Turtle Beach Corporation

Hello, and thank you for standing by. Welcome to Turtle Beach fourth quarter 2023 conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. I would now like to hand the conference over to Alex Thompson, Gateway Investor Relations. You may begin.

Thank you, Tawanda. And today's prepared remarks are from Terry Jimenez, Chairman of the Board, Chris Kern, Chief Executive Officer, and John Hanson, Chief Financial Officer. On today's call, we will be referring to the press release filed this afternoon that details the company's fourth quarter and full year 2023 results, which can be downloaded from the Investor Relations page at corp.turtlebeach.com. where you'll also find the latest earnings presentations 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 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, so 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, its 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. The company does not undertake to publicly update or revise any forward-looking statements after this conference call. The company also notes that on this call we'll be discussing non-GAAP financial information. The 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 gap results in the reconciliation tables provided in today's earnings release and presentation. And now I'll turn the call over to Terry Jimenez, the company's chairman of the board. Terry.

Thanks, Alex. And thank you all for your interest in Turtle Beach. On behalf of the board of directors at Turtle Beach, I would like to share a number of exciting announcements today. These actions that we believe will fundamentally change Turtle Beach for the better. First, After a lengthy and comprehensive process of assessing strategic alternatives, we have announced an acquisition that will provide a much larger, more resilient, and more diversified foundation on which to grow the business. Today, we announce our acquisition of Performance Design Products, or PDP as the industry knows it. We have acquired PDP for an enterprise value of $118 million in a combination consisting of roughly one-third stock, and two-thirds cash. PDP is a leader in video game accessories among market leading share in controllers and other product categories. With PDP being a leader in controllers and Turtle Beach being the leader in console headsets, we believe that we've created a powerhouse gaming accessories platform. In addition to the significant scale benefits that come with diversifying our revenue base in tangential categories with the same partners and consumers, we believe we will realize significant cost synergies in the deal. These synergies, alongside PDP's attractive standalone profile, have allowed Turtle Beach to acquire PDP at a highly attractive multiple, both on a pre- and post-synergy basis. We expect the first 12 months of the combined company to generate $390 to $410 million in revenue and between $60 million to $65 million of adjusted EBITDA. This acquisition will significantly increase our profitability and free cash flow generation throughout the cycle, better minimize our earnings and free cash flow volatility, and create a global powerhouse in the gaming category. Additionally, we are pleased to have announced today our intention to launch a significant return of capital to shareholders by way of a reverse Dutch tender auction. We intend to repurchase up to $30 million of our common stock at a price range between $13.75 to $15 per share. This tender auction, which will end following our first quarter earnings results in May, is set to launch next month and will provide shareholders that are seeking liquidity a chance to sell some or all of their stock back to the company at a minimum premium of 25% from today's closing share price. Diversus, the former owners of PDP, as well as each member of the Turtle Beach management team, and Board of Directors have committed to not tender a single share of stock, highlighting the confidence that we all have that this deal will create significantly more value to shareholders than the top end of the tender range provides. We have listened to shareholders and providing this liquidity option was an important consideration for our board. As part of the transaction with PDP, we have entered into a debt facility that will have less than one times leverage for the pro forma company at close. Assuming the tender of 30 million is fully utilized, our net leverage level will sit at just 1.2 times next 12 months EBITDA. And importantly, pro forma for the transaction, as we have detailed in our slide deck, Turtle Beach is currently trading at less than half the enterprise value over the next 12 months EBITDA multiple of its closest peers. We expect this gap to narrow over time as shareholders recognize the massive transformation that has happened at the company over the past year, culminating with today's announcements, allowing significant value to be created for our shareholders as we now focus on execution. With the transaction comes a great set of complimentary assets, products, and team members, as well as a new board member. We welcome Dave Muscatel to our board, and we are thrilled to have someone with such deep gaming market experience join our board. And finally, after a comprehensive and exhaustive search, we are pleased to announce Chris Kern as our next chief executive officer. The board, guided by its search consultant, ran a broad and sweeping review. The external demand for this role was significant, and the board engaged deeply with a number of remarkable candidates. At the end of the search, it became quite clear that the board believed that Chris's deep understanding of the existing Turtle Beach business, his understanding of PDP, and his ability to execute on the company strategy gave us the best chance to succeed both near and long term. We are enthusiastic about this new, refreshed, and transformed Turtle Beach and its future prospects for shareholders, employees, and customers. The board has been hard at work over the past year, and we are excited about the future for the company and its shareholders. With that, I will turn it over to our Chief Executive Officer, Chris Kearns.