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: March 14, 2017
(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 or organization) | (Commission File Number) | (I.R.S. Employer Identification Number) |
12220 Scripps Summit Drive, Suite 100
San Diego, California 92131
(Address of principal executive offices)
(888) 496-8001
(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
Investor Presentation
Certain information concerning our business and financial results can be currently accessed on our website, http://corp.turtlebeach.com/investor-relations under the heading “Investor Presentations.” Representatives of the Company expect to use this presentation, in whole or in part, and possibly with modifications, periodically in connection with conferences and presentations to investors, analysts and others. Portions of the presentation are attached hereto as Exhibit 99.1.
The investor presentation includes financial information not prepared in accordance with generally accepted accounting principles (“Non-GAAP Financial Measures”). A reconciliation of the Non-GAAP Financial Measures included in the presentation to financial information prepared in accordance with generally accepted accounting principles (“GAAP”), as required by Regulation G, appears in Appendix A to the presentation. The information contained in the presentation is summary information that is intended to be considered in the context of the Company’s Securities and Exchange Commission (“SEC”) filings and other public announcements that it may make, by press release or otherwise, from time to time. The Company undertakes no duty or obligation to publicly update or revise the information contained in the presentation or this report, although it may do so from time to time as its management believes is warranted. Any such updating may be made through the filing of other reports or documents with the SEC, through press releases or through other public disclosure.
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 9.01 — Financial Statements and Exhibits
(d) Exhibits
Exhibit No. | Description |
99.1 | Turtle Beach Corporation Investor Presentation |
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.
TURTLE BEACH CORPORATION | |||
Date: | March 14, 2017 | By: | /S/ JOHN T. HANSON |
John T. Hanson Chief Financial Officer, Treasurer and Secretary | |||
N A S D A Q : H E A R
Safe Harbor Statement
Forward-Looking Information
This presentation includes “forward-looking statements” within the meaning of the federal securities laws. These forward-looking statements are statements that are not historical facts
including statements about our beliefs and expectations and statements, and may contain the words “may,” “could,” “would,” “should,” “believe,” “expect,” “anticipate,” “plan,” “estimate,”
“target,” “project,” “intend,” “foresee,” “positioned” and similar expressions. There are a number of risks and uncertainties that could cause actual results to differ materially from the
forward-looking statements made herein, including but not limited to, the application of quarter-end and year-end accounting procedures and adjustments, risks related to the Company’s
liquidity and financial position, 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, risks associated with the expansion of our business including the implementation of any businesses
we acquire, our indebtedness, the outcome of our previously announced HyperSound strategic review process, and the other factors discussed in our public filings, including the section
entitled “Risk Factors” in our most recent Annual Report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission (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. Except as required by
law, Turtle Beach Corporation (the “Company”) undertakes no obligation to publicly release any revision to its forward-looking statements to reflect events or circumstances after the date
of this presentation. All of the forward-looking statements in this presentation are qualified by such cautionary statements, and subject to the protection of the safe harbor for forward-
looking statements contained in the Private Securities Litigation Reform Act of 1995. 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, non-GAAP earnings per share (“EPS”) and certain metrics presented on a “constant currency” basis that
are not calculated under the standards or rules of U.S. GAAP, which are referred to as "non-GAAP financial measures." These non-GAAP financial measures, as calculated by the Company,
are not necessarily comparable to similarly titled measures reported by other companies. Additionally, these non-GAAP financial measures ire not measurements of financial performance
or liquidity under GAAP and should not be considered an alternative to the Company’s other financial information determined under GAAP. Management believes that these 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. Constant currency revenue is measured by applying prior year currency exchange rates to current year
results to exclude the impact of translation at different rates from period to period. Non-GAAP EPS is defined as EPS less $1.46 per diluted share in year-to-date goodwill impairment
charges, inventory reserves associated with the HyperSound restructuring, and other restructuring charges. The Adjusted EBITDA outlook for the first quarter and full year 2017 has not
been reconciled with the Company’s net loss outlook for the same periods because of the variability, complexity and lack of visibility with respect to certain reconciling items between
adjusted EBITDA and net loss, including other income (expense), provision for income taxes and stock-based compensation. These items cannot be reasonably and accurately predicted
without the investment of undue time, cost and other resources and, accordingly, a reconciliation of the Company’s adjusted EBITDA outlook to its net loss outlook for such periods is not
available without unreasonable effort. These reconciling items could be material to the Company’s actual results for such periods.
© 2016 Turtle Beach Corporation. All Rights Reserved.
1
N A S D A Q : H E A R
Who We Are
Turtle Beach is a premier audio innovation
company with a 40-year legacy of creating
new audio categories
Longstanding, #1 brand for gaming headsets
with 42% share of the U.S. market – 3x larger
than next competitor¹
Disruptive, cutting-edge technologies and
patents
270,000+ points of distribution across 42
countries
Positioned for significant profit growth as
major industry product cycle continues
2 1) Based on U.S. NPD market data, revenue share for 2016.
N A S D A Q : H E A R
$96 Billion Global Gaming Opportunity in 2017
PC Gaming: $33B Mobile Gaming: $31B
Console Gaming: $32B
$96B
Global Gaming
Opportunity
Source: DFC Intelligence Video Game Worldwide Market Forecast (October 2016).
3
N A S D A Q : H E A R
Dominant Gaming Audio Provider with Continued Leading
Market Share
2016 Data
#1 gaming headset provider for Xbox and PlayStation—by far
All 5 of the top 5 selling 3rd party headsets are Turtle Beach
Our Recon 50X is the highest-selling 3rd party headset
followed by XO1
5 of the top 10 sellers overall (1st and 3rd party) are from Turtle
Beach
Xbox One:
3 of the top 5 headsets
4 of the top 5 3rd party headsets and the top selling 3rd party
headset
PlayStation 4:
3 of the top 5 headsets
4 of the top 5 3rd party headsets
4 Source: The NPD Group, Inc., Video Games Update 01.12.17. Data measured for full year 2016.
N A S D A Q : H E A R
Competitive Positioning & Brand Differentiators
Best-in-class product offering catering to
every level of gamer
Technology-driven, robust innovation
capabilities, impressive speed-to-market
Products continually evolve with gamer’s needs
at forefront
Strong patent portfolio to protect key
innovations
Unmatched brand equity with strong
repurchase loyalty
Dominant retail presence with enviable
product placement across branded
interactive displays
Significant opportunity to continue taking
market share and grow the category size
on a global basis
Source: The NPD Group, Video Games Update 01.12.17 (U.S. only) 5
Other
$168M
$60M
$41M $40M $38M
$16M $11M
$27M
2016 Sell-Through Sales¹
5 5 4
1
5 6
2
1
1
4
1
1
2
2
4
16
11
8
5
2 2
Product Count per ASP
>$200
$100 - $199
$50 - $99
<$50
N A S D A Q : H E A R
Retail ASP <$50 $50 - $99 $100 - $200 >$200
Console PS4 Xbox One PS4 Xbox One PS4 Xbox One PS4 Xbox One TOTAL¹
Recon 60P
Recon 50P
P4c
Recon 50X
Recon 30X
Stealth 400
S350VR
XO4 Stealth
XO1
Stealth 520
Stealth 420X+
XO7 Pro
Elite 800 Elite 800X 16
Sony Gold Wireless Platinum Wireless 2
Microsoft XB1 Chat XB1 Stereo 2
Astro
A40+M80
A40 + MixAmp
A50
A40 + MixAmp
A50
5
PDP
LVL 3
LVL 1
Afterglow BT
LVL 3
LVL 1
AG 9+
LVL 5+
Sound of Justice
AG 9+
LVL 5+
Sound of Justice
11
Mad Catz
Kaiken
Headcomm pro
Kama
Kama ARK100 ARK 100 ARK300 ARK300 8
We Cover All Key Price Points – More Than Any Competitor
6
1) Table reflects competitive data as of November 2016.
PX24 Elite Pro
N A S D A Q : H E A R
7
Active Noise Cancellation
Silence unwanted background sound for an
immersive listening experience.
Bolded and Italicized Text = Turtle Beach First Mover Advantage
Rechargeable Batteries
Built-in rechargeable batteries provide for hours of
continuous game play.
Bluetooth
Bluetooth integration allows you to take phone
calls with your headset while playing.
100% Wireless
Interference free game audio and chat.
Bass Boost
Bass boost enhances deep rumbling sounds
in games.
DTS Headphone:X 7.1 Surround
Superior surround sound that adds a height
dimension, recreating the sound in your environment.
Audio Presets
Customize your settings to create the perfect,
personalized experience.
Dynamic Chat BoostTM
Chat volume increases as game volume increases.
Mic Monitoring
Allows gamers to hear their voice within the headset
so they know how loud they are speaking.
Superhuman HearingTM
Hear every single thing around you, from enemy
footsteps to distant vehicles to weapon reloads.
ProSpecs™ Glasses Relief System
Ear pads with pressure-release technology that
provides relief for gamers who wear glasses.
(Not on pictured headset.)
Boomless Mic
Hidden, high-quality noise-cancelling
microphones.
Magnetic Charging Stand
Easily charge and store your headset when
not in use without fussing with wires.
Turtle Beach has Differentiated Technology…
N A S D A Q : H E A R
Strong Retail Presence Great Partnerships 12,000+ Interactive Displays
Sample retailers
…And Strong Distribution
8
Product sales in 42 countries
with over 270,000 points of
distribution
Partnerships with industry
leading brands
Market leader in deploying
interactive gaming headset
displays
N A S D A Q : H E A R
3.0
10.9
20.0
29.0
37.7
45.6
52.5
58.9
4.6
18.0
34.6
51.0
66.7
80.8
93.7
105.4
0M
20M
40M
60M
80M
100M
120M
2013 2014 2015 2016 2017E 2018E 2019E 2020E
Xbox One PS4
Strong Expected New-Gen Console Growth Still to Come
51M 105M
29M 59M
Sources: DFC Intelligence Forecasts: Worldwide Console Forecast, Preliminary February 2017.
Cumulative Sales
(Current 2020 est.)
Platform
Number of Consoles Sold (in millions)
Cumulative new-gen console sales totaled 80M as of 12/31/16
New-gen console sales up 40% vs. old-gen at same time in cycle
24M+ new-gen consoles expected to be sold worldwide in 2017
New-gen cumulative console sales projected to exceed 164M
worldwide in 2020
9
N A S D A Q : H E A R
International
Virtual Reality (VR) PC Gaming
Headset Growth Opportunities
10
According to SuperData Research, VR hardware market expected to reach
$17.8B by 2020 from $1.5B in 2016 (85% CAGR)
STEALTH 350VR, our first gaming headset designed for upcoming VR devices,
launched in Oct 2016
“If you’re buying a headset to use with your virtual reality hardware, you
won’t find another headset on the market (yet) designed to physically
accommodate the Rift, Vive and PSVR HMDs.” Tom’s Hardware review
(online reach of 20M)
“It’s nice to be able to have so much control over volume and bass on a per-
game basis, while having a band that’s easy to fit over the rather challenging
design of the PlayStation VR.” Polygon review (online reach of 10M)
STEALTH 350VR
Source: https://www.superdataresearch.com/market-data/virtual-reality-industry-report/
N A S D A Q : H E A R
International
Virtual Reality (VR) PC Gaming
Headset Growth Opportunities
11
PC gaming headsets market ~$400M market globally1
Launched eight new SKUs in 2014 and 2015
Launched PC gaming accessories via a partner in 2014
including:
Keyboards
Mice
Mouse pads
PC gaming more popular than console gaming in
markets including Germany, China, other parts of Asia2
Leveraging expanded portfolio as a growth platform in
Germany and China
Sample PC Products
1) The NPD Group, IDC and Company Estimates.
2) Newzoo 2015 Global Games Market Report Premium.
N A S D A Q : H E A R
International
Virtual Reality (VR) PC Gaming
Headset Growth Opportunities
12
China represents long-term growth opportunity for console and PC gaming
headsets
530M Chinese gamers2
China well under $1 million in revenues in 2016
Initiated modest growth investment in 2016, expected to ramp in 2018
73M Esports audience in China of which 42M are Esports Enthusiasts2
Turtle Beach investment in eSports planned for first half of 2017
Growth Plans and expansion in Latin America
209M estimated gamers3
Turtle Beach in 12 countries and over 1600 stores in Latin America
$13.1B
$15.2B
$5.0B
$7.0B
2014 2015
Chinese Games Market Sales
Forecast¹
All Other Game Segments
Computer Games
$18.1B
$22.2B
1) Newzoo 2015 Global Games Market Report Premium
2) Newzoo 2016 Global Esports Market Report
3) Newzoo 2016 Global Games Market Report Premium
N A S D A Q : H E A R
26 28
35
81
20
68
86
65
Jan 2013 Jan 2014 Jan 2015 Mar 2017¹
Pending Issued
Headset innovations:
Audio processing
Gaming specific features
HyperSound innovations:
Emitter construction
Ultrasound and emitter electronics
Digital signal processing techniques
121
96
46
146
Strong & Growing Patent Portfolio
13 1) As of Mar 10, 2017.
N A S D A Q : H E A R
New sound delivery mechanism
► Thin panels generate ultrasound beam
► Audio is injected into the ultrasound beam
► Sound is created in the air along the beam
► Fundamentally new and different approach to audio
► Fully functional from glass emitters enabling glass “speakers”
Multiple, innovative benefits
► Highly controlled direction of sound
► Full 3D surround sound with 2 emitters (vs. 5 or 7 speakers)
► Significantly higher level of audio clarity to the listener
Monetization via licensing or sale
► 56 Issued and 31 pending patents
► Small team engaged with prospective licensees
► Also exploring strategic alternatives
HyperSound Technology
14
N A S D A Q : H E A R
Example HyperSound Applications
Commercial
Audio
Enables retailers and retail display
manufacturers to add focused zone of audio to
retail displays/kiosks.
Healthcare
Shown to improve sound clarity and listening
benefits for people with hearing loss.
Market Application
Enterprise
Audio
Enables private zone of audio in
office/enterprise environments.
Consumer
Audio
Utilize 3D nature of HyperSound to create
individual surround sound experience with two
emitters.
HyperSound
Glass
Directional audio with all benefits and
applications above but from glass panel.
Creates glass speaker which can be standalone
or integrated into video displays.
15
Demos available at:
HyperSound Glass Demo
HyperSound Glass Integrated into Desktop Monitors
Example
Healthcare
Glass
Commercial
Financial Summary
N A S D A Q : H E A R
Balance Sheet Highlights
Revolver peaks in Q4, lowest in
Q1 after holiday receipts
In Feb 2016, raised $6.2M in
net proceeds (over 50%
purchased by insiders),
stabilizing liquidity
$49.0M federal, $21.0M state
net operating losses @ Dec 31,
2016 offset taxable income (not
scheduled to expire until 2029)
$60M line of credit and
expectation to drive
significantly more adj. EBITDA
in 2017 provides sufficient
capital to fund our growth plan
Key Stats
17
Sources: S&P Capital IQ, company filings.
1) As of December 31, 2016.
2) Includes SG VTB Holdings (an affiliate of Stripes Group LLC, a private equity fund
and our largest shareholder) and trusts affiliated with Ron Doornink, the
Company’s chairman of the board.
3) Due in October 2030 and has 8% per annum PIK interest.
Trading Data (@ Mar 10, 2017)
Stock Price $1.06
Market Cap. (primary shares) $52.3M
52 Wk. Low/High $0.83/$2.00
Avg. Daily Vol. (3 mo) 365K
Public Float¹ 46.9%
Primary Shares¹ 49.3M
SG VTB Holdings & Affiliates¹ 21.5M
Retired Founders of Turtle Beach¹ 5.2M
Options/Restricted Stock¹ 6.5M
Warrants¹ 3.1M
Fully Diluted Shares¹ 58.9M
Capitalization
@ 12-31-15 @ 12-31-16
Cash & Equivalents $7.1M $6.2M
Debt
Revolver (asset-based loan) $32.5M $35.9M
Term Loans $18.4M $14.4M
Subordinated Notes² $17.2M $19.4M
Total Debt $68.1M $69.7M
Series B - Preferred Stock³ $16.1M $17.5M
N A S D A Q : H E A R
Headset Revenue Growth
Revenue Growth Profile
18
New-gen revenue up
29% from 2015
Total revenue up 7%
(9% constant
currency)²
Strong revenue growth
supporting further
gains in our #1 market
share
Old-gen revenue
declines to roughly
zero in 2017
Note: Old-gen, new-gen revenue splits are approximations.
1) Strong dollar and rapid drop in old-gen significantly reduced revenues from 2014 to 2015.
2) See appendix for a reconciliation of non-GAAP measures.
2013 2014 2015¹ 2016
New Gen Old Gen Other HyperSound
$178M $186M
$163M
$174M
N A S D A Q : H E A R
Headset Net Revenue¹ Headset Gross Margin¹ Headset Adj. EBITDA¹ ²
19
$162M
$166M
$173M
$175M
$173M
TTM @
Q4-15
TTM @
Q1-16
TTM @
Q2-16
TTM @
Q3-16
TTM @
Q4-16
26.5% 26.6%
27.7%
28.9%
31.9%
TTM @
Q4-15
TTM @
Q1-16
TTM @
Q2-16
TTM @
Q3-16
TTM @
Q4-16
$2M
$6M
$8M
$11M
$14M
TTM @
Q4-15
TTM @
Q1-16
TTM @
Q2-16
TTM @
Q3-16
TTM @
Q4-16
1) Excludes HyperSound allocation in Q4-16.
2) Please see appendix for a reconciliation of adjusted EBITDA.
Strong Improvement in Headset Business
N A S D A Q : H E A R
Holiday ’16 U.S. Market Dynamic Commentary
20 Sources: The NPD Group / Retail Tracking Service.
-12%
-21%
-15%
-41%
0% 20% 40% 60% 80% 100%
Console Gaming Headsets ($)
Console Software Spend ($)
Physical New Software, All Platforms ($)
Top 3 FPS/Action Titles, All Platforms (Units)
Q4'15 Q4 '16
Top 3 first-person-shooter
(FPS)/action titles dropped over
40% in Q4 2016 vs. Q4 2015
Console software spend across all
categories declined 21% Q4 YoY
Created higher than normal
channel inventories of roughly $12
million TB headset revenues,
impacting Q1 sales proportionally
N A S D A Q : H E A R
21
Longer Term Console, Attach and Headset Outlook
Sources: DFC Intelligence Forecasts: Worldwide Console Forecast, Preliminary February 2017 and Turtle Beach projections
N A S D A Q : H E A R
Q1 2017 Outlook
22
Q1-17¹ YoY ∆2 Management Commentary & Assumptions
Revenue $12-$13M (48)%
Reflects higher-than-normal channel inventory due to weak holiday ’16
sales as well as the final drop of old-gen revenues to roughly zero
Adj. EBITDA $(8.5)M (35)% Reflects lower revenue but lower opex (better adj. EBITDA margins)
EPS $(0.24)-$(0.26) (4)%
Profit nearly flat despite carryover channel inventory highlights strong
expense management
1) Guidance effective on Mar 8, 2017.
2) Delta reflects midpoint of the outlook.
N A S D A Q : H E A R
1) Guidance effective on Mar 8, 2017.
2) Delta reflects midpoint of the outlook.
3) Excludes intangible asset amortization costs associated with HyperSound Clear 500P launch, $7.1M in inventory reserves associated with HyperSound restructuring, and $0.6M for other restructuring charges in 2016.
2017 Outlook
23
($ in millions) 2017¹ % ∆² Management Commentary & Assumptions
Revenue:
New-Gen $149-$154 (5)% Holiday ’16 inventory carryover impacts first half 2017 revenue
Old-Gen $- NA Old-gen business wound down to essentially zero in 2017
Other $6 (8)% Longer term opportunity for PC & international growth
HyperSound $- NA Assuming no material revenue, immaterial expenses
Total Revenue $155-$160 (9)%
Headset Gross Margin ~30%
Up from 24.5% in
‘16
Lower operations costs, continued COGS improvements, some loss of operating
leverage due to lower revenue
EPS³ $(0.08)-$(0.12) $(0.33) in ‘16³ Based upon 49.3M shares
Adjusted EBITDA:
Headsets ~$12 (17)% Heightened channel inventory in early 2017 impacts full-year sales
HyperSound ~$(1) $(10.4)M ‘16 Significant cost reductions enable consolidated adj. EBITDA improvement
Consol. Adj. EBITDA $10-$12 162% $4M in 2016
N A S D A Q : H E A R
Key Takeaways
#1 console gaming headset brand in the world - ~3x
larger than next competitor
$92 billion global gaming opportunity
Disruptive, cutting-edge technologies and patents
New-gen headset transition expected to continue to
improve margins, profitability and cash flows
2017 will be focused on improving profitability and
strengthening the balance sheet
VR, PC gaming and international expansion all
provide meaningful longer-term headset growth
opportunities
24
N A S D A Q : H E A R
Contact Information
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
www.turtlebeach.com www.hypersound.com
C O M PA N Y W E B S I T E S
www.turtlebeachcorp.com
Contact Us
25
Appendix
N A S D A Q : H E A R
Experienced Management Team
Juergen Stark
CEO
• COO of Motorola Mobility’s mobile business
• 10 years as principal at McKinsey & Company
Richard Kuvalik
CTO
• 15+ years in consumer audio
• Led peripheral products for PlayStation at
Sony
Cris Keirn
SVP, Global Sales
Andrew Lilien
VP of Marketing
Megan Wynne
General Counsel
• 20+ years of brand, consumer and retail
marketing experience
• Past experience at ESPN, Fleer Trading
Cards and National Media Group
• 5 years with I-Flow, a Kimberly-Clark Health
Care Company
• 13 years with Morris Polich & Purdy law firm
27
• Led headset transition as VP of business planning &
strategy
• 17 years with Motorola in product management,
operations, quality and customer relations
John Hanson
CFO
• EVP and CFO at Dialogic
• CFO at One Communications Corp
• 20+ years in the Consumer Electronics industry
• Previously with Sony leading television portfolio
planning & development, product marketing
Matt Seymour
VP, Product Management
• 20+ years of logistics, transportation and
operations experience
• 11+ years at Turtle Beach
Scott Rankin
VP Global Logistics
Jose Rosado
VP Global Operations
• Former Sr. Director, Global Supply Chain
Operations for HP
• 22 years of supply chain management with
Motorola, On Semiconductor, HP, Cisco
N A S D A Q : H E A R
Experienced Board of Directors
Ken Fox
Director
William Keitel
Director
Dr. Andrew Wolfe, PhD
Director
Ron Doornink
Chairman
• Managing partner of Stripes Group, LLC
• Former Managing Director and co-founder of Internet Capital Group (NASDAQ: ICGE)
• Co-founder of A-10 Capital and Sentinel Fund
• Former CFO of Qualcomm Incorporated (NASDAQ: QCOM)
• During his time at the company grew revenues from ~$800M to ~$25B
• Held senior financial roles at Nortel (OTC: NRTLQ) and Pepsico (NYSE: PEP)
• Founder and principal of Wolfe Consulting
• Former Chief Technology Officer for SONICblue, Inc.
• B.S.E.E. in Electrical Engineering and Computer Science, Johns Hopkins; Ph.D. in Computer
Engineering, Carnegie Mellon
• Former Chairman and CEO of Activision Publishing (NASDAQ: ATVI)
• Operating partner of Stripes Group, LLC
• Founder and principal of Erasmus Equity Investments
Juergen Stark
CEO and Director
• COO of Motorola Mobility’s mobile business
• 10 years as Principal at McKinsey & Company, Inc.
• MBA, Harvard Business School; B.S. Aerospace, University of Michigan
28
N A S D A Q : H E A R
Financial Overview
29
1) Pages 30-34 contain a reconciliation of all non-GAAP measures.
2015 2016
YOY ∆%
Full Year
YOY ∆%
$ millions Q4 Q4 2015 2016
Revenue $84.6 $82.2 -3% $162.7 $174.0 7%
Gross Profit $24.6 $30.2 23% $40.7 $42.6 5%
Gross Margin 29.1% 36.7% 760bps 25.0% 24.5% (50)bps
Headset Gross Margin 30.6% 37.2% 630bps 26.5% 31.9% 540bps
Operating Expenses $68.1 $14.9 -78% $115.1 $120.3 5%
Operating Income (Loss) ($43.5) $15.3 NA ($74.4) ($77.7) NA
Headset Operating Income $11.7 $16.6 42% ($8.7) $8.6 199%
GAAP Net Income (Loss) ($46.5) $12.2 NA ($82.9) ($87.2) NA
GAAP EPS Diluted ($1.09) $0.25 NA ($1.96) ($1.79) NA
Non-GAAP Net Income (Loss)1 $3.3 $12.3 267% ($24.2) ($16.2) 33%
Non-GAAP EPS Diluted¹ $0.08 $0.25 213% ($0.57) ($0.33) 42%
Adj. EBITDA¹ $9.9 $16.1 63% ($11.4) $4.0 135%
Headset Adj. EBITDA $14.0 $17.2 23% $2.4 $14.4 500%
N A S D A Q : H E A R
Financial Overview (excluding extraordinary or one-time charges)¹
30
2015 2016
YOY ∆%
Full Year
YOY ∆%
$ millions Q4 Q4 2015 2016
Revenue $84.6 $82.2 -3% $162.7 $174.0 7%
Gross Profit $24.6 $30.2 23% $40.7 $42.6 5%
Gross Margin 29.1% 36.7% 760bps 25.0% 24.5% (50)bps
Operating Expenses $18.3 $14.9 -19% $64.9 $56.4 -13%
Net Income (Loss) $3.3 $12.2 270% ($24.2) ($16.0) 34%
EPS Diluted $0.08 $0.25 NA ($0.57) ($0.33) NA
1) These exclude $0.1M in restructuring charges in Q4-16 and a $49.8M impairment charge in Q4-15. For the full year, these exclude a $63.2M impairment charge, $7.1M for HyperSound inventory reserves, and $0.7M in restructuring
charges in 2016, and a $49.8M impairment charge, a $8.5M valuation allowance and $0.4M in restructuring charges in 2015.
N A S D A Q : H E A R
Headset Adjusted EBITDA Reconciliation (Trailing 12 months)
31
$ thousands Q4-15 Q1-16 Q2-16 Q3-16 Q4-16
Net Loss $ (17,201) $ (17,440) $ (17,341) $ (5,630) $ (930)
Interest 5,096 6,091 6,943 7,270 7,445
Depreciation & Amortization 6,374 5,865 5,443 4,959 4,498
Stock Compensation 5,347 5,197 4,228 3,982 3,457
Taxes 2,393 5,858 8,702 335 (392)
Restructuring Expense 399 280 96 269 289
Adjusted EBITDA $ 2,408 $ 5,851 $ 8,071 $ 11,185 $ 14,367
N A S D A Q : H E A R
Reconciliation of GAAP and Non-GAAP Measures
32
Three Months Ended Year Ended
December 31, 2016 December 31, 2015 December 31, 2016 December 31, 2015
Net Income (Loss)
GAAP Net Income (Loss) $ 12,201 $ (46,536 ) $ (87,182 ) $ (82,907 )
Goodwill and intangible asset impairment — 49,822 63,236 49,822
HyperSound inventory reserve — — 7,079 —
Restructuring charges 100 63 664 399
Tax Valuation Allowance — — — 8,528
Non-GAAP Earnings 12,301 3,349 (16,203 ) (24,158 )
Diluted Earnings Per Share
GAAP - Diluted $ 0.25 $ (1.09 ) $ (1.79 ) $ (1.96 )
Goodwill and intangible asset impairment $ — $ 1.17 $ 1.30 $ 1.18
HyperSound inventory reserve $ — $ — $ 0.15 $ —
Restructuring charges $ — $ — $ 0.01 $ 0.01
Tax Valuation Allowance $ — $ — $ — $ 0.20
Non-GAAP - Diluted $ 0.25 $ 0.08 $ (0.33 ) $ (0.57 )
$ Thousands
N A S D A Q : H E A R
GAAP to Adjusted EBITDA Reconciliation (three months ended)
33
1) Other includes goodwill and other intangible assets impairment, business transition costs and restructuring charges.
Three Months Ended
December 31, 2016
As Reported
Adj
Depreciation
Adj
Amortization
Adj
Stock
Compensation
Other (1)
Adj
EBITDA
Net Revenue $ 82,204
$ — $ — $ — $ — $ 82,204
Cost of Revenue 51,996
(151 ) — (159 ) — 51,686
Gross Profit 30,208
151 — 159 — 30,518
Operating Expense 14,912
(729 ) (100 ) (579 ) (17 ) 13,405
Operating income 15,296
880 100 738 17 17,113
Interest expense 2,116
Other non-operating expense, net 1,026
1,026
Earnings before income tax expense 12,154
Income tax benefit (47 )
Net income $ 12,201
Adjusted EBITDA $ 16,087
$ Thousands
N A S D A Q : H E A R
GAAP to Adjusted EBITDA Reconciliation (twelve months ended)
34
(1) Other includes goodwill and other intangible assets impairment, business transition costs and restructuring charges.
Year Ended
December 31, 2016
As Reported
Adj
Depreciation
Adj
Amortization
Adj
Stock
Compensation
Other (1)
Adj
EBITDA
Net Revenue $ 173,978
$ —
$ —
$ —
$ —
$ 173,978
Cost of Revenue 131,368
(571 ) (3,660 ) (557 ) (7,079 ) 119,501
Gross Profit 42,610
571
3,660
557
7,079
54,477
Operating Expense 120,311
(4,496 ) (468 ) (3,403 ) (63,817 ) 48,045
Operating income (loss) (77,701 ) 5,067
4,128
3,960
70,896
6,432
Interest expense 7,447
Other non-operating expense, net 2,421
2,421
Loss before income tax expense (87,569 )
Income tax benefit (387 )
Net loss $ (87,182 ) Adjusted EBITDA $ 4,011
$ Thousands
N A S D A Q : H E A R
Constant Currency Reconciliation
35
December 31,
Three Months Ended Year Ended
Constant Currency Reconciliation
2015 Revenue (GAAP) $ 84,559 $ 162,747
2016 Revenue (GAAP) $ 82,204 $ 173,978
Percentage Change Y/Y (GAAP) (3 )% 7 %
Constant Currency Impact $ 2,717 $ 3,506
Percentage Change Y/Y — % 9 %
$ Thousands