Turtle Beach Corporation

Welcome to the Turtle Beach fourth quarter and full year 2022 conference call. My name is Victor, and I'll be your operator for today's call. At this time, all participants are in 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 Hansen. Following their prepared remarks, the management team will open up the call for any questions. As a reminder, the conference is being recorded. I will now turn the call over to Alex Thompson from Investor Relations. Alex, you may begin.

Thank you, Victor. On today's call, we will be referring to the press release filed this afternoon that details the company's fourth quarter and full year 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. While 2022 was an extremely challenging year from a macroeconomic and gaming market standpoint, we are pleased with our execution and continued product expansion throughout the year, which we believe sets us up well for improved results in 2023 and beyond. Our fourth quarter sales were $100.9 million, bringing our full year sales to 242.2 million and 249.3 million in constant currency. While we entered 2022 with more conservative market and revenue estimates than others, gaming accessories experienced a surprising drop in consumer purchasing, which then combined with a large retail inventory reduction, impacting sales for us and many others. Importantly, Q4 revenues were down less than 4% from a year ago in constant currency, and our sales and retail sell-through were well balanced. Each quarter during 2022 showed successive improvements in year-over-year net sales percent change, supporting our thesis that a market recovery has started. This, along with our 2023 product plans, provides the basis for our 10% revenue growth target for 2023. We reported adjusted EBITDA of 6 million for the fourth quarter of 2022 and a loss of 18.7 million for the full year 2022, compared to 36.6 million of adjusted EBITDA a year ago. The unprecedented combination of lower operating leverage amidst weak market-wide demand, extremely aggressive competitive discounting, and pandemic-driven excessive freight costs created an enormous headwinds on margins and earnings. Excessive freight costs alone impacted EBITDA by roughly $11 million. Fortunately, those costs have already significantly dropped in recent months. We proactively took steps starting last spring already to reduce our operating expenses with recurring expenses down 16% in Q4. We did this with a very careful eye to maintaining key programs that will bear fruit in 2023 and beyond. After generating over $190 million in EBITDA in the five years through 2021, we are intent on returning to positive EBITDA this year and getting back to our 10 plus percent EBITDA target as soon as possible. Despite the difficult environment, our strategy to continue our leadership and council headsets while diversifying into additional categories and platforms is progressing well. As the number of gamers continue to grow and multi-platform gaming and gaming accessories become the norm, This strategy enables us to best leverage the positive long-term trends underlying the gaming market and deliver on our growth aspirations. Here are some notable highlights for 2022 on our execution of that strategy. We continue to be the clear leader by far in council gaming headsets. Our US market share continued to exceed the next three competitors combined in Q4. We also launched our phenomenal high-end wireless Stealth 700 Max series with $199 MSRP and captured over 40% U.S. retail sales share of that premium price tier. In fact, despite the extremely promotional competitive environment, we increased our council headset ASPs by over 7% in 2022 per U.S. NPD. Without our increase, the competitive market ASPs were down over 4% for the year. Importantly, our wireless console headsets are intentionally and increasingly multiplatform, usable on consoles as well as on PCs and mobile devices. Interestingly, this may be why the Turtle Beach brand is now number three in brand loyalty in the US among hardcore PC gamers in the headset category. We are executing a multi-year product strategy to maintain our strong lead in console headsets, which is working well and will continue this year and in 2024. In addition to our best-selling console headsets, we continue to expand our GamePad controller lineup with the Design for Xbox React-R controller, which offers gamers many of the same features as our critically acclaimed Recon controller, Following bullish reviews of our Recon and React R controllers, we announced the Recon Cloud Hybrid Controller, which is perfect for mobile gamers playing on compatible Android devices and Xbox. We have additional products designed for iOS and other platforms coming soon. Our activities here reflect an expansion in controllers as well as expansion in the mobile and cloud gaming. Our gaming simulation accessories category continued to expand with the Velocity One rudder, pedals, stand, and flight stick launched in 2022. Incredibly, our first product, Velocity One Flight, launched back in November 2021, became the number one best-selling flight controller by dollar sales in the U.S. in its first full year per MPD. Our controller and simulation product categories continue to perform well, growing by well over 100% last year. We continue to strengthen our Rocket PC lineup. In the fourth quarter, we announced our Synmax Air Wireless 3D Headset, a premium, beautiful PC headset with our signature superior sound, comfort, and innovations that make this the most advanced PC headset we've ever produced. We also announced the availability of the stunning Vulcan 2 Max optical mechanical keyboard and Kone Air wireless mouse for PC gamers, which provide ultra-fast keystroke responses, added durability, and versatile characteristics that give gamers a winning edge. We recently took the number one share position with our PC keyboards in Germany. Additionally, we expanded our mobile gaming lineup by launching the Scout Air and SynBuds Air wireless earbuds, giving gamers access to our game-winning advantages when they're on the go. In the fourth quarter, we debuted our hyper-portable Atom controller, which is the latest addition to our expanding controller portfolio and is an easy way for mobile gamers to pick up and go without sacrificing quality controls. In these highlights, I've covered our increasingly diverse product portfolio spanning console, PC, and mobile gaming platforms. Importantly, roughly 25% of our revenues are now outside of our core console headset category, reflecting tremendous progress over the past years. Our long-term strategy to become a top provider of gaming accessories for all gamers on all platforms is tracking well. To achieve this goal, we leverage our clear leadership and counsel audio, reputation for high-quality, innovative products, strong brand, and superior retail and operational execution. Succeeding with this strategy allows us to best leverage the strong underlying trends across gaming overall and meet our long-term target of 10-plus percent revenue growth. In fact, combining gaming headsets, mice, and keyboards for both console and PC, we come in at the number three revenue share position in the US for 2022 per NPD. This also positions us well to capitalize on the additional opportunities created during the inevitable market turnaround as reflected in our revenue guidance to outgrow the market this year. Next, I'll turn it over to John to cover the financials in further detail, after which I'll provide additional comments about what we see for the market in our business in the new year. John?