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TBCH Q3 2026 earnings call transcript, November 5, 2026

Turtle Beach Third Quarter 2026 Earnings Conference Call

ReplayOfficial webcast
  • Chris 23%
  • Management 20%
  • Andrew Clipsham 15%
  • Megan Larson 9%
  • Analysts 29%

Management

  • Chris

    Management

    7 min

  • Andrew Clipsham

    Interim CFO

    4 min

  • Megan Larson

    Vice President with ICR

    3 min

Analysts · 3

Transcribed automatically by Lician from the company's public webcast; it can contain errors and speaker names are best effort.

  1. Prepared remarks10:05
  2. Management

    Welcome to the Turtle Beach Corporation 3rd Quarter 2026 conference call. At this time, all participants...

  3. Q&A10:14
  4. Operator

    ...are in listen-only mode. A question-and-answer session will follow the prepared remarks presentation. As a reminder, the conference is being recorded. I would like to turn the call over to Megan Larson, Vice President with ICR. Megan, you...

  5. Megan LarsonVice President with ICR

    ...may begin. Thank you, Operator. On today's call, we'll be referring to the press release file this afternoon that details the company's third 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 on 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 law. Statements about the company's beliefs and expectations can... ...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. The 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.

  6. It's annual report on Form 10-K and other periodic reports, which identify specific risk factors that may also cause actual results or events to differ materially from those described in our forward-looking statements. The company does not undertake to publicly update or revise any forward-looking statements after this conference call. The company also notes on this call that it will be discussing non-GAAP financial information. The company is providing that information as a supplement to information prepared in accordance with the 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 table. provided in today's earnings release and presentation. Hosting the call today are Chris Kern, Chief Executive Officer, and Andrew Klipschum, Interim Chief Financial Officer. With that, I'll turn the call over to Chris.

  7. ChrisManagement

    Thanks, Megan.

  8. Good afternoon, everyone, and thank you for joining our third quarter 2026 earnings call. During the third quarter, we advance our strategic priorities through new product introductions. Expanded brand initiatives and close coordination with retail partners ahead of the holiday season. Revenue returned to year-over-year growth at $84.7 million, up 5.3%, with growth margin of 34.9%, and adjusted EBITDA of $8.1 million. These results reflect progress across our broader product portfolio, and our focus now is on delivering through the fourth quarter. Retail inventory remains an important factor in the timing of our revenue. We had anticipated the potential for a more substantial holiday inventory load-in during the third quarter. Instead, retailers purchased largely to normal seasonal requirements, with more of their holiday load-in shifting into Q4. We believe this reflects a shorter ordering window, consistent with recent purchasing patterns, rather than a change in underlying consumer demand. We've seen encouraging early signs of holiday replenishment, with customer orders accelerating year-over-year through October. We are also seeing improving consumer sell-through trends, particularly in the second half of October. As discussed on prior calls, we continue to expect year-end channel inventory to be broadly comparable in value with the end of 2025. We are also seeing encouraging signs in the broader gaming market falling.

  9. A slower first half. According to Cercana, U.S. accessory spending increased 10% in September, with headset spending up by double digits and improving trends across both headsets and third-party controllers. Hardware spending rose 12%. Including a 22% increase in PlayStation 5 unit sales. These recent trends show improving engagement ahead of the holiday season, and we also believe an overdue accessory replacement cycle could provide additional support. as that engagement builds. The industry's major game release calendar remains an important catalyst. Following the well-received launch of Call of Duty Modern Warfare 4 on October 23rd, we are preparing for other eagerly anticipated releases, including The Legend of Zelda Ocarina of Time for Nintendo Switch 2 today, and the Grand Theft Auto VI launch coming up on November 19th, exclusive to consoles. Historically, major releases have supported increases in accessory demand, both around the launch date and beyond. We believe the anticipation surrounding this year's major releases is already contributing to the recent acceleration of our U.S. successor. With that in mind, we remain highly focused on ensuring that our products are available and retail execution is seamless. We see an opportunity for accessory upgrades and replacement demand. Extend beyond the holiday quarter and into 2027, rather than a temporary lift around any single launch event.

  10. Ahead of this important holiday season, our competitive position has continued to strengthen. According to Surkana, Turtle Beach ranked number 1 in both U.S. gaming headsets and third-party gaming controllers during the quarter. This was our first number 1 quarterly ranking in third-party gaming controllers since the PDP acquisition. The achievement reflects our established leadership in gaming audio and the... the progress we've made in controllers by bringing together our expanded portfolio, product innovation, and capabilities following that key acquisition. Our Nintendo controller business has also been particularly strong. data indicates our year-over-year US dollar sales growth of more than 70% in the quarter and more than 100% in September with a number one third-party Nintendo controller share position in Q3. Our product introductions have supported that progress across categories. Stealth Pro 2 continued the premium tier headset share games discussed last quarter, while the command series expanded our PC audience. Offering with keyboards in the second quarter and mice in the third quarter. In August, we launched Stealth 500 for Nintendo Switch 2, the first officially licensed wireless gaming headset for that important platform, along new rematch wireless controllers. And Playtech travel cases. September brought the start of shipments for our Velocity One HOTAS flight simulation controller and sim mount. We now have introduced products across each of our major categories this year.

  11. with significantly more launches than in 2025. Additional new products, including our premium Stealth Ultra 2 controller, are on track to launch in Q4. Our brand initiatives are helping these launches reach a broader audience. And we are also extending the reach of our portfolio through new partnerships and licensing agreements. This year, in collaboration with Epic Games, we introduced the Victrix Pro BFG Reloaded Fortnite Drift Controller from multiple platforms, and the rematch wireless Fortnite Kevin the Cube Controller for Nintendo Switch 2. We've also entered into a licensing agreement with Disney for planned Star Wars accessories, as well as Marvel products. Together, these accessories will be available for the Nintendo Switch 2. Siting initiatives unlock opportunities for us to partner with iconic franchises in our product portfolio, deepen connections with gaming communities, and expand our reach with new audiences. Turning to Capital Allocation we did not repurchase shares in the third quarter, following approximately $25 million of repurchases in the second quarter. As discussed in August, we prioritized working capital to support inventory requirements ahead of the holiday season. As that inventory converts to sales and cash collections, we anticipate having the balance sheet capacity for additional share repurchases following the holiday season, while continuing to balance capital returns with the needs of the business and other opportunities to create

  12. long-term shareholder value. Approximately $31 million remains under our current authorization. Taking into account early fourth quarter ordering trends and our product and inventory plans, we are reaffirming our full year 2026 guidance. This outlook calls for a substantial fourth quarter contribution, supported by anticipated retailer holiday replenishment, contributions from new products, and increased gamer engagement around major releases. With that, I'll turn the call over to Andrew for additional details on our third quarter financials.

  13. Andrew ClipshamInterim CFO

    Thank you, Chris, and good afternoon, everyone. Third quarter revenue was $84.7 million, up 5.3%. from $80.5 million a year ago. Strong performance of wireless headsets and new products, including our flagship Stealth Pro 2 model and Nintendo Switch 2 range, have supported that growth. Retailer purchase... ...remained broadly in line with normal seasonal requirements during the third quarter without a material channel inventory build. As discussed on our last call, holiday loading can shift revenue between the third and fourth quarters, and this year more of that activity moved into the fourth quarter. Gross margin was 34.9% compared with 37.4% a year ago. The decline principally reflects product mix and higher promotional tariff and logistic costs, including freight and fuel. We continue to proactively manage. Sourcing pricing and product mix to minimize these impacts and our full year gross margin outlook reflects these initiatives as well as the current cost environment. For the fourth quarter, we expect gross margin to improve supported by higher seasonal. Revenue and a greater contribution from newer high value products. We continue to expect full year gross margin within our targeted mid to high 30% range. Operating expenses were $23.7 million. Or 28% of revenue compared with $24.7 million or 31% of revenue a year ago. The decrease reflects approximately $1.1 million of insurance recoveries and lower general earnings.

  14. Administrative costs, partly offset by continued marketing investment in our products and brand. Net income was $4.4 million compared with $1.7 million in the prior year quarter or $0.24 per diluted share. Compared with $0.08 per diluted share a year ago. The improvement is driven by $1.9 million of debt extinguishment in the prior year quarter, together with the current quarter insurance recovery. These factors are partially offset by higher supply chain costs and interest expense.

  15. Adjusted EBITDA was $8.1 million compared with $11 million a year ago. The year-over-year decrease primarily reflects lower gross margin and continued investment in marketing behind our expanded product portfolio. And brand initiatives. Turning to the balance sheet, at September 30th, net debt was $71.7 million, consisting of $82.9 million of outstanding debt and $11.2 million of cash. Operating cash outflow for the quarter was negative. 6.4 million, compared with negative $15.2 million in the prior year period. The third quarter is typically a period of working capital investment as we build inventory for the holiday season. Inventory at quarter end was approximately $79.8 million. An increase of approximately $23.2 million from the second quarter as we prepared for major game launches and the holiday season. We expect holiday sales and collections to release working capital and support additional balance sheet flexibility, subject to the time. We did not repurchase shares during the quarter as we prioritized cash for seasonal inventory requirements. Approximately 17.9 million shares were outstanding at September 30th, with $31 million remaining under our share repurchase authorization. As inventory converts to sales and collections, we anticipate capacity for additional repurchases following the holiday season, while balancing capital returns with working capital needs and investment in the business.

  16. Turning to guidance, we are reaffirming... ...our full year 2026 outlook. Revenue is expected to be in the range of $335 to $355 million, and adjusted EBITDA is expected to be between $44 and $48 million. As discussed previously, we expected revenue to be weighted towards... ...the second half of 2026, and our full year outlook requires a substantial fourth quarter contribution. It assumes further retailer holiday replenishment, increasing consumer demand around major releases, including Grand Theft Auto 6, contributions from the new product portfolio... ...and expected gross margin improvement. Early fourth quarter orders have been encouraging, but the timing and magnitude of retailer purchases, holiday sell-through, and prevailing cost conditions remain important variables in delivering the outlook. With that, I'll turn the call... Back to Chris.

  17. Management

    Thanks, Andrew.

  18. Management

    As we enter the fourth quarter, our priorities remain clear. Deliver through the holiday season, support our retail partners, and maintain our unwavering focus on execution. With new products... ...in market and major game releases ahead, we are ready to support increased gamer engagement and the accessory demand it generates. Our confidence is grounded in the breadth of the business, our leadership in gaming headsets and third-party controllers, an innovative portfolio... spanning audio, controllers, PC, and simulation, broader engagement with gamers through our brand initiatives, and established retail and platform partnerships. These capabilities, together with continued innovation, provide opportunities for growth beyond 20... ...2026, although we are not providing specific financial guidance for next year at this time. Our continued focus on brand building and product innovation is resonating with consumers. Turtle Beach was recently recognized... ...with seven TechRadar Reader's Choice Awards, including Gaming Brand of the Year, along with honors across our headset, controller, keyboard, and simulation categories, with winners selected entirely by consumers. These awards reinforce the strength of our expanding portfolio and the momentum behind the Turtle Beach brand. I want to thank our amazing Turtle Beach team for its dedication and execution throughout a demanding year.

  19. Management

    I also thank our retail and industry partners for their collaboration and our shareholders for their continued support. With that, Operator, we can open the call for Q&A.

  20. Operator

    We will now begin the question and answer session. If you ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw it, please press star then 2. We will pause momentarily to assemble our roster.

  21. Our first question today comes from Drew Crum of B Reilly Securities.

  22. Question · B. Riley Securities

    Drew CrumAnalyst · B. Riley Securities

    Please, go ahead. Okay, thanks.

  23. Good afternoon, everyone. So, Chris, I think you mentioned the improved sell-through trends for the business, particularly in the second half of October. Any early observations? Following the launch of Call of Duty, I know historically that's been an important franchise for your console headset business. And, you know, any, again, early learnings or observations is how it compared to prior iterations. Or launches of COD. And then I have a follow up. Sure.

  24. Management

    Hi, Drew.

  25. Question · B. Riley Securities

    Drew CrumAnalyst · B. Riley Securities

    Thanks for the question.

  26. And, you know, looking at Call of Duty, the sell-through that we've seen in the second half of October has accelerated really the last two weeks, we saw a bit of a step change from the first two weeks. And it's a result, I think, of what we've seen over the last couple of months, which is a building momentum, particularly in our two main categories of headsets and of controllers. And so when you look at Call of Duty specifically, it's always a nice catalyst for our sell through. What we are seeing, I would say, is heavier than what we would normally see with a Call of Duty launch. It's certainly much higher than last year on the lift that we saw from the last year's release of Call of Duty. And I think what you're seeing there is a combination of factors. There is a building momentum as we get towards some of the launches here in Q4. Call of Duty, you know, is one of those. It's always a really strong launch for our business. Ocarina of Time today is another really great launch on the Switch 2 platform. And then, of course, coming up here on the night. Teams with GTA 6. So, but specifically on your Call of Duty question, it has been a strong launch. Look at the Metacritic reviews on that. It's also quite strong. Got it. OK, the total and then. Going back to the guidance would imply, I think Andrew mentioned this in his preamble, a 4Q sales number that's exceptionally strong. I don't think the business has ever achieved a number if you assume the midpoint of your range, not even during the pandemic.

  27. Fortnight year. So can you dig in a little bit more to discuss the key swing factors to achieving the annual revenue target and just your overall confidence in delivering against these? Thanks. Sure. Yeah, absolutely. When you mentioned the fortnight year and some of the pandemic numbers, remember that was before acquisition of PDP. So we've had a significant addition with PDP, you know, now part of the business and we've seen really great. Results from that combination, all credit to the team here, you know, achieving that first, you know, first party or first spot in the US sell through rankings here in Q3 is a first for us. We haven't been able to achieve that. So it's a good sign. Of where we're headed with that controller business. So when you look at the year over year numbers, you know, we do need to see a significant lift year over year from last year's numbers to achieve a Q4 that would deliver the guidance. We feel confident in that. When you look at the trends that we're seeing here in October and the sell-through trends that we've seen here over the last several weeks, it's all in support of that guidance number. And as another, you know, point of reference for you, if you look back to 2024, so just a couple of years ago, you know, we would need to achieve at the midpoint a Q4 that's roughly 11% higher than where we were two years ago. And when you think about the releases that are in the market now,

  28. between Call of Duty and obviously with GTA 6, you know, an 11% growth number from a couple of years ago seems, you know, less daunting to us, you know. So when you put all that in perspective, yes, we feel good about Q4. trends that we're seeing. Okay. All right.

  29. Thanks, guys.

  30. Management

    Thanks, Drew.

  31. Operator

    The next question comes from Sean McGohen of Roth Capital Partners. Please go ahead.

  32. Question · Roth Capital

    Sean McGohenAnalyst · Roth Capital

    Hey, guys.

  33. Thanks for the questions.

  34. I want to follow up on Drew's questions from a different angle, and that is looking at the inventory level that you have on hand at the end of the third quarter relative to what the expected sales would be. That also seems pretty low, you know, relative to historical trends. And then, you know, along those same lines, wouldn't you have expected the retailers to want to take in product earlier just given, you know, given expectations for GTA six and wanted to get it a little bit out of normal.

  35. Management

    Hi, Sean.

  36. Question · Roth Capital

    Sean McGohenAnalyst · Roth Capital

    Thanks for the question.

  37. Yeah. And to to address that, a couple of things there first on the inventory. I would feel good about our inventory levels. Now, if you recall last year, we had purchased a significant amount of inventory ahead to to try to get ahead of tariffs that that ended up being a good decision for us. But it did mean that we are carrying. a much higher inventory level really than we needed, you know, at that time heading into Q4 last year. So so we have seen a reduction from last year, but we are seeing an increase, obviously, from where we ended last. As we as we've been building up on those key skews here, getting ready for Q4. So just to be clear, we have all the inventory in place that we would need to hit our guidance numbers here in the holiday. As far as expectations. You also asked about load in from the retailers. You know, we did anticipate that we might see them load in a bit earlier in September in particular. We really didn't see that. We saw them purchased to normal replenishment levels, which you know, looking at the games coming up, we have seen an acceleration of those orders here in October, which is encouraging. And as we've seen the sell through increase, we believe that that will then also lead to additional punishment orders as retailers adjust to the higher levels that we're seeing. So yes, we would have expected it a little earlier, but there's still with what's in process now and the expected demand for the holiday.

  38. Management

    In good shape. Okay. And then thinking of the, of this, of that shift, some revenue that you might've thought would be in the third quarter into the fourth, what does this do to your marketing? Expenditures and, and how that affects your reported results, as well as the actual programs that you're executing at retail, you know, does it cause that to, to shift into the fourth quarter as well? Sure. Some of it does. Um, you know, mostly when you look at the third quarter, we did have higher sales and marketing expenses that was planned. Um, there is a lot of preparation that goes into preparing for a holiday like this. Um, you know, some of that is new placements at retail, some of those higher expenses that she you see in Q3. Um, you know, those did not shift because those are actually new kiosks, uh, at a major retailer, uh, with our product, you know, on it. Um, these are new placements. So that's a very positive. We're happy to make that spend. Um, uh, but when you look at fourth quarter, you know, we've got a pretty. Significant amount of activities coming up in support of all the great things that are happening in the industry. So we did see a little bit of shift. Um, but again, most of the growth that you see in that Q3 expenditure on the sales and marketing side is around our brand investment. And also around that, uh, that investment in in the kiosks. OK, thanks. And with this talk about, you know, retailers taking product and the timing, what can you say about the status of

  39. Management

    Ciao. Inventory at this stage, you know, I would suggest that it's pretty lean, but I don't want to put words in your mouth. Yeah, it can support the sell through that we're seeing in the channel currently. I would say that when you look at the last couple of weeks of sell through, you know, again, through October, it's still falling kind of that seasonal curve. And as the sell through has picked up over the last couple of weeks, we're seeing a reaction from retailers to go ahead. and replenish at those levels, which is what we would expect. So again, all of this is, you know, playing out as we thought it might, which is as that sell through materializes, we're now seeing the orders reflect that, you know, from from retail. So we stand ready to meet that demand and are looking forward to how that plays out over the next couple of months. Okay. My last question is about, you know, margin. I know your margins are volume sensitive, so we're expecting to improve with the pickup and sales. But last year, I seek to recall you saying that the promotional environment was a little bit softer, you know, not as intense as normal, and we should expect something normal this year. Do you think with the volume you're expecting in the fourth quarter, could gross margins be about what they were last year in the fourth quarter? We believe so, yes. When you look at last year, you know, we chose not to pursue a lot of deep discounts, you know, in last year's holiday. It was a little bit of a softer holiday. And so we chose to preserve a bit of margin there. When you look at this

  40. Management

    holiday, you know, I think that we've been more promotional so far this year. You see that in some of the margin numbers, including the Q3 margin. You know, there are more promotions in there than we did last year at this time. When you look ahead to Q4, you know, I think it's going to be more of a normal holiday promotional environment. But that being said, you know, for the full year gross margin, we expect to be within our target range of mid to high. 30. OK, thank you very much.

  41. Management

    Thanks, John.

  42. Operator

    The next question comes from Jack Codera of Maxim Group. Please go ahead.

  43. Question · Maxim Group

    Jack CoderaAnalyst · Maxim Group

    This is Jack Codera calling in for Jack.

  44. Thanks for taking my questions.

  45. If I could ask, you know, one more question. It seemed the sell-through traffic trends seem very positive. And you mentioned those two main segments being beneficiaries. I'm wondering if, you know, PC accessories and some of your other segments, are they experiencing similar trends? You know, does it seem evident that it's just a good year in gaming or more GTA driven, which I assume would be, you know, more beneficial to console early because that's only releasing on console initially. Sure.

  46. Management

    Hi, Jack.

  47. Question · Maxim Group

    Jack CoderaAnalyst · Maxim Group

    Great question. Yeah, when you look at the sell through trends, we are seeing some nice movement across categories. You know, for us, we talk obviously a lot about headsets and controllers. That's roughly nine. 70% of our revenue, right? So when you look at our business, you know, it is skewed, even though, you know, those headsets are multi-platform. We see those two categories as the main contributors. When you look at categories. Categories like mice keyboards, simulation, you know, those have also seen some growth year over year. And, you know, we've been able to pick up some share, particularly in the sim category this year as well. So, um... That's encouraging for us, but it just has less of an impact, you know, on our overall revenue than the other two categories. Okay, that's helpful. And, you know, one quick follow-up. I don't know if it's significant, but are you seeing any trends relative... to geographies that, you know, may be worth tracking? Sure. The U.S. has been, you know, pretty strong this year. You know, look at both headsets and controllers. Those are both up year-over-year, year-to-date. Those are the two categories that we've seen accelerate more as we get into Q3 and into, now, the first part of Q4. When you look at other geographies, I would say that I would characterize the U.K. and Europe as being somewhat softer, you know, still improving. But I would say that those regions are trailing a bit behind the U.S. markets. And for us, Asia,

  48. Management

    is a much smaller piece of our overall revenue. Again, it's kind of low to mid single digit contributors. So, you know, not much impact there from what we're seeing in the Asia markets. Okay, that's helpful.

  49. Question · Maxim Group

    Jack CoderaAnalyst · Maxim Group

    Thank you for taking my questions.

  50. Management

    Thanks, Jack.

  51. Operator

    This concludes the question and answer session. I would like to turn the conference back over to Mr. Chris Kern for any closing remarks.

  52. Thank you, everyone, for your interest in Turtle Beach, and have a great day.

  53. The conference is now concluded.

  54. Operator

    Thank you for attending today's presentation. You may now disconnect.

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