Turtle Beach Corporation

Welcome to the Turtle Beach third quarter 2022 conference call. My name is Daniel, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press star 1-1 on your touchtone phone. Delivering today's prepared remarks are Chairman and Chief Executive Officer Juergen Stark and Chief Financial Officer John Hanson. Following their prepared remarks, the management team will open the call up for any questions. As a reminder, the conference is being recorded. I will now turn the call over to Alex Thompson. Alex, you may begin.

Thank you, Daniel. On today's call, we will be referring to the press release filed this afternoon that details the company's third quarter 2022 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 also may 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. 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. In the third quarter, we announced multiple new gaming and simulation products, made progress on our key strategic priorities, and executed to deliver financial and operational results that were in line with our expectations against very challenging market and operating conditions. We continue to believe that the gaming market is a great market to be a leader in, despite the difficult year driven by a slowdown in consumer demand, retail channel inventory reductions, heavy competitive discounting, a strong dollar, and continued global logistics and supply chain challenges, including high freight rates. While these challenges persist, we are seeing signs of sequential improvement in the gaming market. Per NPD, the third quarter console gaming headset market in the US was down 17% year over year. Comparing that to the second quarter of 2022, which was down 27% year over year, the third quarter showed some recovery. Additionally, the improved supply of new generation councils provided multiple months of double-digit growth in council hardware. Against this backdrop, for our third quarter 2022, we delivered net revenue of $51.3 million, up 24% sequentially from Q2, and an adjusted EBITDA loss of $6.9 million versus a loss of $12.1 million in Q2. As you may recall, we faced a difficult comp from a year ago as our third quarter 2021 was the second highest third quarter revenues in the company's history. As we discussed last quarter, in light of the poor macroeconomic conditions, we proactively and quickly took steps to reduce our operating expenses, which were down 16% on a recurring basis in Q3. In the third quarter of 2022, we continued our position as the number one console gaming headset provider, again leading the category by far. Our new wireless models have done very well as five of the six models in our latest Stealth series of products made the top 10 list of best-selling wireless headsets. We also announced the availability of the multi-platform Stealth 600 and Stealth 700 Gen 2 Max series, and the Stealth 600 Gen 2 USB gaming headset for PlayStation. The PlayStation models follow the successful launch of our Gen 2 Macs and USB models for Xbox earlier this year, where both gamers and reviewers raved about the products. In fact, since our new Stealth Wireless series launched, IGN, one of the world's leading gaming and entertainment publications, reviewed the Stealth 700 Gen 2 Max, and gave it IGN's Editor's Choice Award. IGN also named the 700 Gen 2 Max the best Xbox Series X and S gaming headset, as well as the best wireless Xbox headset. In our Rocket PC gaming portfolio, we've continued to expand our line of award-winning PC gaming mice, keyboards, and headsets, with new products that deliver the performance PC gamers desire and leverage RGB lighting to create the most beautiful desktop game for gamers available. In August, we announced the availability of the new Kone XP Air wireless customizable RGB gaming mouse. The Kone's expertly crafted ergonomics deliver supreme comfort with great text tech specs, and showcase our iMo technology to create a unique 3D RGB lighting effect on the mouse. For PC gaming keyboards, we expanded Rocket's iconic Vulcan line with two new models, the Vulcan 2 Mini and the Vulcan 2 Max. Both models introduced groundbreaking first-to-market features, including the world's first dual LED smart keys, plus new Titan II optical switches. Beyond their ridiculously fast responsiveness, the new Titan II switches showcase Rocket's IMO RGB lighting better than ever. The Vulcan II Max also comes with an innovative translucent wrist rest, which combined with the dual LED switches is stunning. In fact, the Vulcan II Max has been named the most beautiful gaming keyboard by multiple leading gaming publications. The Vulcan II Mini is is the compact version with a footprint 65% the size of a standard keyboard. Many keyboards are a rapidly growing segment, so we now have a great option for gamers wanting a keyboard in a smaller footprint. We also unveiled our flagship rocket PC headset, the SynMax Air, which delivers a premium wireless 3D audio experience perfect for gamers and streamers in need of high-quality audio with unique RGB-infused lighting. The SynMax Air combines decades of Turtle Beach's audio expertise and exclusive gaming audio features with Rocket's beautiful design. Great specs, meaningful innovations, and stunning design are the pillars of our Rocket portfolio, and I'm convinced that our expanded portfolio enables PC gamers to create gaming desktops that are as stunningly beautiful as they are functional. We've been taking everything we know about running the world's best-selling council headset business and putting that expertise into controllers. We continue to expand our controller family with additional products that offer game-winning controls and features at a variety of price points and for more systems. We added a new Arctic Camo colorway to the Recon controller line and also launched the Recon React R controller, which offers gamers many of the same features but at a more affordable price. The response to our first wave of Xbox and PC controllers continues to be very positive, and from this we have now launched our first cloud and mobile gaming controllers. The Recon Cloud Hybrid Controller, which takes the Recon Controller's excellent ergonomic shape and adds a unique phone clip and lag-free Bluetooth, so gamers on compatible Android devices can experience the same game-winning controls while gaming on the go. The Recon Cloud also works as a wired controller with Xbox and Windows PCs and offers gamers Turtle Beach exclusive audio features like superhuman hearing. Our second mobile product is the recently announced Atom Controller. The Atom is an ultra-portable mobile gaming controller with a unique, versatile two-piece design that fits in the Android phone. The two pieces magnetically clip together for compact travel. For the gaming simulation category, we launched the Velocity One Rudder, which perfectly complements the award-winning Velocity One Flight yoke and throttle quadrant and gives fans and enthusiasts the ultimate modern simulation control setup for large and small planes of every type. For gamers that want to fly fighter jets and space simulation, We announced the Velocity One Flight Stick, which combines the latest technologies with an incredible array of buttons and controls and customizable lighting to take flight sticks into the future. Leveraging our global business as a leading gaming hardware provider, the successful expansion and diversification of our portfolio over the past years from console gaming headsets into a broad array of console and PC gaming accessories is enabling us to continue to expand revenues outside of our market-leading council headset business to what we expect will be over 30% of revenues in Q4. I'll return with more commentary on the remainder of the year and thoughts on 2023 after John takes us through the financials. John?