Turtle Beach NASDAQ: TBCH reported higher third-quarter revenue but lower adjusted EBITDA as promotional and supply-chain costs pressured margins. The gaming accessories company reaffirmed its full-year outlook, which depends on a substantial increase in fourth-quarter sales.
Revenue rose 5.3% to $84.7 million from $80.5 million a year earlier. Adjusted EBITDA fell to $8.1 million from $11 million, while gross margin declined to 34.9% from 37.4%.
CEO Cris Keirn said retailers purchased largely to normal seasonal requirements during the quarter rather than building holiday inventory as early as the company had anticipated. More holiday orders shifted into the fourth quarter, he said, adding that customer orders accelerated year over year through October and consumer sell-through improved in the second half of the month.
Holiday Quarter Central to Outlook
Turtle Beach reaffirmed its 2026 revenue forecast of $335 million to $355 million and adjusted EBITDA guidance of $44 million to $48 million. Interim CFO Andrew Clipsham said the outlook assumes further holiday replenishment by retailers, increased demand around major game releases, contributions from new products and improved gross margin.
Clipsham cautioned that the timing and magnitude of retailer purchases, holiday sell-through and prevailing costs remain important variables. The company continues to expect full-year gross margin in its targeted mid-to-high 30% range.
Responding to an analyst’s question about the size of the required fourth-quarter sales contribution, Keirn acknowledged that the company needs a significant year-over-year increase. He said the business had expanded through its acquisition of PDP and that, at the midpoint of guidance, fourth-quarter revenue would need to be roughly 11% higher than in the same period of 2024.
Keirn said the company has the inventory needed to meet its holiday guidance. He also said retailers have begun replenishing as sell-through has increased, though purchases did not accelerate in September as early as management had anticipated.
Margins Fall Despite Revenue Growth
Clipsham attributed the third-quarter gross margin decline principally to product mix and higher promotional, tariff and logistics costs, including freight and fuel. He said fourth-quarter margin should benefit from higher seasonal revenue and a greater contribution from newer, higher-value products.
Operating expenses fell to $23.7 million from $24.7 million, helped by approximately $1.1 million in insurance recoveries and lower general and administrative costs. Those benefits were partly offset by continued marketing investment.
Net income rose to $4.4 million, or $0.24 per diluted share, from $1.7 million, or $0.08 per diluted share, a year earlier. Clipsham said the improvement reflected the current-quarter insurance recovery and $1.9 million in debt extinguishment costs in the prior-year period, partly offset by higher supply-chain costs and interest expense.
Products and Market Share
Keirn said Circana data showed Turtle Beach ranked first in U.S. gaming headsets and third-party gaming controllers during the quarter. He described the controller ranking as the company’s first quarterly top position in that category since the PDP acquisition.
The company’s U.S. Nintendo controller dollar sales rose more than 70% year over year in the quarter, according to the Circana data cited by Keirn. He also pointed to the Stealth Pro II headset and Nintendo Switch 2 products as contributors to growth. A premium Stealth Ultra II controller remains on track for a fourth-quarter launch, he said.
Headsets and controllers account for roughly 90% of Turtle Beach’s revenue, Keirn said. Mice, keyboards and simulation products also grew year over year, though their effect on overall revenue was smaller. He characterized the U.K. and Europe as softer than the U.S., but improving.
Keirn said sell-through following the recent Call of Duty launch was stronger than the lift seen from the previous year’s release. Management also expects major releases, including Grand Theft Auto VI, to support accessory demand, although the company did not provide financial guidance for 2027.
Inventory and Capital Returns
Inventory stood at approximately $79.8 million at September 30, up about $23.2 million from the end of the second quarter. Operating cash outflow was $6.4 million, compared with $15.2 million a year earlier. The company reported $71.7 million in net debt, including $82.9 million of outstanding debt and $11.2 million in cash.
Turtle Beach did not repurchase shares during the quarter after buying back approximately $25 million in the second quarter. Keirn said the company prioritized working capital for holiday inventory and anticipates capacity for additional repurchases after the season as inventory converts to sales and cash. Approximately $31 million remains under its authorization.
About Turtle Beach (NASDAQ:TBCH)
Turtle Beach Corporation NASDAQ: TBCH develops and markets gaming accessories and related consumer technology products. Its portfolio includes gaming headsets, controllers, keyboards, mice, microphones, and other accessories designed for use with consoles, PCs, and mobile devices. The company also offers products for flight simulation and other gaming applications.
The company's products are sold under the Turtle Beach brand and, following its acquisition of Performance Designed Products, under brands including PDP.
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