Yet Another Value Podcast - Windward's Marc Chalfin Turtle Beach Thesis $TBCH

Episode Date: April 8, 2025

In this episode of Yet Another Value Podcast, host Andrew Walker welcomes back Marc Chalfin of Windward Capital to discuss Turtle Beach. Known for its gaming headsets and peripherals, Turtle Beach is at the center of a compelling capital allocation story. Marc outlines why the company’s recent PDP acquisition, aggressive buyback strategy, and positioning ahead of the Nintendo Switch refresh and GTA VI release create a rare opportunity. He also breaks down the company’s corporate turnaround, supply chain adjustments, and potential paths to a strategic or private equity exit. If you’re following gaming or capital discipline stories, this one's for you.______________________________________________________________________[00:01:29] Marc Chalfin shares an update on Groupon and transitions to Turtle Beach[00:02:23] Introduction to Turtle Beach’s business model and market share in gaming peripherals[00:03:58] Market size, product dominance, and recent analyst coverage[00:05:46] Chalfin discusses the history of Turtle Beach, Donerail’s involvement, and management changes[00:10:01] Operational struggles from supply chain issues and lack of gaming software[00:11:30] Strategic acquisition of PDP and importance of Nintendo licensing[00:13:03] Financial upside: EBITDA expansion potential, buybacks, and capital structure[00:16:38] Addressing the commoditization concern in gaming hardware[00:18:02] Peer comparisons with Logitech and Corsair[00:20:20] Philosophy on capital allocation and shrinking the share count[00:23:09] Tariff headwinds and Turtle Beach’s supply chain response[00:25:28] Catalysts: Nintendo Switch refresh and GTA VI as revenue drivers[00:27:34] Chalfin explains the buyback slowdown and loan covenants[00:29:53] Long-term guidance and thoughts on sustainable revenue growth[00:31:21] Endgame scenario: strategic sale or private equity exit[00:36:28] Risks: liquidity and execution on buybacks[00:40:11] Timing of potential buybacks and views on tender offer strategy[00:43:27] Closing thoughts on alignment with management and capital return strategyLinks:Windward Capital: https://www.windwardmg.com/See our legal disclaimer here: https://www.yetanothervalueblog.com/p/legal-and-disclaimer

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Register now at dilupa.com slash y-A-V webinar. That's the LUPA, D-A-O-O-O-P-A-V webinar for the April 15th, 1 p.m. Eastern webinar. and get ready to uncover the truth about AI and finance. All right, hello, and welcome to the Yel Other Value Podcast. I'm your host, Andrew Walker. If you like this podcast, I mean a lot, if you could rate, subscribe, review wherever you're watching or listening to it. With me today, I'm happy to have on one of the fastest repeat appearances in podcast history.

Fresh off the just smashing success of the Group on podcast. I'll refer people to that podcast and the stock price for all the back. there. But, anyway, Mark from Woodwardic Cathedral. Mark, how's it going? Great. Thanks, Avion. Again. I appreciate it. Good to see you. And the one thing I'd say about Groupon is we actually think it's an easier buy-up here than it was when we pitched it post-turning. So we're very excited. And it's actually a bit shocking the short interest is climbed versus where it was going into the print. We get two-day lag data. It's just eye-popping that it continues to grow.

it's been a screamer but not what we're talking about today before we get to what we are talking about today i'll start this podcast the way to every podcast disclaimer remind everyone that nothing on this podcast is investing advice please consults financial advisor do your own work all that sort of jazz so mark all that out the way the company we're going to be talking about today is turtle beach the the company that it used to trade under back when uh i first looked at it traded under here, which was a great ticker. Now it trades under TBCH, but I will just pause there and turn it over to you. What is Turtle Beach and why are they so interesting?

Great. Thank you for that. And we have quite a bit of long history of Turtle going back three years or so, and we'll get into that in a few minutes. But just high level, what they do, they're the market leader in gaming peripherals. Pretty attractive market, $11 billion market, growing in single digits. They have number one market share for gaming headsets, and they've entered through a very creative acquisition through PDP or the controllers market.

In both those markets, they're about 40% or so market share for console gaming. So think Xbox, PlayStation, and now the upcoming Intentzo Switch that we're very excited about. We'll get to that in a minute or so. But, you know, we think there's a very attractive market. with global gamers growing 3 plus percent and the overall market growing into high single. These guys have consistently taken share. You know, an interesting stat is they're the best-selling headset brand for the last 15 years and sold over 80 million headsets.

So give you a little flavor for what they do. You know, it's an underfollowed smid cap stock that does not have a tremendous amount of coverage. Interestingly enough, Tony Stoss, the Craig Hallam initiated yesterday with a $23 price target, but it's not a very well-covered stock and doesn't trade a ton. So there's a very large disconnect between the multiples of which this company trades and some of the peers like a lot of tech or a corsair. Why we're so interested in Turtle, and we think the inflection is now, it is several fold. Number one, it's extremely cheap.

on stated numbers, it looks like it's trading around five and a half times EBIT, but the balance sheet, it doesn't really fully reflect on what's going on. Number one, they pre-bought some inventory, getting at a tariff, number one, and then number two, you have to understand how the working capital flows much like the Groupon. You know, they have to build inventory from the holiday, and then you have a big receivable flush coming in Q1. So pro forma for the Q1 paydown, this thing is extraordinarily under levered against where we think that they should be comfortable. So what's super attractive from just the capital structure perspective, we believe this company could be two terms levered. And if you look at what needs to happen to get the two terms levered on their guidance, which we think is fairly conservative this year, and assumes significant tariff headwinds.

we think that there's $150 million of powder, which is just a real eye-popping number when you look at a market cap that's $285 million or so. And that is a good segue to understand the history and what's transpired. And maybe perhaps I've walked you through what's gone on for the last three years, where we're at now, and the catalyst path here. No, look, I think you should dive into it. I normally start off with why is this now? opportunity, but I think you effectively laid it out there. So please, I know there's a somewhat

storied, somewhat tortured in corporate history here. So why don't you just stop and step? Yeah. And by the way, the answer to your question, and then we'll come full circle, is we think there's a massive buyback capital allocation event in the imminent future coupled with significant inflecting fundamentals because of self-help and industry tailwinds, such as the Nintendo Switch, and some really attractive game releases coming, GTA 6, namely being probably the best game release you've seen in the last decade. So going back to the history, look, we got involved in the stock in the, really around these levels, about $16, actually slightly higher, going back to 2020, when actually a current board member, Will Wyatt, from Donrail, made a public bid to buy the company for, about $36. Why we were interested is when we did the work on the company,

we thought that under the prior management, Eurgan Stark and a very closely held board of cronies, we felt like he was making dilutive acquisitions to drive revenue at the expense of Dilutivadam. It was enriching himself and paying himself very handsomely. We thought that there was a nice opportunity to improve Ibidon, and felt like the upside case made a lot of sense. What we got wrong at the time, and this is a knock on kind of something we learned from,

at that time in 2022, the market was in a difficult place, and many companies were undergoing significant negative earnings revision cycles, and we spent a lot of time focused on the event angle and less so on the fundamentals, which had some really, idiot things that were looking back, probably easier to see, but at the time really escaped us. So what happened is you have this very vocal, you know, activists that made a public bid, launched the proxy contest. And two days before they were set to go to ISS Glass-Lewis, they reached a settlement agreement, which effectively read that if the company was still a public

entity within 120 days, Don Rail would gain control effectively through control the Mountain Gov Committee and would get control of the company, which we thought was a very attractive outcome. What, unfortunately, went awry is that hangover from all the supply chain shocks during COVID, you had an inability to secure chips, which therefore created a real dearth of supply of Xbox and Playstations. And just for the viewers to understand the real drivers of demand for buying Burfield equipment is either one, you're buying a new console,

two, there's new software that's out, which drives you, whether it's a call-duty, GTA-6, a Fortnite, or just, you know, replacement demand. These things generally have three to four-year cycles in terms of replacement. You were coming off of obviously a massive boldness of demand during COVID.

um so there was some pull forward um but what really hit us at that time uh was you had a lack of inventory of the console you had really no software being being put out because obviously during COVID much like you're seeing in movie studios you didn't you saw several in your um kind of hiatus of real developments um and then when we really got caught off guard was the Retailers had about 15 weeks of inventory, and they cut their inventories from about 15 weeks to seven weeks. So it was a really damaging time for Turtle because now they had inventory that was building on their balance sheet. The sell-in got cut by about 50%. Despite sell-through really only being down, you know, 7-8%.

So EBidol flips extremely negative. and what exacerbates the situation is that despite having a legal settlement agreement to take control of the board, Juergen and his team decided they're not going to give Donrail the board seat. So it becomes a drawn-out battle, then it becomes a tax law selling candidate

stock close to six, and it wasn't a fun meeting year for Winler. That was the year we launched, and this was our biggest loser of all time, the lost 770 basis points of the position in 2022, and it was actually almost 200% of our gross loss like that year. That being said, we're still here fighting and really love the position. And I think Will and his team have done a great job.

Obviously, they've now gained control of the company. Jorgans gone. They promoted the head of sales, Chris Kern to be CEO. And really, since then, executed phenomenally. I mean, these guys announced a very accretive acquisition, PDP, in March of last year, synergies have gone higher. It looks like they've done this three and a half times pro forma for synergies, if not lower, because there's a very interesting top-line synergy.

And we're generally not top-line synergy folks. But what they acquired in PDP, in addition to the scale of now, instead of being a one product company, now having scale on both controllers, as well as headsets and simulators, they also got controlled as very valuable Nintendo license.

So there's very few folks that have a license to be able to operate with Nintendo and with the Nintendo Switch. And Broomers are tomorrow, there's going to be a pretty big announcement on Nintendo Switch. I think 150 million global units were sold under the last Nintendo Switch, and we think this is going to be a

very big driver for them. They now not only have the tailwind on the legacy PDP business, but also now to cross-license with Turtle Beach. So we think that this is a huge driver for them. So NetNet is PDP acquisitions, extremely accretive. But what was really interesting is they already had a very attractive self-help opportunity within Court Turtle because of the issues I referred to earlier with Yergan, elevated sales and marketing. held in R&D, we felt that core legacy turtle had a $20 to $30 million

ebidab bump from the self-help plus, call it, you know, 20 million of legacy PDP, EBAD plus, you know, 15 million of synergies, and Allah that gets you to a normalized EBIDA number of about 80 million of EBAD in 25, which is where we think that they would of shaken out if it weren't for some of the tariff headwinds, which they guided to. Despite guiding to tariff headwinds, they still guided Ibadah ahead of the street on their last earnings call. But what really is super interesting is when they announced PDP, despite having a very unattractive term loan in terms of rate with Blue Torch, that was sulfur plus seven and a quarter,

and being levered one plus times at the time and having TTM-Ebadov $11 million versus T-T-M-E-Dab on the $60 million, they still were going to buy back 20-plus percent of the company in a 10, they're up to 15. Now, think about that for a second. The stock's below 15 now. EB-Dah is up significantly,

forward-EBadda is up significantly. Leverage is now pro forma for the cash coming in for Q1 is now, going to be sub half a turn, we think that the company has been waiting for this timing to be in a position to use their excess powder and do a massive buyback, which we think happens evidently. So you've got buyback coming, beat and raise, we think, off of a very conservative bar pro forma for tariff. And I think there's a lot of upside from, from Jim GTA-6 from Nintendo Switch.

Now, granted, this is a little bit of more back-half-weighted story, but we think that that's significantly intrinsic in where the stock's trading, given it's trading at a 20-plus percent free cash rate. I don't know about you. I don't come across a lot of companies that have 40 percent market share, high teeny-eadad margins, and are growing high single digits that traded a 20-per-cashary yield. They're about to buy back.

25 to 35% come. So maybe I'll pause there. I think that was a lot. No, no, that's a great history. And I remember the event very well. Let me ask a few questions. So Turtle Beach, right? If you know Turtle Beach, you probably know them to the headsets.

As you mentioned, they buy PDP and they make the, you know, if you want a better Xbox gaming handset, PlayStation, Nintendo, they make those. So let me just start with the first question. So I think when I've looked at this, like I remember when Donnell put out that deal and it was at a big multiple, and you, a lot of you were saying, hey, there's a lot of low hanging fruit at this company if somebody takes over. I guess the thing I've always struggled with Turtle Beaches, I look at it and say, hey, isn't this the most commoditized of commodity business? Like, I go online and I put in gaming headset and I get as low as, you know, $20 knockoff

gaming headset on Amazon that's effectively Amazon basic drop shipping from China. And then on the high end, you know, there's some Logitec and I want to talk to. in a second as well. There's some Logitech and Turtle Beach headsets that are going for hundreds and hundreds of dollars, right? So I just look at it and I wonder, isn't this just like an extremely commoditized what I call a cost of capital business, right? Like, why should this trade for, why should this trade for a strong EBIT or free capsule market multiple? Shouldn't it trade pretty low because it's a cost of capital business? And I guess the one other thing I'd say there is, you know, they bought PDP. I think pre-Sinergies, it was about nine times EBIT off post-Sinergies.

less than five times Ibrata. So post-snergy is a really low number. Pre-sinergies actually a decent multiple. But I look at those and say, hey, should this business really deserve more than six, seven times EBDA? Well, look, I mean, I think what you're saying, I think that the numbers tell a different story. I mean, these guys have 40% market share and a high teen's EBITDA margins and have consistently taken share over the last couple of years. And they've been the number one selling brand for the last, I don't know, 12 plus years. I think if it was such a commoditized business, margins would be going the wrong way. I also think that they wouldn't be continuing to take share.

So they also have hundreds upon hundreds of patents, and they have very strong relationships with the console OEMs, and they have scale. And I think they continue to prove it out year and year out that they continue to grow, take share, and grow their arched. So I think the numbers fell a little bit of the same story. That's a perfect answer. Let me go to, so that's on the low side that you come on it. I guess the other said, Turtle Beach is not shy about it.

You mentioned it. Logitech, Corsair, and I don't know GN. I can't claim to the experts on any of these companies. But they put it in their decks, right? They say, hey, Logitech, people can go look it up. Logitech trade for 11 times. Now, Logite does have other stuff than this gaming, Corsair. These guys trade for kind of low double-digit EBITDA multiples.

Right. Well, Beach will say, hey, we're sitting over here trading for five to six times. All of our peers are trading for double. You know, the EBITO margins to me, the EBITO margins, the financial profiles, it all looks very similar. I realize I'm preaching to the choir here, but do you think these guys should trade for a Logitech Corsair multiple? What's holding them back? Why aren't they trading for it?

What's the difference? I wouldn't. We're value, you know, the way we value stocks is we value them off of what we think they're appropriate. multiple is not necessarily if a cop is trading it in an outlandish multiple. I'm not going to ascribe the Turtle Beach trade at 18. I don't think Logitech should trade at 18xia.

I think Logitech is a vehicle for larger funds to play the gaming cycle and you can't own Turtle Beach or enough of Turtle Beach. So, you know, these big huge funds buy Logitech and push the multiple up. And by the way, I would

argue that I'd rather own Turtle Beach than Logitech because in fact, GTA6 is not being released on a PC cycle this year. It's being released in the console, on game console cycle. So that is a very big driver. And then obviously, Nintendo Switch is a very big driver. So I prefer to own someone lever to the gaming console cycle versus a PC cycle, which is what you get in Arrowreach, number one.

I would also say that if you look historically at MNA multiples, Generally, these businesses have traded no less than two-tenths revenue. You know, there's been several examples of that over the last bunch of years. So I think the evidence points to that they're extremely undervalued. But more importantly, I think a really important tenant for us in Winward is capital allocation and shrinking shares when you're trading below your intrinsic value. So, you know, legendary, you know, interim manager, Jeff Kandel, Tomteen, you know, their strategy is to buy every share until there's one.

one share left. And that's what we believe in as well. And hopefully we're that last share that we own. And we think that this board gets it. We're very confident that they do, that they're going to continue to say, look, either the market's going to reward us at eight to 10 times EBITDA or we're going to take our free cash flow every year and buy back stock until we trade there. And we also feel very comfortable in line with management and the board that they're not going to do some stupid dilutive acquisition. And they understand there's execution risk. So with their stock trading on our math, you know, closer to three and a half times even though pro forma for free cash flow and buy back, we think that, you know, they're going

to buy back every share they can. Now look, if the stock goes to seven times even if not, this has become a little bit more of a nuanced discussion with the board to say, hey, look, we could drive scale synergies through a deal and maybe we could buy something creatively at that multiple. And I'm game for that. But at these levels, I think. they're going to buy back and whoever is much stock as they can. And I think that we will start to see that very shortly. I love your, the taunting and everything. Obviously, those guys are legends, but I love because most of my companies, I like to have some form buyback. And I'm like, oh, they're going to buy back shares. And we're going to find out, you know, what happens

when you buy back the last share, that old joke. But I will say every company that I thought I would get to a point where they bought back the last share, they run into a train wreck of some form. and then inevitably, the management team stops buying back shares. Let me actually start there. Look, it is not loss of me. I think when they do the PDP deal, they say they're going to do a big tender offer. Importantly, they say alongside the tender offer, if I remember the call correctly, directors and insiders are not going to participate into the tender.

I believe they call the tender off, and then they do some pretty nice share re-purchases. But it's also not lost. They didn't call the tender off the stock ripped through the high end of the tent. Oh, okay. The stock went to 18, and the high end of the tender is 15. And I think that's actually a great point because let me provide some color in the audience. That actually was a lot of brain damage for us

because what happened is they announced this tender and they studied all these tenders and they said this is the highest premium we've ever got all these backers, look at this, it's the highest premium that we felt comfortable doing. It was like a 25% premium. But they announced a tender on the same call they announced an accretive deal

that doubled their EBITDA. So doing the 25% premium on a doubling of your EBIT in 30 million to 60 million, and nobody's going to give you stock. So what happened is you had a bunch of event people pile into a fairly illiquid stock thinking they were going to raise the tender. They didn't raise the tender. And then you got, and I'm sure you're familiar with the event crowd, by these event people

are now stuck in a stock that don't necessarily want to be in. They thought they'd get an arbitrage on a tender and now have to like drip out of the stock over the last bunch of years, which is a part of the brain damage on my. why the stock only really first recovered into the high teams in Q1, and then obviously we get hit with all the tariff stuff, which I'm sure you get a segue to at some point as well. This stock was $19 literally like a month ago. So we think that they're very comfortable. I've got a lot of stocks that were 19 a month ago and aren't 19 anymore.

But they're probably not going to buy back a third of their company. Let's start with tariffs. I mean, I pitch, you pitch headset company and gaming handsets. And the first question everybody's going to ask is, hey, all the handsets are coming from China. Say again? That's not accurate. All the handsets are coming overseas tariffs, right? Whether it's the handsets are getting produced here, but all the parts are tariffs, tariffs,

that's all anybody's going to talk about. So why don't we address, I think they talks about it on the Q4 call, which is only a couple weeks go. They said it's built on the guidance. But why don't we just talk about tariffs? Yeah, look, you could also go back to the ICR commentary. I think there's sandbag a little bit on the tariff stuff. If you listen to what they said at ICR, they've moved a lot. So under the prior tariff headwinds from four or five years ago, whenever it was, they moved a lot of their manufacturing outside of China and to Vietnam and other locations, number one. Number two, So they are paying themselves for the full headwind of tariff, but not giving themselves any credit for pricing, which we think that there is quite a bit of opportunity for them to raise price.

And number three, we think that there's, you know, in a environment where we might be going to a softer consumer environment, obviously we've seen a lot of signs of that. gaming is a low-cost way to entertain. And then the last thing I would add, which we like multiple ways to win, is that there is this kind of impending tailwind of this replacement cycle from COVID that we haven't seen yet. And we've talked to countless number of industry people and experts that are saying that we're at literally the one-yard line of starting to see this bulbous of replacement coming from COVID,

which the industry has not seen yet. We think that there's a lot of offsetting factors against some of the headwind from Tariff. And then obviously in addition to all the tailwinds in the industry on Switch and GTA6. Let's talk about the headwind. So GTA6, I'm here for that. Or sorry, tailwinds. I'm here for GTA6 as a tail win. You know, it's going to be, I'd be shocked if it wasn't by far the biggest game in Launchfall Time.

It's going to be Blockbuster. Why do people buy headsets? because they're about to drop 100 hours into GTA 6. They're going to play online. They want to talk clear with a print 100% believe it. Nintendo Switch. The company thinks it's a tailwind. I think analysts, I just want to push back on that a little bit.

Because when I think Nintendo Switch, I have one. I love playing Mario Party. I don't need a headset for it. You know, everything's online. When I think headset, you think intense gaming. You know, the Battle Royale cycle was a big driver for these guys in 2018. You think intense gaming. you think firefights needing like the most Nintendo Switch more casual so when I think about Switch

too I think more casual now they do have as you mentioned they have the handsets for the Nintendo switch they've got the license for that but when I go to their website everything is pointing me to Xbox everything is pointing me to PlayStation switch not so much I don't doubt that they're going to see a little bump from handsets but like again maybe it's just because I'm old and I very rarely video game it's a good point so first of all Switch is a very much very big component for PDP. So we break it down, right? Nintendo is a very big component for overall PDP. So for sure, it's a massive tell in the PDP. For Legacy Turtle, they have no license with Nintendo. So now being able to leverage a license with Nintendo into a massive

console watch, it certainly is going to be ATO. I'm not arguing that Switch is as big as GT86. That's not what I'm saying. I'm saying that a console launch of this magnitude will be a tailwind to the company, and they are not guiding for that benefit to be a tellwin to legacy core turtle XP. Let's talk with the share repurchases real quick. So you, as you said, company's got a big working capital buildup. Hopefully this year you get the double the double combo of working capital release plus revenue growth and earnings growth leads to a huge inflow of cash and they can buy back a ton of shares. Just look at it. Q4 was kind of their lowest amount of share repose since the PDP merger had gone through. Obviously, there were the

tailwinds. But I look at that, I say, hey, are these guys really going to, are we going to get the big capital allocation tailwind? Or are they going to look around and say, hey, maybe we do another acquisition. You know, I just always worry, because as I said, I always think I'm going to be last year, I'll say anything that the company who lets me down and doesn't buy until there's nothing left. Yeah, that's why you have to be in the weeds to understand what's going on. We think that they were pretty close to tapped out, given the covenants as it relates to the Blue Torch term loan. We think that there was not a lot of capacity left to be able to buy back stock. So, you know, if you read the covenants there, I mean, there was a pretty significant

a prepayment penalty if they tried to pay off that. Pretty egregious term loan, if so, for plus seven and a quarter, until an anniversary March 14th, I think it was. So you really are in any one of these guys being able to refi that facility and move on to something more flexible with much more attractive PTNA Bada and go forward even And like I said, they had execution risk on PDP when they were going to do that buyback last year. Obviously, that's now nil. So I don't know.

We could be wrong, but our view is that we would be shocked if buyback this year wasn't at least market cap here is 20, we'd call it 300. I'd be shocked who buyback wasn't at least a quarter of the car. And if I remember correctly, they amended the Blue Torch loan so they could buy $30 million before the end of March, which has passed at this point. And I think they can start getting into it now. Let me, one more question. Company has said long-term targets, 10% plus revenue growth and mid-to-high teens, adjusted EB-on margins.

They're basically at to mid-to-high-teens adjusted EB-on margins. So, you know, if somebody wants to come and say, hey, cyclical industry, whatever, I think they've proven they can get to mid-to-high teens. 10% plus revenue growth. If I just think about the headset market, it doesn't strike me as a 10% plus long-term revenue growth market. It seems pretty saturated. Yeah, you get the console cycles, but that's temporary.

That should be kind of built into it. I just want to ask you, like, do you think they can hit that 10% plus long-term revenue guidance? I think 10% revenue guidance is hard to hit for anybody. I mean, that's significant revenue growth. We don't, the stock doesn't trade. This stock trades like it's decline revenue, not, not 10% revenue growth. So look, look, we feel very comfortable that, you know, mid-to-high singles organically is realistic.

And a business that has high-teens-heed-da-margin throws off a ton of free cash flow and grows organically mid-single should trade no less than a 10% free cash rate. So, I mean, you're talking about a double just on that without a ton of, creation from buyback. So, yeah, but it brings up a good point because our upside case isn't really 10% of revenue growth traded 15 times you could die. Our upside case is this is a company that shouldn't be public. It's illiquid. It was a one product company.

They diversified with buying PDP from diversus. we think the game plan is allocate capital appropriately when your stock gets to a more normalized level do another tuck-in M&A deal that is accretive buy it four, four and a half, five times pro forma for synergies,

get your EBITDA over $100 million, which they're pretty close to doing. And then you become a more scaled, attractive candidate for a Logitech to acquire. And something like a Logitech or a Ravit. that wants the IPO and potentially reverse merge it to Turtle, you are able to buy Turtle at 10 times stated Eidada. By the way, Logitech has almost $2 billion of cash. And what's crazy to me is they're buying back their own stock at 17, 18 times EBITDA. It's much more

for them to buy Turtle than buy their own stock. But what I think the end game is, is that they buy back their stock, do another toughing deal, and then sell to somebody at, you know, call it 10 times EBITDA, which really looks like six and a half or seven times, for a bigger player, which would be half or less than a half of a whole. So that was actually my last question. What is the end game here? But let me just pick out it a little harder. Do you think strategics would be interested?

Because as I mentioned, Logitech, no, you Google headset. Logitech's already got headset. It seems like the great thing about PDP was Turtle Beach had headsets, and they sell, you sell a headset to GameStop. You buy PDP, and maybe you can go to GameStop and say, hey, why don't you buy the headset and give us a slot in your, give us a slot in your handset market as well, right? Logitech goes and buys Turtle Beach to say, oh, cool, like, yeah, there's some synergies, but we already have headsets. We're kind of, we're buying another headset manufacturer. It doesn't make sense. So do you think a strategic has interest, or do you think this?

is a private equity platform. I think both could, you know, speaking to your point in Lodotet, Lodotac has a ton of share in PC. On console, and of course there's another example, why Corsair in many ways elegantly makes sense is because if you look at the share in PC versus console, it's very elegantly inverted, right? But roughly these are rough stats, but, you know, call it, Turtle is like 80% console 20 PC. of course there's the opposite, so there's a tremendous amount of synergy to be able to acquire turtle and benefit from cross-selling and public company synergies.

And, you know, there's a lot to be done there. But look, just financially, just from a financial engineering perspective, the Logitex perspective, in what world does it make sense to buy back your stock at 18 times either thousand who can buy a business at five times pro forma of percentage? because it just doesn't make a lot of sense to us unless it's just not big enough to move the needle or you have a very negative view of Turtle Beach. But I think Turtle Beach has been proving out that they continue to take share and grow margins. Look, I think it makes a lot of sense for private equity as well.

Obviously, private equity won't be able to pay the same multiple that a strategic can. But, you know, we think that private equity could clearly take this thing out for 25 plus and generate a really attractive IRA. But we think that, you know, the Grand Slam case is, you know, this could be worth 50 bucks if we're right and they shrink their shares the right way. And we, you know, Nintendo Switch and GTA6 work and you're looking at, you know, an EBIDA estimate pro forma for another tucking deal that's $100 million and $26. We think at 10 times EBITDA, this thing is north of $50. So we just think it makes more sense strategically, but wouldn't be shocked with all the private equity money sloshing around. on the, that it ultimately goes to a P.

What keeps you up at night with this name? Because I hear the thesis, and it sounds really good, right? Say, hey, five and a half times, or EBITDA, the peers are trading at at least double, maybe more. They're still annualizing the acquisitions, so probably a little bit more, at least on the cost synergies, maybe the revenue synergies start coming in. You've got a board, the company keeps saying, we're going to buy back like crazy, and at the end, you hopefully have, you have some, you know, back half of the year, you have

some tailwinds from the console launches in GTA6, and then, At the end, you have a board that hopefully is pretty aligned with selling this either to a financial or strategic buyer. So when I lay it all like that, it's like, hey, this sounds really good, right? Which is why you're a 13G filer and everything. But what keeps you up at night? Because one pushback I would have is go pull up the stock chart here, right? And it's, it is a new management team, which is absolutely critical.

But it's one of those companies that yo-yo's up and down. But if you had invested, you know, seven years ago, you're basically flat on your investment. So great trading sardine, but hasn't really created any value. Now, cheap or multiple today, new management team, all that I'll grant you, but I think you see where I'm going. It's a great point. We generally look for businesses where the value has been created intrinsically, but the market's not reflecting it. Think about the tremendous value that these guys generated through the PDP acquisition, the free cash flow and de-leveraging that they've done, and the stock is lower than when they announce PDP with a lower share count.

lower leverage, higher e-bidaw, lower share account, more attractive to get for well. I think some of the damage, which we talked about a little bit, was the failed tender, which I actually think was a bigger deal than probably most people do, because I'm looking at it more from a technical trading perspective. This isn't an illiquid stock, so you ask me what keeps me up in my, is the illiquidity. Now, illiquidity is your friend with their buying back stock. So my biggest concern is that they don't do what I think they should do, which we're very confident they will, but,

if they don't buy back stock, I'm going to be pretty furious, and that would concern me. If it's pay, they're going to do what they should and buy back stock, I sleep very well because if they're buying back a third of their company and they're trading at this type of multiple, I think that the risk reward is extraordinarily attractive. That's why we love capital allocation so much. If this was not a buyback story, our bullishness level would be significantly lower. it's the catalyst of the buyback imminently coupled with these

inflecting tailwinds to the fundamentals which is really what we do in every stock that we really like but the timing on this just happens to be really unique and that we think it could be any week now. There is the private equity firm that sold them PCP owns I think about say again. Diversis is the name of the private.

They own about 20% here, three 13G filers. Do you think everybody is aligned with the buyback share story? Because I agree with you. I think that's the most attractive piece of this story. Yes, I do. It's a simple answer. Look, this is, it is, as I said, you can sum this, one of the things I like, you can sum the thesis up, you know, in three sentences, cheap, buybacks coming, tail wins, trades at half the multiple. We've talked about the risk. We've talked anything else we haven't chat about that you think investors should be kind of on the lookout for here um i think we covered most of it um i think we covered most of it i just think it's what's

interesting is just the euphoria around gaming that we entered the year with um and you know where some of the other comps are trading and like a lot less of the brain damage right with like a lot of that we just trade it off a little bit, but relative to what Turtles done, it's just interesting. So I think for people that, you know, can bear a little bit of the liquidity issues, I just think that, you know, you have a very exciting catalyst here. And we really can't overstate more how bullish we are on the capital allocation. We do think it's very timely. No, look, I agree with you.

Again, it's the capital allocation story that really gets you going here because they have the, I guess we can talk timing, right? When do you think the share of buybacks really start? Because as we mentioned, Q4, they kind of really dial it back down because they're seeing the tariffs, they're seeing the inventory build up, all that sort of stuff. They've got the restrictions and that government. Do you think it is a now event? Do you think it's, hey, a Q2 event back half a year?

I think it's now. I think it's between now and a call. I'd be shocked between now and the call this didn't happen. I mean, in a perfect world, the way I see it, and obviously I'm just trying to read tea leaves and, you know, make my best, you know, intuitive guess. You have Blue Torch expiring. Refinancing a facility is not the easiest thing in the world, right?

You've got to be competitive. I would assume that the market backdrop probably only lengthens that process. Um, so you kind of have Blue Torch expiring on the day you reported earnings. If I, my brother is the way I see it playing out is they kind of figure out a flexible facility that allows them to take down a ton of stock and perhaps maybe they pre-announce earnings in the next week or two with a massive tender. That's how I see it playing out. And look, as you mentioned, the stock ran through the tender so they pulled it, but they generally history is the best guy, right? One of my,

favorite things is if a company tried to sell themselves before and it fell through for one reason or another, they're probably more likely than your average company to sell themselves again. This is a company that tried to do a tender offer once. You know, betting on a tender offer anywhere is always kind of a long shot odds, but it kind of makes sense if they're seeing what you're seeing and they're getting a big influx of liquidity. They tried to do it before, probably tried to do it again. Well, the other thing also with the tender, you know, And we've obviously, you know, shared our view on it. When you're an illiquid company, a tender makes more sense, right?

If you have a tremendous amount of putting in buyback stock, I think a 10B5 or an ASR or other forms of turning capital shareholders for buyback could make sense. But the problem is, is how much stock are you actually getting in if you're just sitting there buying back 25% of the stock every day? my guess is you're 12 million into the stocks back at 17 or 18. So I think especially in this market backdrop, there's probably people that would hit the bid. I always think this market backdrop is the best thing that could ever happen to them because there's hedge runs out there that are underwater or whatever. And, you know, they're like, okay, 10 or up to 16 or 17 or whatever it is,

boom, hit the bid and all of a sudden you've got 3 million shares put to you because people are happy to take that P&L. So I just think that liquidity almost demands to a certain degree of tender for this company. And I think, like, I hear you once been twice shy, like you try to do a tender and fail, but you also try to do a tender when you doubled your hepatized. I mean, it's not the same thing. So I just think it's a different animal that's right. No, I love what you said on liquidity too, because I talk to these companies and they'll say,

hey, we can't do share buybacks or stocks already to e-liquid. Like, yeah, you can't do a big share buyback because your stocks are looking, but why are you worried about lowering the liquidity? Like, these guys are sellers if your stocks at 10 and you tend are at 12 and everybody's sitting there's sellers, just like, if you think your stocks are 25, take everyone who'll take you out of 12, then go go to it again and do it at 14 and just like keep walking it up until. And I just love, for some of these, I just love to be the last share outstanding and have it happen at some point. And listen, listen, you have to find the Madigan team in a board that's a line with your viewpoint. that's more than half the battle, right? If we thought that we were speaking a different language, we wouldn't be as bullish as we are, right?

You know, it's not just finding the situation, it's finding the right backdrop in the right situation, the right board and management team that kind of have a similar vision to what you have. And, you know, all on Group on, right, finding the right people to execute and do the right thing. So we feel, you know, we can always be proven wrong. You don't know anything for sure,

but, you know, we think that there's, are going to do the right thing. And hopefully that happens sooner rather than later. Perfect. Let's end it there. Mark Chuffin, Winward Capital, this has been great. Second time, repeat within a month. Maybe third time, maybe we'll push it out a little bit further. But the ideas are always very interesting. I would tell you, I followed this story for a really long time. And this is, it's the most attractive it's ever been to me. So, yeah, Mark, it's been great. Thanks for coming on for a second time. Looking forward to the third. Thank you for having me. Appreciate it. Have a great day.

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