Highly Accretive Acquisition of Performance
Designed Products Expands Product Portfolio, Strengthens
Profitability and Meaningfully Enhances Size of Company
Establishes a Powerhouse in Hardware Gaming
Accessories with Leadership Positions in Console Headsets and
Controllers, Amplified by Significant Financial Synergies
Announces Intent to Launch a Modified Dutch
Tender Offer to Repurchase up to $30 Million in Value of Its Common
Stock Between Range of $13.75 - $15.00 Per Share
Pro Forma Prospective Net Debt of 0.7X at
Transaction Closing Leaves Meaningful Financial Cushion to Fund
Additional Growth Initiatives and Capital Return Alternatives
Announces the Appointment of Cris Keirn as
Chief Executive Officer
Turtle Beach Board of Directors Increases to 9
Members to Include Cris Keirn and David Muscatel, Operating Partner
at Diversis Capital
Provides 2024 Financial Outlook and Summary for
Combined Company
Turtle Beach Corporation (Nasdaq: HEAR) (“Turtle Beach” or the
“Company”), a leading gaming accessories brand, announced today
that following the Company's establishment of a Value Enhancement
Committee in 2023, the Board of Directors (the “Board”) has
approved comprehensive and value-creative changes to its business,
capital allocation and senior leadership. In consultation with its
financial and legal advisors over the past year, the Company
considered a comprehensive range of strategic, operational and
financial alternatives on behalf of shareholders, including a full
sale of the Company, and following the completion of its review,
announced the following updates:
Strategic Acquisition of Performance
Designed Products (“PDP”)
Turtle Beach today announced the execution of definitive
agreements to acquire PDP, a leading gaming accessories provider at
an enterprise value for PDP of $118 million (the “Transaction”).
PDP is a privately held third-party gaming accessories leader that
designs and distributes aftermarket video game accessories,
including controllers, headsets, power cases, and other
accessories. The Transaction combines two leading gaming companies
with industry-leading teams, significant product momentum and
proven track records of delivering profitable growth. The
Transaction substantially grows the size of Turtle Beach. Bringing
PDP’s leading gaming controller category to Turtle Beach will
provide additional scale and create future development
opportunities. Furthermore, the Company provided the following
strategic rationale:
- The combined company anticipates total revenues of $390 to 410
million in the first full 12 months of ownership (Q2 2024 through
Q1 2025).
- The post-synergy Adjusted EBITDA of PDP is projected to be $22
to $28 million in the first full 12 months of ownership (Q2 2024
through Q1 2025) implying a post-synergy transaction multiple of
4.7x at the mid-point of estimated 2024 Adjusted EBITDA.
- Turtle Beach expects $10 to $12 million of anticipated annual
run-rate cost synergies for the transaction, with upside for
incremental revenue synergies, best practice sharing and further
cost synergies over time.
- Acquiring PDP at an attractive valuation multiple relative to
the trading multiples of peers implies potential significant upside
in market value for the combined company.
- Diversis Capital, a Los Angeles-based private equity firm and
PDP’s majority owner, will become the largest shareholder of Turtle
Beach with approximately 16% of the pro forma basic shares
outstanding prior to the expected modified Dutch Tender Offer and
will add one of its Senior Operating Partners, David Muscatel, to
the Turtle Beach Board.
Consideration for the Transaction consists of the issuance of
3.45 million shares of Turtle Beach's common stock and
approximately $79.9 million in cash. The Transaction is expected to
be immediately accretive to Turtle Beach shareholders on key
metrics including the Company’s growth prospects, strategic
positioning with retailers and customers, and financial
profile.
The Board of Directors of both Turtle Beach and PDP have
unanimously approved the Transaction and the Transaction was closed
immediately upon the execution of the definitive agreements.
Jefferies LLC acted as exclusive financial advisor and Dechert
LLP acted as legal counsel to Turtle Beach and O’Melveny &
Myers LLP acted as legal counsel to PDP in connection with the
transaction.
2024 Summary Financial
Outlook
Turtle Beach is pleased with its share gains experienced during
the holiday season, its ongoing cost improvement initiatives, and
its 2024 product portfolio, all of which continue to highlight the
meaningful, recent positive momentum on both the top and
bottom-line for the Company.
The acquisition of PDP adds significant financial benefits to
Turtle Beach that, in conjunction with synergies realized,
fundamentally transforms the financial profile of the Company.
Accordingly, the Company expects 2024 net revenues to be in the
range of $370 million to $380 million, with the growth driven
primarily by the acquisition of PDP and the expected
out-performance of the gaming markets in specific categories based
on the Company’s product plans for 2024. Additionally, in light of
the Company’s strong execution on its efficiency and profitability
initiatives, the Company expects pro forma combined Adjusted EBITDA
to be between $51 million and $54 million, which incorporates
approximately 9 months of operations from PDP.
In the first full four quarters of operation (Q2 2024 through Q1
2025), the combined Company expects total net sales to be in the
range of $390 - $410 million and Adjusted EBITDA to be in the range
of $60 - $65 million.
Intends to Launch a Modified Dutch
Auction Tender Offer within One (1) Month
To drive further value for Turtle Beach shareholders, the
Company announced today that it intends to launch a modified “Dutch
Auction” Tender Offer (the “Tender Offer”) to purchase up to $30
million in value of its common stock (the “Common Stock”) at a
price per share not less than $13.75 per share and not greater than
$15.00 per share, less any applicable withholding taxes and without
interest, using available cash on hand and available borrowing
capacity. On March 12, 2024, the closing price of the Common Stock
was $11.03 per share, setting the low-end of the Tender Offer range
at a 25% premium to the most recent closing share price. The Tender
Offer is anticipated to commence on or about April 10, 2024 and is
expected to expire at 12 midnight, New York City time, at the end
of the day on or about May 10, 2024, unless extended or
terminated.
A modified "Dutch Auction" Tender Offer allows shareholders to
indicate how many shares of Common Stock and at what price within
the range described above they wish to tender their shares. Based
on the number of shares tendered and the prices specified by the
tendering shareholders, the Company will determine the lowest
per-share price that will enable it to acquire up to $30 million in
value of Common Stock.
The Company’s Board believes the modified “Dutch Auction” Tender
Offer structure is a mechanism that affords shareholders with an
opportunity to obtain liquidity with respect to all or a portion of
their shares, with less potential disruption to the share price and
the usual transaction costs inherent in open market purchases and
sales.
Executive Management and the Board of Directors of Turtle Beach
do not plan on participating in the tender offer.
Announcement of Chief Executive
Officer
The Company announced that Turtle Beach’s Board of Directors has
appointed Cris Keirn as Chief Executive Officer and to the Board of
Directors, effective immediately. The appointment concludes a
comprehensive CEO search process, launched by the Board in the
second quarter of 2023, with the mandate to appoint a highly
qualified leader with extensive product innovation, operational and
transformational experience, and capable of delivering strong
financial and operational results to drive future growth across the
business.
Mr. Keirn joined Turtle Beach in 2013 and has been a key
contributor in the transformation of Turtle Beach’s product
portfolios, including in his role as Vice-President of Business
Planning and Strategy prior to his executive role in sales. Mr.
Keirn has also led sales operations, customer care and market
analytics teams for the Company. Prior to joining Turtle Beach,
Cris held leadership positions over a 17-year span in multiple
divisions at Motorola across engineering, product management,
operations, quality and customer relations.
“I’m honored to work with the amazing team at Turtle Beach, now
including our new colleagues from PDP, as we continue to deliver
fantastic new products for gamers and value to our shareholders,”
said Keirn. “Working with our industry partners, and with the
combined expertise of our teams, we will drive a transformational
change to the company’s scale and execution with innovation and
expansion of our leadership positions across gaming accessory
categories.”
“After a comprehensive review of strategic actions and
significant engagement by the Board of Directors, I am excited
about the announcements made today that we believe will create
substantial value for Turtle Beach shareholders,” said Terry
Jimenez, Chairman of the Board of Directors and Chairman of the
Value Enhancement Committee. “Acquiring PDP, announcing a modified
Dutch auction tender offer, and appointing Cris Keirn as our next
CEO are significant outcomes that are a result of a thorough review
of our business opportunities ahead. We are pleased to welcome the
PDP team to Turtle Beach, and we look forward to benefiting from
our improved financial profile, gaming product portfolio and
industry-leading team. In addition, we are pleased to welcome both
Cris and Dave to our Board, both of whom are excellent additions.
We’re also excited to have Cris leading the business as CEO and
believe his industry expertise and leadership skills are critical
to advancing our strategy to drive growth across our gaming
accessories businesses and generate substantial profit. Ultimately,
each of these outcomes better position the Company for future
success and value creation for shareholders.”
Conference Call Details
Turtle Beach will host a conference call today, March 13, 2024,
at 5:00 p.m. ET / 2:00 p.m. PT to review the transaction, detail
its fourth quarter and full year 2023 earnings results and host a
question-and-answer session. A live webcast of the call will be
available on the “Events & Presentations” page of the Company’s
website at www.turtlebeachcorp.com. To access the call by phone,
please go to this link (registration link) and you will be provided
with dial-in details. To avoid delays, we encourage participants to
dial into the conference call 15 minutes ahead of the scheduled
start time. A replay of the webcast will also be available for a
limited time at www.turtlebeachcorp.com.
Non-GAAP Financial
Measures
In addition to its reported results, the Company has included in
this release certain financial metrics, including adjusted EBITDA,
that the Securities and Exchange Commission define as “non-GAAP
financial measures.” Management believes that such 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. Non-GAAP financial measures are not an alternative to the
Company’s GAAP financial results and may not be calculated in the
same manner as similar measures presented by other companies.
“Adjusted EBITDA” is defined by the Company as net income (loss)
before interest, taxes, depreciation and amortization, stock-based
compensation (non-cash), and certain non-recurring special items
that we believe are not representative of core operations, as
further described in Table 4 of our Full Year 2023 Earnings
Release. These non-GAAP financial measures are presented because
management uses non-GAAP financial measures to evaluate the
Company’s operating performance, to perform financial planning, and
to determine incentive compensation. Therefore, the Company
believes that the presentation of non-GAAP financial measures
provides useful supplementary information to, and facilitates
additional analysis by, investors. The non-GAAP financial measures
included herein exclude items that management does not believe
reflect the Company’s core operating performance because such items
are inherently unusual, non-operating, unpredictable,
non-recurring, or non-cash. See a reconciliation of GAAP results to
Adjusted EBITDA included as Table 4 in our Full Year 2023 Earnings
Release for each of the three and twelve months ended December 31,
2022 and December 31, 2023.
About Turtle Beach
Corporation
Turtle Beach Corporation (the “Company”)
(www.turtlebeachcorp.com) is one of the world’s leading gaming
accessory providers. The Company’s namesake Turtle Beach brand
(www.turtlebeach.com) is known for designing best-selling gaming
headsets, PC gaming products, top-rated game controllers, and
groundbreaking gaming simulation accessories. Innovation,
first-to-market features, a broad range of products for all types
of gamers, and top-rated customer support have made Turtle Beach a
fan-favorite brand and the market leader in console gaming audio
for over a decade. Turtle Beach’s shares are traded on the Nasdaq
Exchange under the symbol: HEAR.
Cautionary Note on Forward-Looking
Statements
This press release includes forward-looking information and
statements within the meaning of the federal securities laws.
Except for historical information contained in this release,
statements in this release may constitute forward-looking
statements regarding assumptions, projections, expectations,
targets, intentions or beliefs about future events. Statements
containing the words “may,” “could,” “would,” “should,” “believe,”
“expect,” “anticipate,” “plan,” “estimate,” “target,” “goal,”
“project,” “intend” and similar expressions, or the negatives
thereof, constitute forward-looking statements. Forward-looking
statements involve known and unknown risks and uncertainties, which
could cause actual results to differ materially from those
contained in any forward-looking statement. The inclusion of such
information should not be regarded as a representation by the
Company, or any person, that the objectives of the Company will be
achieved. Forward-looking statements are based on management’s
current beliefs and expectations, as well as assumptions made by,
and information currently available to, management.
While the Company believes that its expectations are based upon
reasonable assumptions, there can be no assurances that its goals
and strategy will be realized. Numerous factors, including risks
and uncertainties, may affect actual results and may cause results
to differ materially from those expressed in forward-looking
statements made by the Company or on its behalf. Some of these
factors include, but are not limited to, risks related to
inflationary pressures, optimizing our product portfolio, reducing
our cost of goods and operating expenses, reductions in logistic
and supply chain challenges and costs, 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,
including promotional credits and discounts, general business and
economic conditions, risks associated with the future direction or
governance of the Company, risks associated with the expansion of
our business, including the integration of any businesses we
acquire and the integration of such businesses within our internal
control over financial reporting and operations, our indebtedness,
liquidity, and other factors discussed in our public filings,
including the risk factors included in the Company’s most recent
Annual Report on Form 10-K, Quarterly Report on Form 10-Q, and the
Company’s other periodic reports filed with the Securities and
Exchange Commission. Except as required by applicable law,
including the securities laws of the United States and the rules
and regulations of the Securities and Exchange Commission, the
Company is under no obligation to publicly update or revise any
forward-looking statement after the date of this release whether as
a result of new information, future developments or otherwise.
All trademarks are the property of their respective owners.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240313363647/en/
MacLean Marshall Sr. Director, Public Relations
& Brand Communications Turtle Beach
Corporation 858.914.5093
maclean.marshall@turtlebeach.com
Investor Information:
Alex Thompson Gateway Group 949.574.3860
hear@gateway-grp.com
Turtle Beach (NASDAQ:HEAR)
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