Turtle Beach Corporation

Welcome to Turtle Beach Q125 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Jacques Cornet, Investor Relations. Thank you, Mr. Cornet. You may begin.

Thank you, operator. On today's call, we'll be referring to the press release filed this afternoon that details the company's first quarter 2025 results, which is available on the press releases pages of the company's investor relations website, 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 events and presentation section of the company's investor relations 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. Hosting the call today are Chris Kern, Chief Executive Officer, and Mark Weinswig, Chief Financial Officer. With that, I'll turn the call over to Chris. Chris?

Thanks, Jacques. Good afternoon, everyone, and welcome to our first quarter 2025 earnings call. Our Q1 results and strong year-on-year growth reflect the focused execution of our entire organization in the face of external challenges. In the first quarter and going forward, we are realizing the combined benefits of our March 2024 acquisition of PDP, and continued progress on our margin improvement initiatives. First quarter revenue grew by 14% year-over-year to $63.9 million, and adjusted EBITDA increased to $4.1 million, up from $1.4 million a year ago. Our accretive M&A execution and expanded portfolio of next-generation gaming accessories have resulted in growth for both our revenue and profitability. Notably, we grew revenue despite a 16% year-over-year decline in the U.S. gaming accessories markets in Q1, according to Cercana, and our gross margins improved substantially by nearly 470 basis points year-on-year to 36.6%. Our continued improvements in business performance are driven by several key factors. First, this quarter included a full quarter of PDP contribution compared to just two weeks in the prior year. We also lowered our promotional spend as a percentage of revenue for the first quarter on the continued strength of our next generation headset product introductions in 2024. This disciplined promotional approach has improved our profitability profile. Finally, those same next generation models, including our top selling stealth wireless headsets, are platformed on the latest chipsets that provide significant performance and cost benefits over our previous generation of products. While our business performance for Q1 reflects the comprehensive improvements in our fundamentals, the broader economic environment has shifted significantly, introducing some lack of visibility for the full year. The evolving external landscape, particularly the challenges posed by tariffs, has added complexities that we must and will navigate successfully. We remain committed to addressing these challenges head on, and we are confident we will manage through them with minimal long-term effects on our positive trajectory and growth. To start the year, we proactively increased our inventory levels in anticipation of possible tariffs, which will provide near-term benefits to margins and has enabled us to accelerate our adjustments when tariffs were recently announced. With the quick and decisive actions of our team, less than 10% of our US supply will be produced in China after Q1. For the rest of 2025, products for the US market will be primarily produced in Vietnam. And within this dynamic environment, we are assessing further supply chain diversification. Our production capabilities in China are primarily dedicated to producing goods for non-U.S. shipments that are not impacted by the tariffs. As part of our comprehensive mitigation activities, we are also evaluating pricing across all our product lines and selectively making necessary adjustments. In addition to the tariff issues, it was noted last week that the Grand Theft Auto VI release has been moved out to the spring of 2026, which we expect will delay the anticipated increased demand for new accessories. However, even without the launch of GTA 6 in 2025, we project that market comps to 2024 will progressively improve throughout the year, accelerated by growth drivers like the introduction of the Nintendo Switch 2 and a full slate of new games. Pre-orders on Switch 2 were widely reported to have sold out in hours, a proof point for the resiliency of gaming customers, even in these economic conditions. While full-year gaming accessories markets may remain down for 2025, we expect to return to robust growth in 2026 and beyond, fueled by the strong underlying fundamentals of a growing gamer base and expanding engagement with next-generation systems and game releases. With the expected benefit of ongoing demand for Switch to accessories and a spring 2026 launch for GTA 6 and other exciting titles like Battlefield, we anticipate a return to growth for the gaming accessories space. To that end, we're focusing on the key growth drivers within our control. From a cost and OPEX perspective, we are mitigating the impacts these external changes will have on our business. While this is a dynamic situation, our updated guidance considers all of these known factors. Our focus remains on expanding our industry-leading gaming accessories portfolio to propel our success over the long run and capitalize on industry growth drivers, including the upcoming launch of the Nintendo Switch 2. This past week, we announced new products set to roll out this spring, including a new wave of officially licensed Nintendo Switch headsets and controllers, as well as new accessories designed specifically for Xbox. We remain dedicated to expanding our market leadership and enhancing value for our shareholders with sustainable growth and long-term success. Another demonstration of this commitment was our execution of the largest share repurchase program in our history over the last year, repurchasing nearly $30 million worth of stock. During the first quarter, we were limited in our ability to maintain the same pace we had over the past three quarters due to covenants on our debt. Mark will touch on this more. Share repurchases will continue to be a part of our capital allocation plans as they underscore our unwavering confidence in Turtle Beach's future and our dedication to returning capital to shareholders while making strategic investments to grow the company. As such, we've announced today that the company has authorized a new share repurchase program of up to $75 million over the next two years. Moving forward, we will maintain a sharp focus on capital allocation ensuring that our financial strategies align with our goal of delivering sustained value and growth. Mark will now take us through the financials. Mark?