Windward 的 Marc Chalfin：Turtle Beach（$TBCH）投资论点

With me today, I'm happy to have one of the fastest repeat appearances in podcast history, fresh off the smashing success of the Groupon podcast. I'll refer people to that podcast and the stock price for all the background there. Anyway, Marc from Winward Capital, how's it going?

Great. Thanks for having me on again. I appreciate it. Good to see you. The one thing I'd say about Groupon is that we actually think it's an easier buy up here than it was when we pitched it. We're very excited, and it's actually a bit shocking that short interest has climbed versus where it was going into the print. We get two-day-lag data, and it's eye-popping that it continues to grow. It's been a screamer, but that's not what we're talking about today.

Before we get to what we are talking about today, I'll start this podcast the way I do every podcast: a disclaimer to remind everyone that nothing on this podcast is investing advice. Please consult a financial adviser, do your own work, and all that sort of jazz.

Marc, with all that out of the way, the company we're going to be talking about today is Turtle Beach. The company used to trade under HEAR when I first looked at it, which was a great ticker. Now it trades under TBC, but I'll pause there and turn it over to you. What is Turtle Beach, and why are they so interesting?

Great. Thank you for that. We have quite a long history with Turtle, going back 3 years or so, and we'll get into that in a few minutes. At a high level, they are the market leader in gaming peripherals. It's a pretty attractive market—an $11 billion market growing at mid-single digits. They have the number-one market share for gaming headsets, and they've entered the controllers market through a very creative acquisition of PDP.

In both markets, they're at about 40% market share for console gaming. Think Xbox, PlayStation, and now the upcoming Nintendo Switch, which we're very excited about. We'll get to that in a minute. We think this is a very attractive market, with global gamers growing 3% plus and the overall market growing mid- to high-single digits. These guys have consistently taken share.

An interesting statistic is that they're the best-selling headset brand for the last 15 years and have sold over 80 million headsets. That gives you a little flavor for what they do. It's an underfollowed small- to mid-cap stock that does not have a tremendous amount of coverage. Interestingly enough, Craig-Hallum initiated coverage yesterday with a $23 price target, but it's not a very well-covered stock and doesn't trade a ton.

There's a very large disconnect between the multiples at which this company trades and some of its peers, like Logitech or Corsair. Why we're so interested in Turtle, and why we think the inflection is now, is multifold. Number one, it's extremely cheap. On stated numbers, it looks like it's trading around 5.5 times EBITDA, but the balance sheet doesn't fully reflect what's going on.

Number one, they pre-bought some inventory to get ahead of tariffs. Number two, you have to understand the working-capital flows. Much like with Groupon, they have to build inventory for the holidays, and then you have a big receivables flush coming in during Q1. Pro forma for the Q1 paydown, this thing is extraordinarily underlevered relative to where we think they should be comfortable.

What's super attractive from just a capital-structure perspective is that we believe this company could be 2 turns levered. If you look at what needs to happen to get to 2 turns of leverage on their guidance—which we think is fairly conservative this year and assumes significant tariff headwinds—we think there's $150 million of powder. That's a real eye-popping number when you look at a market cap of around $285 million.

That is a good segue into understanding the history and what's transpired. Perhaps I can walk you through what's gone on for the last 3 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 the opportunity now?” but I think you effectively laid it out there. I know there's a somewhat storied, somewhat tortured corporate history here, so why don't you just dive into that?

The answer to your question, and then we'll come full circle, is that we think there's a massive buyback and capital-allocation event in the imminent future, coupled with significant fundamental inflection because of self-help and industry tailwinds, such as the Nintendo Switch and some really attractive game releases coming—namely GTA 6, probably the best game release we've seen in the last decade.

Going back to the history, we got involved in this stock around these levels, at about $16, actually slightly higher, going back to 2022, when a current board member, Will Wyatt from Donerail, made a public bid to buy the company for about $36. Why we were interested is that, when we did the work on the company, we thought that under the prior management, Jürgen Stark and a very closely held board of cronies, he was making dilutive acquisitions to drive revenue at the expense of EBITDA. We thought he was enriching himself and paying himself very handsomely. We thought there was a nice opportunity to improve EBITDA margins and felt like the upside case made a lot of sense.

What we got wrong at the time—and this is something we learned from—was that the market was in a difficult place, and many companies were undergoing significant negative earnings-revision cycles. We spent a lot of time focused on the event angle and less on the fundamentals, which had some really idiosyncratic things that, looking back, were probably easier to see but at the time really escaped us.

What happened is that you had this very vocal activist who made a public bid and launched a proxy contest. Two days before they were set to go to ISS and Glass Lewis, they reached a settlement agreement, which effectively said that if the company was still a public entity within 120 days, Donerail would gain control, effectively through control of the governance committee, and would get control of the company. We thought that was a very attractive outcome.

What unfortunately went awry was that, in the hangover from all the supply-chain shocks during COVID, there was an inability to secure chips, which therefore created a real dearth of supply of Xboxes and PlayStations. Just for the viewers to understand, the real drivers of demand for buying peripheral equipment are, first, buying a new console; second, new software being released, whether it's Call of Duty, GTA 6, or Fortnite; or just replacement demand. These things generally have 3- to 4-year cycles in terms of replacement demand.

You were coming off, obviously, a massive bolus of demand during COVID, so there was some pull-forward. What really hit us at that time was a lack of inventory of consoles. There was really no software being put out because, much like you're seeing in movie studios, during COVID you saw a several-year hiatus in real development.

Where we really got caught off guard was that retailers had about 15 weeks of inventory, and they cut their inventories from about 15 weeks to 7 weeks. It was a really damaging time for Turtle because they had inventory building on their balance sheet. Sell-in got cut by about 50%, despite sell-through really only being down 7% to 8%. EBITDA flips extremely negative.

What exacerbated the situation was that, despite having a legal settlement agreement to take control of the board, Jürgen and his team decided they weren't going to give Donerail the board seat. It became a drawn-out battle. Then it became a tax-loss-selling candidate, with the stock close to $6. It wasn't a fun maiden year for Winward. That was the year we launched, and this was our biggest loser of all time. We lost 770 basis points on the position in 2022, and it was actually almost 200% of our gross loss that year.

That being said, we're still here fighting and really love the position. I think Will and his team have done a great job. Obviously, they've now gained control of the company. Jürgen's gone. They promoted the head of sales, Cris Keirn, to be CEO, and since then they've really executed phenomenally.

These guys announced a very accretive acquisition of PDP in March of last year. Synergies have gone higher. It looks like they’ve done this at 3.5 times pro forma EBITDA for synergies, if not lower, because there’s a very interesting topline synergy here. We’re generally not topline-synergy folks, but what they acquired in PDP—in addition to the scale of now, instead of being a 1-product company, now having scale in both controllers as well as headsets and simulators—they also got control of this very valuable Nintendo license.

There are very few companies that have a license to operate with Nintendo. With the Nintendo Switch—and there are rumors that 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 the ability to cross-license with Turtle Beach. So, we think that this is a huge driver for them.

Net-net, this PDP acquisition is extremely accretive. What was really interesting is they already had a very attractive self-help opportunity within core Turtle because of the issues I referred to earlier with Jürgen: elevated sales and marketing, elevated R&D. We felt that core legacy Turtle had a $20 million to $30 million EBITDA bump from the self-help, plus, call it, $20 million of legacy PDP EBITDA, plus $15 million of synergies. All of that gets you to a normalized number of about $80 million of EBITDA, which is where we think they would have shaken out if it weren’t for some of the tariff headwinds to which they guided.

Despite guiding to tariff headwinds, they still guided ahead of the Street on their last earnings call. But what’s really interesting is that when they announced PDP, despite having a very unattractive term loan in terms of rate with Blue Torch that was SOFR plus 7.25%, being levered 1-plus times at the time, and having TTM EBITDA of $11 million versus TTM EBITDA of $60 million, they still were going to buy back more than 20% of the company in a tender. Now, think about that for a second.

The stock is below $15 now. EBITDA is up significantly. Forward EBITDA is up significantly. Leverage, now pro forma for the cash coming in for Q1, is 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 its excess powder and do a massive buyback, which we think happens eventually. So, you’ve got a buyback coming, a beat and raise, we think, off of a very conservative bar pro forma for tariffs, and I think there’s a lot of upside from GTA 6 and Nintendo Switch.

Granted, this is a little more back-half-weighted story, but we think that’s significantly embedded in where the stock is trading, given it’s trading at a 20-plus-percent pre-cash free cash flow yield. I don’t know about you, but I don’t come across a lot of companies that have 40% market share, high-teen margins, and are growing high single digits that trade at a 20% free cash flow yield. They’re about to buy back 25% to 35% of the company. Maybe I’ll pause there. I know that was a lot.

That’s a great history, and I remember the event very well. Let me ask a few questions. Turtle Beach, right? If you know Turtle Beach, you probably know them through the headsets, as you mentioned. They bought PDP, and they make gaming headsets for Xbox, PlayStation, and Nintendo.

Let me start with the first question. I think when I looked at this—when Donerail put out that deal, it was at a big multiple, and 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 is Turtle Beach. I look at it and say, “Isn’t this the most commoditized of commodity businesses?”

I go online and put in “gaming headset,” and I get as low as a $20 knockoff gaming headset on Amazon that’s effectively Amazon Basics, drop-shipped from China. On the high end, there are Logitech and Turtle Beach headsets that are going for hundreds and hundreds of dollars. So, I look at it and wonder, isn’t this just an extremely commoditized, what I call a cost-of-capital business? Why shouldn’t this trade for a low EBITDA or free cash flow multiple? Shouldn’t it trade pretty low because it’s a cost-of-capital business?

The other thing I’d say is that they bought PDP—I think pre-synergies it was about 9 times EBITDA, and post-synergies less than 5 times EBITDA. Post-synergies is a really good, really low number; pre-synergies is actually a decent multiple. But I look at those and say, should this business really deserve more than 6 or 7 times EBITDA?

Look, I think the numbers tell a different story. These guys have 40% market share, high-teen EBITDA margins, and have consistently taken share over the last couple of years. They’ve been the number-one-selling brand for the last 12-plus years. If it were such a commoditized business, margins would be going the wrong way, not up. I also think they wouldn’t be continuing to take share.

They also have hundreds upon hundreds of patents, very strong relationships with the console OEMs, and scale. I think they continue to prove it out year in and year out: they continue to grow, take share, and grow their margins. So, I think the numbers tell a little bit of their own story.

That’s a perfect answer. Let me go to the other side. That’s the low side of the commodity argument. Turtle Beach isn’t shy about it. You mentioned Logitech, Corsair, and, I don’t know, GN. I can’t claim to be an expert on any of these companies, but they put it in their decks, right?

They say, “Hey, Logitech—you can go look it up—trades at 11 times.” Logitech does have other businesses besides gaming, and Corsair and GN trade at kind of low-double-digit EBITDA multiples. Turtle Beach will say, “Hey, we’re sitting over here trading at 5 to 6 times. All of our peers are trading for double.”

The EBITDA margins and the financial profiles look very similar. I realize I’m preaching to the choir here, but do you think these guys should trade for a Logitech or Corsair multiple? What’s holding them back? Why aren’t they trading at it? What’s the difference?

I wouldn’t. We’re value guys. The way we value stocks, we value them based on what we think their appropriate multiple is, not necessarily based on whether a comp is trading at an outlandish multiple. I’m not going to ascribe Turtle Beach an 18-times multiple, and I don’t think Logitech should trade at 18 times either.

I think Logitech is a vehicle for larger funds to play the gaming cycle. You can’t own Turtle Beach, or enough of Turtle Beach, so these huge funds buy Logitech and push the multiple up. By the way, I would argue that I’d rather own Turtle Beach than Logitech because GTA 6 isn’t being released on the PC cycle this year. It’s being released in the console gaming cycle, so that is a very big driver.

Obviously, Nintendo Switch is a very big driver as well. I’d prefer to own someone levered to the gaming console cycle versus the PC cycle, which is what you get in Logitech, number one. I would also say that if you look historically at M&A multiples, generally these businesses have traded at no less than 2 times revenue. There have been several examples of that over the last bunch of years.

I think the evidence points to the fact that they’re extremely undervalued. More importantly, I think a really important tenet for us at Winward is capital allocation and shrinking shares when you’re trading below your intrinsic value. Legendary activist manager Jeff Karp at Tontine had a strategy of buying every share until there was 1 share left. That’s what we believe in as well, and hopefully we’re that last share that we own.

We think that this board gets it. We’re very confident that they do, and that they’re going to continue to say, “Look, either the market’s going to reward us at 8 to 10 times, or we’re going to take our free cash flow every year and buy back stock until we trade there.” We also feel very comfortable and aligned with management and the board that they’re not going to do some stupid dilutive acquisition, and they understand those execution risks.

With their stock trading, on our math, closer to 3.5 times pro forma EBITDA, with free cash flow going toward buybacks, we think they’re going to buy back every share they can. Now, if the stock goes to 7 times EBITDA, this becomes a little more of a nuanced discussion with the board: “Hey, look, we could drive scale synergies through a deal, and maybe we could buy something creatively at that multiple.” I’m game for that. But at these levels, I think they’re going to buy back and hoover up as much stock as they can. I think we’ll start to see that very shortly.

I love your take on everything. Obviously, those guys are legends, but I love it because most of my companies, I like to have some form of buyback. I’m like, “Oh, they’re going to buy back shares, and we’re going to find out what happens when you buy back the last share.” That old joke.

Every company where I thought I’d get to the point that they bought back the last share has run into a train wreck of some form, and inevitably the management team stops buying back shares.

Let me actually start there. Look, it is not lost on 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—that directors and insiders are not going to participate in the tender. I believe they did some pretty nice share repurchases, but they didn't call the tender off. The stock ripped through the high end of the tender.

Oh, okay. The stock went to $18, and the high end of the tender was $15.

And I think that's actually a great point, because let me provide some color to 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 seen." They got all these bankers to look at it: "This is the highest premium that we felt comfortable doing." It was like a 25% premium, but they announced a tender on the same call that they announced an accretive deal that doubled their EBITDA, from $30 million to $60 million. Nobody's going to give you stock.

What happened is you got a bunch of event people piling into a fairly illiquid stock, thinking they were going to raise the tender. They didn't raise the tender, and now you've got—and I'm sure you're familiar with the event crowd—these event people stuck in a stock they don't necessarily want to be in. They thought they were doing an arbitrage on the tender and now had to drip out of the stock over the last bunch of years. That's part of the brain damage as to why the stock only really first recovered into the high teens in Q1.

Then, obviously, we get hit with all the tariff stuff, which I'm sure you're going to segue to at some point as well. The stock was $19 literally 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 a month later, but they're probably not going to buy back a third of their company. Let's start with tariffs. You pitch a headset company, and the first question everybody's going to ask is, "Hey, all the headsets are coming from China."

Say again. That's not accurate.

I mean all the headsets are coming from overseas. Tariffs, right? Whether the headsets are produced here, all the parts are subject to tariffs. That's all anybody's going to talk about.

Why don't we address that? I think they talked about it on the Q4 call, which was only a couple of weeks ago. They said it's factored into the guidance, but why don't we just talk about tariffs?

Yeah, look, you could also go back to the ICR commentary. I think they're sandbagging a little bit on the tariff stuff. If you listen to what they said at ICR, they've moved a lot. Under the prior tariff headwinds from 4 or 5 years ago, whenever it was, they moved a lot of their manufacturing outside of China and to Vietnam and other locations.

Number 2, they are guiding for the full headwind of tariffs but not giving themselves any credit for pricing, which we think gives them quite a bit of opportunity to raise prices. Number 3, we think that in an environment where we might be going into a softer consumer environment—we've obviously seen a lot of signs of that—gaming is a low-cost way to entertain.

The last thing I would add, which we like—multiple ways to win—is that there is this kind of impending tailwind of a replacement cycle from COVID that we haven't seen yet. We've talked to countless industry people and experts who are saying that we're literally at the 1-yard line of starting to see this bolus of replacement coming from COVID, which the industry has not seen yet. So we think there are a lot of offsetting factors against some of the headwind from tariffs and, obviously, in addition, all the tailwinds in the industry from Switch and GTA 6.

Let's talk about the tailwinds. GTA 6—I'm here for that. I'd be shocked if it wasn't by far the biggest gaming launch of all time. It's going to be a 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 clearly with their friends. I 100% believe it.

Nintendo Switch—the company thinks it's a tailwind. I just want to push back on that a little bit. When I think Nintendo Switch, I have one. I love playing Mario Party. I don't need a headset for it. Everything's online. When I think headsets, you think intense gaming. The battle royale cycle was a big driver for these guys in 2018. You think intense gaming, you think firefights. The Nintendo Switch is more casual.

Now, they do have, as you mentioned, headsets 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 headsets, but maybe it's just because I'm old and I very rarely play video games.

It's a good point. So, first off, Switch is a very big component for PDP. If we break it down, Nintendo is a very big component of overall PDP, so for sure it's a massive tailwind to PDP. For legacy Turtle Beach, they had no license with Nintendo. So now, being able to leverage a license with Nintendo into a massive console launch, it certainly is going to be a tailwind to the company.

I'm not arguing that Switch is as big as GTA 6. 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 tailwind to legacy core Turtle Beach.

Makes sense. Let's talk about the share repurchases real quick. As you said, the company has a big working-capital buildup. Hopefully, this year you get the double combo of working-capital release plus revenue growth and earnings growth, which leads to a huge inflow of cash, and they can buy back a ton of shares.

Q4 was kind of their lowest amount of share repurchases since the PDP merger had gone through. Obviously, there were the tailwinds, but I look at that and say, "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'?" I always worry because, as I said, I always think I'm going to be the last share outstanding, and the company 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 they relate to the Blue Torch term loan. We think that there was not a lot of capacity left to be able to buy back stock.

If you read the covenants there, there was a pretty significant prepayment penalty if they tried to pay off that pretty egregious term loan at SOFR plus 7.25% until the anniversary—March 14, I think it was. So you're really in inning 1 of these guys being able to refinance that facility and move on to something more flexible, with much more attractive terms, and go forward.

They had execution risk on PDP when they were going to do that buyback last year. Obviously, that's now nil. I don't know; we could be wrong, but our view is that we would be shocked if the buyback this year wasn't at least a quarter of the current market cap. The market cap here is $200 million, call it $300 million.

If I remember correctly, they amended the Blue Torch loan so they could buy back $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 ask one more question. The company has said its long-term targets are 10%‑plus revenue growth and mid- to high-teens adjusted EBITDA margins. They're basically already at mid- to high-teens adjusted EBITDA margins. So if somebody wants to come and say, "Hey, cyclical industry, whatever," I think they've proven they can get to mid- to high-teens.

But 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. You get the console cycles, but that's temporary. That should be built into it. Do you think they can hit that 10%‑plus long-term revenue guidance? Because 10% revenue growth is hard to hit for anybody. That's significant revenue growth. The stock doesn't trade like it's growing revenue 10%; this stock trades like it's declining revenue, not 10% revenue growth.

We feel very comfortable that mid- to high-single digits organically is realistic. A business that has high-teens EBITDA margins, throws off tons of free cash flow, and grows organically mid-single digits should trade at no less than a 10% free cash flow yield. So you're talking about a double just on that, without accretion from the buyback.

But it brings up a good point, because our upside case isn't really 10% revenue growth trading at 15 times. Our upside case is that this is a company that shouldn't be public. It's illiquid. It was a 1-product company. They diversified by buying PDP from Diversis Capital.

We think the game plan is to allocate capital appropriately. When your stock gets to a more normalized level, do another tuck-in M&A deal that is accretive. Buy it at 4, 4.5, or 5 times pro forma synergies. Get your EBITDA over $100 million, which they're pretty close to doing.

And then you become a more scaled, attractive candidate for Logitech to acquire. Something like a Logitech or a Razer that wants to IPO and could potentially reverse-merge into Turtle Beach can buy Turtle Beach at 10 times stated EBITDA. By the way, Logitech has almost $2 billion of cash, and what's crazy to me is that they're buying back their own stock at 17 or 18 times EBITDA. It's much more accretive for them to buy Turtle Beach than to buy their own stock. But what I think the endgame is that they buy back their stock, do another tuck-in deal, and then sell to somebody at, say, 10 times, which really looks like 6.5 or 7 times for a bigger player—half or less than half the multiple.

So that was actually my last question: What is the endgame here? But let me pick at it a little harder. Do you think strategics would be interested? As I mentioned, if you Google “headset,” Logitech already has headsets. It seems like the great thing about PDP was that Turtle Beach had headsets, and you sell a headset to GameStop. You buy PDP, and maybe you could go to GameStop and say, “Hey, why don't you buy the headset and give us a slot in your headset market as well?”

Logitech goes and buys Turtle Beach. They say, “Oh, cool. There are some synergies, but we already have headsets. We're kind of diversifying—we're buying another headset manufacturer. It doesn't make sense.” So do you think strategics have interest, or do you think this is a private equity platform?

I think both could. Speaking to your point on Logitech, Logitech has a ton of share in PC, and Corsair is 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? These are rough stats, but call it 80% console and 20% PC for Turtle Beach. Corsair is the opposite. So there's a tremendous amount of synergy to be able to acquire Turtle Beach and benefit from cross-selling and public-company synergies, and there's a lot to be done there.

But look, just financially, from a financial-engineering perspective, from Logitech's perspective, in what world does it make sense to buy back your stock at 18 times EBITDA when you can buy a business at 5 times pro forma EBITDA? It just doesn't make a lot of sense to us unless it's 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.

I think it makes a lot of sense for private equity as well. Obviously, a private equity firm won't be able to pay the same multiple that a strategic can, but we think private equity could clearly take this thing out for $25+ and generate a really attractive IRR. But we think the Grand Slam case is that this could be worth $50 if we're right, they trend their shares the right way, and Nintendo Switch and GTA 6 work. You're looking at a pro forma EBITDA estimate of $100 million in 2026. We think at 10 times EBITDA, this thing is north of $50. So we just think it makes more sense strategically, but we wouldn't be shocked, with all the private equity money sloshing around, if it ultimately goes to a financial buyer.

What keeps you up at night with this name? I hear the thesis, and it sounds really good, right? You say, “Hey, 5.5 times EBITDA; the peers are trading at least double, maybe more.” They're still annualizing the acquisition, so there's 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 are going to buy back like crazy”—and in the end, hopefully, you have some tailwinds from the console launches and GTA 6 in the back half of the year.

Then, at the end, you have a board that hopefully is pretty aligned with selling this either to a financial or strategic buyer. When I lay it all out like that, it's like, “Hey, this sounds really, really good,” right? Which is why you're a 13G filer and everything. But the one pushback I would have is: go pull up the stock chart, right? It is a new management team, which is absolutely critical, but it's one of those companies that yo-yos up and down. If you had invested 7 years ago, you're basically flat on your investment. Great trading sardine, but it hasn't really created any value. I'll grant you that it's cheap on a multiple today, with the new management team and all of that, 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 deleveraging they've done, and the stock is lower than when they announced PDP, with a lower share count, lower leverage, higher EBITDA, and more attractive cash flow.

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 is an illiquid stock. So you ask me what keeps me up at night: it's the illiquidity. Now, illiquidity is your friend if they're buying back stock. 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.

If 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 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 imminent buyback catalyst coupled with these inflecting tailwinds to the fundamentals, which is really what we look for in every stock that we really like. But the timing on this just happens to be really unique, in that we think it could be any week now.

The private equity firm that sold them PDP—Diversis is the name of the private equity firm, right?—owns about 20% here. There are 3 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 the story.

Yes, I do. Look, it's a simple answer. As I said, you can sum this thesis up in 3 sentences: cheap, buybacks coming, and tailwinds; it trades at half the multiple. We've talked about the risks.

Anything else we haven't chatted about that you think investors should be on the lookout for here?

I think we covered most of it. What's interesting is just the euphoria around gaming that we entered the year with, where some of the other comps are trading, and a lot less of the brain damage, right? A lot of tech traded off a little bit, but relative to what Turtle's done, it's just interesting. For people that can bear a little bit of the liquidity issues, I just think that you have a very exciting catalyst here, and we really can't overstate 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 I guess we can talk about timing, right? When do you think the share buybacks really start? As we mentioned, in Q4 they really dialed it back because they were seeing the tariffs and the inventory build-up, all that sort of stuff. They've got the restrictions from the government. Do you think it's a now event? Do you think it's a Q2 event or a back-half-of-the-year event?

I think it's now. I think it's between now and the call. I'd be shocked if this didn't happen between now and the call. In a perfect world—and obviously I'm just trying to read tea leaves and make my best intuitive guess—you have Blue Torch expiring, and refinancing a facility is not the easiest thing in the world, right? You have to be competitive. I would assume that the market backdrop probably only lengthens that process. So you have Blue Torch expiring on the day you report earnings.

If I'm reading this right, the way I see it playing out is they figure out a flexible facility that allows them to take down a ton of stock, and perhaps they preannounce earnings in the next week or 2 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 history's the best guide, right? One of my favorite things is that if a company tried to sell itself before and it fell through for one reason or another, it's probably more likely than your average company to sell itself again. This is a company that tried to do a tender offer once. Betting on a tender offer anywhere is always kind of a long shot, 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, so they'll probably try to do it again.

Well, the other thing with the tender—you know, we've obviously shared our view on it—is that when you're an illiquid company, a tender makes more sense, right? If you have a tremendous amount of firepower to buy back stock, I think a 10b5-1 or an ASR, other forms of returning capital to shareholders through a buyback, could make sense.

But the problem is, how much stock are you actually going to get in? If you're just sitting there buying back 25% of the stock's volume every day, my guess is you're getting $12 million of the stock back at $17 or $18. So, I think especially in this market backdrop, there's probably people that would hit the bid.

I almost think this market backdrop is the best thing that could ever happen to them because there are hedge funds out there that are underwater or whatever, and they're like, “Okay, tender 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 the liquidity almost demands, to a certain degree, a tender for this company.

And I think I hear you: once bitten, twice shy. You tried to do a tender and it failed, but you also tried to do a tender when you doubled your estimate. I mean, it's not the same thing. So, I just think it's a different animal.

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. Our stock's already too illiquid.” It's like, yeah, you can't do a big share buyback because your stock's illiquid, but why are you worried about lowering the liquidity? These guys are sellers. If your stock's at $10 and you tender at $12 and everybody's hitting it, they're sellers.

Just like, if you think your stock's worth $25, take everyone who'll take you out at $12. Then go do it again and do it at $14, and just keep walking it up.

And I just love to be the last share outstanding and have it happen at some point. And listen, you have to find a management team and a board that's aligned with your viewpoint. I think 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?

It's not just finding the situation; it's finding the right backdrop and the right situation, the right board and management team that kind of have a similar vision to what you have and all get along, right? Finding the right people to execute and do the right thing.

So, we feel we could always be proven wrong. You don't know anything for sure, but we think that they're going to do the right thing, and hopefully that happens sooner rather than later.

Perfect. Let's end it there. Marc Chalfin, 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, and I will tell you, I followed this story for a really long time, and this is the most attractive it's ever been to me.

So, yeah, Marc, 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.