Turtle Beach Corporation

Good afternoon, ladies and gentlemen, and welcome to the Turtle Beach fourth quarter and full year 2020 conference call. Delivering today's prepared remarks are Chairman and Chief Executive Officer Juergen Stark and Chief Financial Officer John Hansen. Following their prepared remarks, the management team will open up the call for any questions. Before we go further, I would like to turn the call over to Sean McGowan of Gateway Investor Relations, Turtle Beach's IR advisor, as he reads the company's safe harbor that provides important cautions regarding forward-looking statements. Sean, please go ahead.

Thank you, Joelle. On today's call, we will be referring to the press release filed this afternoon that details the company's fourth quarter 2020 results, which can be downloaded from the investor relations page at corp.turtlebeach.com, where you'll also find the latest earnings presentation that supplements the information discussed on today's call. Finally, a recording of the call will be available on the investor section of the company's website later today. Please be aware that some of the comments made during this call may include forward-looking statements within the meaning of the federal securities laws. Statements about the company's beliefs and expectations containing words such as may, will, could, believe, expect, anticipate, and similar expressions constitute forward-looking statements. These statements involve risks and uncertainties regarding the company's operations and future results that could cause Turtle Beach Corporation's results to differ materially from management's current expectations. While the company believes that its expectations are based upon reasonable assumptions, numerous factors may affect actual results and may cause results to differ materially, so the company encourages you to review the safe harbor statements and risk factors contained in today's press release and in its filings with the Securities and Exchange Commission, including, without limitation, its annual report on Form 10-K and other periodic reports, which identify specific risk factors that may also cause actual results or events to differ materially from those described in our forward-looking statements. The company does not undertake to publicly update or revise any forward-looking statements after this conference call. The company also notes that on this call it will be discussing non-GAAP financial information. The company is providing that information as a supplement to information prepared in accordance with accounting principles generally accepted in the United States or GAAP, and you can find such a reconciliation of these metrics to the company's reported GAAP results in the reconciliation tables provided in today's earnings release and presentation. And now I'll turn the call over to Juergen Stark, the company's chairman and chief executive officer. Juergen?

Good afternoon, everyone, and thank you for joining us. We are very pleased to report another record quarter in what was a record year for the company. Our fourth quarter sales rose to 132.9 million, an increase of 31% over last year, bringing our full year sales to over 360 million, more than 25% higher than the highest annual sales in our history. The fourth quarter and the full year revenues exceeded our expectations as both the market and our products continued to perform strongly. We also delivered a record EBITDA of over $60 million for the year and a record operating cash flow of $51 million. As you all know by now, the market for gaming has continued to be strong in general, and this past year saw a large sudden surge as existing gamers began gaming more and millions of new gamers entered the market as the stay-at-home orders hit in the spring. In addition, gaming headsets are great for working and schooling at home, which drove additional demand from non-gamers for our headsets. This surge in demand impacted all gaming categories and created an unprecedented opportunity, as well as an unprecedented set of challenges. We rose to the challenge and captured the opportunity, significantly outperforming the market through great execution. First, we believe we were able to ramp up our factory capacity faster than most. Within a few weeks of seeing the first signs that the stay at home orders were driving a steep surge in demand, we increased our factory output by a factor of five times from what we had planned. This meant not only adding more production capacity, but also forecasting and securing components far in advance. It meant securing shipping and transportation capacity at a time when most flights were grounded and logistics capacity was highly constrained. And it meant working in a retail landscape that was constantly changing and staying coordinated on a day-to-day basis with our retail partners globally. Similar to 2018, the best time to outperform the market is when the market is booming, and that's what we did again. As an example, according to NPD, the U.S. council headset market was up in 2020 by 41% in dollars and 29% in units. Sales of Turtle Beach Council headsets in the U.S. were up 53% in both dollars and units. We ended 2020 with a 46.8% dollar share of the U.S. council headset market, up from 43% the year before. And by the way, this outperformance only got better as the year went on. In December, our dollar share rose to 51% and our unit share rose to over 60%, a strong finish to the year. Our ability to out-execute the rest of the market not only enabled our financial success last year, but helped ensure millions of consumers could get great headsets and our retail partners could capture the surging market demand. Looking at the best-selling council headset models for the U.S. for 2020, all five of the top five best-selling models were ours, as were eight of the top ten. Our strong console headset results were also helped by the launch of Gen 2 Stealth 600 and 700, $99 and $149 wireless headsets for Xbox and PlayStation, which quickly became top-selling models. Those new headsets had big shoes to fill as they replaced our top-selling prior models, and the Gen 2 models did it with the best headsets we've ever delivered at those price points. In December, our Gen 2 models had six of the top ten revenue spots in the U.S. market. The product and market share performance are a testament to the enduring strong brand we built with Council Gamers and their recognition of our high quality and innovative products for all levels of gamers. In PC gaming accessories, which includes headsets, keyboards, and mice, We are still a relatively small player, but we have seen very encouraging growth in what was our first full year with an expanded product line. Ahead of the holidays, we launched our new line of three ELO PC gaming headsets, reflecting a great combination of Rocket Team's design and branding and Turtle Beach's audio expertise that have made our console headsets best sellers for more than a decade. We launched three new models of our Vulcan PC gaming keyboards. These are line extensions to the Vulcan 121 and 122 keyboards, which are top-selling keyboards in Germany. Two of the models use our new proprietary Titan optical switches. We also launched two new PC gaming mice, the Burst Core and Burst Pro. Both of these also use our new Titan optical switches, and the Burst Pro features a compatibility a new, extremely lightweight, transparent honeycomb shell with really cool organic lighting coming through the shell. As a result, we've more than doubled our rocket revenues last year versus 2019 and remain on track to continue to significantly grow rocket revenues this year. I'm going to take a moment right now to again thank our great team. I know I say that every quarter, but last year really did present an unprecedented set of challenges for any team in a consumer electronics business. Our people were dealing with the same pandemic worries and uncertainties that everyone was facing, and they had to suddenly accommodate a business that was booming, changing by the hour, all while working from home and adjusting many facets of their lives, not to mention launching a record number of new products while working remotely and not being able to visit the factories. They stepped up in a big way, and I'm very proud of each and every one of our team members. Thank you. Getting back to our results, as impressive as our sales growth has been over the past years, the improvement in our balance sheet is also striking. At the end of 2017, we ended the year with net debt of $84 million, and that debt was high cost and keeping us from pursuing the opportunities we wanted to in new product areas. Just three years later, we ended 2020 with $47 million in cash and not a penny of debt. That's an improvement in our net cash position of over $130 million in three years, which is more than the entire enterprise value just three years earlier. Our balance sheet has gone from something that needed fixing to a strategic tool. We have already begun to use this improved liquidity to expand our business into new categories that have added billions of dollars in addressable market that we can go after. And as pleased as I am by our record performance last year, with revenues up more than 50%, that's more than 125 million from 2019, I'm even more pleased that we believe we have an opportunity to grow further this year. That's a result of our continued strength in council headsets our view of tremendous opportunities to grow in PC accessories, and additional investments we made last year and will make this year to enter new categories like microphones and several others yet to be announced. With that, I will turn the call over to John to review our financial performance, after which I will come back with some additional comments about what we see for the market and our business in 2021. John?