Turtle Beach Corporation

Good afternoon, ladies and gentlemen, and welcome to the Turtle Beach Third Quarter 2021 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 the call up for any questions. Before we go further, I would like to turn the call over to Alex Thompson of Gateway Investor Relations, Turtle Beach's IR Advisor, as it reads the company's safe harbor statement that provides important cautions regarding forward-looking statements. Alex, please go ahead.

Thank you. On today's call, we will be referring to the press release filed this afternoon that details the company's third quarter 2021 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 identifies specific risks as 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 the accounting principles generally accepted in the United States or GAAP. You can find 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?

Thanks, Alex. Good afternoon, everyone, and thank you for joining us. I'm pleased to be with you today to discuss our excellent third quarter 2021 results in which we delivered the second highest Q3 revenues in our history, launched highly anticipated products, unveiled new products, and revealed new partnerships that will continue to significantly grow our consumer base. I'm especially proud to report that we remain on track to deliver full-year revenue growth on top of our record year in 2020, despite global supply and logistics constraints, which are creating an extremely challenging operational environment. Our Q3 revenues were $85.3 million, and adjusted EBITDA was $6.7 million, only outdone by Q3 2020's record-breaking results, where we posted 141% year-over-year growth and outpace the market and our peers, driven largely by our strong operational execution. While this Q3 faced a difficult comp against the year-ago quarter, we're now a completely different business, operating in seven gaming market categories with addressable markets of over $8.5 billion. And for the first time, we are approaching 20% of our revenues in categories outside the Council Gaming Headset category that we've led for over 10 years. The gaming market continues to grow with gaming leading the entertainment world as the largest and most expansive industry worth over $254 billion. The number of global gamers continues to grow and is expected to reach 3.3 billion gamers by the end of 2024, which drives higher demand for quality gaming products. We continue to closely follow these broader underlying trends, also noting that per NPD, US market retail tracking, the council headset and PC markets are normalizing from the stay-at-home driven demand spike, still up year-to-date after an exceptionally strong first quarter, but down for Q3. Our US market share in council headsets continues to be higher than the next three competitors combined, despite a small decrease compared to last year, where our supply chain outperformance drove a noticeable surge in share. Importantly, as we've communicated in the past, millions of gamers have entered the market in recent years, whether through the Fortnite craze, stay-at-home orders, or otherwise, and the marketplace has expanded considerably. We do not expect those new gamers to disappear as the markets normalize from the pandemic spike, but rather we believe they have permanently increased the size of our markets. This is a great market to be in, and we're excited about our opportunities ahead. In the console gaming headset category, Turtle Beach remains the fan favorite and best-selling gaming accessory brand by far, as we have been for over a decade. Now, not only are we continuing to move our best-selling gaming audio business forward with new headsets like the Recon 200 Gen 2 and through unique partnerships, but we're also leveraging the brand's strength as we enter two large new markets, gaming controllers with the Recon controller for Xbox and flight simulation hardware with the Velocity One flight simulation control system. In September, we launched our newly-released redesigned Recon 200 Gen 2 headset, which is a rechargeable multi-platform headset that delivers powerful sound and many premium features for just $60. It works with Xbox, PlayStation, Nintendo Switch, and comparable PC and mobile devices. And this feature set and multi-platform capability at this price point is highly appealing to gamers. Last quarter, we revealed our plans to enter the game controller and flight simulation hardware categories and provided first looks at the upcoming Recon Controller and Velocity One flight simulation control system. Our Recon Controller, which is designed for Xbox and also works with Windows PCs, is the first to combine Turtle Beach's patented audio innovations with game-winning controls and has been met with rave reviews among reviewers and controller fans since launching in August. We've seen strong demand since launch and have also gained multiple new retail placements in this category with major retailers. Our highly anticipated Velocity One flight simulation control system was a best of show award winner at E3 last quarter, and our team drove significant interest through marketing and PR efforts throughout Q3. At the end of October, we had over 21,000 flight sim fans and enthusiasts signed up to be notified about pre-ordering that product. And yesterday, when we announced that Velocity One flight was available for pre-order, our U.S., U.K., and German supply sold out in 15 minutes, and the rest of the world in an hour. That's obviously a very strong start for us in this rapidly growing $400 million category. We have additional inventory arriving in the weeks ahead to support our November 14th, 2021 product launch. On the topic of our product selling out, we also launched limited edition Turtle Beach and Rocket Gear in collaboration with Dr. Disrespect, gaming's premier superstar streamer. This partnership was big enough to launch across both our best-selling Turtle Beach and award-winning Rocket PC brands and included the limited edition Dr. Disrespect Stealth 700 Gen 2 Headset, Vulcan TKL Pro Keyboard, Kone Pro Mouse, and Sense Immortal Mousepad. The headset and the mousepad both sold out in less than 10 minutes. We also announced that Turtle Beach and Rocket became proud official sponsors of UC San Diego's gaming teams by providing them with our premier gaming accessories and supporting the university's eSports scholarship program. We're committed to fostering an inclusive gaming culture, and we're doing that by supporting industry and local community leaders to allow gamers at all levels to compete at their best with our products. Additionally, the funds we're allocating to support UCSD's esports scholarship program helps student athlete gamers study at a world-class institution and compete in collegiate esports. Next, we've continued to expand our Rocket PC portfolio and brand, launching new products and adding exciting new partnerships. In Q3, we launched Rocket's $100 Torch USB microphone, as well as a variety of new Sense mouse pads that fill out the range with a variety of shapes, sizes, materials, and price points that cater to every gamer. For Rocket partnerships in Q3, we broadened our ongoing partnership with popular League of Legends streamer KP, who was already using the Turtle Beach Elite Pro 2 gaming headset. KP is now also part of the Rocket family and uses Rocket's wireless Kane 200 mouse and full RGB Magma keyboard. Rocket also teamed up with popular UK content creator Vikram Vikstar, And we're excited his fans are now experiencing Rocket's sleek design and performance advantages to boost performance. Additionally, Rocket and Oakley launched a new limited edition Rocket PC gaming eyewear collection to give PC gamers and Rocket fans yet another competitive advantage, this time through a combination of precision vision and sound. In total, in 2021 so far, we've launched 22 new Rocket PC gaming accessories and announced 11 new partnerships as we continue to broaden our PC portfolio and the Rocket brand. As we continue to expand into the $2.3 billion global microphones market through our Neat brand, we announced availability of Neat's all-new Skyline desktop USB microphone. With the Neat team's decade-long expertise creating many of the world's best high-performance microphones, the all-new Skyline is designed to provide exceptionally good audio quality in a sleek plug-and-play USB microphone. And our previously announced King B2 XLR microphone is now available for pre-order with the U.S. launch set for November 16th. The $170 King B2 is Neat's highly anticipated successor to their original King B, which was coveted by recording enthusiasts for a studio-quality performance it offered at a remarkable price. As I've said before, I believe we have the pinnacle team in microphones, creating new products that will reshape expectations for high-performance mics at a variety of price points. Across all of our product categories, we have also made some targeted investments in geographic expansion. Particularly in Japan and South Korea, where we now have stationed in-country resources, developed new distribution and retail relationships, and allocated sales and marketing investments to build our brands and market our products there. Those investments are also paying early dividends with year-to-date revenue growth in Asia of over 130%. Asia is still relatively small for us, but holds tremendous future potential, and I'm encouraged by the excellent progress we've made there this year. So our third quarter was very exciting from a product launch standpoint on top of delivering excellent financial results. We continued to advance our strategy by unveiling new and exciting product launches across our gaming market categories and remain on track to delivering year-over-year revenue growth following our record 2020. And as I mentioned last quarter, we have the potential to reach our $100 million goal for non-council headset revenues next year, well ahead of schedule. I'll turn it over to John to cover the financials in detail, after which I'll provide some thoughts on what we're seeing in Q4, our full year outlook, and our continued progress. John.