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.

Hey, thanks, Juergen, and good afternoon, everyone. As Juergen noted, we are pleased to report yet another excellent quarter. recording our second highest Q3 in the history of the company, only outperformed by Q3 of 2020. Net revenue for the third quarter of 2021 was $85.3 million, compared to $112.5 million a year ago, which was driven by the surge in demand from stay-at-home orders and our execution-driven outperformance of the market. For the nine months ended September 30th, 2021, net revenues were up 13% at $256.9 million compared to $227.2 million a year ago. At present, we are seeing many retailers loading in holiday inventory earlier than in prior years due to logistics bottlenecks and supply challenges, which resulted in higher-than-expected third quarter 2021 results. Gross margin in the third quarter was 34.3%, compared to 41% reported a year ago. This decrease was primarily due to changed business mix and the higher freight cost due to the global logistics challenges and other supply chain-related cost increases. For the nine-month period, gross margin was 36.1% compared to 37.9% in the same period a year ago. Like many other companies, we continue to expect ongoing headwinds from higher logistics costs shipping delays, and challenges with component availability. Operating expenses in the third quarter of 2021 were $27.8 million compared to $21.9 million in the same quarter of 2020, supporting the larger size of our business. Selling and marketing expenses also increased to support new product launches and our entry into three large new product categories, controllers, flight simulation, and microphones. and several in targeted geographic expansions, as Juergen explained. And R&D expenses increased in connection with the expanded current and future product portfolio. For the nine-month period, operating expenses were $78.6 million compared to $57 million a year ago, reflecting the same factors. Adjusted EBITDA in the third quarter of 2021 was $6.7 million compared to $27.6 million in the year-ago quarter. This decrease was primarily a function of lower revenue and margins discussed previously, incremental investments I just outlined, and lower fixed cost leverage. For the nine-month period, adjusted EBITDA was $27 million compared to $37.8 million a year ago. Gap net income in the third quarter of 2021 was $2.6 million compared to $17.8 million in the year-ago quarter. This decline was due to the above stated factors. GAAP net income per share in the third quarter of 2021 was 14 cents on 18.3 million weighted average diluted shares outstanding, compared to a net income per share of $1.04 on 17.2 million weighted average diluted shares outstanding in the year-ago quarter. For the nine-month period, GAAP net income was 13.2 million, or 72 cents per diluted share. compared to $22.4 million, or $1.41 per diluted share, a year ago. The effective tax rate for the third quarter of 2021 was driven by the timing of certain discrete tax items, totaling $1.8 million, or approximately $0.10 per diluted share. We now expect our full-year effective tax rate to be approximately 13%. Now turning to the balance sheet. As of September 30, 2021, we had $28.1 million of cash and cash equivalents with no outstanding debt under our revolving credit facility. Inventories on September 30 of 2021 were $113.3 million compared to $79.5 million as of September 30, 2020. We have maintained inventory levels consistent with the higher run rate of the business, our expanded portfolio, and anticipated supply chain and logistical challenges. Lastly, during the quarter, we repurchased approximately 169,000 shares for $4.9 million and an average purchase price of $28.87. And now I'll turn the call back over to Juergen for some additional comments. Juergen?

Thanks, John. We're very pleased with our Q3 performance, including our continued strong operational execution through challenging circumstances with semiconductor availability and global shipping. Despite our efforts, semiconductor constraints were already limiting our outlook of $385 million in revenues, and some of those constraints have worsened further, impacting our revenues, specifically in wireless headsets. Given our leadership and council headsets, we ship far more units of wireless gaming headsets than anybody else. Wireless products have been particularly hard hit by semiconductor shortages. Our team has done an excellent job making multiple rounds of changes to semiconductors used in our wireless products over the past 11 months. And those efforts have enabled us to meet most of the anticipated demand this year. However, given the high volume of wireless headsets we ship, even a modest gap has a material impact. Shipping delays have also gotten worse, resulting in both new products and existing product replenishments, shipments that are taking four to six weeks longer to arrive and affecting revenues accordingly. Between the semiconductor shortages and these shipping delays, we anticipate roughly 25 to 30 million in revenue constraints this year. While our prior outlook factored in some constraints, conditions have worsened, so we are revising our full-year revenue outlook to a range of 365 to 380 million from 385 million. This anticipated year-over-year growth remains above our original 2021 revenue outlook at the midpoint, and we are providing a range, given the dynamic market conditions, that are prone to sudden changes throughout the holiday season. Shipping and logistics costs continue to run at multiples of normal rates, and as we noted last quarter, this will have an impact on gross margins, which flow directly through to EBITDA. Of course, if there are significant product stock shortages across the overall market, promotional spending could be lower and offset some of this impact, as we also noted last quarter. However, currently, we are not seeing lower promotional spending across our markets. And while this could change during the holiday season, we are not counting on it in our revised outlook. As a result of the reduced revenue outlook and significantly higher freight costs, we are reducing our EBITDA outlook to a range of $36 million to $44 million from $50 million. So while our expectations of the overall market in upcoming holiday season are positive, we expect that the overall gaming hardware market will continue to be constrained by supply chain challenges. For us, the largest constraint is on our wireless console headsets, as I discussed. As a good indicator of the benefits of our successful expansion in the new product categories, I'm very pleased that our PC accessories, game controllers, flight simulation, and microphone businesses continue to track with our expectations and are actually helping offset part of the constraint on our console headset business. In fact, in our Rocket PC category, we have continued to outpace the market growth rates in our major markets. And I mentioned that controllers are off to a great start with more retail placements coming. Several products in the Neat Microphone lineup are launching or just launched, and our Velocity One flight simulation controller sold out the first shipment in under an hour. We expect PC gaming and these new categories already to track to roughly 20% of our revenues this year. That is obviously tremendous progress in diversifying into additional attractive categories since 2019. Operational degree of difficulty for every consumer electronics business is obviously high right now. This reflects to some extent the growth over the past years in categories like gaming hardware and certainly does not detract from our view of the strong opportunities we see ahead. We expect the supply chain headwinds to abate during 2022, particularly as we complete several additional programs to engineer away from highly constrained semiconductors to semiconductors with better supply. We expect freight costs to remain high but start to come down in the coming months. And I'm highly confident that we are on top of these challenges, acting quickly and decisively with both short-term and long-term moves to put us in the best possible position given the industry-wide challenges. In fact, I'm excited about the council headset portfolio coming in 2022, including some of the changes driven by semiconductor shortages that could result in an even stronger console headset portfolio next year. And I'm excited about the additional Rocket PC products, as well as products in our other new categories that we have coming next year. Not to mention the fact that the products we've launched this year will see a full year of sales in 2022 and grow from there. And as I've said many times, gaming has to be one of the best, if not the best market to be a leader in. Finally, I want to thank our entire Turtle Beach team for another strong quarter that is a result of their continued focus and great execution. I'm very grateful for our team's ability to skillfully navigate the present industry-wide challenges and deliver great products for our retailers and consumers. There's a lot more to come, and I look forward to updating you all again in the new year. Operator, we're now ready to take questions.

If you have any questions at this time, please press star 1 on your telephone. And if you wish to remove yourself from the queue, you may press the pound key. And our first question will come from the line of Drew Crum of Stifle. Drew, your line is now open.

Okay, thanks. Hey, guys. Good afternoon. Wondering if you're willing to discuss your share performance in console headsets during 3Q. And if you're willing to comment on your updated expectations for 2021, and then I have a follow-up.

Sure, Drew. Our council headset chair is tracking to our historical performance. We expect to end at above 40% where we have been for the last 10 years. We did have an abnormally high threshold. headset share last year. You might recall a couple of the Q3 months, we were actually above 50% share, in many cases because we out-executed the competition. Their share dropped, and we caught that share based on better supply and supply chain execution. And on top of that, we do have some constraints on our wireless headsets that'll have a modest impact on share we expect in Q4 here. We're just in a position, unfortunately, where we sell far more wireless headsets than anybody else. So small amounts of additional components can cover a lot of a competitor's business in terms of keeping them in supply on wireless, but are often a tiny portion of what we need to actually stay in supply. So as I mentioned, we've gone through multiple changes of semiconductor components already, which is highly disruptive. It's a major engineering effort The team's done a phenomenal job to actually keep us in the position that we're in, but even the small gap that we have will, you know, is meaningful financially as we factored into our revised guidance, and we'll also have a modest impact on share this year until the semiconductor component constraints, you know, go away.

Got it. Thank you. And then when you talked about your expectation that you'd see some relief on supply chain and logistical disruptions in the coming months or quarters, understanding that you're not giving guidance for next year today, but how do you balance that against the company's longer-term revenue growth target of 10% to 20%? Is that something that you see as achievable next year or not given the macro headwinds next year?

You know, it's hard to judge at this point, which is why we don't give guidance for the following year until we're past holiday. A lot of things can happen, including on your share question, by the way. We don't know how supply will look for others in the market in any of the categories, right? And so in terms of thinking about next year, I expect the semiconductor industry-wide constraints to be with us for all, if not a lot, of 2022. So our efforts have been for more than 11 months now and will continue to be more about mitigating the impact. And the way you do that is literally redesigning the circuit boards for these headsets, particularly wireless headsets, to design out semiconductors that you don't have good visibility on supply to, and there are some, by the way, where the supply visibility is extremely bad, that we have already started projects to design out. And our anticipation of better semiconductor supply next year has less to do with the industry and more to do with us redesigning out and engineering in semiconductors that we anticipate will have better supply. The last point there is that, you know, in our new categories, we're the entrant. We're growing. We're gaining share. There's a lot of white space for us, and we have the benefit of having lower volumes than others. So, you know, those product lines in general are not constrained, and I don't expect that they'll be constrained next year.

Thanks, guys.

Next question comes from the line of Mark Argento of Lake Street. Mark, your line is now open.

Hey, John, nice quarter. Just wanted to do, you made a statement in your prepared remarks about the diversification of the portfolio. I just wanted to understand that statement. So did you say 20% of the revenue are coming from non-consul companies? products at this point, Juergen? Could you just reiterate that or peel the onion a little?

Yeah, happy to. There's actually two interesting points on diversification of the business. We've launched 34 new products so far this year, 22 in the Rocket PC portfolio. The 34 would include the controllers, mics, and flight simulation. And Q3 is not quite 20% of revenue, but we're actually tracking to almost 20%. And as a result of the efforts here, we expect the year to be roughly 20% outside of our core council headset business. The other note I made on diversification relative to the investments we've made that are really paying off nicely is we have allocated some investment to Asia and specifically Japan and Korea. We haven't talked much about that in the past specifically because I frankly wanted the results to start to come in and start to be more meaningful to the business, and that's what's happening. So those businesses are well more than doubled now year over year and are tracking to additional good growth, which is further helping the diversification of the business in a geographic way.

I appreciate the additional color there. And then in terms of the – looking at some supply chain issues. I know you guys, one thing you've invested in as your supply chain over the last three or four years, given the volatility and demand profile that you guys have seen. How onerous is it to have to try to go in and re-engineer some of these headsets? How are you doing that quickly? You know, is that, you know, the normalization of kind of the component cycle, is that going to be a big extra benefit for you guys when that comes back around in terms of gross margin pickup? And then in terms of the ports, like, are you guys air shipping stuff at this point, or were you guys able to get stuff made a little earlier given the demand and the retailers buying earlier this year? Thanks.

Sure. So on the semiconductors, as I mentioned, wireless headsets are the primary culprit there, particularly Bluetooth-enabled headsets, which we have a very large franchise in with our Stealth 700s. Those are some of the same semiconductors that automotive guys are trying to get and willing to pay way more than anybody in our category can afford to pay. It is highly disruptive to re-engineer the products and swap out wireless semiconductors. It's almost like a new headset. But we have been very on the ball, including going back to late last year already. Think about that. This was well before the semiconductor supply constraints were well known, doing multiple things. The redesigns I talked about, also putting in orders and securing component availability far in advance, including at this point for many of the components all the way through 2022. So, you know, it's an industry-wide issue. And our goal, like every other time we faced complex operational dynamics, is just to perform and execute well through whatever those challenges are. And I think we have a good record of doing that in the past, and I think we're doing that on the semiconductor front as well. And then in terms of shipping, we have – done a great job at diversifying the manufacturing supply so that now more than half of our supply this year already is coming from outside of China. That's a multi-year effort. The problem is that the products still need to come into the U.S., and they still need to come into Europe, and particularly the U.S. is where all the bottlenecks are, and you can't do anything about that. You can't ship into some other – you can ship into different ports. We've been very active. The team is phenomenal there. at figuring out alternatives, including using air freight selectively where we have to. And yes, we do have to use more air freight. That is a key impact on the financials for holiday here. Because when the container vessels are taking four to six weeks longer, that's your alternative, and we're doing it. So on that front, I think the team is doing an excellent job identifying alternatives, both short-term to give us the best possible supply at the best cost, but also looking at longer-term efforts like we did when we diversified manufacturing outside of China. We're continuing to look at other opportunities longer-term there where if we do have these shipping issues, they're less of an impact.

Great. And just one quick one for John in terms of what was the number of shares that you had mentioned that you bought back and what's the remaining authorization?

So 169,000 shares were repurchased, and so the authorization is a total of $25 million. We've actually used about seven and a half, so there's roughly 16 million remaining, 16, 17 million remaining.

Great. Appreciate it. Good luck the rest of the way, guys.

Thanks, Mark. Thank you.

Next question comes from the line of Victoria James of DA Davidson. Victoria, your line is now open.

Thank you for taking my question. So I've got one and then a follow-up. So firstly, it looks like you started selling the microphone, so congratulations on the launch. How should we think about the gross margin for that product compared to the rest of your portfolio?

Hi, Victoria. Just to clarify, we launched both the Torch mic under the Rocket brand, which is integrated with the Rocket ecosystem, as well as the Neat microphones. Are you asking about the Neat microphone?

Yes. Sorry, I'm asking about the Neat microphone.

Okay. Yeah, sure. So actually, I guess the same answer would apply across the board. The product lines that we have are generally all in our mid-30s gross margin target band. There might be some exceptions where they're a bit lower because of logistics and freight costs and all that, but in normal environments, there isn't any significant deviation on these new categories from our target range.

Thank you. And then my follow-up would be with both the NEAT and the Torch microphones. How do you think about product expansion opportunities? beyond your current lineup now that you've launched both of those microphones?

Sure. So one key difference, by the way, because obviously they're microphones, one under the Rocket brand, one under the Neat brand, is that the Rocket microphone integrates into their PC ecosystem. So many gamers that also want to be streaming, they've got the Rocket keyboard, mouse, headset, They want to use a mic, and the advantage of the Torch microphone is that it integrates in terms of lighting and control software and all of that. Portfolio expansion in microphones underneath is really targeted at professional streamers and also just musicians and video conferencing, audio conferencing, and there are a number of additional microphones available coming in the first part of next year as part of that first tranche of Neat microphones. And then we will be continuing to expand the portfolio over time under the Neat brand.

Thank you.

Next question comes from the line of Angie Song of Oppenheimer. Angie, your line is now open.

Hi, thanks for taking my question, guys. This is Angie Thaw on behalf of Martin Yang. So there's been some speculation in the marketplace regarding the fact that Turtle Beach is pursuing a sale. And we've seen transactions for comps like SteelSeries and HyperX at robust valuations. So can you update us on your thoughts regarding potential private market and strategic interest in the company?

Hi, Angie. That's not something we're going to comment on. No company makes comments on strategic processes should anything be underway. So that's not something I'm going to comment on, other than obviously the statement we posted about Dunrail's interest in the company in late August.

Okay, great. Thank you.

Next question comes from the line of Jack Vanderaarde of Maxim Group. Jack, your line is now open.

Great. Guys, congrats on the solid results. I'm juggling multiple calls tonight, so I hope my questions aren't too redundant. But, Juergen, I'll start with a question. Just giving your comments on industry macro challenges and the related impact on overall Turtle Beach product sales. It sounds like these industry conditions are having less of an impact, maybe, if I heard this correctly, on your non-console products. Can you maybe just talk about specifically which of your non-console products – are the most and the least impacted in your view as it relates to this semiconductor shortage?

Sure. My comment was actually that in a very positive way, the non-council headset business is actually helping make up some of the constraints on the council headsets. In general, the way to think about the semiconductor issue impact on product is the more semiconductors that a product has, the more it's at risk of having supply disrupted or limited supply. Wireless headsets have a lot of semiconductors, including the wireless radios. So they're kind of at the top of the stack in terms of the products that we do. The next kind of level of product impact would be products that are powered because they have some semiconductors. And then the least impacted or products that are not impacted are products like passive headsets that don't have any power and don't have any wireless radios. That's a big part of our council headset portfolio, but given the fact that we are shipping more wireless headsets than anybody else by far, that's a category where our volumes are high, so to the extent that others can scrounge some supply of semiconductors It might cover a lot of their business, but it covers only a small amount of our business, given that our volumes in many cases are multiples of competitors in the category. So on our non-council headset business, the volumes that we do in keyboards and mice and microphones and all that are smaller, obviously, than our council headset business. So even the products that have semiconductors, are less impacted because smaller amounts of incremental supply can make up a bigger portion of our expected volume.

Great. That's really helpful, and I appreciate the clarity. And then just maybe another question on the initial preorder success with the new flight simulator products. This was one of the most preordered products, and I'm looking for context behind this statement, in Turtle Beach's history, and what are these other products that it's, that were also top performers or most successful from pre-orders?

Yeah, good question. I think actually the most exciting stat on Velocity 1 is the 21,000 people who signed up to be notified for pre-ordering and all that. The most pre-ordered part is in there because we had reasonable first shipment of supply. and all the supply got snapped up globally in an hour and actually in the major markets in under 15 minutes. So that's what made it one of the most pre-ordered products where the pre-order quantity was sold out the fastest. I couldn't even tell you, over the years we've had multiple products that have had pre-orders, and it's not normal for pre-orders to sell out, period. But we've had others that have sold out, like the Dr. Disrespect product, Those are limited quantity, limited edition. A couple of those sold out quite quickly. I think, you know, on the flight sim, it's just a strong testament to how enthusiastic that community is about the product. And indeed, that's the feedback we've gotten across the board from professional reviewers who have been looking at the product as well as a number of ex-pilots that we've given sample products to and all of that. I'm really excited about it.

Great. Well, I appreciate the color. I'm going to hop back in the queue. Thanks, Juergen. Thanks, Jack.

Currently, this concludes our question and answer session. I would now like to turn the call back over to Mr. Stark for closing remarks.

Thank you. We hope everybody is staying safe, and we look forward to speaking with our investors and analysts again when we talk in 2020. I hope everyone has a great holiday season. I really appreciate your interest in the company and wish you a very good day. Thank you very much.

This concludes today's conference call. You may disconnect your lines at this time.

Thank you for your participation. Have a great day.