Parametric Sound Provides Post Merger Update
Introduces 2014 Outlook for the Combined Company
SAN DIEGO, CA--(Marketwired - Mar 27, 2014) - Parametric Sound Corporation (NASDAQ: PAMT) today filed an amendment to its Current Report on Form 8-K originally filed on January 16, 2014 which includes audited financial statements for Turtle Beach (VTB Holdings, Inc. and its subsidiaries) along with unaudited pro forma financial information of the combined companies as of and for the year ended December 31, 2013.
Business Update
-- Merger between Parametric Sound and Turtle Beach successfully closed January 15, 2014 and the teams are now fully integrated. -- Corporate name change to Turtle Beach Corporation and ticker symbol change to HEAR is underway and expected to be complete by May. The new name will not affect our business, operations, reporting requirements or stock price but will require a new CUSIP. -- First-to-market with three Xbox One compatible headsets at retail on March 6, including a licensed model for the highly anticipated game Titanfall released on March 11. -- Sony PlayStation(R) 4 and Microsoft Xbox(R) One consoles continue to report strong sales, providing a rapidly growing installed base of new generation platforms, which we estimate to be over 10 million units already. -- Sales for the first quarter of 2014 are trending positively and expected to increase approximately 10% over the same period in 2013, which was a strong quarter, and more than 50% over the same period in 2012. -- Received U.S. Food and Drug Administration (FDA) clearance for the marketing of a product incorporating the HyperSound(R) Audio System as a hearing improvement device. -- HyperSound sales team in place and driving revenue growth in multiple commercial segments. Development of first product for hearing impaired listeners underway for anticipated 2015 launch. R&D staffing expanded and pursuing further HyperSound technology advancements. -- Work continues and is progressing well on improving the company's credit facility to provide a global line more suited to the company's needs and growth plans.
"We are very excited about the strong prospects we believe exist for our Turtle Beach and HyperSound businesses," said Juergen Stark, chief executive officer of Parametric Sound. "The recent merger has created a company with significant growth opportunities in consumer, commercial and healthcare audio. Our plan is to leverage our proprietary audio technology and operational strengths to continue to bring to market innovative, high quality audio products that elevate the consumer experience and drive sustainable growth and increased shareholder value."
2013 Turtle Beach (VTB Holdings, Inc.) Review
The audited consolidated financial statements of Turtle Beach for years ended December 31, 2013 and prior relate to a pre-Closing period, and therefore all information presented herein, including any per share information, relates to Turtle Beach on a standalone basis and not Parametric Sound or the combined company. The first combined results will be reported for the first quarter ending March 31, 2014.
2013 net revenue was $178.5 million, compared with $207.1 million in 2012. As expected, transitions of both the Microsoft Xbox and Sony PlayStation consoles in 2013 contributed to a down year for the gaming industry. Microsoft's delayed implementation of headset audio for the Xbox One console until March 2014 also meaningfully reduced our Q4 revenues. 2013 Adjusted EBITDA (as defined below) was $13.9 million, compared with $47.4 million in the year ago period. See the accompanying tables at the end of this release for a reconciliation of Adjusted EBITDA.
"The gaming industry experienced a cyclical event last year as Microsoft and Sony each introduced new consoles for the first time in eight years, " commented Stark. "The temporary headwinds we experienced throughout most of last year, as consumers delayed purchases in advance of the introduction of new consoles, have begun to ease. The consumer response to Xbox One and PlayStation 4 has been overwhelmingly positive creating a rapidly growing installed base which we estimate to be over 10 million units already. As the leader in gaming headsets we are well positioned to benefit from the anticipated growth in the segment as consumers purchase new consoles over the next three years and beyond."
Outlook
For 2014, the company currently forecasts net revenues in the Turtle Beach headset segment to be in the range of $210 to $230 million representing growth of approximately 24% over 2013 levels at the mid-point of the range. The strong anticipated revenue growth is primarily driven by the expected rebound in the core console gaming headset market, which we expect to be a multi-year trend. Net revenues from HyperSound are expected to be in the range of $1 to $4 million consistent with our expectations for the early stages of commercializing that technology. Gross margins are expected to be approximately 30%, a 150 basis point increase over 2013 with further improvement expected in 2015 as Turtle Beach's gaming headset product portfolio for new consoles expands and HyperSound becomes a more material part of the revenues.
Full Year Adjusted EBITDA for the Turtle Beach headset segment is expected to be in the range of $30 to $35 million representing growth of over 100% from 2013 and an Adjusted EBITDA margin of approximately 15% at the mid-point of the range, up from approximately 8% in 2013 (approximately a 700 basis point improvement). The company plans to invest approximately $10 million dollars in HyperSound in 2014 in order to capitalize on the broad array of expected future opportunities for this technology. Total company Adjusted EBITDA for 2014 therefore is expected to be in the range of $20 to $25 million, representing anticipated growth of approximately 140% over the pro-forma combined company Adjusted EBITDA for 2013 at the mid-point of the range. The combined Adjusted EBITDA range for 2014 also reflects approximately $3 million of additional public company associated general and administrative costs. As of the completion of the merger, the combined company had approximately 37 million shares outstanding.
Stark concluded, "We believe 2014 represents the initial stage of the post console transition rebound for the gaming industry and Turtle Beach. The recent launch of our Xbox One compatible headset is another step towards returning our business to a more normalized run rate. In addition, we continue to be very excited about the market opportunities from our HyperSound technology. We expect our top-line momentum to accelerate in 2015 driven by the introduction of a full line of Turtle Beach headsets for new generational consoles including more mid-tier and high-end styles, and fully wireless options. At the same time, we expect that the commercialization of HyperSound will begin contributing much more meaningfully to our financial results in 2015 as we continue to grow the commercial business for HyperSound and introduce the first HyperSound product for people with hearing impairments."
Conference Call Details
Juergen Stark, CEO, and John Hanson, CFO, will host a conference call and simultaneous webcast to discuss the financial results and outlook today, March 27, 2014, at 1:30 PM Pacific Time / 4:30 PM Eastern Time. To participate in the conference call, investors should dial (877) 303-9855 (domestic) or (408) 337-0154 (international) 10 minutes prior to the scheduled start of the call. A simultaneous audio-only webcast of the call may be accessed on the Internet at www.parametricsound.com. An archive of the webcast will be available on the company's website through June 30, 2014, and a recorded replay of the call will be available one week at (855) 859-2056 or (404) 537-3406 and entering conference ID number 17105196.
Non-GAAP Financial Measures
In addition to its reported results, Parametric Sound has included in this earnings release certain financial results that the Securities and Exchange Commission defines 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. These non-GAAP financial measures relate to presenting Adjusted EBITDA, as defined by the Company, for the years ended December 31, 2013, and 2012. Please see a reconciliation of GAAP results to Adjusted EBITDA which is included below for the years ended December 31, 2013, and 2012.
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VTB HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Year Ended Year Ended December 31, 2013 December 31, 2012 ------------------- ------------------- Net Revenue $ 178,470 $ 207,136 Cost of Revenue 128,141 132,795 --- -------------- --- -------------- Gross Profit 50,329 74,341 Operating expenses: Selling and marketing 31,645 22,837 Product development 4,873 2,099 General and administrative 8,349 6,153 Business transaction 3,864 342 --- -------------- --- -------------- Total operating expenses 48,731 31,431 --- -------------- --- -------------- Operating (loss) income 1,598 42,910 Other expense (income), net: Interest expense 6,626 4,738 Other expense, net 45 7 Gain on bargain purchase from acquisition - (2,303) --- -------------- --- -------------- Total other expense, net 6,671 2,442 --- -------------- --- -------------- (Loss) income before provision for income taxes (5,073) 40,468 Provision for income taxes 1,090 14,008 --- -------------- --- -------------- Net (loss) income (6,163) 26,460 Non cumulative dividends and earnings allocated to Series A Convertible Preferred - (24,849) --- -------------- --- -------------- Net Loss attributable to common stockholders $ (6,163) $ 1,611 === ============== === ============== Net (loss) income per share attributable to common stockholders: Basic $ (0.17) $ 0.05 === ============== === ============== Diluted $ (0.17) $ 0.04 === ============== === ============== Weighted-average shares used to computing net (loss) income per share attributable to common stockholders: Basic 35,282 35,282 === ============== === ============== Diluted 35,282 36,265 === ============== === ============== VTB HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) As of December 31, As of December 31, ASSETS 2013 2012 -------------------- --------------------- CURRENT ASSETS: Cash and cash equivalents $ 6,509 $ 5,219 Accounts receivable, net of allowances of $8,980 as of December 31, 2013 and $14,404 December 31, 2012 48,542 65,586 Inventories, net 49,643 40,706 Deferred tax assets 3,299 4,452 Prepaid expenses and other current assets 2,476 1,932 Prepaid income taxes 2,482 1,198 --- --------------- --- ---------------- Total Current Assets 112,951 119,093 Property and equipment, net 7,369 5,732 Deferred financing costs, net 1,575 2,128 Deferred tax assets, long-term portion 827 2,266 Intangible assets, net 3,972 4,955 Other assets 170 21 --- --------------- --- ---------------- TOTAL ASSETS $ 126,864 $ 134,195 === =============== === ================ LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Revolving line of credit $ 39,736 $ 33,000 Term loan, current portion 14,500 15,000 Accounts payable 44,136 24,190 Accrued liabilities 8,615 12,496 Due to shareholders, current portion 3,125 3,125 Income taxes payable - 8,106 Other current liabilities 654 470 --- --------------- --- ---------------- Total Current Liabilities 110,766 96,387 Term loan, long-term portion - 26,250 Due to shareholders, long-term portion - 3,125 Series B redeemable preferred stock 13,713 12,703 Income tax payable, long-term portion 1,986 1,933 Deferred tax liabilities 850 1,174 Subordinated loan 10,342 - --- --------------- --- ---------------- TOTAL LIABILITIES 137,657 141,572 --- --------------- --- ---------------- Commitments and Contingencies Series A convertible stock, $0.01 par value - 50,000,000 shares authorized; 48,689,555 shares issued and outstanding as of December 31, 2013, December 31, 2012 24,345 24,345 STOCKHOLDERS' DEFICIT Common stock, $0.01 par value - 100,000,000 shares authorized; 35,282,286 shares issued and outstanding as of December 31, 2013 and December 31, 2012 353 353 Additional paid-in capital (54,371) (56,934) Retained earnings 18,775 24,938 Accumulated other comprehensive income (loss) 105 (79) --- --------------- --- ---------------- TOTAL STOCKHOLDERS' DEFICIT (35,138) (31,722) --- --------------- --- ---------------- TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT $ 126,864 $ 134,195 === =============== === ================
TB HOLDINGS, INC. GAAP TO ADJUSTED EBITDA RECONCILIATION (in thousands) Adj Adj FY Ended GAAP Adj Stock Adj Trans Adjusted 12-31-13 Reported Depr Comp Amort Exp EBITDA -------- ------- ------- ----- ------- -------- Revenue, net $178,470 $ - $ - $ - $ - $178,470 Cost of Revenue $128,141 $ (183) $ (60) $ - $ - $127,898 ------- ------ ------ ---- ------ ------- Gross Profit $ 50,329 $ 183 $ 60 $ - $ - $ 50,572 Operating Expenses Selling & Marketing $ 31,645 $(3,970) $ (343) $(922) $ - $ 26,410 Product Development $ 4,873 $ (50) $ (342) $ - $ - $ 4,481 Gen & Admin $ 8,349 $ (219) $(1,818) $ - $ (527) $ 5,785 Business Trans $ 3,864 $ - $ - $ - $(3,864) $ - ------- ------ ------ ---- ------ ------- Total Operating Exp $ 48,731 $(4,239) $(2,503) $(922) $(4,391) $ 36,676 Operating Income $ 1,598 $ 4,422 $ 2,563 $ 922 $ 4,391 $ 13,896 Other Income Interest Expense, net $ 6,627 Other Expense, net $ 44 Gain on Bargain Purch $ - ------- Total Other Expense, net $ 6,671 Earnings Before Taxes $ (5,073) Tax Provision $ 1,090 ------- Net Income (Loss) $ (6,163) VTB HOLDINGS, INC. GAAP TO ADJUSTED EBITDA RECONCILIATION (in thousands) Adj Adj FY Ended GAAP Adj Stock Adj Trans Adjusted 12-31-12 Reported Depr Comp Amort Exp EBITDA -------------- -------- ------- ----- ----- ----- -------- Revenue, net $207,136 $ - $ - $ - $ - $207,136 Cost of Revenue $132,795 $ (74) $ (60) $ - $ - $132,661 ------- ------ ---- ---- ---- ------- Gross Profit $ 74,341 $ 74 $ 60 $ - $ - $ 74,475 Operating Expenses Selling & Marketing $ 22,837 $(1,713) $(281) $(748) $ - $ 20,095 Product Development $ 2,099 $ (21) $(122) $ - $ - $ 1,956 Gen & Admin $ 6,153 $ (49) $(522) $ - $(527) $ 5,055 Business Trans $ 342 $ - $ - $ - $(342) $ - ------- ------ ---- ---- ---- ------- Total Operating Exp $ 31,431 $(1,783) $(925) $(748) $(869) $ 27,106 Operating Income $ 42,910 $ 1,857 $ 985 $ 748 $ 869 $ 47,369 Other Income Interest Expense,net $ 4,738 Other Expense, net $ 7 Gain on Bargain Purch $ (2,303) ------- Total Other Expense, net $ 2,442 Earnings Before Taxes $ 40,468 Tax Provision $ 14,008 ------- Net Income (Loss) $ 26,460
For more information:
Anne Rakunas
ICR
Anne Rakunas@icrinc.com
+1-310-954-1113
David Lowey
Corporate Communications
david.lowey@turtlebeach.com
+1-914-844-2759
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