Turtle Beach Corporation Common Stock 2026 Q2 Earnings Call

On today's call, we'll be referring to the press release filed this afternoon that details the company's second quarter 2026 results, which is available on the news page of the company's investor relations website, corp.turtlebeach.com, where you'll also find the latest earnings presentation that supplements the information discussed on today's call. Finally, a recording of the call will be available in the Events and Presentation section of the company's investor relations website later today. Please be aware that some of the comments made during this call may include forward-looking statements within the meaning of the federal securities laws. Statements about the company's beliefs and expectations containing words such as may, will, could, believe, expect, anticipate, and similar expressions constitute forward-looking statements.

These statements involve risks and uncertainties regarding the company's operations and future results that could cause Turtle Beach Corporation's results to differ materially from management's current expectations. While the company believes that its expectations are based upon reasonable assumptions, numerous factors may affect actual results and may cause results to differ materially. Company encourages you to review the safe harbor statements and risk factors contained in today's press release and in its filings with the Securities and Exchange Commission, including, without limitation, the annual report on Form 10-K and other periodic reports, which identify specific risk factors that also may cause actual results or events to differ materially from those described in our forward-looking statements. Company does not undertake to publicly update or revise any forward-looking statements after this conference call. Company also notes that on this call, it will be discussing non-GAAP financial information.

Company is providing that information as a supplement to information prepared in accordance with accounting principles generally accepted in the United States or GAAP. You can find a reconciliation of these metrics to the company's reported GAAP results in the reconciliation tables provided in today's earnings release and the presentation. Hosting the call today are Cris Keirn, Chief Executive Officer, and Andrew Clipsham, Interim Chief Financial Officer. With that, I'll turn the call over to Cris.

Thanks, Jacques. Good afternoon, everyone, and welcome to our second quarter 2026 earnings call. During the second quarter, we continued executing against the strategic priorities we've outlined throughout the year. We expanded our product portfolio, advanced our brand transformation, returned significant capital to shareholders through share repurchases, and prepared Turtle Beach for what we believe will be a stronger demand environment in the second half of 2026. Revenue for the quarter was $56.4 million, essentially flat year-over-year. Continuing the trends we discussed on our last call, retail partners remained disciplined in managing inventory through much of the quarter, with further reductions in channel inventory through the first half of Q2. As the quarter progressed, however, we began to see encouraging signs that retailers have now stabilized inventory ahead of what we expect will be a stronger second half of the year.

We believe the combination of historically low channel inventory, improving early Q3 sell-through trends, and the industry's upcoming content releases create a favorable setup for the second half of the year. Together, these factors prepare the business for a return to growth during the back half of 2026. One of the defining characteristics of Turtle Beach in 2026 has been the pace of innovation across our portfolio. We are delivering a significant increase in new product introductions this year, and we're encouraged by the early performance of those models. The launch of Stealth Pro II, our new flagship headset, added share in the premium price tier for U.S. gaming headsets, supported by our new brand initiatives and building on the exceptional pre-order demand we mentioned in our previous call.

We also recently announced the industry's first officially licensed wireless gaming headset for Nintendo Switch 2, further reinforcing Turtle Beach's leadership in gaming audio and our collaborative partnership with Nintendo. In addition to this latest audio innovation, our new Nintendo Switch 2 controllers and incremental retail placements drove year-over-year U.S. share growth in Nintendo controllers for the quarter, building momentum for Turtle Beach in this key growth segment. More importantly, these launches, with more to be announced, strengthen our leadership heading into what we believe will be one of the strongest gaming content calendars in years.

Looking ahead, Grand Theft Auto VI remains on track for its confirmed November launch, while Call of Duty: Modern Warfare 4 has been confirmed to launch in October. Rather than simply benefiting from the increased demand these releases have historically generated, we've spent the past several quarters aligning our product roadmap, brand investments, retail distribution, and operations to proactively set up Turtle Beach for the anticipated increase in gamer engagement. With GTA VI launching first on consoles, we believe Turtle Beach is particularly well-positioned given our leadership across console gaming accessories and the timing of our newest product introductions as the market strengthens. Capital allocation also remained an important area of execution throughout the quarter. Following the refinancing of our credit facilities in May, we repurchased approximately $25 million of our common stock during the second quarter.

Those repurchases reflect our disciplined approach to capital allocation and our continued belief that the market does not fully recognize the long-term value of Turtle Beach. With approximately $31 million remaining under our current authorization, we will continue balancing opportunistic share repurchases with investments that support long-term value creation for the growth opportunities ahead. Given our confidence in our new product pipeline, the strength of the second-half gaming release calendar, and our expectation that channel inventories will rebuild toward more normalized levels, we are reaffirming our full-year 2026 guidance. Before turning to the financials, I'd like to introduce Andrew Clipsham, our recently appointed Interim Chief Financial Officer. Andrew has been with Turtle Beach for nearly eight years and brings more than 20 years of global financial leadership experience.

Throughout his time with the company, he has played an important role in strengthening our financial operations and supporting many of the strategic initiatives we've discussed over the past several years. I'm pleased to welcome Andrew to his first earnings call as Interim CFO. With that, I'll turn it over to Andrew to provide additional details on our second quarter financials.

Thank you, Cris, and good afternoon, everyone. It's a pleasure to be joining you today as Interim Chief Financial Officer. Second quarter revenue was $56.4 million, which is broadly unchanged from $56.8 million in the prior year period. While retail inventory levels remained below historical norms through much of the quarter, we began to see improving retail ordering patterns as we moved through the period. Gross margin for the quarter was 38.8%, an increase of 660 basis points compared to 32.2% in the prior year quarter. Gross margins benefited from approximately $4.3 million of a total $8.2 million of tariff refunds received during the period. Excluding one-time items, our underlying gross margin profile continues to reflect the benefits of the structural improvements we've made over recent years through product mix optimization, supply chain initiatives, and disciplined pricing actions.

For the balance of the year, we continue to expect gross margins to remain within our targeted mid to high 30% range. As our newest products scale through the second half of the year and revenue increases seasonally, we expect those operating improvements and positive product mix to become increasingly evident. The recently announced tariff action increases the effective tariff rate on imports from China and Vietnam to approximately 12.5% from the prior 10% level. While we continue to monitor the trade environment closely, the actions we've taken over the past year to diversify our supply chain and optimize sourcing provide confidence that we can largely mitigate these changes without a material impact on profitability. Operating expenses were $24.9 million, or 44% of revenue, compared to $18.6 million, or 33% of revenue in the prior year quarter.

The increase primarily reflects higher marketing investments supporting our expanded product launch schedule and brand initiatives together with higher general and administrative expenses compared to the prior year quarter that included a one-time insurance recovery. The marketing investments are consistent with the strategy we've outlined throughout the year and are intended to support long-term growth rather than near-term revenue. Net loss for the quarter was $7.3 million compared to $2.9 million in the prior year period. This quarter's loss reflects increased marketing investments during the period to support our brand and 2026 product roadmap, together with modestly higher interest expense. The prior year quarter included a one-time insurance recovery, which partially offset the net loss for that period. This recovery was adjusted out of prior year EBITDA. Adjusted EBITDA for the quarter was $1.3 million compared to negative $3.0 million in the prior year period.

The year-over-year improvement reflects the stronger gross margins presented in these results. Turning to the balance sheet, at June 30, net debt was $64.4 million, consisting of $83.9 million of outstanding debt and $19.6 million of cash. Operating cash inflow for the quarter was $6.5 million, compared to an operating cash outflow of $3.1 million during the prior year period. Our revolving credit facility remained undrawn at quarter end. As we announced in May, we completed the refinancing of our credit facilities to increase financial flexibility and better align our capital structure with our long-term capital allocation priorities. The new structure provides up to $80 million in an asset-based revolving facility, as well as an $85 million term loan, supporting both operational flexibility and our ongoing share repurchase strategy.