Turtle Beach Corporation (NASDAQ:HEAR) Q4 2023 Earnings Call Transcript

Martin Yang: Hi, good afternoon. Thank you for taking my question. Congrats on the deal. Doubling down on console controller is exciting. Can you maybe talk about the deal rationale aside from PDP being an attractive assets? Is there any rationale related to your overall view on the future of console market?

Cris Keirn: Totally. Hey Martin, thanks for the question. When you look at the rationale behind the deal, one thing that we’ve always worked towards – and PDP has worked towards the same goal, is scale and diversification. Those two items are so key for us and for our investors that to have that diversification that you’re not so single-threaded on console headsets. So that’s why we’ve been developing this. This is a step change for us, same for PDP, taking these two very complementary portfolios and combining them, not to mention the great expertise on the teams on both sides, it really gives us a competitive advantage in that space. And we’ve seen very strong console demand out there. We’re in that middle part of the console cycle with all the consoles, frankly, all the first-party hardware.

And we’re continuing to see very strong demand even in January and early part of this year from a year-over-year comp perspective. And the way we think about it is we had this massive demand during the pandemic. And we know that, that replacement cycle is about two years. And a little bit of the softness, I think, that we saw in the market last year that’s now recovered, there were so many great games out last year, and you could finally go and buy a console, and that was really the first year that happened in this console cycle. So a lot of those gamer dollars were headed towards their hardware. They were headed towards all these great games. And what we’re seeing now in the market is a really great engagement level from gamers and they’re out there refreshing their console accessories.

And part of that too is driven by all the great new products, right, that are coming out from us and from others. And we’re seeing really great demand on those as we launch these new innovative headsets and controllers and simulation products and PC products just across the Board. So we’re feeling really good and optimistic about how that console market looks from an accessory standpoint for the next year with all these dynamics in play.

Martin Yang: Got it. Thank you. Another question related to console is looking back at past generations, how do you feel about the mid-console upgrade such as PS4 Pro? Do you usually try to leverage that as a Calix for your new product releases? How do you compare those mid-console hardware upgrades to exciting new games as a driver for your sales?

Cris Keirn: Yes. Great question. It really helps lift all boats. When you’ve got a new hardware out there, you’ve got some excitement, some people are looking at upgrading their systems, it gets people thinking about what they’re going to play next and what they’re going to use to play those games. So it really does help sustain the – and we’ve seen this with each console cycle. It really helps to sustain that demand and carry through to that next – because the next major release probably from Microsoft and Sony at least is still a few years out, and so having those midterm releases really helps keep the momentum moving.

Martin Yang: Last question from me on the model. Can you give us a rough sense of interest expense on the interline basis you would incur from the new debt facility?

John Hanson: So all from an interest perspective, cash interest expense?

Martin Yang: Yes. That’s right.

John Hanson: Hold on. Yes, it’s about $7.5 million for 2024. That would be ABL and the term loan.

Martin Yang: Got it. Thank you. That’s it for me.

Cris Keirn: Thanks Martin.

Operator: Thank you. [Operator Instructions] We have a follow-up question from the line of Sean McGowan with ROTH. Your line is open.

Sean McGowan: Thanks again. Yes, a couple of model housekeeping kind of follow-ups here. So you’re pegging that guidance to second quarter of 2024. When do you expect the deal to close? And when do you expect PDP to start contributing revenue?

Cris Keirn: That’s today actually.

John Hanson: Yes. Today, it’s signed and closed.

Cris Keirn: Yes.

Sean McGowan: That’s good.

Cris Keirn: It’s been a fun day, Sean.

John Hanson: Still little busy.

Sean McGowan: That’s good. Congratulations on that, too. And so can you give us some sense of the seasonality of PDP vis-à-vis the seasonality of Turtle Beach. I mean I know it’s a similar category, but very different price points. So is this a little bit less concentrated in the fourth quarter? Can you give us some sense there?

Cris Keirn: Sure. It’s very similar. When you look at the kind of the demand that comes in with the console cycles and the games that are out and when people are looking for new accessories, from a modeling perspective, you’re safe to use our seasonality historically from a phasing standpoint.