 2014 YTD 2014 U.S. PC gaming headset market is up 25% or $9.5M compared to YTD 20132 60% year-over-year dollar share increase for Turtle Beach in the U.S. for the first 11 months of 20142 Significant international opportunity as PC gaming is more popular than console gaming in several European and Asian markets Introducing PC gaming companion products, including mice, keyboards and mousepads
More sales of next-gen consoles are occurring outside the U.S. than during previous generations Solid growth in Europe during 2014 led by the U.K. plus strong share gains in Germany & France Turtle Beach has more than doubled the number of countries with retail distribution since 2011, increasing from 22 to 49 over four years
China represents growth opportunity for both console and PC gaming headset business
227 million gamers in China; 65 million hard core Turtle Beach first-to-market with Xbox One gaming headsets in China PC Gaming headset sales in China are forecasted to reach $55 million in 2014 and $200 million by 20163 Turtle Beach has announced a new Call of Duty Online gaming headsets exclusively for China
33. Source: DFC Intelligence Forecasts 1. Source: DFC Intelligence Forecasts: Worldwide Console Forecast, February 2014
2. Source: The NPD Group, Inc. 13
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Disruptive and Unique HyperSound Technology
New Sound Delivery Mechanism Innovations
Fundamentally new approach to audio Thin panels generate an ultrasound beam Audio is injected into the beam Sound is contained to the air within the ultrasound beam
HyperSound
Standard Speaker
Patent-protected innovations provide a competitive advantage over other solutions in the marketplace.
Digital signal processing has significantly improved audio quality and frequency response
Electronics advancements have enabled the use of low voltage cables and lower overall power consumption
Innovations in emitter panel design have improved the ratio of audio volume to panel size, allowing for the production of smaller, louder emitter panels
Advances in emitter manufacturing process now allow for cost effective mass production
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Multiple Commercial Market Opportunities
BENEFIT
HyperSound’s ability to place sound in a specific location makes it ideal for many commercial uses
MARKET OPPORTUNITY
Pre-defined sound zones for in-store promotional, informational and way-finding messages Audio for interactive kiosks and displays
20M digital signs currently in use in North America1 34M ATMs, vending machines and self-service kiosks in North America by 20152 2.5M self-service kiosks by 20152 120,000 fast food restaurants in the U.S.3
900 casinos and 850,000 electronic gaming machines in the U.S.4
STATUS
In November 2014 achieved first wide-scale deployment of HyperSound® virtual reality audio zones in Activision Call of Duty®: Advanced Warfare retail displays in approximately 1,000 Best Buy locations in North America Pursuing multiple showcase installations at brand-name retailers
1. BUNN Research, January 2014.
2. Self-Service Markets: ATMs, Kiosks, Vending Machines, BCC
Research, March 2011. 3. QSR, August 2013.
4. 2013 Survey of Casino Entertainment, American Gaming
Association, October 2013. 16
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Significant Hearing Health Opportunity
BENEFIT
HyperSound provides significant improvement in listening experience for individuals with hearing loss
MARKET OPPORTUNITY
Targeting living room TV/audio solution to improve speech comprehension and enhance listening experience Large, addressable markets
360M worldwide and 48M in the U.S. with hearing loss1 35% to 40% of population over 65 suffer from hearing loss1
$4B U.S. hearing-aid market, with ~11M units sold annually1
STATUS
Received FDA clearance for HyperSound Audio System in February 2014 Hired hearing aid industry veteran Rodney Schutt as SVP and General Manager of HyperSound in 2014 Products in development and expected to ship in 2015
1. Johns Hopkins School of Medicine, November 2011.
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Future Opportunities
Consumer
BENEFIT: HyperSound allows for immersive 3D audio in a wide variety of consumer electronics applications
MARKET OPPORTUNITY
Home theater systems
Entertainment and gaming soundbars Computer speakers
STATUS
Pursuing consumer product development in 2016 and beyond
Licensing
BENEFIT: HyperSound can be integrated into a wide variety of commercial and consumer products
MARKET OPPORTUNITY
Automotive and other transportation markets Government and military applications Displays and televisions Others?
STATUS
Actively engaged in initial licensing discussions to incorporate HyperSound technology
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Steady Stream of HyperSound Opportunities
Application Strategy 2014 2015 2016 2017
Become the market leader in directed
Commercial audio systems in kiosk and sound zone 2014 +
applications
Create an entirely new market of
Hearing ultrasonic audio products that benefit 2015 +
Health people with hearing loss
Apply the unique benefits of
Consumer HyperSound to a broad array of 2016 +
consumer products
Leverage broad applications of
Licensing HyperSound into external, licensed 2015 +
products
Continued R&D to advance the
Research technology and identify new 2014 +
capabilities and applications
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Strong and Rapidly Growing Portfolio of Patents
121
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EOY 2012 November 2014 Pending 20 86 Issued 26 35
Headset innovations on:
Audio processing
Gaming specific features
HyperSound innovations on:
Emitter construction
Ultrasound and emitter electronics
Digital signal processing techniques
Market uses of ultrasound audio
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2014 Performance Against Milestones
2014
Launch broad portfolio of innovative next generation console headsets
Strengthen retail relationships and improve in-store experience
Improve PC gaming headset offering and introduce accessories
Grow market share in non-core markets
Achieve large scale retail deployment of HyperSound
Complete transition to a public company
2015
Accelerate console headset growth as new console installed base expands
Grow newly established China market
Increase share of PC gaming headsets
Launch HyperSound healthcare products
Expand HyperSound Commercial business
2016
Continued growth of console and PC gaming headsets
Accelerated growth of HyperSound commercial and healthcare businesses
Roll-out HyperSound consumer products
Strategic Acquisitions
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Financial Summary
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2014 Operational Review
First Quarter
Completed merger with Parametric Sound (PAMT) and created publicly traded Turtle Beach Corporation
Refinanced term loan and ABL with new global ABL credit facility
Launched first-to-market new Xbox One headsets
Realized higher than normal revenue and profits as Microsoft introduced its adapter in March to give gamers the ability to use headsets on Xbox One platform
Second Quarter
Completed equity offering and used proceeds to pay down debt and increase liquidity Realized lower than normal revenue due to shift from delayed launch of Xbox One headsets Incurred significant incremental costs to pack and ship MSFT headset adapter due to late arrival of device from MFST
Signaled overall market headset attach rates trending lower than expected
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2014 Operational Review
Third Quarter
Reported lower than expected revenue due to continued weakness of console headset market and slight delay in certain product launches
Reiterated that industry attach rates continue to track lower than expected
Announced that West Coast port delays were driving increased logistic costs to expedite product to customers
Fourth Quarter
New Turtle Beach products performed well in a challenging domestic gaming headset market
West Coast port delays continued to drive higher logistics costs
Strong growth in key European markets including U.K., Germany and France
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Key Financial Takeaways
Revenue
50% CAGR between 2010 and 2012 to achieve $207 million in annual net sales with approximately 70% domestic / 30% international breakdown
2013 highly disrupted by start of console transition cycle and delay in Xbox One headsets to March 2014
Multiple industry headwinds in 2014 including rapid decline in old generation console user base, greater availability of Microsoft XB1 standalone adapter, lower than expected PS4 attach rates and deep competitor discounting
Turtle Beach headset revenue growth in 2014 despite challenging overall headset market conditions
Strong international growth in 2014 including PC gaming with market share gains in U.K., Germany, France and entry into China
Expecting growing demand for new products as new generation active user base surpasses old generation has company well positioned for 2015
HyperSound expected to contribute increasingly to the top-line as commercial segment expands and healthcare product launches
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Key Financial Takeaways
Gross Margin
Targeting roughly 30% range for headset business
2013 & 2014 margins negatively impacted by early stages of console transition (product mix, adapter logistics costs) and West Coast port issues
2015 margins expected to benefit from fuller new gen product portfolio partially offset by pressure from old gen discounting
HyperSound margins targeted at 50% and therefore will raise overall margins as this business grows
Operating Expenses
Targeting roughly 20% range for headset business
Expecting modest increases in staff and marketing to support HyperSound growth
HyperSound operating expenses begin to leverage in 2016
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Key Financial Takeaways
Balance Sheet
Signed new global $60 million ABL credit facility with Bank of America on March 31, 2014
Raised net proceeds of $35.6 million through common stock offering in April 2014
Repaid all $17.0 million of outstanding high interest subordinated notes using proceeds from equity offering and lower cost borrowings under credit facility
All outstanding debt now concentrated in our revolving credit facility with Bank of America that carries an interest rate of LIBOR plus 2.5% except
~$8 million that is at LIBOR plus 5%.
Cash interest on TTM basis approximately $1 million
Capital expenditures run approximately $6.0 million annually and are primarily investments in retail displays/kiosk
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Investment Summary
Audio technology company with strong existing audio business in gaming headsets combined with disruptive new HyperSound audio technology
Multiple near and long-term growth opportunities
Dominant console gaming headset brand in early stages of once-in- a-decade industry growth cycle
Significant market share opportunities in PC gaming headsets and international markets Growth opportunities from HyperSound in commercial markets and with 2015 entry into $5 billion hearing health category
Margin and EBITDA Expansion Potential
Growing portfolio of new generation headsets and increased contribution from HyperSound to drive gross margin improvement
Positioned to leverage operating cost structure on revenue growth
Strong cash flows to fund business expansion
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Contact Information
Corporate Communications
David Lowey
Turtle Beach Corporation david.lowey@turtlebeach.com
+1 619-887-4327
100 Summit Lake Drive, Suite 100 Valhalla, NY 10595
Investor Relations
Anne Rakunas
ICR
Anne.Rakunas@icrinc.com
+1 310-954-1113
12400 Wilshire Boulevard, Suite 1200 Los Angeles, CA 90025
COMPANY WEBSITES
www.turtlebeachcorp.com www.turtlebeach.com www.hypersound.com
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Exhibit 99.2
Turtle Beach Updates Full Year Sales Outlook
Company Presenting at ICR XChange and Needham Conferences
SAN DIEGO, CA, January 12, 2015 – Turtle Beach Corporation (NASDAQ: HEAR) today announced that, in spite of challenging overall market conditions, it expects net sales for the fiscal year ended December 31, 2014 to be within its previously issued guidance range of $185 to $195 million, albeit at the low end of this range.
“While industry conditions proved to be more challenging in 2014 than we initially expected, based on our revised estimates we were able to grow our business year-over-year and accomplish our key strategic and product objectives,” commented Juergen Stark, chief executive officer of Turtle Beach. “Our fourth quarter performance reflects strong consumer response to our new products including the newly-launched Stealth 500X and XO ONE which were both the top selling headsets in their price categories in November*. We also experienced strong growth in several international markets including the U.K., Germany and France and established a good initial foothold in China consistent with our business objectives.”
Mr. Stark continued, “The performance of our next generation console gaming headsets was partially offset by softer than expected sales of old generation headsets as the active user bases for Xbox 360 and Playstation 3 continue to decline at a faster pace than initially projected. Significant discounting by several competitors also created additional headwinds for our top-line. We chose not to compete on price in an effort to protect our brand value and margins. In addition, West Coast port issues steadily worsened as the fourth quarter progressed which required us to increase our logistics costs even more than expected.”
“As 2015 gets underway, we remain cautiously optimistic that headset attach rates for the Xbox One and Playstation 4 platforms will accelerate from current levels based on strong next generation console sales. We are confident that our industry leading product line up has us well positioned to benefit from improving trends,” concluded Mr. Stark. “We are also excited about capitalizing on the multiple market opportunities for our disruptive HyperSound audio technology including further commercial retail deployments and the hearing health product we will launch later this year.”
*According to sales tracking data from The NPD Group, Inc. for the $200 and above and $49 and below price categories.
Conferences
As a reminder, Chief Executive Officer, Juergen Stark and Chief Financial Officer, John Hanson are presenting at the 17th Annual ICR XChange Conference at 10:30 am ET on Tuesday, January 13, 2015 and the 17th Annual Needham Growth Conference at 3:30 pm ET on Wednesday, January 14, 2015.
The audio portion of both presentations will be webcast live over the internet and can be accessed under the Investor Relations section at www.turtlebeachcorp.com. An online archive will be available for a period of 90 days following the presentation.
About Turtle Beach Corporation
Turtle Beach Corporation (TurtleBeachCorp.com) designs audio products for consumer, commercial and healthcare markets. Under the brand Turtle Beach (TurtleBeach.com), the company markets premium headsets for use with video game consoles, including officially-licensed headsets for the next-generation Xbox One and PlayStation®4, personal computers and mobile devices. Under the brand HyperSound® (HyperSound.com), the company markets pioneering directed audio solutions that have applications in digital signage and kiosks, consumer electronics and healthcare. The Company’s shares are traded on the NASDAQ Exchange under the symbol NASDAQ:HEAR.
For more information:
David Lowey
Director of Corporate Communications
Turtle Beach Corporation
David.Lowey@turtlebeach.com
+1-914-844-2759
Anne Rakunas
Investor Relations
ICR
Anne.Rakunas@icrinc.com
+1-310-954-1113