Greetings, and welcome to the Turtle Beach Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Jacques Cornet with ICR. Please go ahead.

Thank you, operator. On today's call, we'll be referring to the press release filed this afternoon that details the company's fourth quarter and year-end 2024 results. The release is available on the Press Releases page of the company's Investor Relations website, corp.turtlebeach.com. There, you'll also find the latest earnings presentation that supplements the information discussed on today's call. And finally, a recording of the call will be available on the Events and Presentations 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, we'll 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 press release and presentation. Hosting the call today are Crist Keirn, Chief Executive Officer; and Mark Weinswig, Chief Financial Officer. With that, I'll turn the call over to Cris.

Thanks, Jacques. Good afternoon, everyone, and welcome to our fourth quarter and year-end 2024 earnings call. I'm thrilled to report that we ended a record-breaking 2024 with a record-breaking quarter. We achieved our highest ever quarterly results in both revenue and adjusted EBITDA, underscoring the strength and resilience of our strategy, execution, and business model. This strong performance was driven by several key factors. Our acquisition of PDP has been a game changer, significantly expanding our product portfolio and market reach and infusing the company with more amazing talent and expertise. PDP delivered an immediate positive impact on our performance at the time of the acquisition and the completion of our integration activities in Q4 continued to drive results. For the fourth quarter, revenue was $146.1 million, up 46.8% compared to the same quarter last year, driven primarily by incremental sales and retail distribution for PDP as well as low single-digit percentage growth for Turtle Beach-branded products. We were able to reduce our promotional spend as a percentage of revenue for the fourth quarter and full year on the strength of our next-generation product launches in 2024, and we're pleased to see ASP increases as a result. This promotional approach also contributed to improved profitability that was achieved for the quarter and full year. Adjusted EBITDA for the fourth quarter was $35.7 million, a significant increase from $14 million in the same period last year. The substantial improvement with our adjusted EBITDA growing at a faster pace than our revenue reflects our ongoing focus to enhance efficiency and streamline our processes. As one example, we expect to realize more than $13 million in annual cost synergies from the PDP acquisition, surpassing our initial expectations of $10 million to $12 million. These results underscore our commitment to driving profitability and operational excellence as we continue to optimize our expanded portfolio and organization. To that point, our relentless focus on operational excellence has yielded substantial improvements across the company. From supply chain optimization to cost management, our efforts have enhanced efficiency and profitability while positioning us for sustained growth. These efforts include preparations and mitigations for the impact of any new tariffs. 2024 was truly a transformational year for Turtle Beach. We have built a solid foundation for future expansion, and I'm confident that we are well positioned to capitalize on the opportunities ahead. With that, let's dive into a few takeaways from 2024 and the fourth quarter. We're pleased to see that, as we expected, the full year 2024 growth of 6% for U.S. gaming accessories outpaced the overall gaming market, which was slightly down per Circana data. Turtle Beach-branded gaming headsets' revenue share in the U.S. increased 270 basis points in the fourth quarter compared to the previous quarter, supported by the launch of our new Stealth 700 Gen 3 premium wireless headset built on our next-generation platform design. For the controllers and game pads category, Circana data shows that our revenue growth in the U.S. significantly outpaced the market with a 25% increase in retail sales for 2024 while the market grew about 2.5%. Notably, our premium Victrix pro BFG and Turtle Beach Stealth Ultra controllers ranked as the second and third best-selling third-party game pads during the year. Additionally, our RiFFMASTER wireless Cantar controllers, perfect for Fortnite Festival, continued dominating the music controller category with the number one share in the U.S. Over the course of the year, our strong cash generation enabled us to continue to return value to our shareholders. For the full year, we executed nearly $28 million in share buybacks at an average price of $15.39 per share. These repurchases were the largest in our history and underscore our confidence in Turtle Beach's long-term growth prospects and our dedication to enhancing shareholder value. As we move 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. Before turning the call over, I'd like to take a moment to acknowledge some important updates in our leadership team. First, I'm delighted to welcome Mark Weinswig as our new Chief Financial Officer. Mark brings a wealth of experience and a proven track record of financial leadership. We're confident that he will be instrumental in driving our financial strategy and supporting our growth initiatives. Welcome aboard, Mark. At the same time, I'd like to extend our gratitude to John Hanson as he embarks on retirement after 11 years of dedicated service to Turtle Beach. John's contributions have been invaluable in steering the company through many significant milestones and challenges. We want to thank John for his commitment and leadership and wish him all the best in his well-deserved retirement. Mark will now take us through the financials in more detail and 2025 guidance.

Good afternoon, everyone, and thank you, Cris, for the warm welcome. I am truly honored to join Turtle Beach as the new Chief Financial Officer. I'm excited to work alongside such a talented and dedicated team and look forward to contributing to its continued success. I would also like to extend my gratitude to John for his guidance and direction during this transition period. As Cris mentioned, our fourth quarter 2024 revenue was at an all-time record of $146 million, reflecting incremental revenue from the PDP business, our next-generation products, and solid execution. In addition to the strong revenue performance, our gross margin for the fourth quarter improved to 37%, a 500 basis point improvement compared to 32% from the year-ago period. Included in the cost of sales for the most recent quarter is a $3.4 million charge related to a loss of inventory in transit. Operating expenses of $30.6 million were 21% of revenue compared to 24% in the prior year, reflecting the improved leverage of the business from the higher revenue base. We continue to invest in new products and product line extensions to expand our product portfolio and grow our addressable market. Most importantly, our fourth quarter adjusted EBITDA improved to an all-time quarterly record of $35.7 million compared to $14 million in the year-ago period. For the full year, adjusted EBITDA was $56.4 million compared to $6.5 million in the prior year. The significant increase in adjusted EBITDA was driven by higher revenues, combined with the cost containment actions taken providing strong operating leverage. Now turning to the balance sheet. At year-end, net debt was $85 million, comprised of $98 million of outstanding debt and $13 million of cash. The debt balance is comprised of $49 million outstanding under our revolving credit line and $49 million on the term loan. One important item to note is that just this week, we nearly paid off the entire revolving line balance due to strong cash receipts. During the fourth quarter, we repurchased approximately 162,000 shares at an average price of $15 per share, returning $2.4 million to shareholders through our share repurchase program. For the full year, we repurchased a total of $27.8 million. Our current share repurchase program expires in April. In line with our continued commitment to return capital to shareholders, we are opportunistically assessing various potential share repurchase strategies. Turning to guidance. We are expecting full year 2025 revenue to be in the range of $395 million to $405 million. This represents 7% growth at the midpoint compared to 2024. We expect our full year 2025 adjusted EBITDA to be in the range of $68 million to $72 million. The midpoint for 2025 represents a greater than 200 basis point improvement in adjusted EBITDA margin and 24% growth compared to $56 million of EBITDA in 2024. Both of these will be record levels for the company. As we navigate recent volatility in the retail market, we want to provide additional context on expected seasonality. First, it's important to note that we typically see the majority of our revenues in the second half of the year driven by the holiday season. We believe the second half of this year will see an even larger portion of revenues than usual due to the anticipated launch of new games and console platforms. As such, we expect the first quarter will account for approximately 15% to 16% of full year revenues. Finally, as Cris noted, we are actively monitoring the changing tariff environment. We expect this to be a dynamic situation for the time being. Our full year 2025 guidance includes the expected net impact of the tariffs currently in place. We expect to provide further clarity in future calls. Now I'll turn the call back over to Cris for additional comments.

Thanks, Mark. We have never been more excited about the future of Turtle Beach, considering the record quarter we delivered in Q4 and the new baseline of performance for the company in 2025 and beyond. We've discussed how our strategic efforts could put us in a position to exceed previous highs seen for the company during the Battle Royale surge in 2018 and the pandemic era in 2020 and 2021. Q4 demonstrated that our new run rates and scale have already surpassed those previous milestones, and we're energized to expand on that success with a record 2025. Our steadfast dedication to innovation, exceptional execution, and growth continues to distinguish Turtle Beach as a frontrunner in the gaming accessories market. We remain committed to driving expansion in complementary product categories and executing on accretive M&A to drive additional scale in our business. As always, our amazing team at Turtle Beach is the driving force behind our results. And I want to thank them for their contributions to a transformative and record year. We remain confident in our strategy and focused on delivering value for our shareholders and gaming customers. And with that, let's turn to Q&A.

Thank you. We will now begin the question-and-answer session. Our first question is from Sean McGowan with ROTH Capital Partners. Please go ahead with your question.

Hi, guys. Thank you. Cris, could you possibly put any kind of a number around what you expect the impact to be from tariffs? Is it simply a reduction in sales? Is it an increase in cost? Is it both?

It's a great question, Sean. We've dedicated a significant amount of time to preparing for tariffs, considering our mitigation strategies and anticipating future developments. If tariffs were to be lifted tomorrow and not reinstated, we could see an EBITDA benefit in the range of several million dollars. However, if new tariffs are introduced, it's a very fluid situation, and estimating the potential impact is challenging. We are closely monitoring this and I am confident in our team's efforts regarding mitigation and readiness for any new tariffs that may arise. Nonetheless, the uncertainty surrounding future tariffs could affect our results.

Okay. Thank you. Maybe, Mark, for you, a question on the margin. If we add back that inventory charge. I assume that's all in COGS. So does that imply that gross margin in the quarter would have been 39%. And maybe more importantly, is that a level we should expect at this kind of level of revenue going forward?

Thank you for the question, Sean. In today's release, we've included our financial outlook, which details our expectations for gross margins moving forward. We are now targeting mid-to-high 30s in gross margin percentage for the full year. Our gross margin will largely depend on our revenues, so we anticipate it will be more weighted towards the end of the year, but we are optimistic about the growth in our margin potential.

Okay. Let me finish with a question about buybacks. So if you look back, you've contemplated things like Dutch. You've done some buybacks I think the upper range, if I remember correctly on the Dutch was around 15. So should we view this current price as an attractive one? And would you consider doing something kind of a big event like that?

Yeah, this is something that we're constantly assessing. We are committed to looking at how we can return capital to shareholders, and we're going to be opportunistic about opportunities in that range. Clearly, we believe that there's a lot of value here that is not being recognized in the current price. So we do feel that the stock is extremely attractive at the pricing that it is. So that factors into our decisions, clearly.

Very helpful. Thank you.

Thanks, Sean.

Our next question is from Jack Vander Aarde with Maxim Group.

Hey, guys. Great. Welcome to Mark, and congrats to John again. Thanks for taking the questions. So Cris, maybe for you, can you just touch on your revenue outlook in terms of where you see, I guess, by product category? And then also, where you have the greatest visibility or maybe the least visibility in terms of geographical regions? Thanks.

Sure. Jack, thanks for the question. Yes, looking at the outlook, we are taking a conservative approach based on what we've seen so far in 2025. We expected a stronger market as we approached the holiday season, but we experienced a decline in the markets in December compared to the previous year. Typically, Q4 influences Q1 performance, and we are observing that trend in Q1. As mentioned in our release, the U.S. market for gaming accessories was significantly down in January. We anticipate that the first half of 2025 will be somewhat softer, but we are very optimistic about the second half of the year. Two key factors contribute to this optimism: Nintendo has announced that the Nintendo Switch 2 will launch at some point in 2025, which will be a positive development for the gaming industry, and GTA VI is slated for release this fall. These factors will greatly impact the gaming accessories market in the latter half of the year, and our overall revenue projections reflect this dynamic. Regarding your second question about geographies and categories, Turtle Beach has been generating additional revenue in areas adjacent to gaming headsets over the past couple of years, especially following the PDP acquisition. We believe that more than a third of our revenues will come from non-headset categories in 2025, and this percentage is likely to continue increasing, potentially reaching 40% to 50% in the future. Geographically, approximately 70% of our revenue comes from the U.S., about 25% from the UK and Europe, and Asia contributes in single digits.

I appreciate that. I have a follow-up regarding the adjusted EBITDA guidance. The EBITDA guidance for 2025 looks very strong, especially considering the revenue outlook. I also appreciate the comments about the gross margins, which are significantly better than in previous years. It seems these figures take into account the tariff effects. Could you provide some insight on the operating expense line? How does it compare seasonally to last year? Are costs decreasing? Are there more non-cash add-backs? Any information on this would be helpful.

We anticipate continuing to gain leverage on our operating expenses, which has been a significant advantage for us. With the acquisition and the synergies we've realized, we've seen a substantial improvement in our operating expense leverage. This year, we expect that trend to continue as we fully realize the $13 million in synergies for the entire year of 2025. We believe there are ongoing opportunities to streamline our processes and find additional efficiencies. Therefore, from a seasonal perspective, it will resemble a typical run rate year but at a much lower level than what we've experienced in the past.

Okay, great. I appreciate the color there. I’ll hop back in the queue. Thanks, guys.

Thanks, Jack.

Our next question is from Martin Yang with Oppenheimer.

Hi, thank you for taking the question. So first, can you remind us your sensitivity to the currency changes? What happened in the U.S. do continues to weaken or whether a currency movement was factored into your annual guidance? Thank you.

Yeah. Thank you for the question. Right now, we are seeing some benefits in terms of just the strengthening market for us on the FX side. We have taken into account potential changes. We do not do any hedging or any type of transactions like that. But we have a sense of natural hedge in terms of the amount of revenues that we have in different currencies. So at this point, we would say that it's something that we are looking at closely, but we feel very confident with our outlook for 2025 based on the results so far in the first three months of the year.

The second question is about your perspective on a revenue outlook that is weighted towards the second half of the year. Are there historical reference points that inform this outlook, or is there a specific year that provides a useful comparison? Alternatively, is this based on discussions with retail customers? Any context that led you to your second half outlook would be appreciated. Thank you.

That's a great question, Martin. It's a crucial factor in our thinking about the year. When we look at comparable years, it seems similar to 2019, which reflects our pre-pandemic normal seasonality, except that Q1 is expected to be lower due to current market conditions. We anticipate a rebound in Q3 and Q4. The reasons for this outlook come from feedback from our retail partners and insights from various players in the gaming industry observing the current market trends. There's considerable excitement about the second half of the year, primarily influenced by the anticipated launch of Switch 2 and the expected release of GTA VI. The anticipation surrounding GTA VI is significant, and we know that major releases tend to boost our accessory sales; we expect this impact to be even stronger with GTA VI's launch. So, those are the primary factors driving our perspective. I would suggest looking at 2019 with the modifications for Q1 as a more accurate representation for this year.

Got it, thank you, guys. That's it for me.

Thanks, Martin.

Thank you. Our next question is from Sean McGowan with ROTH Capital Partners.

Hi. I just wanted to circle back on your comment again about following up on that seasonality comment. Could you just remind us, did you say 15% to 16% based on the midpoint of that range?

Yeah. Yeah, that's true.

Okay. Just want to clarify that. Thank you.

Thanks, Sean.

There are no further questions at this time. I'd like to hand the floor back over to Cris Keirn for any closing comments.

Thank you all for joining our call today and your interest in the company, and have a great day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.